Disputes between parties to a contract are common and can be resolved in different ways.
Court rules encourage parties to consider alternative methods of resolving their dispute before resorting to Court action. Mediation is a flexible process − which parties to a dispute can agree to use. Mediation does not result in a binding determination of the dispute, but in our experience can often result in a settlement. If settlement terms are agreed, those terms are then enforceable as a contract, ultimately enforceable by the Court.
Parties to a contract can also agree to submit their dispute to arbitration, as an alternative to Court proceedings. Although these processes are different, both produce awards or judgments which are final and binding on the parties involved. These may then need to be enforced in the event that a party does not comply with the award or Court Order, for example by obtaining an order seizing assets.
The number of commercial contracts that include an international element or parties from different countries is ever increasing and so considering the practical implications of where a judgment or award might need to be enforced has become an ever more important issue. For instance, a judgment obtained in the English Courts has little worth if the debtor has all of its assets in an overseas country that does not recognise English judgments and will therefore not enforce it. In this situation the creditor may be prevented from recovering the debtor’s assets, despite its judgment, and so may not be able to obtain the sums due.
There are many international agreements governing cross-border enforcement of judgments and/or arbitral awards. However, some countries have no such agreements in place. It is therefore important to think carefully about the governing law of the contract and which courts should have jurisdiction should disputes arise, before signing the contract. It is also important to consider whether arbitration provisions are appropriate.
There has been a recent change to the regulations governing enforcement of judgments between European Member States.
The recast Brussels Regulation which applies to matters after 10 January 2015 seeks to simplify the position when dealing with the enforcement of judgments within the European Union (EU) member states. Under the new regulation, judgments which have been obtained in one member state will be automatically recognised in the other member states and should now be enforceable without the need for a party to obtain a “declaration of enforceability” (which can be time consuming and was previously a procedural requirement). As a result, the process of enforcement within EU countries should be faster. This can be of real importance where the party you are seeking to enforce against might be seeking to dispose of its assets or put them out of reach.
lnvention although the recast Brussels Regulation improves the situation in relation to parties domiciled within the EU, other mechanisms need to be considered in relation to parties who are not. One possibility is the inclusion of an arbitration clause. Arbitration is increasingly replacing litigation in dispute resolution for international commercial contracts. This is predominantly because of the success of the New York Convention on Arbitral Awards, which has around 149 countries as signatories ranging from the United Kingdom to Australia to Peru to Botswana.
The New York Convention (“Convention”) allows arbitration awards in a signatory country to, in principle, be enforced in any other country who is a party to the Convention. This can be an effective method of enforcing against a party domiciled in another country when the countries are not both party to an international agreement allowing the reciprocal enforcement of Court Judgments between them.
From the very outset, parties to international contracts should carefully consider the governing law applicable to their contracts and whether the judgment/award of the Court or Arbitrator selected to determine disputes is appropriate and likely to be enforceable in the place where assets are situated. This requires extensive knowledge of the legal relationship between countries and the willingness of certain jurisdictions to enforce judgments or awards granted in other jurisdictions. If not thoroughly examined it could lead to a situation where one party cannot recover satisfactory compensation when the other party is in breach of contract.
For more information please contact Karl Taylor, Associate.