After all the work you’ve channelled into securing an international partner, you don’t want your relationship to sour over a disagreement. Adeline Teoh provides a checklist for exporters on how to prevent and resolve international disputes.
Making a decision to export is a huge step. But, even after researching the market and finding the right partner, companies need to be vigilant about the future of the trade relationship. While deal making may be the initial priority, dispute resolution should come a close second.
The key to a smooth relationship begins even before you sign on the dotted line. Geoff Farnsworth, partner and trade and commodity law specialist at Norton White, says he applies the ‘smell test’ to any contract he assesses. “I’ll get calls from people who have been offered a particular commodity way below the market price. As soon as I look at these documents, I can tell there’s something wrong. Terms are used inappropriately, things are missing that should be in a standard contract—it just doesn’t stack up,” he explains. “The old maxim is ‘if something seems too good to be true, it probably is’ and that applies to international trade as much as anything else.”
He adds that it’s often the simple things that are overlooked. Having everything in writing, for example, is essential. “That might sound obvious, but a high proportion of the disputes that come across my desk involve inadequate or non-existent paperwork. People think they have things covered or they’re just cutting corners or they’re relying on the good grace of their relationship.”
Writing a dispute resolution clause into a contract should become standard practice. The clause usually states the steps that both parties will take in the event of a dispute. Often this involves the method of resolution and may include the preferred jurisdiction in which this is to take place.
The best way to make sure you have everything covered is to invest in expertise by having someone more experienced review the contract, advises Farnsworth. “If you invest a bit of money in getting a decent contract drawn up, you can use it again and again. The more business you do the more quickly it pays for itself just in terms of getting the documentation right to start with.”
Another investment he recommends is getting to know who you’re dealing with. “If it’s going to be part of an ongoing trade relationship, meet the person,” he suggests. “The expense of the trip over there may be cheap compared with any trouble you might get into down the track.”
Setting up an international partnership involves several steps, so businesses should use the process to make sure everything happens as it should. “You usually sort out finance things like open letters of credit or review letters of credit, or some people require you to put up bank guarantees, performance bonds, that sort of thing,” says Farnsworth. “There are any number of opportunities for things to go pear-shaped before the goods are delivered. It’s usually a case of someone not doing what they are expected to do within the time they were expected to do it.”
This is also a good reason to develop a relationship with a more experienced party, like an adviser, he adds. “Being able to phone someone and say ‘this has happened or hasn’t happened—is that usual, is that good, is that bad?’ Do that soon. If the time limit has passed on something or someone stops returning your phone calls, speak to someone soon to work out what, if anything, can or should be done.”
Timing can be the most crucial part of dispute resolution, agrees Jim Harrowell, partner at law firm Hunt & Hunt. His advice is to call a lawyer early. “Early intervention and advice is absolutely critical in saving cost and time. The more time that goes by, the less serious the people you’re dealing with think you are. In some places there are strict procedural requirements and delay could mean losing your rights.”
Early intervention may even help to settle disputes. “Often, if it’s a dispute over trying to recover money, a well-drafted letter from a lawyer will actually produce a result if it happens promptly,” he says.
Harrowell also acknowledges the role that proximity plays in legalities. “In an international dispute it’s a wake-up call for the person if they get a letter in their own jurisdiction. We’re doing some stuff for an English company at the moment and it was a big wake-up call when the debtor realised there was someone in Australia on the job and it wasn’t just a case of getting letters from 13,000 kilometres away.” Consider whether your company could employ the same technique by having a legal contact in the country of trade.
If you haven’t managed to avoid a dispute, there are some simple ways to save time and money. “Get your facts together rather than spending money on your attorney trying to get the facts out of you,” advises Harrowell. “If you have a contract, get a copy of the contract, summarise the dispute—how it happened and what it’s about. If you don’t have a contract, summarise why you have a claim.”
Unless covered by your dispute resolution clause, litigation is inadvisable because of the expense involved and the difficulties in sorting out jurisdictions. A judgement in one country is not usually binding in another, making a dispute far more complex than it should be. To get the best out of litigation, parties should identify a neutral jurisdiction in their dispute resolution clause and recognise that country’s laws as binding. However, both Farnsworth and Harrowell nominate arbitration as the dispute resolution method of choice.
