International trade brings with it the potential for cross-border disputes, the resolution of which can be challenging. This article seeks to highlight some of the key issues that contracting parties should be aware of.
What is the governing law of your agreement?
Any agreement should always contain a clearly worded governing law and jurisdiction clause and expressly provide for the method of dispute resolution (for example, litigation in local courts or international arbitration). The purpose of such a clause is to seek to avoid any surprises or difficulties surrounding the resolution of disputes that may arise. A well drafted governing law clause will save a lot of cost and time when enforcing your rights.
Does your contract do what it says it does?
While you may think that you have one document which sets down all your rights and obligations, do not forget that general terms and conditions may be incorporated into your agreement or that you may, inadvertently, have agreed to amend the contract (e.g. over the phone or in an email). Before you start trying to enforce your rights, ensure you are fully aware of your rights and obligations.
How “friendly” is the legal regime where your counterparty is based? Certain jurisdictions are considered more “safe” in the context of your transaction . For example, there are some where rights may be more easily enforced; this will have a significant impact on the time and cost that is incurred. Equally, there are “difficult” jurisdictions, in which there may be a risk of political bias or where litigation is slow, costly and uncertain. The approaches of different jurisdictions to issues such as pre-claim procedure, disclosure and injunctive relief may have a significant impact on your ability to enforce your rights.
How solvent is your counterparty?
In the current economic climate, the solvency of your counterparty is of utmost importance. If you fear your counterparty may become insolvent and they are in breach of contract, explore whether they have assets (e.g. property and bank accounts) against which you could secure your claim and ensure you pursue your security action quickly. If your counterparty has already had insolvency proceedings commenced against it, you will need to comply with local insolvency laws which may make it more difficult to enforce your rights.
How important is your commercial relationship?
While your immediate reaction in cases of enforcement of rights may be to get lawyers involved, think carefully about whether there is an alternative way to resolve the dispute. The value of long-term commercial relationships cannot be underestimated. If possible and appropriate, attempt some form of commercial discussion or mediation prior to commencing legal action.