Cross-border contracts and dispute resolution...

Many retailers based in the UK are already operating in an increasingly international business environment. Be that through contracts with those based abroad for sourcing and distributing products, or by expanding horizons beyond the UK to find new markets to exploit.

Research has shown however that while there is appetite to trade with those based outside of the jurisdiction, many retailers are held back from doing so by concerns ranging from issues such as not understanding what the requirements of foreign contract law are, whether foreign laws need to apply in the first place, and how to deal with cross-border disputes if they do arise.

It is true that any transaction with a cross border element involves different legal risks, and that the potential for disputes in foreign jurisdictions is considerable, especially when dealing with a party in an emerging economy for example. This should not stop businesses seeking to contract with those based internationally however, especially if the move could bring growth and profitability to an existing offering. There are strategies that can be put in place that will reduce the risk of a dispute when contracting internationally, and aid in dealing with a dispute should one arise.

Drafting the contract

Spending time at the outset to ensure that agreements are effectively drafted will reduce the risk of a costly and time consuming dispute at a later stage. Entering into an agreement which represents exactly what both parties have agreed gives contractual clarity and helps to close the door on misunderstandings during it’s life.

During the drafting stage it should be kept in mind that if a dispute does arise the contract might be brought before a court for examination and interpretation. The basis of this interpretation may be different depending on the court in question’s jurisdiction. In common law jurisdictions such as England and Wales (along with North America and Australasia) the court will apply the ordinary meaning to a contract, and will look at pre-contractual discussions in evidence, only if they relate to the specific facts in question. In civil law jurisdictions (Europe, much of Africa and most of South America) courts tend to be more willing to look behind the contract to ensure that pre-contractual discussions between the parties are given effect. With this in mind it is important to keep clear records of discussions held during the negotiation of any contract with a cross-border element.

Jurisdiction

A jurisdiction clause should be included in all agreements, and should provide for a binding governing law and jurisdiction, and expressly provide for the method of dispute resolution (i.e. litigation in local courts or international arbitration).  If there is no effective jurisdiction clause it can lead to increased costs and delay in proceedings and provide much uncertainty.

When considering which jurisdiction will apply (this may be the home territory of one of the contracting parties, or it may be a neutral forum), it is important to consider the following:

• Convenience - It may well be easier to litigate in your home jurisdiction.
• Efficiency of Courts - The operation of judicial systems can vary wildly between jurisdictions. You will most likely want to choose a jurisdiction which has an efficient judicial system where the range of remedies, both interim and final, are good. The jurisdiction in which a dispute is litigated can have a significant impact on the cost, certainty, and outcome of a case.
• Enforcement - A judgment could be commercially worthless if it is incapable of being effectively enforced. Enforceability will depend largely on the location of the defendant’s assets and whether there are reciprocal agreements for enforcement in place between the country where judgment is given, and the country where enforcement is required.

When disputes arise

Cross-border disputes raise a number of specialist issues. Instructing lawyers who have a good knowledge of the applicable law and of the idiosyncrasies of the local courts which will be handling the dispute, means that you will not be left at a disadvantage.

Just as important as having lawyers with local legal knowledge, is having a legal team who are experienced in running cross-border disputes and who can assist in the formulation of a commercial litigation strategy, ensuring that costs, time and information are managed efficiently.

Trading in emerging economies

Trading in, and contracting with businesses in emerging markets can be attractive as these countries often exhibit the fastest economic growth. Brazil, Russia, India and China are perhaps the most explored emerging economies but UK retailers have made moves into many other global markets at many levels of their business operation.

Retailers may be willing to forego the certainty more “tested” jurisdictions in terms of dispute resolution can bring, in return for a commercially beneficial deal.  They must be aware however, that they are potentially opening themselves to the risk of dealing with bias, or the unknown, in a jurisdiction such as Russia or China, where historically the courts are less open.

Of course, cross-border contracts should not be discouraged where there are commercial gains to be made and providing for the law and jurisdiction of a foreign and/or emerging economy in an agreement should not be discounted completely. The key to success with cross-border contracts, and to avoiding or managing potential litigation, is to seek proper advice at the outset. By identifying potential risks in advance, drafting a well considered agreement, and having the backing of an experienced legal team should a cross-border dispute arise, the benefits should outweigh the risks.

Related Pages

• Dispute Resolution Team