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QUINN EMANUEL URQUHART
OLVER & HEDGES, LLP
DRAFTING AN INTERNATIONAL CONTRACT
WITH A FUTURE DISPUTE IN MIND:
GENERAL GUIDELINES AND ILLUSTRATIONS
Fred Bennett
Peter Calamari
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"INTERNATIONAL DISPUTES"
POINTS TO REMEMBER WHEN DRAFTING A
CONTRACT
• Arbitrators in international arbitration rely on
documents.
• Arbitrators are sensitive to jurisdictional issues.
• Since arbitrators need not follow law, reflecting
case language and concepts in contract
provisions really helps.
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FASHION SELF-EXECUTING CONTRACT
PROVISIONS TO RESOLVE ISSUES
• Key terms clearly defined
• Customize the Arbitration Proceeding
• Conditions precedent and subsequent (including
designated procedures)
• Objective standards (reasonableness and
performance)
• Resolve issues during Contract Performance
• Define limits of possible claims and damages
• Contract interpretation rules (ambiguity; priority of
documents; integration; modifications in writing;
choice of law)
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Clearly Define Legal Terms
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CLEARLY DEFINING LEGAL TERMS
(BEFORE)
The warranty shall run for a period of ten years
and shall cover any defect in design, materials or
workmanship. Any repair of a defect in design,
materials or workmanship shall be in the nature of
a permanent repair.
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CLEARLY DEFINING LEGAL TERMS
(AFTER)
The warranty shall run for a period of ten (10)
years from the date on which the product is
delivered to customer. It shall cover any and all
defects in the product, including without limitation
defects in design, materials or workmanship. All
warranty repairs are to be of permanent nature,
which shall be defined as repair sufficient to
completely eliminate the defect and restore to the
products or any of its components the design life,
(as defined in the specification) which it/they would
have had had the defect not existed.
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Customize the Arbitration Proceeding
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CUSTOMIZING THE ARBITRATION
PROCEEDING
(BEFORE)
The arbitration shall be conducted in
accordance with the rules of the
International Chamber of Commerce ("ICC").
The arbitration shall be conducted as
expeditiously as possible, before a panel of
three arbitrators appointed by the ICC.
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CUSTOMIZING THE ARBITRATION
PROCEEDING
(AFTER)
All disputes arising from or any way related to the Contract shall be resolved by
arbitration conducted before a panel of three arbitrators in accordance with the
rules of the International Chamber of Commerce, subject to the following:
(1) the arbitrators shall be experienced in the resolution of patent disputes
involving computer products;
(2) the request for arbitration shall be filed no later than 180 days after the
dispute has arisen and the arbitration hearing shall be held and a final
award published by the parties no later than 150 days after the filing of the
request for arbitration; [these time limits are to be strictly enforced, and the
arbitrators shall have no jurisdiction to decide on the merits any arbitration
claim which does not comply with the schedule];
(3) Following the exchange of relevant documents specified in the rules, any
party shall have the right to propound up to 20 document requests (without
subparts) requesting additional documentation in the possession of the
responding party which may not have been provided. The request shall be
responded to by production of the documents and/or written objections
thereto within 30 days after service thereof. The Chairman of the arbitration
panel shall be authorized to resolve all discovery disputes.
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SAMPLE "ENFORCEMENT" CLAUSES
(CHOICE OF FORUM)
The arbitration shall take place in
_______________. (When necessary,
choose a forum where arbitration
enforcement rights are consistent with those
of the enforcing jurisdiction.)
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SAMPLE "ENFORCEMENT" CLAUSES
(EQUITABLE RELIEF STANDARD )
The parties agree that the arbitrators shall be empowered
to grant any legal or equitable relief (including without
limitation injunctive relief, specific performance or a
protective order preserving confidentiality of information)
which they determine to be appropriate under the law
governing the arbitration. To the extent that the arbitration
panel grants equitable relief, the parties hereby
acknowledge that any such relief will be deemed to have
been granted based on and in accordance with the legal
standards applicable to the issuance of such relief in the
courts of ____________ (list enforcing jurisdiction(s)), and
each party hereby waives its right to contest the
enforceability of any arbitration award granting equitable
relief on the grounds that it arguably does not meet such
standards.
