International Contracts And Dispute Resolution


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International Contracts And Dispute Resolution

  2. 2. Overview <ul><li>Types of int’l commercial arrangements </li></ul><ul><li>Basic contract goals </li></ul><ul><li>Legal questions for target markets </li></ul><ul><li>Contract terms </li></ul><ul><li>FCPA/ITAR </li></ul><ul><li>Litigation and arbitration pros and cons </li></ul><ul><li>Arbitration provisions </li></ul><ul><li>ICC arbitration fees/procedures </li></ul>
  3. 3. Some Export Contract Options Time Risk JV make products $ Control distribution sell products licensing “ sell” know - how
  4. 4. Other Types of International Contracts <ul><li>Franchising </li></ul><ul><li>Outsource design or manufacture of products </li></ul><ul><li>Architectural, engineering, construction services </li></ul><ul><li>Contractor/employment/separation </li></ul><ul><li>Lease industrial space </li></ul><ul><li>M&A </li></ul>
  5. 5. Limit Liability <ul><li>Start slowly </li></ul><ul><ul><li>Less complicated arrangements </li></ul></ul><ul><ul><li>People you’re comfortable with </li></ul></ul><ul><ul><li>Short term </li></ul></ul><ul><ul><li>Limited territory </li></ul></ul><ul><ul><li>Close to home </li></ul></ul><ul><li>Insurance </li></ul><ul><ul><li>Products insured until payment </li></ul></ul><ul><ul><li>Other coverages </li></ul></ul>
  6. 6. Limit Liability <ul><li>Due diligence </li></ul><ul><ul><li>Corporate existence/good standing certificate(s) </li></ul></ul><ul><ul><li>Credit and legal report </li></ul></ul><ul><ul><li>Distributor application </li></ul></ul><ul><ul><ul><li>Owners </li></ul></ul></ul><ul><ul><ul><li>QA systems </li></ul></ul></ul><ul><ul><ul><li>Suppliers represented </li></ul></ul></ul><ul><ul><ul><li>Experience with import licenses </li></ul></ul></ul><ul><ul><ul><li>Number of sales reps </li></ul></ul></ul><ul><ul><ul><li>Sales </li></ul></ul></ul><ul><ul><ul><li>Bank references </li></ul></ul></ul><ul><ul><ul><li>Local market information </li></ul></ul></ul>
  7. 7. Limit Liability <ul><li>Written agreement </li></ul><ul><ul><li>Rights, responsibilities of each party </li></ul></ul><ul><ul><li>Clear, unambiguous language </li></ul></ul><ul><ul><li>Format, length </li></ul></ul><ul><ul><li>Force majeur: what if unexpected events occur? </li></ul></ul><ul><ul><li>Payment terms </li></ul></ul><ul><ul><li>No implied warranties </li></ul></ul><ul><ul><li>Limitation of liability </li></ul></ul>
  8. 8. Limit Liability <ul><li>Written agreement cont’d </li></ul><ul><ul><li>Term </li></ul></ul><ul><ul><li>Termination, consequences of termination </li></ul></ul><ul><ul><li>Avoiding undesired default provisions of local law </li></ul></ul><ul><ul><li>FCPA representations and warranties </li></ul></ul><ul><ul><li>Language </li></ul></ul><ul><ul><li>Arbitration </li></ul></ul>
  9. 10. Albemarle v. AstraZeneca <ul><li>Albemarle supplied ingredient made in SC for AstraZeneca drug made in England </li></ul><ul><li>Choice of law and choice of forum provision in supply contract said contract “shall be subject to English Law and the jurisdiction of the English High Court” </li></ul><ul><li>Albemarle sued AZ in SC for breach of contract </li></ul><ul><li>AZ moved to dismiss for improper venue, arguing proper venue was England </li></ul><ul><li>Lower court agreed with AZ </li></ul>
  10. 11. Albemarle v. AstraZeneca <ul><li>Under American federal law “subject to … the jurisdiction of the English High Court” means that a lawsuit may be, but does not have to be, filed in the English court </li></ul><ul><li>Under English law “subject to” means a lawsuit must be filed in the English court </li></ul><ul><li>U.S. appeals court affirmed: </li></ul><ul><ul><li>“ In agreeing to these provisions, the parties undoubtedly accepted that litigation on disputes arising under the 2005 contract would be conducted in England …. It, therefore, cannot be surprising to them that we enforce the 2005 contract that way, especially in light of our longstanding tradition of favoring the enforcement of contracts according to their terms.” </li></ul></ul>
