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An Empirical Study of Dispute Resolution Clauses in International Supply Contracts

Posted by on Monday, May 20, 2019 in Articles, Vol. 52 No. 2, Volume 52, Volumes.

Authors: John Coyle & Christopher Drahozal

PDF: An Empirical Study of Dispute Resolution Clauses in International Supply Contracts

 

Abstract

International transactions present unique legal risks. When a contract touches several different nations, a party may not know where it will be called upon to defend a lawsuit or, alternatively, which nation’s law will be applied to resolve that dispute. To mitigate these risks, parties will often write dispute resolution provisions into their contracts. Arbitration clauses and forum selection clauses help to reduce uncertainty relating to the forum. Choice-of-law clauses help to reduce uncertainty as to the governing law. Over the past few decades, such provisions have become commonplace in international contracting. And yet there exist vanishingly few empirical studies exploring the use of these provisions in international commercial agreements.

This Article aspires to fill this gap. Drawing upon a hand- collected dataset of 157 international supply agreements, it describes the ways in which large corporations seek to mitigate their risk in international transactions via dispute resolution clauses. The Article first provides a thorough descriptive account of choice-of-law clauses in these agreements to illustrate the myriad ways these clauses do and do not mitigate legal risk. It then undertakes the same project with respect to arbitration clauses and forum selection clauses, paying careful attention to the ways in which actual practice deviates from the model forms promulgated by arbitration groups, to show how these clauses mitigate forum risk.

While the primary objective of the Article is descriptive rather than normative—it seeks to describe the contents of agreements that have heretofore been largely ignored by legal scholars—it also discusses the normative implications of its descriptive account for three groups. First, legal scholars may draw upon this account to better understand how contract boilerplate evolves and changes over time. Second, judges called upon to interpret a contract may utilize this account to determine whether a phrase is typically included in clauses of a given type. Third, and finally, contract drafters may glean useful insights into how to craft dispute resolution provisions that maximize the reduction in uncertainty in international contracting.

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