When dealing with major commercial contracts, particularly those involving cross border transactions, it will often be the case that an entity or person entering into the contract resides overseas or has assets in a foreign jurisdiction.
In these circumstances it is necessary to consider:
- Whether the jurisdiction selected for disputes is appropriate;
- Whether a judgment from the court in the selected jurisdiction will be enforceable in the jurisdiction where the foreign person or entity’s assets are located.
Ideally, major commercial contracts will be supported by security that is readily accessible in Australia, such as a bank guarantee from an Australian financial institution or real property held by the contracting party.
It may be the case, however, that security or additional security is sought from a person or entity that has assets held in a foreign jurisdiction.
In such a circumstance, it is imperative that an international arbitration clause be inserted so as to provide that any dispute with the contracting party, or if relevant, the guarantor, be submitted to arbitration.
This is because the jurisdiction in which the assets are held may not recognise a judgement of a superior court of Australia.
Courtesy of international conventions, most notably the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), many jurisdictions recognise a foreign arbitral award, subject to limited exceptions that vary between jurisdictions.
In order to be valid and enforceable, an arbitration clause needs to achieve the following as a minimum:
- specify arbitration as a mandatory means of dispute resolution;
- define the scope of disputes that may be referred to arbitration and
- select the governing rules for the arbitration.
An arbitration clause should also specify the seat of arbitration, the language, and the number of arbitrators that will preside over any dispute.
An example of a commonly used arbitration clause is:
“Any and all disputes arising out of or in connection with this Deed between the Grantor and the Guarantor shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. The parties agree that the seat of arbitration shall be Singapore and that the arbitration shall be conducted in English.”
While this is a commonly used mechanism, the laws of the jurisdiction in which the subject assets are held, the nature of the contract, and the disputes to be referred, will inevitably determine the scope of the clause, and the most appropriate seat and rules to be applied between the parties.
Therefore, careful consideration and advice on these issues should be given before deciding the form and jurisdiction of the clause that is to govern the dispute, and the types of disputes to which the clause will apply.