  11. 12. Get Paid <ul><li>Become familiar with LC’s </li></ul><ul><li>Become familiar with INCOTERMS </li></ul><ul><li>Look into Ex-Im, SBA, OPIC financing </li></ul><ul><li>Consider credit and political risk insurance </li></ul><ul><li>Retain security interest in goods until buyer pays </li></ul><ul><li>Specify payments are net of taxes and other local government charges </li></ul>
  12. 13. Protect IP <ul><li>Register trademarks in target markets in your name </li></ul><ul><ul><li>Patents, copyrights </li></ul></ul><ul><ul><li>No local partner registration </li></ul></ul><ul><li>Use copyright and confidentiality notices on proprietary information </li></ul><ul><li>Include ND, NC, and IP ownership clauses in contracts </li></ul><ul><ul><li>Notify of infringement </li></ul></ul>
  13. 14. Local Law Questions <ul><li>Importance of local counsel </li></ul><ul><li>Registration and approval requirements </li></ul><ul><li>Restrictions on contract terms </li></ul><ul><ul><li>Prices </li></ul></ul><ul><ul><li>Territory </li></ul></ul><ul><ul><li>Non-competes </li></ul></ul><ul><li>Arbitration awards enforced? </li></ul>
  14. 15. Local Law Questions <ul><li>Restrictions on terminating distribution agreements </li></ul><ul><ul><li>Mandatory notice </li></ul></ul><ul><ul><li>Mandatory post-termination compensation </li></ul></ul><ul><li>Procedure for registering IP </li></ul><ul><li>Tax issues </li></ul><ul><ul><li>Permanent establishment </li></ul></ul><ul><ul><li>Tax rate on royalties and licensing fees </li></ul></ul><ul><ul><li>Withholding taxes </li></ul></ul>
  15. 18. Licensing Contract Issues <ul><li>What rights granted? </li></ul><ul><li>Your proprietary rights </li></ul><ul><li>Independent contractor </li></ul><ul><li>Term/termination </li></ul><ul><li>Territory </li></ul><ul><li>Exclusivity </li></ul><ul><li>Payment </li></ul><ul><li>Reports </li></ul><ul><li>Insurance, indemnity, warranty </li></ul>
  16. 19. Distribution Contract Issues <ul><li>What products covered? </li></ul><ul><li>Your proprietary rights </li></ul><ul><li>Independent contractor </li></ul><ul><li>Term/termination </li></ul><ul><li>Territory </li></ul><ul><li>Exclusivity </li></ul><ul><li>Payment/retention of title </li></ul><ul><li>Compliance with local law requirements </li></ul><ul><li>Reports </li></ul><ul><li>Insurance, indemnity, warranty </li></ul>
  17. 20. JV Contracting Issues <ul><li>Who will contribute what? </li></ul><ul><ul><li>Cash? Services? </li></ul></ul><ul><ul><li>Equipment? Facilities? </li></ul></ul><ul><ul><li>IP? Technical expertise? </li></ul></ul><ul><ul><li>Distribution network? </li></ul></ul><ul><ul><li>Supplies and materials? </li></ul></ul><ul><li>Who will own what? </li></ul><ul><li>Who will decide what? </li></ul><ul><li>Term/termination </li></ul><ul><li>Territory </li></ul><ul><li>Compensation </li></ul>
  18. 21. Foreign Corrupt Practices Act <ul><li>Prohibits offering/giving “anything of value” to foreign official/public sector employee “corruptly” to obtain/retain business </li></ul><ul><li>Not OK: large gifts and lavish entertainment </li></ul><ul><li>OK: minor “facilitating payments” to expedite the performance of routine actions </li></ul><ul><li>Usually OK: promotional samples of products </li></ul><ul><li>Criminal and civil penalties for violations: fines, disqualification from receiving export licenses, disqualification from doing business with U.S. government </li></ul><ul><li>Books and records rules applicable to public companies </li></ul>
  19. 25. International Traffic in Arms Regulations <ul><li>Based on Arms Export Control Act </li></ul><ul><li>Enforced by Directorate of Defense Trade Controls at U.S. Department of State </li></ul><ul><li>Control export of some defense-related articles (listed on &quot;United States Munitions List&quot;) to foreign countries </li></ul><ul><li>Information relating to such articles may only be shared with &quot;U.S. Persons&quot; unless approved by State Department or special exemption is used </li></ul>
  20. 26. Problems with Litigation <ul><li>Litigation in U.S. </li></ul><ul><li>Does foreign defendant have enough contacts with U.S. jurisdiction to be subject to suit? </li></ul><ul><li>Does foreign defendant have enough assets in U.S. to satisfy judgment? </li></ul><ul><li>U.S. is not party to int’l convention requiring other countries to enforce U.S. judgments—and most countries won’t </li></ul><ul><li>Foreign litigation </li></ul><ul><li>Costly, time-consuming, unpredictable </li></ul>