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SAMPLE ARBITRATION CLAUSE
(AGREED TIME LIMITS)
All disputes arising from or in any way related to this Contract shall be
resolved by arbitration conducted before a panel of three arbitrators in
accordance with the Rules of the International Chamber of Commerce
[American Arbitration Association] subject to the following:
(1) The Request for Arbitration shall be filed no later than 180
days after the dispute has arisen; and
(1) The arbitration hearing shall be held and a final award
published to the parties no later than 150 days after the filing
of the Request for Arbitration.
[These time limits are to be strictly enforced, and the arbitrators shall
have no jurisdiction to decide on the merits any arbitration claim which
does not comply with this schedule.]
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NEGOTIATING A DIFFERENT APPEAL STANDARD
In addition to any and all ground for appeal set forth
under applicable law, any arbitration award may be
vacated, modified or corrected (a) to the extent that
the tribunal's findings of fact are not supported by
substantial evidence; and/or (b) where the tribunal's
conclusions of law are erroneous.
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Liability Conditions Precedent
and Subsequent
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LIABILITY-CONDITION PRECEDENT
(BEFORE)
Claims. Any claim by a party for additional
compensation under Sections _____ or
_____ of this Contract shall be supported by
documentation and presented for resolution
within six months after the claim arises.
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LIABILITY-CONDITION PRECEDENT
(AFTER)
Claims. Any claim by a party in connection with Sections
10.1 to 10.5 of this Contract must be supported by a
contemporaneous record, kept in the ordinary course of
business, of time spent and/or expenses incurred in
performing any work on which the claim is based including
identification of individuals performing the work, description
of the work performed and a record of the actual costs of
said work. If such claim is arbitrated as set forth herein, the
Arbitrator shall initially make a determination as to whether
this requirement has been satisfied before proceeding
further with the hearing of said claim. If the Arbitrator
determines that the foregoing requirement has not been
satisfied, the claim shall be denied.
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LIABILITY-CONDITION SUBSEQUENT
(BEFORE)
The parties shall transfer all patent rights set forth
in Exhibit A to a corporation to be formed by them
under the laws of the State of Nevada in which J.
Smith, the current holder of the patents shall hold
51% of the stock and act as the corporation’s
president.
The corporation shall manufacture and sell at least
5,000 of the patented devices during each
calendar year of the term of this agreement.
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LIABILITY-CONDITION SUBSEQUENT
(AFTER)
The parties shall transfer the patent rights set forth
in Exhibit A to a corporation to be formed by them
under the laws of the State of Nevada, provided
that should manufacture of the patented devices
not exceed $5,000 per year for any year of this
agreement, then all of said patent rights shall be
reassigned to J. Smith, the current holder of the
patents, upon demand.
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Resolve Issues During Contract
Performance
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SPECIFY ACTIONS BY PARTIES TO RESOLVE
ISSUES DURING CONTRACT PERFORMANCE
• Interim and final releases
• Written acknowledgment of or action confirming
adequate performance (milestones)
• Advance notice and rights to cure
• Self-help
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DEFINING OBJECTIVE STANDARDS TO MEASURE
ADEQUACY OF PERFORMANCE
(BEFORE)
Any claim for extra compensation for work
performed on the Project shall be submitted within
21 days after the claim has arisen, and shall be
supported by adequate internal accounting and
other documentation of the Contractor.
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DEFINING OBJECTIVE STANDARDS TO MEASURE
ADEQUACY OF PERFORMANCE
(AFTER)
Any claim for extra compensation for work on the
project shall be submitted within 21 days after the
claim has arisen. Contractor shall not be entitled
to recovery of any amounts which are not
supported by detailed labor and material records
showing clearly time spent and materials
purchased for the extra work for which
compensation is being sought.
