QUESTION ONE – What is your best practice approach when advising General Counsel, to ensure dispute resolution clauses are to their real advantage and do not obstruct enforcement proceedings?
Think who, what, where, when and how.
Who: Who is on the other side? Are they an existing vendor or a new business partner? A supplier or a buyer? Are they a well-heeled company or a small business? Are they foreign or domestic? Are they state-owned or controlled or are they private? The answers to these questions will drive the decision-making with respect to the crafting of a dispute resolution clause. For example, in the international arena, if the other side is a state-owned or controlled company, then they will no doubt have their own protocols that they will likely refuse to deviate from with respect to a dispute resolution clause. It will be very much, “my way or the highway.” Typically, the very best you can hope for in such situations is to persuade your counterpart to arbitrate in a neutral forum.
What: What type of transaction is this? Is it going to be an entirely domestic one where you have the comfort of knowing that your laws will apply? If it is an international transaction, does it involve the sale of goods and are there treaties that need to be addressed with respect to how payments will be structured and whose laws will apply in the event a dispute arises?
Where: Where do you want to resolve a dispute should one arise? It is here that considerations of enforcement proceedings come into play. Specifically, assuming your side wins the dispute, how do you recover? Location of assets plays a critical role in determining where outside counsel should be choosing to seat the resolution of any dispute. For example, if you are negotiating with a foreign state-owned enterprise that does not sell anything outside its own borders, precautions will need to be built into the contract to protect you in the event of a dispute.
When: When do you as General Counsel want to think about and address dispute resolution issues during the course of contract negotiations? Litigation and arbitration practitioners are accustomed to getting last minute calls in the late evening hours on the day the final deal is being struck. This is a particularly bad way to get forum selection and dispute resolution clauses crafted in any meaningful fashion. Consulting outside disputes counsel early in the course of the negotiations is not just useful, it is imperative. This is particularly important when undertaking international transactions. Specifically, if parties are contemplating using another country’s laws to interpret the deal terms or are considering the pros and cons of arbitration or litigation in one or more countries, it would be important to consult with local counsel in those countries to determine the legal and strategic risks to be borne by agreeing to particular terms.
How: How do you persuade the other side to agree to your desired approach in negotiating dispute resolution clauses? And how will any dispute get resolved? Should it be by mediation, arbitration, litigation, or a combination of more than one? This is not a cookie-cutter analysis. One size does not fit all. The “how” decision requires lawyers to get out their proverbial toolbox and figure out what will work best given the specifics of the deal.
QUESTION TWO – Are there any particular rules around funding litigation in your jurisdiction that General Counsel should be aware of?
Litigation and arbitration third-party funding is permitted in the United States. There are many options and companies to choose from. Outside counsel should be used to guide decisions as to which funder to use. General counsel should note that there is a move afoot in Congress to require disclosure during litigation of any such funding obtained by any party. It is difficult at this point to assess what level of support such legislation will garner in the currently constituted House and Senate.
QUESTION THREE – What techniques are typically used by international counterparties in your experience when attempting to gain the initiative during a dispute? How important are civil procedural rules?
Everyone is always looking to gain an advantage in any dispute. There are certain ways, based upon the terms of dispute resolution clauses, that such approaches can prove profitable for the clever litigant. For example, where an arbitration clause requires mediation as a condition precedent to the commencement of arbitration, difficulties often arise for the antsy counter-party seeking to get immediate relief from an arbitral panel. In the United States, courts have routinely held that conditions precedent to arbitration will be strictly enforced and parties will be required to perform contractually mandated obligations prior to moving the dispute into arbitration. For this reason, parties are well advised not to require mediation prior to the commencement of legal action in the first instance.
Another way that parties seek to gain an advantage during a dispute is through the preemptive filing in a jurisdiction with unfavourable laws that will burden their opposition. If there is no enforceable forum selection or mandatory dispute resolution clause in the contract, then all bets are off with respect to who gets to file first and where. Controlling venue and how the dispute is to be resolved – through arbitration or litigation – provides the best way to forestall preemptive filings in a foreign jurisdiction. Nevertheless, even with those requirements in place, parties at times look to circumvent them either by resort to vague and ambiguous language in the clauses or simply out of bravado. In short, don’t think for a minute that just because you have a forum selection clause in place that the party sitting across the table from you is going to by necessity file in that particular jurisdiction should a dispute arise.
Finally, what we often see in international disputes is the attempt by parties to do an end-run around arbitration by resort to litigation in the “home country.” Again, it is imperative that corporate counsel has immediate access to sophisticated local counsel in the foreign jurisdiction of its counterpart for on-the-spot advice on issues that arise during the course of contentious proceedings.
TOP TIPS FOR: Successful negotiations
The most likely way to resolve a dispute after the commencement of contentious proceedings is through the mediation process. Lawyers in many jurisdictions in the United States have become accustomed to being required by courts to go to mediation during litigation. In my experience, well over 80 per cent of all disputes get resolved at some point in mediation. Mediation has only lately emerged as a favoured form of dispute resolution in international practice.
Three tips with respect to mediation:
Use a mediator who is professionally trained in the mediation process. While this isn’t a science, there are aspects to negotiations over disputes that can be learned, and a professionally trained mediator typically is more helpful in getting to yes than one who is not.
Preference should be given to mediators who are skilled, active disputes practitioners, as opposed to former judges or other types of professionals. By choosing a mediator who is a skilled disputes practitioner, you bring into the room a third party who is savvy as to
the pitfalls and advantages that each party enjoys during litigation or arbitration.
Try, try again. If at first, you fail in mediation, do not hesitate to go back later in the proceedings. A few years ago, I handled a case involving a partnership dispute where the parties had become bitter enemies. Prior to my involvement with the case, the parties
had twice tried to resolve it through the mediation process. That had failed. During our final pre-trial hearings, the court ordered the parties to mediation once more. This time we chose a seasoned practitioner to serve as the mediator. And although it took two separate sessions to effectuate a resolution of the case, we succeeded in settling a matter that by all outward appearances was not settleable.
