International Contracts and Dispute Resolution
With America, Europe and the Middle East battling tumultuous political times, certainty in cross-jurisdictional contracts is more important than ever before. If a dispute arises, the most important considerations for having it resolved quickly were ideally negotiated at the formation stage of the agreement – the governing law and the method by which a dispute will be resolved.
Often involving a string of indemnities and warranties subject to translation in multiple languages and sometimes requiring lengthy negotiations between numerous parties in different jurisdictions, international contracts provide the perfect environment for disputes to erupt. It is, therefore, imperative to nail down how disputes will be resolved before they develop, to save all parties substantial time and money.
Agreeing on a governing jurisdiction
If parties fail to agree on the law which will govern an international contract, they risk spending thousands of pounds and countless hours of unproductive time arguing about this basic issue if a dispute should develop. Nothing can be resolved until the jurisdiction under which the matter will be decided is established.
Your contract should clearly state which governing law both parties have agreed to. The clause would read something like this:
1.1 Governing Law – This Agreement shall be governed, construed and enforced in accordance with the laws of the United Kingdom. Any dispute arising between the parties shall be dealt with exclusively in the courts of that country.
International trade agreements usually allow for parties to decide between themselves the governing law applicable to the contract. Due to the comprehensive common law precedence developed around the area of commercial law, English law is the jurisdiction of choice for international business.
Parties can choose to have a different governing law for separate clauses of a contract, if a particular jurisdiction may be seen to act more favourably towards different elements of the agreement you have construed. However, most lawyers would recommend that there is one governing law applied to the contract in its entirety.
Should you litigate or arbitrate?
Parties should agree the forum, i.e. the disputes resolution procedure and the country it will be conducted in, at the beginning of the agreement.
Arbitration is a popular forum used to resolve international disputes because it provides some advantages over litigation, including:
- Arbitration proceedings are held in private, unlike litigation that can be public.
- There is a strong degree of flexibility with arbitration, unlike litigation, which in the UK is governed by strict civil procedure rules.
- The parties can agree on who will be the Arbitrator and where it will take place.
- The Arbitrator’s decision is final and binding, with limited leave to appeal.
Enforcing international arbitration awards
One advantage of international arbitration over litigation is the existence of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (NYC) which provides a far-reaching regime for the enforcement of international arbitration awards.
The 154 countries who are signatories to the Convention each agree to recognise and enforce arbitration awards made in other signatory states.
The Arbitration Act 1996, section 66 sits alongside the New York Convention and can also be used for the enforcement of both foreign and domestic arbitration awards. Parties cannot opt out of section 66.
Neither the New York Convention or section 66 apply where the agreement to arbitrate is in writing. For oral agreements, an arbitration award may be enforced under common law, on the basis of an implied promise by each party to the arbitration agreement to abide by the terms of the award.
Enforcing an international litigation decision in the UK
If you have entered into litigation outside the UK and won, the methods of enforcing the judgment depend on the jurisdiction the judgment was made in and the nature of the order.
When it comes to enforcing a judgment in the UK delivered by an international court, the world can be divided into four categories:
- countries to which the European Enforcement Order (EEO) Regulation applies;
- countries which have signed the Brussels Regulation or the Lugano Convention;
- countries with which the UK has bilateral enforcement conventions in place;
- countries for which none of the above apply – notably USA, Japan and China
European Enforcement Order (EEO) Regulation
This regulation allows for swift enforcement of court decisions within the EU. It is the preferred method of enforcement as it is relatively straightforward and is used for judgments involving monies owed.
Brussels Regulation or the Lugano Convention
These two methods should be used as an enforcement method if the EEO Regulations cannot be utilised; for example if the judgment has resulted from a contested hearing. The main difference between the Brussels Regulation and the Lugano Convention is the latter governs the enforcement of judgments from Norway, Iceland, Switzerland and all countries which joined the EU after 1st May 2004, except Poland which has signed the Brussels Regulation.
Bilateral enforcement arrangements
The Administration of Justice Act and the Foreign Judgments (Reciprocal Enforcement) Act govern this area. The UK has bilateral enforcement arrangement with many former and current Commonwealth countries, the Channel Islands and the Isle of Man.
Any judgment made in a country with the bilateral enforcement arrangement must be registered with a court in England or Wales, be a final decision for a specific sum and the English courts must be satisfied that the country where the judgment was made had jurisdiction to hear the case.
Countries where none of the above apply
In countries where no treaties or bilateral agreements exist, you will need to bring fresh proceedings in the UK to enforce the judgment, basically claiming on the foreign judgment as a debt. Thankfully, in most cases, the proceedings are merely a formality, and a summary judgment is normally quick to obtain.
The golden rule for cross-border contracts and dispute resolution is to ensure the agreement between you and the other parties is drafted by an experienced solicitor who understands international commercial law. They will help you strategise the most advantageous way to draft the disputes resolution clause in the agreement and advise on the best legal jurisdiction to govern your contract and its enforcement.
If a dispute does develop, having a civil litigation team who can act swiftly, both inside and outside the UK, can save thousands of pounds in lost time, productivity and get the project running smoothly again as quickly as possible.
Saracens Solicitors is a multi-service law firm based in London’s West End. We have dedicated and highly experienced commercial law solicitors who can draft detailed international contracts and a civil litigation team who can advise you should a cross-border dispute develop. For more information, please call our office on 020 3588 3500.
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