John Friedemann of Friedemann Golfberg LLP takes part in Negotiating Effective Contracts & Dealing with Disputes

Published 17 April 2019 by Friedemann Goldberg LLP

QUESTION ONE - Which techniques are typically used by international counterparties in your experience to overcome challenges in the negotiation process?

When counterparties are in different jurisdictions, certain issues are sure to arise. Jurisdiction, venue, and choice of law come up most of the time.

Venue and jurisdiction are closely related, but not the same thing. Jurisdiction is the authority agreed to by the parties for the resolution of disputes. Jurisdiction in contract negotiations refers to an agreement regarding which court or arbitrator will be empowered to resolve a dispute. Jurisdiction may be exclusive or shared. Jurisdiction may also denote the geographical area in which the authority is granted by the parties to seek justice. A court without jurisdiction cannot be given jurisdiction by contracting parties. Jurisdiction is based on authority.

Venue is the location where a case is heard. In the United States, venue for a dispute is either a county or a district in the United States. Venue deals with the locality of a lawsuit and decides the place a lawsuit may be filed.

The normal arguments over jurisdiction and venue might turn on which party is coming to the other party. The party is approached by an out of state suiter should be able to argue that the suiter should agree to jurisdiction and venue in the location to which they have come in the solicitation of the business opportunity. That party is more likely to have multi-jurisdiction experience and representation, but may also have greater negotiation leverage.

Practical considerations might help resolve the question. Where is there better and faster access to justice? Where are the courts resolving disputes in months and where will disputes drag on for years? Where are the laws more fully settled by a long and broad commercial litigation history? People think of New York and California as litigious states, but a commercial dispute will likely be resolved under well-reasoned and settled precedent.

Conflict over these issues can be overcome in different ways. The parties might decide to say nothing about jurisdiction or venue and allow the issues to be resolved by the courts if an issue arises. The first to file a lawsuit will usually win the jurisdiction battle—an inappropriate incentive to pull the trigger early, perhaps. The parties might agree that a party initiating litigation must do so in the other party’s jurisdiction. This sets the opposite incentive.

Generally, parties cannot agree to litigate in court in a neutral jurisdiction because courts of that location may lack jurisdiction. But the parties might agree to arbitration of disputes privately in a neutral forum.

Choice of law is the election to have the law of one jurisdiction govern the interpretation of an agreement. Generally, each side will seek to have the laws of its own jurisdiction control. Often this is just the preference of the attorneys involved who are only licensed and fully informed about the laws of their home state. The choice of law does not need to match the jurisdictional choice of the parties, but a judge may be reluctant to apply the law of a foreign jurisdiction with which he or she is unfamiliar. Even so, the parties might choose the law of a major commercial area as the law of their contracts, such as New York or California. For corporate governance type issues, the law of Delaware is often chosen.

QUESTION TWO - Is there anything special or peculiar about commercial contract law in your country that General Counsel should be aware of?

Advance jury waivers are unenforceable in California. But California has a unique and effective alternative to traditional litigation or arbitration—Judicial Reference. Under a California statute which spells out the rules, parties can agree by contract that disputes will be resolved by a retired judge who will conduct a private trial without a jury. The trial is efficiently conducted and decided under the laws of California and is dramatically expedited. The parties employ the judge and negotiate with the judge on questions of timing and scope. The judge must answer to the local presiding judge and the judgment in the case is subject to appeal in the California Courts of Appeal. Judicial Reference allows parties to avoid slow, costly, and unpredictable jury trials. Judicial Reference also avoids dictatorial arbitrators answerable to no one and free to ignore the law without oversight or appeal.

Recently, the California Supreme Court decided the case of Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 3 Cal.5th 744 (2017). That case changed the rules regarding the circumstances where legal fees may be recovered in a contract dispute. The language used in an agreement must now be drafted carefully with this case in mind if the parties intend that the successful party is to recover the money spent in litigation, even where the successful party is defending itself in a lawsuit.

QUESTION THREE - What recent legislative developments in your jurisdiction affect commonly drawn up contracts such as articles of incorporation, shareholder agreements or executive remuneration? Can you provide any relevant case law to illustrate this?

IIn Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018), the California Supreme Court rejected the longstanding Borello test for determining whether workers should be classified as employees or independent contractors. This is a worker-friendly result that some predict will topple the independent contractor labour market. The standard adopted by the Court presumes that all workers are employees—not contractors—unless the heavy burden of the newly adopted ‘ABC test’ can be met.

The Court’s decision was broadly framed and characterised the misclassification of independent contractors as harmful and unfair to workers, honest competitors, and the public as a whole. Under the ABC test, a worker will be deemed an employee, unless the employer proves:
(A) that the worker is free from the control and direction of the employer in the performance of the work, both under the contract for the performance of the work and in fact;
(B) that the worker performs work outside the usual course of the employer’s business; and
(C) that the worker customarily engages in an independently established trade, occupation, or business of the same nature as the work performed.

All three requirements must be met to rebut the presumption that a worker is an employee and has been properly classified as an independent contractor.

TOP TIPS FOR: Successful negotiations

Define victory before negotiations start. Force decision-makers to discuss possible outcomes, good and bad, and identify the range of outcomes which will be considered a win. Good negotiators are goal-oriented. Define your goals at the start.

Research, research, research. Before you start negotiating, learn everything there is to learn about the subject, the parties, possible outside influences, deadlines, and objectives. Some people think that negotiation is all about technique—the art of deal-making. It is really all about the substance of the deal.

Is there a tail that will wag the dog? Is there an issue that seems minor but will have more weight than reasonably expected? Example: People sell businesses and often become employees, at least during the transition. The terms of that employment seem minor compared to the sale of the business, but that tail will wag the dog every time. Plan for this.