InsideCounsel » January 2008
Foreign Feuds
International arbitration is usually the only way to resolve cross-border contract disputes.
When your company has a contract issue overseas, you’re in a whole different ballgame. And you’d better be ready to step up to the plate. Because for resolving cross-border contract disputes, international arbitration is really the only game in town—whether that town is Shanghai, Stockholm, Mexico City or Mumbai—and the rules of the game are different from those of both U.S. courts and arbitral panels.
“International arbitration is not a perfect process,” says A. Stephens Clay, partner in Kilpatrick Stockton. “You have to work around its shortcomings. But there isn’t any substitute that is satisfactory, and it’s a waste of time to try to find another way.”
Arbitration trumps litigation for overseas contract claims for two reasons. First, your dispute will be heard in a neutral forum, instead of in the other party’s home court where you may start with an insurmountable disadvantage and face a corrupt judiciary or a backlog that stymies resolution of the matter for a decade.
Second, with arbitration you have an excellent shot at getting an award enforced—not the case when a contract dispute goes to court in many countries around the world. Consider, too, that you will need to enforce the award in the country where the other party has assets, not necessarily the country where the dispute occurs. Under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention, 142 countries agree to enforce international arbitration awards. No comparable treaty governs foreign court judgments.
“The key thing is that you want to have the opportunity to collect a judgment against the other party,” says Mark Katz, general counsel of Singapore-based First Oriental Holdings Corp. “We go to arbitration because it’s better than the local courts, and awards can be enforced anywhere in the world.”
Crafting Clauses
A successful conclusion to the arbitration game requires the general counsel’s attention long before any dispute arises. GCs need to ensure that every international contract contains a carefully drafted arbitration clause. The major arbitral organizations offer standard clauses, but arbitration experts advise customizing the provisions to fit your business objectives and accommodate the unique circumstances of your agreement.
“There is no such thing as a one-size-fits-all arbitration clause,” says Christopher Tahbaz, partner in Debevoise & Plimpton. “A well-drafted clause requires some attention, but it is well worth the effort.”
Among the variables you should define: the venue for the arbitration; the arbitration institution, if any, that will administer it; the law that governs the contract; the language in which the proceedings will be conducted; and the number of arbitrators who will decide the matter.
Problems arise when general counsel aren’t involved early enough to understand the parties involved and the cultural and legal issues that might surface. Too often the parties add arbitration clauses at the conclusion of negotiations, when, in the euphoria surrounding the contract completion, everyone is oblivious to the land mines that might lie ahead. As a result they overlook details that come back to haunt the company.
“Almost no one pays sufficient attention at the front end, when everyone is a friend,” says Mark Baker, head of the international arbitration practice at Fulbright & Jaworski. “But if you get it wrong in your arbitration agreement, you are on a very expensive odyssey.”
Most likely, getting it right will mean consulting outside counsel experienced in international arbitration in the part of the world where you are operating. That’s because designating a venue is one of the most challenging parts of drafting an arbitration clause—but also one of the most important. Not only do you want to ensure the country chosen is a signatory to the New York Convention, but you also want a country whose legal system is supportive of arbitration. In some countries local courts will vacate an arbitration award or interfere with the arbitration process.
