A version of this article previously appeared on www.realbusiness.co.uk
‘You will observe the Rules of Battle, of course?’ the White Knight remarked, putting on his helmet too. ‘I always do’, said the Red Knight, and they began banging away at each other with such fury that Alice got behind a tree to be out of the way of the blows.
Disputes in business are an unpleasant fact of life. Litigation is a bruising process, likely to impact significantly on cash flow and, just as importantly, on management time. But there are a number of decisions that can be taken at the outset of a business relationship that may increase the level of control an organisation exerts over the dispute resolution process, ensuring so far as possible that litigation proceeds on the organisation’s own terms.
Whose Rules of Battle? Who picks the Battlefield?
A choice of law clause determines which country’s laws should apply to a contract and the resolution of disputes in relation to it. A jurisdiction clause determines where the dispute should be heard. If the parties to a contract are all located in England and the subject matter of the contract relates to business conducted in England, then even without express choice of law and jurisdiction clauses it is a safe bet that the contract will be governed by English law and the English courts will accept jurisdiction over the dispute. But what about a joint venture between English and French companies, run through a JV company incorporated in Ireland, for the purpose of building a hotel in South Africa? Which country’s law governs the joint venture agreement? Where should disputes be heard? Questions of choice of law and jurisdiction should be resolved at the outset, to avoid the risk of first having to litigate about where the litigation should take place.
What type of Battle?
A further important choice for the parties is whether to litigate through national courts, or to resolve the dispute through arbitration. The increasing appeal of international arbitration lies in its perceived neutrality, confidentiality, and flexibility. Although the UK has an international reputation for upholding the rule of law, and for the quality and integrity of its judiciary, a foreign contract party may be unwilling to concede home advantage. The reference of disputes to an internationally recognised arbitral body may be the solution. Arbitration is a confidential process, whereas court litigation is conducted in public. The parties can tailor the process to their own requirements, or agree to adopt arbitral rules most appropriate to the nature of the contract.
Jaw Jaw not War War?
As disputes progress, either through the courts or arbitration, it is always possible to explore settlement either informally (e.g. through ‘without prejudice’ correspondence or meetings) or by a more formal alternative dispute resolution method such as mediation (a non-binding settlement negotiation at which an independent third party, the mediator, seeks to facilitate settlement). It is also possible to agree in advance an obligation to explore settlement. ‘Dispute escalator clauses’ compel parties to go through preliminary steps before they are able to bring a formal claim. Typically the dispute escalator will provide for an exchange of letters about the claims, followed by a ‘without prejudice’ meeting. There may be an obligation to mediate. Only once these steps have been followed can a claim be issued. Such clauses can help focus minds on the benefits of good faith settlement negotiations taking place at an early stage.
Thinking about these issues at the time of contract formation will ensure that the framework for the resolution of disputes is constructed in the most advantageous manner. This may not stop disputes from arising, but it can improve an organisation’s chances of prevailing in the dispute or achieving a favourable settlement.