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REQUIRING WRITTEN ACKNOWLEDGMENT
OR ACTION CONFIRMING
ADEQUACY OF PERFORMANCE
(BEFORE)
Work shall be completed and progress payments
made in accordance with the milestone chart
attached as Exhibit A.
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REQUIRING WRITTEN ACKNOWLEDGMENT OR
ACTION CONFIRMING ADEQUACY OF
PERFORMANCE
(AFTER)
Upon the completion of any milestone set forth in
Exhibit A, Manufacturer shall submit and the
Owner shall sign a document confirming adequate
completion of the milestone, following which
Owner shall pay in full the progress payment
associated with the milestone.
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Define Limits of Possible Claims
and Damages
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DEFINE LIMITS OF POSSIBLE
CLAIMS AND DAMAGES
• Limiting remedies (tort claims (fraud, alter ego) vs.
contract claims; limited warranties)
• Areas of equitable relief
• Special statutes of limitation and notice periods
• Damage limitations
• Evidence required to support claim
• Confidential and proprietary matters
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LIABILITY-LIMITATION OF CLAIMS
ALTER EGO
(BEFORE)
14.7 Non-Recourse. Contractor specifically
acknowledges and agrees there shall be no
personal liability on the part of Owner’s respective
officers, employees or directors for the payment of
any amounts due hereunder or for the
performance of any obligation hereunder.
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LIABILITY-LIMITATION OF CLAIMS
ALTER EGO
(AFTER)
Paragraph 14.7 No recourse. The parties specifically
agree that there shall be no personalized liability on the
part of any officers, shareholders, directors, partners,
parent or affiliate corporations of any party for the payment
of any amounts due hereunder or in connection with any
dispute arising from this agreement, or the performance of
any obligations hereunder. __________ and ___________
expressly acknowledge that each is adequately capitalized,
have duly followed the corporate partnership procedures in
connection with the business operations, for purposes of
this contract that no unity in ownership or alter ego
relationship exists between the parties to this contract and
any person or entity referenced in this provision. The
parties shall look solely to each other and their assets for 28
the satisfaction of their respective claims.
INJUNCTIVE RELIEF
(AFTER)
12.1 Contractor’s Warranty. (After warranty
language add the following). To the extent that
Contractor is unable to satisfactorily repair or
replace the warranty defect after the exercise of a
good faith reasonable effort to do so, the
Contractor may at its option elect to pay liquidated
damages in lieu of repairing or replacing said
defect. Said damages shall consist of a one time
payment made in accordance with the formula set
forth in Section _____.
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DAMAGES-LOST PROFITS
(BEFORE)
The parties agree that X Corp. will be entitled to
recover any and all damages that are a direct and
proximate result of a breach of this contract by 2
Corp.
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DAMAGES-LOST PROFITS
(AFTER)
The parties contemplate that X Corp. will earn a profit on
manufacture and sale of parts to 2 Corp. under the terms of
this agreement, and also in aftermarket sales to third
parties. In the event of a dispute, the parties agree that a
rational basis for calculating lost profits would be to
determine anticipated gross revenues under the contract
less actual cost for the manufacture and sale of the unit
plus a reasonable margin for profit and overhead based
upon historical profit margins for sales of component parts
by X Corp. less the amount of any sales which were made
or reasonably should have been made by X Corp. to
mitigate its damages.
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LIMITING THE REMEDIES WHICH
CAN BE AWARDED
Performance of Services: Consultant warrants that its Services to be
provided hereunder shall be performed in accordance with the standards
customarily provided by an experienced and competent professional
engineering organization rendering the same or similar services. Consultant
shall re-perform the Services that were not performed in accordance with this
standard; provided that the Consultant is notified in writing of the
nonconformity within 180 days after the completion of the nonconforming
Services.