  21. 27. Arbitration Pros and Cons <ul><li>Concerns </li></ul><ul><li>Not necessarily faster or less expensive </li></ul><ul><li>Possibility of “split the baby” decisions </li></ul><ul><li>Limited discovery, interim remedies, appeal rights </li></ul><ul><li>Advantages </li></ul><ul><li>Awards usually easier to enforce </li></ul><ul><ul><li>130+ countries have signed NY Convention </li></ul></ul><ul><li>Shape procedures in contract </li></ul><ul><ul><li>Administering organization or none and rules </li></ul></ul><ul><ul><li>ICC, Maritime Arbitration Assoc., etc. </li></ul></ul>
  22. 28. Crafting Arbitration Clause <ul><li>Arbitration is creature of contract </li></ul><ul><li>Written agreement to arbitrate prerequisite under NY Convention </li></ul><ul><li>ICC model clause: “ All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.” </li></ul>
  23. 29. Place of Arbitration <ul><li>Critical issue </li></ul><ul><ul><li>Arbitration is within jurisdiction of local courts </li></ul></ul><ul><ul><li>Avoiding other side’s home courts is priority </li></ul></ul><ul><li>Party to NY Convention? </li></ul><ul><li>Established arbitration law? </li></ul><ul><ul><li>Local courts encourage arbitration? </li></ul></ul><ul><ul><li>History of enforcement? </li></ul></ul>
  24. 30. Number of Arbitrators <ul><li>Benefits of one: </li></ul><ul><ul><li>Cheaper </li></ul></ul><ul><ul><li>Faster </li></ul></ul><ul><li>Benefits of three: </li></ul><ul><ul><li>Perhaps more reasoned decision </li></ul></ul><ul><ul><li>Perhaps carries more weight during enforcement proceedings </li></ul></ul><ul><li>Amount in dispute? </li></ul>
  25. 31. Scope of Arbitration <ul><li>All issues? </li></ul><ul><li>Should some be left for resolution in another way? </li></ul><ul><ul><li>Technical issues resolved by expert evaluation? </li></ul></ul><ul><ul><li>Go to court for immediate relief on some issues? </li></ul></ul><ul><li>Either way, be clear </li></ul>
  26. 32. Other Provisions to Consider <ul><li>Language </li></ul><ul><li>Non-binding negotiation and mediation </li></ul><ul><li>When arbitration will begin </li></ul><ul><li>Arbitrator qualifications </li></ul><ul><li>Discovery </li></ul><ul><li>Exclude punitive damages </li></ul><ul><li>Interim remedies </li></ul><ul><li>Confidentiality </li></ul><ul><li>Appeal </li></ul>
  27. 33. Preserving Advantages of Arbitration <ul><li>Get expert advice </li></ul><ul><li>Use unambiguous, tested language </li></ul><ul><li>Don’t bargain away place of arbitration without due care </li></ul>
  28. 34. ICC Fees <ul><li>Non-refundable $2,500 advance against admin. expenses </li></ul><ul><li>“ Provisional advance” of 25-35% of anticipated costs </li></ul><ul><li>In $2M case heard by single arbitrator, each party can expect to pay around $50,000 for arbitrator’s fee, admin. expenses, and arbitrator’s transportation, hotel, and meal expenses </li></ul>
  29. 35. Stages of ICC Arbitration <ul><li>Request for Arbitration </li></ul><ul><ul><li>Like initial pleading in court case </li></ul></ul><ul><li>Answer and Counterclaims </li></ul><ul><li>Appointment of Arbitrator </li></ul><ul><ul><li>If parties can’t agree, ICC will appoint </li></ul></ul><ul><ul><li>Generally arbitrator must be from different country than parties </li></ul></ul><ul><li>Terms of Reference; Procedural Timetable </li></ul><ul><ul><li>Prepared by arbitrator, signed by parties </li></ul></ul><ul><ul><li>Summarizes positions and defines issues </li></ul></ul><ul><ul><li>Sets schedule for remaining stages </li></ul></ul>
  30. 36. Stages of ICC Arbitration <ul><li>Discovery </li></ul><ul><li>Hearing </li></ul><ul><li>Evidence </li></ul><ul><ul><li>Documents, witnesses (live or by affidavit), expert testimony </li></ul></ul><ul><li>Post-Hearing Brief </li></ul><ul><li>Arbitral Award </li></ul><ul><ul><li>Final </li></ul></ul><ul><ul><li>Approved by ICC </li></ul></ul>
  31. 37. Questions? <ul><li>David Dubberly </li></ul><ul><li>Phone: 800-825-6757 or 803-253-8281 </li></ul><ul><li>E-mail: </li></ul>