Most U.S. Companies Entering Foreign Markets
Fail To Protect Themselves Legally,
Says International Litigator From Pepper Hamilton
Prepare For Dispute Resolution Via Arbitration – Not Litigation
More American companies are looking to do business overseas, but many are failing to plan for the unthinkable – what happens if there’s a dispute with the foreign country or company, according to a Pepper Hamilton LLP, a multi-practice law firm with 450 attorneys in Pennsylvania, New Jersey, Delaware, New York, Michigan, California, Massachusetts, and Washington, D.C.
“The good news about globalization is that more business doors are opening for American companies,” said Matthew H. Adler, an international litigator for Pepper Hamilton. “The downside is that many American companies are making serious mistakes – which could cost them millions of dollars – because they don’t know how the legal landscape changes when they begin doing business with a company or entity outside the U.S.”
Companies tend not to plan for bad outcomes, especially during an exciting, global expansion, Adler said. If they do any thinking at all about the possibility of a business arrangement falling apart, they may assume – mistakenly – that they have the same legal recourses and protection that they have in the United States.
“Most large deals involving sophisticated, international companies use arbitration – rather than litigation – as the method for resolving disputes among parties,” Adler said. “Smaller companies, or those entering foreign markets for the first time, may not realize that this method of dispute resolution offers them far more protection if a dispute arises.
“But the benefits of arbitration are only attainable if a company knows what to specify in its contract, and what to do if it should find itself embroiled in a contract dispute with a foreign party,” Adler added.
Adler suggests these guidelines to American companies entering foreign markets:
Include Arbitration Language In The Contract
Before signing any contract, make sure it includes language spelling out how a dispute is to be settled. In most cases, it is advisable to have language stipulating that any disputes will be resolved through arbitration. That clause should protect a company from suit in the U.S. – or even worse, a lawsuit in the foreign country in which it is doing business.
And unlike litigation, where the enforceability of judgments is ad hoc and subject to a court’s discretion, arbitration awards are easily enforceable under a treaty to which more than 150 countries are party, including the U.S.
Select The Body Of Arbitration Carefully
Consider carefully where the contract specifies arbitration should occur. There are a number of bodies of arbitration around the globe, including The International Chamber of Commerce (ICC); The London Court of International Arbitration; and The American Arbitration Association.
American companies should strive to select a body with well-established procedures and a body of qualified arbitrators from which to choose, Adler said.
When possible, he urges companies to avoid arbitration bodies that are country-specific. “One of the most challenging arbitration bodies for U.S. companies is CIETAC – The Chinese International Economic Trade and Arbitration Committee.”
Pick Your Arbitrator Well
“In a court of law, a company cannot pick the judge. But in arbitration, if a company has worded its dispute resolution clause carefully, it can,” said Adler.
Nothing is more important to a favorable outcome for a company than its choice of arbitrator, according to Adler. A standard arbitration clause will provide that each party names its own arbitrator, with a third, neutral arbitrator named either by the party-appointed arbitrator, or by the arbitration body.
“Seek out an arbitrator with prior experience and a solid reputation,” Adler advised. “Ask these questions: Have they served on a body of arbitration before? Do they know this system’s laws? Have they published anything in this field? Are they familiar with the setting? The language? Are they affable enough to get along with the Chair of the arbitration panel?”
Sometimes, Adler stated, “your case is best pleaded by your party-appointed arbitrator, when the arbitrators speak outside the presence of the parties, and you want one whose views are respected.”
Know When Local Counsel Is Needed
When arbitration is set to occur in a foreign country, a company may need to retain local counsel, according to Adler.
“The biggest mistake companies make is hiring a local counsel who is known for litigation, but not for arbitration,” Adler said. “Be especially careful about hiring a lawyer who may have worked with – or, even more sensitive, against – any of the other arbitrators.
“Few business dealings are more risky than dispute resolution, and the danger quotient rises dramatically in an international dispute,” Adler concluded. “Going global is the dream of many American companies, but they need to remember to protect their legal positions early in the process of expanding overseas.
“If they haven’t taken smart legal steps when they first start doing business abroad, they may find it almost impossible to recover if a dispute arises.”
About Pepper Hamilton
Pepper Hamilton LLP (www.pepperlaw.com) is a multi-practice law firm with 450 lawyers in seven states and the District of Columbia. The firm provides corporate, litigation and regulatory services to leading businesses, government entities, nonprofit organizations and individuals throughout the nation and the world. The firm was founded in 1890.