Recent Court Decisions Underline Importance of Getting Right Counsel on Board Early in International Negotiations, Corporate Transactions and Dispute Resolution

International contracts require careful negotiation. Parties need to understand not only the legal implications of what they sign, but also important are the potential consequences and processes that apply if things go wrong. Key issues around enforceability of contracts are vital in the international context as choice of law clauses do not always mean that all aspects of the contract are fully enforceable in accordance with that governing law. This is particularly the case in relation to rights that attach to local persons or assets, where overreacting local law provisions may impact.

Care must therefore be taken when negotiating and drafting contracts as there remains a risk of conflicting laws applying irrespective of choice of law provisions. It is also important to ensure clarity in the contract on dispute resolution and the associated mechanics and to look carefully at enforceability of any resulting decisions in relevant territories.

Often relegated to the "B" list in terms of importance and frequently resigned to "boilerplate" status, dispute resolution clauses in international contracts are being contested on an increasingly frequent basis.

In the recent Russian Supreme Court decision case of Sony Ericsson Mobile Communication RUS v Russian Telephone Company — which concerned the validity of a hybrid dispute resolution clause — the Russian Court refused to recognize the validity of a hybrid dispute resolution clause otherwise acceptable in England (the relevant contract was subject to English law). The issue here was around the unilateral ability for one party to apply to local courts for certain monetary claims (when both parties had otherwise agreed to arbitration of disputes in the contract). The Russian Court held the English law provision to be invalid due to its unilateral application, thus emphasizing the importance of a truly international approach at the drafting stage. Had the clause been mutual for the claims concerned, it would have been upheld in Russia.

In cross-border disputes, an awareness of legal, procedural and cultural differences can make the difference when it comes to strategy, time and cost spent on litigation. This issue has also recently gained coverage in the English Court of Appeal decision in The Secretary of State for Health v Servicer Laboratories, which related to cross-border disclosure of documents and conflicting laws as they apply in France and the UK. Fundamentally, the case looked at the different approach taken as regards civil and common law jurisdictions to disclosure. It applied a common sense approach to disclosure in an English claim governed by English law by dismissing arguments that a French "blocking" law would override the English position to prevent such disclosure.

The key message in these cases is that it is important at the drafting stage to get the right counsel on board early in the transaction, and that international experience is fundamental to that choice when it comes to navigating potential pitfalls around enforcement and dispute resolution.

With a wealth of experience in dealing with cross-border corporate transactions and cross- border disputes in the UK and Ireland, Europe, Africa, Australia and Russia/CIS regions, Faegre Baker Daniels' London office offers this international experience, alongside the global reach of our offices in the USA and China.

For more information, please see our article published in The Law Society Gazette on 25 March 2014.