The complexity of a cross border contractual dispute can, at times, appear overwhelming. However it does not need to be, writes Alex Hudson, Director, Campbell Johnston Clark.
When seeking to manage a cross border dispute it is essential to understand the core issues in dispute, the applicable forum and law and, importantly, the costs of non-resolution. These issues along with the early marshalling of evidence will inform the level of any settlement or of any award/judgment if the matter cannot be resolved.
Without this understanding cases cannot be effectively settled or fought. Therefore, when faced with a potential dispute, the first step should always be to take a step back, breathe, and consider the following.
Early assessment
When a dispute arises out of a maritime contract it is first necessary to consider which law applies to the dispute and which Court/Tribunal has jurisdiction to determine the dispute. These issues should be considered early and in tandem with whether there is a pending time bar or a party is entitled to security for its claim.
Conducting this early assessment is key. A party should also find a systematic way to gather, analyse and review all evidence relating to pending or potential litigation. This will assist in making an informed decision about how to proceed.
Is litigation the answer?
Too often parties become entrenched at an early stage in a dispute without considering the potential costs of not settling matters. Cross border litigation is often expensive and without guarantee of success or, perhaps worse still, without guarantee of making a recovery following success – the so-called “pyrrhic victory”.
Of course, a party should never be seen as a pushover in commercial discussions and, importantly, must set out its position clearly and succinctly; however the process should not be allowed to run away with itself.
Therefore, at the outset, and as part of any early case assessment, all parties should consider whether there are any mechanisms available for resolving their dispute without resorting to court proceedings or arbitration (Alternative Dispute Resolution “ADR”).
A number of contracts have ADR mechanisms built in. The English Courts also require the parties to consider ADR as a means to settling the dispute without commencing proceedings as part of its pre-action protocols. However, even if the parties are not compelled by contract or law to consider ADR, it should be kept in mind throughout. It may be that a simple meeting between well prepared commercial operators could lead to a creative resolution that would not be possible if the parties relied too heavily on their lawyers from the outset. A lawyer’s role is to assist its client in managing the client’s dispute – not the other way around.
Which court has jurisdiction?
Maritime disputes are inevitably international. In almost ten years in the industry, I have not come across a dispute between British companies relating to an issue/incident involving a UK flagged vessel in UK territorial waters and with solely British parties, interests and/or insurers involved. Whilst there are many British companies involved in shipping of course, and Campbell Johnston Clark acts for a number of these, it is rare to find disputes that have no international element at all.
For this reason, when considering a dispute, early consideration must be given to which court or arbitral tribunal has jurisdictional competence to resolve the dispute.
The purpose of this article is not to provide a detailed guide on jurisdiction. Suffice to say, in establishing jurisdiction, the English Courts will consider (pending post Brexit final clarification) the Hague Convention on Choice of Court Agreements (Hague 2005) and its own common law rules. Both of these will, ordinarily, give effect to a contractual agreement – preferably a written exclusive jurisdiction clause.
If a particular jurisdiction has not been clearly agreed in the contract, or if the agreement does not provide for a particular Court to have exclusive jurisdiction, early consideration should be given as to whether a competitive advantage can be gained from issuing proceedings early in an alternative jurisdiction.
Why is jurisdiction important? Different jurisdictions may apply different limits on liability or time bars or may award more costs. Different jurisdictions also work to vastly different timescales or have varying levels of effectiveness when it comes to enforcing a judgment or award. For instance, in certain jurisdictions it is far easier and cheaper to enforce a London Arbitration Award than an English High Court Judgment.
The issue of jurisdiction is therefore potentially of great tactical significance. A party should ensure that, where possible, it commences proceedings in the forum that is most advantageous to it. Even a defendant, when faced with the prospect of a dispute, should give consideration as to whether it is able to “seize jurisdiction” in an advantageous forum by way of issuing a counterclaim or a claim for a declaration of non-liability.
Which law applies?
The instruments that currently determine governing law, Rome 1 (Regulation (EC) No 593/2008 on the law applicable to post 2009 contractual obligations) and Rome II (Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations) continue to apply post-Brexit. EU member state courts will ordinarily respect an express choice of English law and English courts will ordinarily respect an express choice of the law of an EU member state.
Absent an express choice of English governing law made in a contract, Rome I provides specific rules for determining governing law. These generally fall back on the law of the country where the service provider/seller/characteristic performer of the contract is resident.
Rome I may not apply to transferable bills of lading in the hands of a third party or to arbitration agreements. However English common law will generally give effect to any written agreement between the parties here.
In order for a party to understand its rights and obligations under a contract it is necessary to understand which law governs those rights and obligations. This could be the difference success or total defeat if, for example, one law does not recognise a cause of action or provides a particular statutory limitation (time bar) period.
Resolution and reducing costs
Notwithstanding the above, a party should not always automatically fall back on the forum and law agreed in the underlying contract. This may result in a draconian, time consuming and expensive means of resolving a dispute – a sledgehammer to crack a nut.
It is always open to the parties to agree an alternative more appropriate forum or to modify or waive any contractually stipulated procedural steps. For instance, the LMAA Small Claims Procedure 2017 mandates a sole arbitrator, streamlines the arbitration process and eliminates the right of appeal. Whilst this may not be appropriate for all types of dispute, streamlined and costs effective solutions should always be considered.
Furthermore, parties should always look to: (1) employ innovative means to limit costs – for instance by agreeing contingency fees, blended rates, fee estimates and/or fee caps in advance; (2) dispose of unmeritorious claims through any summary judgment mechanisms available: (3) adopt interim relief procedures where possible/effective; and/or (4) modify the procedure - such as by dispensing with witnesses (fact or expert) or agreeing a documents-only resolution.
Legal issues and marshalling evidence
Having considered the applicable forum, law and costs of not resolving the dispute by ADR, the next stage is to begin to build a case.
This will ordinarily require a detailed analysis of the legal points in issue (which are often fewer than they originally appear) and the marshalling of evidence to support a party’s position.
The evidence required to substantiate a claim or a defence will, of course, vary depending on the dispute. However, what rarely changes is the evidential burden of proof. As a matter of English law, the burden of asserting a set of facts or circumstances of a dispute lies on those who make an allegation. The alleging party must establish, on the balance of probabilities, that the facts as alleged favour their version of events. A failure to satisfy this burden of proof will cause a claim or defence to fail, irrespective of the actual circumstances or the merits of the law.
This provides a useful starting point in analysing a party’s evidence. A party’s first consideration should always be “can I obtain and disclose sufficient evidence to substantiate the fact and circumstances on which my legal argument relies”? If not, it is better to know at an early stage and before significant costs are incurred!
How can international law firms assist?
Whilst parties are or course capable of resolving disputes amicably without external legal input, solicitors can provide valuable assistance in navigating the minefield that is international dispute resolution.
Early informed decisions in the process on issues such as law, jurisdiction and evidence can be the difference between a successful (and hopefully) early resolution of a dispute and years of time, effort and costs.
In addition to advising on their particular area of law, reputable international law firms should be able to draw on specialist expertise and connections and facilitate the multi-disciplinary team necessary to deal with all aspects of a cross border dispute and achieve a cost-effective outcome.