Negotiating Effective Contracts & Dealing with Disputes

Multi-national corporations will always have a wide range of different contracts in placeat any one time, be they with contractors, suppliers, vendors, clients or intellectual property licensors, among other parties.

Drawing up and negotiating those contracts effectively will, inevitably involve in-house counsel, particularly the more complex
contracts requiring bespoke wording and specific clauses.

Many experts within commercial contract law recommend the five Ws approach (what, where, when, who and why), as a method to help clarify and crystallise aims and objectives before a contract negotiation begins.

This makes sense, however, the sheer variety of agreements in play will often make this approach difficult to implement, even before adding in cultural and regulatory differences. Most multinational operations will be dealing with entities in a number of different countries and negotiating around a range of different legislative frameworks.

Sometimes the way forward will be clear, while at other times specialist skills will be required. This could be due to the uniqueness of the contract, or perhaps some peculiarity of culture or law that might affect negotiations.

Highlighting negotiation as an example, it is clear that culture plays an important role in the methods that prove most effective. In Anglo Saxon countries, showing an emotion, such as anger, can be a useful strategy to force a counterparty to concede ground, while in Latin countries it is likely to be less effective.

In negotiation with Chinese counterparties, it is useful to know that delay is a standard negotiating tactic. The thinking being, that the closer the other party gets to deadline, the more likely they will be to compromise. With regard to legislation, it is impossible for in-house counsel to remain abreast of revised contract law in all the jurisdictions in which their corporation has a presence. This is particularly true if the contract in question involves a highly specialised area, such as environmental law.

Taking California for example, a recent ruling changed the circumstances under which legal fees may be recovered in a contract dispute. The language used in an agreement must now be drafted carefully 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.

Regardless of the apparent success of contract negotiations, there is a reasonable chance that some form of dispute might occur between the parties involved. It is the responsibility of in-house lawyers to ensure that their company is adequately protected in the event of a dispute.

This involves ensuring the presence of an effective dispute resolution clause within the contract, that stipulates crucial things like location of enforcement proceedings and the use of arbitration and mediation. A clear recommendation is to identify a recognised arbitral institution with transparent and internationally understood rules. One such body, The International Chamber of Commerce (ICC), set new records for arbitration in 2017, with 512 awards approved, 1,488 arbitrators appointed and parties from 142 countries registering dispute cases.

Consulting outside disputes counsel early in the course of the negotiations in important, particularly when undertaking international transactions. If in-house counsel is contemplating using another country’s laws to interpret the deal terms, or considering the pros and cons of arbitration or litigation in one or more countries, it is important to engage local counsel in those countries to determine the legal and strategic risks to be borne by agreeing to particular terms.

As an example, counterparties will often seek to gain an advantage during a dispute through pre-emptive filing in a jurisdiction with unfavourable laws, that they know will burden their opposition. If there is no enforceable forum selection or mandatory dispute resolution clause in the contract, then all bets are off with respect to who gets to file first and where.

Read the rest of the document and find expert advice by Urs Breitsprecher on the contract negotiation and dispute resolution processes by downloading the pdf: https://aquan.com/wp-content/uploads/2019/04/IR-Global-Negotiating-Effective-Contracts-Dealing-with-Disputes.pdf