Ris itescaa capacity building progremme


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This Presentation was given by Preet Sethi on the 19th of Feb 2013 at the RIS’ (Research and Information Systems for Developing Countries) Capacity Building Programme on 'International Economic Issues and Development Policy (IEIDP)' under the ITEC / SCAAP Programme of the Ministry of External Affairs, GOI. The topic of the presentation is ‘Legal Issues in Global Business Negotiations’

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Ris itescaa capacity building progremme

  1. 1. Legal Issues inGlobal BusinessNegotiationsBy Preet Sethi[e-mail: preet13_sethi@yahoo.com]At RIS‟ Program on International Economic Issues and Development Policy (IEIDP) under ITEC / SCAAP Programme on19th Feb 2013
  2. 2. Introduction Negotiation - is a process where each partyinvolved in negotiating tries to gain anadvantage for themselves by the end of theprocess through a mutually beneficialcompromise. To reach a Win-Win situation Especially important inbusiness negotiations asthe parties have tocontinue to work togetherfor a long timecontd…..
  3. 3. Introduction - InternationalBusiness Negotiation Negotiating international business transactions requiresthe ability to meet unique challenges, the primary onebeing navigating through the web of foreign laws; All rights, liabilities and obligations in the modern worldare often governed by laws. The legal rights of the parties affect their negotiations All business negotiations should necessarily be carriedout within the realm of law so as to give legal effect tothe negotiation concluded between the parties. Therefore, various legal aspects should be taken intoconsideration while negotiating international business
  4. 4. Important Elements Legal Framework Relevant Laws & InternationalConventions/Treaties Dispute Resolution Proper Documentation
  5. 5. Legal Framework
  6. 6. Legal Framework…Examining the Legal SystemLocal Legal ExpertiseDue DiligencePolitical Stability
  7. 7. Legal Framework… It is imperative to examine the legal system of a particularjurisdiction in order to assess any risks that may be associatedin any business transaction Differences in legal system can affect the negotiation process Businesses need to understand the do‟s and donts of thespecific country they wish to invest it, as well as looking intothe legal protections offered in these countries towards theirbusiness assets It also needs to be ascertained if there is no difference intreatment of foreign companies in all matters relating totax, labour, social security, civil, or commercial law
  8. 8. Legal Framework…Local Legal ExpertiseIt is recommended to consult a local legalexpert for procuring the advice in terms of thelocal laws.Due DiligenceLegal due-diligenceand risk analysisneeds to beconducted for theexisting legalframework so as toknow whether aparticular project/investment/ deal/contract and any ispermissible or not,includingenforceability of aninternationalarbitration award.Political StabilityThe difference in political factors ofnations across the globe can influencethe negotiation process in internationalbusinessDespite reduced trade barriers throughglobalization, deregulation andprivatization, government policies still playmajor roles on business are runglobally, through promulgated andenforced economic policies andregulations that directly change thecompetitive atmosphere a company isexisting in
  9. 9. Relevant Laws &InternationalConventions/Treaties
  10. 10. Relevant Laws & InternationalConventions/Treaties Applicable law of contract/ Proper Law ofContract – determines the substantive rightsand obligations of the Parties to each other. Laws differ across jurisdictions – necessity tocheck the validity of transaction under thejurisdiction where it is to be performed
  11. 11. Relevant Laws & InternationalConventions/TreatiesExamining the Bilateral Investment Treatyo Bilateral Investment Treaties (BITs) make up one part of a global investmentregime that governs how countries and their governments can regulateforeign-owned assets. As the name suggests, the general purpose of BITs isthe “promotion and protection” of investments from one contracting partyin the territory of the other contracting party. The key investor protections inBITs restrict governments‟ ability both to encourage the potentialsocial, economic and environmental benefits of foreign investment and tominimize potential damage from such investment.o BITs are international treaties between two countries which seek to create astable investment environment by giving investors rights against States‟abuse of sovereign powers.o The principal objective of BITs is to provide a stable investment climate, interalia, by protecting investments from the arbitrary actions of a foreigngovernment.
  12. 12. Relevant Laws &InternationalConventions/TreatiesA typical BIT assures foreign investors: No Discrimination- BITs usually assure both National Treatment and Most-FavoredNation (MFN) treatment (i.e., a foreign investor will be treated no less favorablythan investors from the host country, or from third countries) Fair and Equitable Treatment- A foreign investor will be protected againstarbitrary, unfair, or inequitable treatment, under international law standards, andoften be assured of full protection and security for its investments. No Expropriation Without Due Process and Full Compensation- Expropriation ofinvestments will be prohibited, except under due process of law, andaccompanied by full compensation. This usually includes indirect expropriation,by measures “tantamount to expropriation.” Additional Protections- Investment treaties also may include prohibitions onperformance requirements (i.e., investments conditioned on domestic content orexport performance), protection of financial transfers, freedom to staff theinvestment, transparency undertakings and other protections. Arbitration of Investor Claims- In a BIT, the host state usually agrees to submit aforeign investor‟s claim of a treaty violation to arbitration before an independent,ad-hoc tribunal. The arbitral award will be binding, subject to very limited review,and enforceable under treaty.
  13. 13. Dispute Resolution
  14. 14. Dispute Resolution Arbitration Vs. Litigation Choice of Ad Hoc or Institution Arbitration Drafting of a proper arbitration clause Place, Venue, Seat & Language of arbitration
