Scenario: Your company enters an agency agreement with a company overseas. Your agent will win business on your behalf in that country. What happens if there is a dispute?
The purpose of appointing an agent in a foreign country is that they know the country better than you. The downside of this is that they might take advantage of your ignorance to promote your brand or products in ways you do not want. What if you find out they’re paying kickbacks to procurement staff at customer companies? Or bribing government officials in order to get exclusive licences to sell your products? What if they don’t stick to the agreed plan for that market? What if the agent isn’t delivering on your expectations and therefore you want to exit the arrangement?
Your agent in that country will often be legally protected for the work they have done for you. It is therefore vital to have a good dispute resolution mechanism in your contract. It needs to be clear, and it needs to be enforceable in that country.
Your dispute resolution clause options
You may wish to include an exclusive jurisdiction clause in favour of the courts of England & Wales. It is not very likely that another court will accept jurisdiction if faced with this clause.
You may also choose to include a non-exclusive jurisdictions clause or a hybrid clause. A hybrid or asymmetric clause restricts one party (hopefully not you) to suing in one particular jurisdiction, while the other party retains the right to commence proceedings in any court of competent jurisdiction i.e., wherever the money is.
However, you must consider whether there are reciprocal enforcement rights between separate jurisdictions before including any of the above provisions. There are treaties and schemes that govern recognition/reciprocation of foreign judgments. In jurisdictions where those schemes do not apply (e.g., China), the principle of reciprocity does (if you are lucky).
What else should you consider?
A bigger issue is this: what if the other party decides it does not like the jurisdiction clause you have drafted and sues wherever it wants anyway? In several instances courts around the world (including in the EU) have allowed actions to go ahead where a party in one state started proceedings in its home state, even though the contract specified the courts of the other party’s home state would have exclusive jurisdiction. If the governing law is different from the law of the country where the dispute is being heard, it could very likely be interpreted in a different manner. Your choice of law could be at risk of being modified by overriding mandatory rules of the law of the forum. Instructing foreign lawyers to give evidence will also add to the time and cost of your cross-border litigation nightmare.
The-international arbitration options
A better solution is therefore to forget about courts, because international arbitration is the leading mechanism for resolving long distance international disputes. This is because most economically significant countries in the world are bound by the New York Arbitration Convention, which means they will enforce international arbitration awards, even if they don’t enforce foreign court judgments. Be careful though: a few jurisdictions (e.g. Taiwan) are not bound by this convention.
Note that under the widely accepted principle of “separability”, an arbitration clause in a contract is considered separate from the contract in which it resides. This means that the arbitration clause survives termination of the contract and allows any claims arising out of that termination to be referred to arbitration. It is generally assumed that where no separate choice of law for the arbitration clause is made, the governing law of the contract is also the governing law of the arbitration clause. In the unusual event that you have a separate arbitration agreement, it would be sensible to extend the contract governing law provision so that it also covers the arbitration agreement (where you want the governing law of the contract to apply).
Another practical note is that in most cases, requiring a single arbitrator is preferable to the traditional method of having a panel of three. This is because in reputable arbitration centres, arbitrators tend to be fair and objective. Having three arbitrators does little more than triple the cost and increase the time taken to come to a decision. It is also worth noting that in our experience, requiring long and complex discussion and mediation stages before arbitration can start is equally time wasting. In reality, if there’s a dispute, there will already have been discussions between you and the agent before you look at the dispute resolution clause, so there is little point prolonging the agony by mandating more pointless meetings.
Lastly, it is worth noting that for cross border contracts, it is better to reduce the risk of disputes than to seek ways of winning them. And to reduce the risk of disputes, experience shows that a clear, simple contract that is actually read and understood by both sides is preferable to a cunningly worded one that no-one reads carefully.