There are a number of steps that can be enshrined in a contract to mitigate the risk of disputes in commercial agreements. There are a range of clauses that limit the escalation of a dispute and control how and where it is dealt with, should a conflict arise. It is especially important to consider such clauses when the transaction involves a cross-border element.
Whilst cross-border transactions present new market opportunities, there is an inevitable heightened risk involving a range of challenges. In order to prevent being hindered by unexpected hurdles, instructing a multi-jurisdictional lawyer who can advise on all the regulatory variables as well as the cultural and legal expectations.
Vincenzo Senatore, senior partner, points out "a multi-jurisdictional lawyer has all the information required at their fingertips and is aware of perceptions, variations, cultural expectations as well as any crucial legal aspects that may be divergent and in need of interpretation to meet the objectives of both parties." Vincenzo further commented "the contract defines every aspect of the transaction. Most of international commercial leaders site regulatory differences in cross-border issues as a critical risk. A trusted advisor with a precise understanding of all aspects of risk invoking international elements/scenarios will be invaluable in protecting their clients from future litigation"
There are a number of clauses that should be incorporated in a contract that will shape how a dispute, should one arise, is managed. By including a comprehensive range of clauses relating to a potential dispute serves to limit unexpected eventualities that could be detrimental. For example, litigation initiated in a far flung jurisdiction that does not have the objectivity and fair-mindedness of a more discerning jurisdiction could result in an adverse judgment.
Notice of Dispute Clause
In the event of a dispute arising during the course of an ongoing or one-off business transaction the inclusion of a notice of dispute clause will clarify to both parties that the issue is contentious and will need steps to be taken to bring about resolution. The clause should state that written notice should be provided by one party to the other party specifying the nature of the dispute. The person designated as representative, to negotiate the dispute, the procedure with which it may be resolved and the level of compensation sought.
A notice of dispute clause prevents one party taking unexpected pre-emptive action which puts the other party at a disadvantage.
All disputes have the potential to damage the reputation of the participants, particularly if the dispute becomes extremely acrimonious. A confidentiality clause which clearly requires all parties to keep details of the dispute and any resolution confidential.
The clause may be tailored to the circumstances and the nature of the transaction and should apply to all parties that have any conduct in the business activities related to the conduct of the transaction, even if they are not directly involved in the negotiations related to the dispute.
Alternative Dispute Resolution Clauses
The various forms of dispute resolution held in private with an independent impartial trained third party.
Mediation is a voluntary form of alternative dispute resolution (ADR) attempts to resolve a conflict. Mediation is a less formal procedure than that of arbitration or litigation, however the principle is similar, reaching agreement with the assistance of a neutral third party.
The process is confidential, it is more flexible, cheaper and less formal than arbitration. The parties involved have the opportunity of separately stating their position as they see it. The mediator will then attempt to facilitate a discussion involving all parties. The mediator will explore all possible options and attempt to develop a solution acceptable to all parties. Once agreement has been reached an agreement can be drawn up and signed by the relevant parties. The decision then can be reduced in a Tomlin Order in court, becoming binding between parties.
Arbitration is the preferred method of dispute resolution, as opposed to litigation. Arbitration takes place in a private environment under the control of the parties involved; rather than in a court where the public, including the press, have the right to be admitted. In a court the matter in hand will be under the sole control of a judge whose decision is final. Arbitration also has more flexibility than the court.
The trained impartial arbitrator can be selected by one or both parties involved from one of the established sources. Every effort will be made to resolve the matter amicably between the parties. A mutually agreed decision is likely to be adhered to by both parties and often results in the business relationship being salvaged and the parties are able to continue with their lucrative business association.
Another advantage is that if the dispute is acrimonious and does not reflect well on one or even both parties, this information remains private.
Tiered Dispute Resolution Clause
A tiered dispute resolution clause allows the parties to take a series of steps towards a successful outcome in a dispute. Allowing the parties to have more than one attempt at direct negotiation to arrive at a mutually agreement conclusion. The clause should be drafted carefully setting out a clear timetable for each step.
