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Choice of Law and Dispute Resolution. FW Law Departments Conference Geneva, March 21 and 22, 2011. CHOICE OF LAW. Reasons for choosing governing law. On the other side, what happensif the parties have not expressly chosen a governing law?

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choice of law and dispute resolution

Choice of Law and Dispute Resolution

FW Law Departments Conference

Geneva, March 21 and 22, 2011

reasons for choosing governing law
Reasons for choosing governing law

On the other side, what happensif the parties have not expressly chosen a governing law?

Governing law will be determined by applying the applicable conflict of law rules.

Parties’ express choice of law will be respected by most courts and arbitral tribunals.

This may lead to:

  • legal uncertainty (principle of the closest connection is not always so easy to apply);
  • complex and expensive disputes;
  • unexpected, unfavorauble and unfamiliar results
reasons for choosing governing law cont d
Reasons for choosing governing law (cont’d)
  • Governing law sets forth the necessary rules on contract formation: when, and under which formal prerequisites, does a contract come to existence?
  • Governing law operates as gap filler: legal issues arising out of a contractual relationship, which are not specifically addressed in the contract, will be resolved by the governing law.

As a consequence, the governing law becomes less important, if the parties have extensively dealt with each party’s obligations, rights and possible consequences in case of any breach.

However: business parties never manage to cover all possible issues in a contract

who decides the applicable law
Who decides the applicable law
  • Freedom of choice by the Parties
  • Exceptions:
  • laws governing parties’ capacity to enter into contracts;
  • overriding mandatory rules (consumer protection, labour law, competition, tax, insurance, health and safety);
  • public order norms (provisions entailing corruption, embargo)
which law should be chosen
Which law should be chosen?

Some suggestions:

  • choose a law you are familiar with;
  • prefer a law which allows sufficient contractual freedom:this will allow you to rely upon the contract provisions;
  • prefer a law which is commonly used as governing law in international contracts in the same field: the availablity of precedents will allow you to foresee, to a large extent, how any future dispute under the contract would likely be resolved by a court/arbitrator; moreover you will have easy access to sufficient numbers of highly qualified and reputable attorneys.
  • a neutral law is not necessarily the best choice: it is better to agree on a reasonable compromise, instead of choosing the law of a neutral state, without any further consideration;
  • the less you know about the governing law, the the more specific should you be while drafting the contract
2010 international arbitration survey some results cont d1
2010 international arbitration survey – some results (cont’d)

Respondents were also asked to explain why they choose their most frequently chosen law.

Most of them referred to familiarity, predictability, foreseeability and certainty.

They also referred to the existance of a “well developed jurisprudence” and “international acceptance”

English law is considered to be one of the national laws that best fulfils such criteria.

dispute resolution clause why does it matter
Dispute resolution clause – why does it matter
  • It is obviously easier and preferable to agree on dispute resolution mechanism during contract negotiations than at the time a dispute has already arisen.

A properly drafted dispute resolution clause provides transparency and predictability: the parties know in advance where and how disputes will be resolved.

For these reasons, it is essential to devote the necessary time and care to dispute resolution clauses, and not leave this important provision to last minute negotiation and drafting.

dispute resolution method some circumstances to consider
Dispute resolution method – some circumstances to consider
  • Enforceability

First question to be borne in mind when drafting dispute resolution clauses is: where might it be necessary to enforce any decision reached through the chosen dispute resolution mechanism, and how easy will it be to enforce it there?

A dispute resolution clause which leads to unenforceable results is worthless.

For international contracts, serious consideration should be given to arbitration: the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards is recognized in 145 countries worldwide.

When the arbitral decision has been obtained, the specific simplified and (teoretically) quick procedure for the recognition of the award has to be followed, in accordance with the civil procedure rules of the country where the award has to be enforced (typically, the country where the client has its seat).

dispute resolution method some circumstances to consider cont d
Dispute resolution method – some circumstances to consider (Cont’d)
  • Urgency

Where urgent or interim relief measures may be needed, or where a summary determination may be sufficient to solve an issue (e.g. payment failures), litigation should be preferred to arbitration.

Relief can be obtained quite quickly from courts . On the other side, though all major arbitration rules include provisions for temporary measures, they normally depend on the arbitral tribunal having been constituted. This can be a time consuming process, which practically frustrates the purpose of temporary measures.

dispute resolution method some circumstances to consider cont d1
Dispute resolution method – some circumstances to consider (Cont’d)
  • Technical expertise

Where the subject matter of a dispute is likely to be highly technical, the parties may prefer to submit the dispute to arbitrators, who will be chosen among experts in the concerned field.

This will give parties greater certainty that those who will solve the dispute have the necessary skills and experience.

dispute resolution method some circumstances to consider cont d2
Dispute resolution method – some circumstances to consider (Cont’d)
  • Confidentiality

In case the dispute relates to confidential issues, arbitration may be preferable, as it offers greater confidentiality and privacy.

  • Flexibility

Underthe rules of most arbitration institutions, parties have wide rights to determine the procedures to apply to arbitration. The parties may thus tailor the process to fit their dispute.

In litigation, the procedure is fixed by the applicable civil procedure code.

dispute resolution some questions before choosing
Dispute resolution – some questions before choosing
  • Is the matter capable of being treated through arbitration?

How are the most significant issues (rules of evidence, discovery, costs, availability of appeals, quality of the judges...) solved by the procedural systems of the competing jurisdictions?

Where are my opponents assets?

Does the applicable law impose a dispute resolution method?

What risk do I want to limit more? Is it the credit risk — the risk of non-payment? In this case proceedings before the other party’s court, where its assets are located, may be most appropriate. Alternatively, is it the risk in relation to the liability for failure of a product which is manufactured in a country and sold to a company having its seat in another country? In this case, arbitration may be more appropriate.

Are there mandatory provisions in the law of the country where the arbitral award will be enforced? Which is their content?

2010 international arbitration survey choices about internatonal arbitration
2010 international arbitration survey –choices about internatonal arbitration
  • 68% of corporations have a dispute resolution policy (see point 10, C.P. 4.02: “All contracts must have a dispute resolution mechanism, either in the contract or prescribed by the law governing the contract, under which the operating unit would expect a reasonable resolution of the dispute”.)
  • The law governing the substance of the dispute is usually selected first, followed by the seat, and then by the institution/rules. 68% of respondents believe that the choices made about these factors influence one another, particularly in relation to governing law and seat.
  • The general counsel is usually the lead decision maker on arbitration clauses.
2010 international arbitration survey choice of arbitration institutions
2010 international arbitration survey – choice of arbitration institutions
  • Corporations look for neutrality and internationalism in their arbitration institutions, and expect them to have a strong reputation and widespread recognition.
  • The ICC is the most preferred and widely used arbitration institution.
  • The ICC, LCIA and AAA/ICDR are the institutions used most frequently by respondents over the past five years.
  • Respondents have the most negative perception of CRCICA (Cairo Regional Centre for International Commercial Arbitration), DIAC (Dubai International Arbitration Centre) and CIETAC (China International Economic and Trade Arbitration Commission)
  • .