  15. 15. Dispute ResolutionArbitration Vs. Litigation
  16. 16. Dispute ResolutionArbitration is a legal technique forthe resolution of disputes outsidethe courts, wherein the parties toa dispute refer it to one or morepersons (the "arbitrators” or"arbitral tribunal"), by whosedecision (the "award") they agreeto be bound.Why Arbitration? Neutrality Avoidance ofmultiplicity ofproceedings Certainty of Forum Finality Ease ofEnforceabilityArbitration Vs. Litigation
  17. 17. Dispute ResolutionChoice of Ad Hoc or InstitutionArbitration
  18. 18. Dispute ResolutionAd-hoc Arbitration An arbitrationwithout an arbitralinstitution beingspecified tosupervise theproceedings, or atleast to supply theprocedural rules forthe arbitrationInstitutionalArbitration Disputes submittedto arbitration withinstitutionaloversight; usuallyconducted underthe institution‟s owncomprehensiverules of procedure.
  19. 19. Advantages Party autonomy & Higherparty control over theprocedure Parties can write their ownarbitration rules Flexibility – akin to a Tailormade suit can be shapedto meet the wishes of theparties and the facts of thedispute Complete freedom tochoose an arbitrator ofyour own choice Can be less costly incertain circumstances Can be faster in certaincircumstancesDisadvantages Advantages subject to thecaveat that parties, advocates andthe Tribunal work together, howevercooperation is very difficult whenparties are in a dispute No control over the Arbitral Tribunal Lack of checks and balances over theTribunal Arbitrator Fees usually negotiatedbetween the parties and the Tribunal-an extremely delicate matter Usual complaints - high fees, delays liberal grant of adjournments delay in delivering the award Reluctance of parties to raise theseissues on account of the fear of losingfavour with Tribunal Assistance of the Courts is requiredwhen parties are unable to agree. e.g.choice of arbitratorAd-hoc Arbitration
  20. 20. Institutional ArbitrationHow institutional arbitration works to ensure procedural andcost efficiency in arbitration The rules of an institution provide the safety net Supervise the appointment of a Tribunal, ensuringimpartiality and quality of the Tribunal Terms ofAppointment of Arbitrators Prevents Challenge of Arbitrators Institutional oversight over the process Managing costs and delays Containing costs ofarbitration (in particular, arbitrator‟s fees andexpenses) Reducing delays/ Time management Monitoring the progress of arbitrations
  21. 21. Dispute ResolutionDrafting of a proper arbitration clause
  22. 22. Drafting Of A ProperArbitration Clause Don‟t have PathologicalClauses-A pathologicalclause is a clause whichcontains defects, that areliable to disrupt the smoothprogress of the arbitration Examples of PathologicalClauses: Reference to litigation withan option to go toarbitration Clause providing an optionbetween arbitration andlitigation Clause designating a non-existing institution Clause referring to twoarbitration institutions &multiple places ofarbitration Uncertain Seat Clause referring to twoarbitration institutionsPOINTERSDevote enough time in yourcontract drafting schedule to draftan appropriate arbitration clauseKeep it simple and get all the basicpoints [Rules, curial law, seat,venue, number of arbitrators andlanguage]Use tried and tested institutionalclauses, whereever possibleSeek the assistance of anarbitration expert
  23. 23. Dispute ResolutionPlace, Venue, Seat & Language ofArbitration
  24. 24. Place, Venue, Seat & Language ofArbitrationSeat of the arbitration Influences the law governing the conduct of the arbitration The law of the seat may enlarge the grounds on which a curialcourt may set aside an award The court of the seat will have the power to set aside the awardand/or supervise the arbitration proceedings if necessary It determines the nationality of the award for enforcement underthe New York Convention There is a distinction between the seat of an arbitration and thephysical location where the arbitration is conducted, which canbe referred to as place. The word „seat‟ is preferable to the word „place‟ as the seat ofan arbitration is a legal concept, while the place of anarbitration could refer to the physical place where the arbitralproceedings are conducted. Possible to have different „seat‟ and „place‟ of arbitration.
  25. 25. Place, Venue, Seat & Language ofarbitrationProcedural Law Also called curial law of the arbitration, or lexarbitri, or law of the situs or seat May be different from the substantive law of thearbitration Matters dealt with by the procedural law - thenumber of arbitrators , the default appointingprocedure, the duties and powers of arbitrators , thepower of the court to order security forcosts, discovery, injunctions, judicial review of awardsIn theory possible to have a different procedural lawthan the seat of arbitration, but not advisable
  26. 26. Proper Documentation
  27. 27. Negotiating ContractsThe 3 C’s of a ContractClarityCertaintyCode of Conduct
  28. 28. Negotiating, Drafting & ExecutingBusiness Document Key Contractual Provisions Parties Recitals or Whereas Clauses Definition of Terms Delivery Mechanism Transfer of Title Price and Terms of Payment Shortfall or Failure to Deliver / Perform Risk Anticipation of changes in future regulatoryframework etc. Warranties and Representations3 C’s
  29. 29.  Key Contractual Provisions Liabilities and Indemnities Default, Termination and Remedies Progress Reports and Audit Rights Confidentiality Arbitration and Dispute Resolution Force Majeure Third Parties Compliance of Local/Domestic Laws Taxes, Levies and Charges3 C’sNegotiating, Drafting & Executing A BusinessDocument
  30. 30.  Key Contractual Provisions - Miscellaneousprovisions Entire agreement Assignment Governing law and enforceability Jurisdiction Variation /amendments Successors and Assigns Severability Delay or Omissions Waiver Public Relations Survival Notice3 C’sNegotiating, Drafting & Executing BusinessDocument
  31. 31. Negotiating Contracts – SomePointers Term Sheet – must be the starting point of negotiations Document to flow from Term sheet Standard form Contracts – a Boon & a Bane – to be usedwith caution. Doctrine of Contra Proferentem [is a doctrine ofcontractual interpretation which provides that anambiguous term will be construed against theparty that imposed its inclusion in the contract –or, more accurately, against the interests of theparty who imposed it]