“Most countries are part of the New York Convention, a treaty where a large number of countries have agreed to recognise arbitration laws—and more so than recognising judgements,” says Harrowell. “If you have an argument with China, you can register the arbitration decisions, this is called an award, in China or in Australia or anywhere where you believe the party you won the case against has assets.”
Recovery of assets is the main reasons companies should put time and effort into a dispute, notes Harrowell. “A judgement is only a piece of paper, it’s only worthwhile if there are some assets that you can proceed against to get that piece of paper converted into cash. You don’t want to go into litigation or arbitration with people on an international scale just for a moral victory.”
The worst-case scenario is, if you lose the case and end up paying costs, which Farnsworth says is rare. Harrowell says it’s possible to prevent this by knowing when to pursue a case and knowing when to settle. “There are probably four key issues in how far you go with a dispute: the amount involved, whether your reputation is at stake, the money you pay to a lawyer and the economic cost of diverting people from their normal production to a dispute.”
There are a few common pitfalls that companies should be aware of when entering an export contract. Harrowell warns of jurisdictions that deal in languages other than English. “You have to be careful with any jurisdiction where you can’t actually speak to the party on the other side because of language difficulties. It can be a mistake to rely on the other party’s interpreter. You should get your own interpreter to have the discussion for you,” he suggests.
Another concern relates to whether a country has sufficient legal infrastructure to protect your rights. But it seems the simplest
advice is the best—Farnsworth says a good contract, plus insurance, should mitigate most of the risk. As they say, prevention is better than cure and dispute resolution, it seems, is no different.
The International Chamber of Commerce (ICC) sets worldwide rules and standards for international trade. It provides a number of dispute resolution services, including amicable dispute resolution (ADR) and arbitration via the International Court of Arbitration (ICC Court), the leading institution for the resolution of international commercial disputes.
The ICC Court provides assistance even before a dispute arises, proposing that parties use a standard clause in their contracts, providing for dispute resolution under the ICC Rules of Arbitration, says Cheng-Yee Khong, director of ICC Arbitration and ADR in Asia. “Other elements the parties can agree on in their arbitration clause include the law governing the contract, the number of arbitrators, place of arbitration and the language of arbitration.”
Many arbitrations suffer from inadequate or poorly drafted dispute resolution clauses, which cause delay in the arbitration process. “At worst this means that the clause is unworkable and this impedes the whole process. The parties have no choice but to go to court, which is what they were trying to avoid in the first place,” warns Khong. “The moral of the story is be careful with how you draft the dispute resolution clause as it could have a major impact once a dispute arises.”
Khong recommends that parties consider resolving the dispute amicably. “Amicable settlements may be cheaper, not just in terms of time and money but this also increases the chances of the parties continuing their business relationship afterwards.” However, she does note that ADR relies entirely on the goodwill of the parties if a dispute arises, which makes chances of success less certain.
Parties choose the ICC Court because of its international status, with members drawn from 87 countries. “The ICC is a completely international institution that has never been linked to any government and it is entirely self-funded,” Khong explains. “It offers a truly global, independent service that administers cases efficiently and effectively whatever the nationality of the parties.”
Unlike litigation, parties have some say in the process, such as the composition of the tribunal. “Parties can select arbitrators who are specialised in the subject matter of the dispute and who understand the parties’ concerns with respect to time and costs,” says Khong. “In contrast, parties in court proceedings can’t choose their judges.”
ICC arbitration also has a transparent fee structure based on the amount in dispute. Khong says this encourages efficient handling of the case and gives parties a rough idea of how much the arbitration will cost.
Another major advantage of arbitration over litigation is the confidential nature of the proceedings. “I think most parties go for arbitration because of the confidentiality aspect,” says Khong. “If you had a dispute heard by a court [of law], it would be in an open court.” Arbitration is preferable for companies who wish to protect their brand or reputation from public scrutiny or to prevent leakage of trade secrets. Additionally, awards handed down by the arbitrators as a general rule are enforceable as final judgments without appeal.
Further details on the ICC’s dispute resolution services can be found online at www.iccwbo.org/court. Cheng-Yee Khong can be reached at email@example.com.