A jurisdiction clause enables the choice of jurisdiction to be defined in the event of a dispute and brings certainty as to where a dispute will be litigated. This is a most important aspect to a cross-border contract as jurisdictions vary considerably across the globe. Without such a clause, in the event of a dispute one party may institute proceedings in a jurisdiction that may be unfavourable to the opposing party, or may be in a distant or hard to access location causing additional costs to be added to the dispute, as not all courts have the capacity for remote hearings.
It is strongly advised that a dispute is heard in a jurisdiction that is efficient and has effective an enforcement regime. England & Wales is an extremely popular jurisdiction, as it is perceived to be unbiased and incorruptible.
The options broadly available when drafting a jurisdiction clause are:
- Exclusive jurisdiction clause – where both parties agree on the choice of jurisdiction
- Each party submits to a non-exclusive jurisdiction – a jurisdiction is chosen by one party notwithstanding the other party's option to litigate in another jurisdiction
- One party, if they are the claimant, accepts the jurisdiction of one court and the other party, if they are the defendant, accepts the jurisdiction of another court.
Such a clause must be well-drafted with sufficient scope to ensure that there is not possible
Limitation/Exclusion of Liability
The two clauses have different objectives. A limitation of liability clause is drafted to apply to particular circumstances that may arise as a result of consequential loss of profits for a variety of reasons, often industry specific. A cap can be set to limit the sums payable in compensation the event of a breach of contract.
An exclusion of liability completely absolves a part from any punitive consequences that a failure to fulfil the contract may attract.
Force Majeure Clause
A force Majeure clause removes liability for unexpected catastrophes that cannot be avoided that prevent the parties from fulfilling their contractual obligations. Generally, the unforeseeable event is connected to natural disasters or inadvertent calamities created by human beings. The criteria for invoking the clause hinges on what can be reasonably deemed to be unforeseeable, particularly in light of the increasing ability to predict natural disasters.
An issue such as a pandemic, outbreak of warfare or cyber-attack cannot be predicted and cannot be avoided. Whilst the insurance costs attached to invoking such a clause can be high, the unprecedented global floods, the eruption of conflicts and of course the pandemic Covid 19 have demonstrated that momentous disasters can flare up completely unexpectedly.
Governing Law Clause
A governing law clause applies to the contract and the law under which is it drawn up. This determines the credence, construction and validity that gives effect to the contract. In the case of a cross-border agreement the party that drafts the agreement will generally dictate the governing law. A multi-jurisdictional lawyer is well equipped to assist their client in making this decision.
If no choice of governing law is made, legal action is likely to take place in the country of domicile of the defendant.
The commercial lawyers at Giambrone & Partners have a wealth of knowledge and experience across a number of jurisdictions and can guide and advise in complex cross-border agreements.
Vincenzo Senatore Vincenzo has several years of post-qualification experience in Civil and Common law. Vincenzo has broad experience of UK and international cross-border transactions across a variety of industry sectors as well as international corporate and criminal law. Vincenzo is a formidable litigator with a demonstrable history of bringing successful transactions to successful conclusions, providing legal support to partners and delivering strategic advice to diverse clientele.
Vincenzo has worked in the USA where, during his fellowship at the prestigious Stanford Center for Biomedical and Ethics (Stanford University), specialised in intellectual property related to human embryonic stem cells. His research was published in the prestigious peer reviewed scientific journal Nature Biotech. During that time, he passed the first test (MPRE) to become a California attorney and also became Notary Public for the State of California.Vincenzo's professional activities have encompassed, amongst others, being on the scientific organiser committee for the Association Internationale des Jeunes Avocats for conferences on Anglo-American Law and as speaker in webinars, lectures and conferences organised by the British Chamber of Commerce (IT), CUA, Columbus School of Law, Washington DC (USA), Lockey Stem Cells Building Research, Stanford University (USA), SKKU School of Business (Republic of Korea), and the Naples Bar Associations, as expert in Civil and Common law arena
He has recently been appointed to the CUA, Columbus School of Law's Alumni Council, Washington, DC. The prestigious Alumni Council forms the governing body of Catholic Law Alumni Association, formed in 2013 to endorse and advance the values, objectives, and well-being of The Catholic University of America and Columbus School of Law. He is also member of the International Criminal Court Bar Association, the Law Society of England and Wales, the Naples Bar Association, and of the International Academy of Financial Consumers (Korea) where he is also editorial member.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.