Consultant shall re-perform at its own cost, but in no event shall Consultant’s
cost exceed 50% of the original total of the applicable Work Order that is the
subject of the re-performance. For purposes of this clause, Consultant’s cost
shall mean the aggregate of the costs, expenses, and allowances set forth in
Articles 3.01, 3.02, 3.03, 3.04 and 3.05 hereof.
The foregoing are Consultant’s entire responsibilities and Client’s exclusive
remedies for services rendered or to be rendered hereunder, and no other
warranties, guarantees, liabilities or obligations are to be implied.
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SPECIFIED INTEREST RATES
(BEFORE)
The parties shall be entitled to recover interest as
provided by law.
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SPECIFIED INTEREST RATES
(AFTER)
In the event that payments are not made as set
forth herein, an interest rate of __________ shall
be applied to the amount due from the date on
which any payment falls due according to the
installment schedule set forth in Exhibit A. Said
interest rate shall continue to run on the obligation
until paid and shall supercede any other interest
rate provided by law, either pre or post judgment.
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PRESERVING CONFIDENTIALITY OF THE
ARBITRATION
(BEFORE)
The arbitration proceedings shall be confidential.
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PRESERVING CONFIDENTIALITY OF THE
ARBITRATION
(AFTER)
Neither party shall disclose to any third party any
information obtained or evidence introduced in the
arbitration. At the end of the arbitration, upon
request, each party shall return to the other or
destroy originals and all copies of information
received during the arbitration from any party to
this Agreement, or of any memorialization of said
written information. This obligation shall be a part
of the final arbitration award and any judgment
obtained on the award.
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INCLUDING CONFIDENTIALITY PROVISION IN
THE ARBITRATION AWARD
Sample No. 1: The stipulated protective order between the parties is hereby
incorporated by reference into this arbitration and award, and shall be fully
enforceable, as a part of this award, by any court of competent jurisdiction.
Sample No. 2: In order to ensure that the confidentiality of these proceedings are
preserved, the parties shall be responsible for the following:
(1)The parties shall not disclose to third parties any information related to this
arbitration, including without limitation the filing of the arbitration, any
aspect of the arbitration proceedings, any evidence or legal authority
submitted in connection with the arbitration, and any portions of the interim
or final arbitration award:
(2)Upon final conclusion of these proceedings, each party shall return to the
other all copies of documentation secured from the other party in
connection with and ruing the course of the arbitration, and all written
witness statements prepared in connection with the arbitration;
(3)Files in each parties' possession containing any information pertaining to
this arbitration shall be either destroyed or maintained in a confidential
area with access restricted to legal counsel and corporate officers and
executive involved with the arbitration.
The foregoing provisions shall be fully enforceable, as a material part of
this award, by any court having competent jurisdiction.
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PROVIDING FOR RESOLUTION OF CERTAIN
ISSUES PRIOR TO ARBITRATION THROUGH
MEDIATION
(BEFORE)
The parties shall attempt to mediate the dispute
prior to initiating arbitration.
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PROVIDING FOR RESOLUTION OF CERTAIN
ISSUES PRIOR TO ARBITRATION THROUGH
MEDIATION
(AFTER)
Before initiating arbitration, the parties shall engage in a mediation
process as follows:
(1) within 30 days after the dispute has arisen, the parties shall each
appoint one authorized company representative to meet on an informal
basis and attempt to settle the dispute. Lawyers and other third parties
shall not be involved in this process;
(2) If this process is not successful, either party may offer to commence
formal mediation proceedings before a mediator who shall be appointed
by agreement of the parties. The mediation shall take place no later
than sixty (60) days after the termination of the informal mediation
procedures described in subparagraph (1).
(3) The mediations referenced in subparagraphs (1) and (2) shall be strictly
confidential, and no statements made in the mediations shall in any way
be disclosed or used in any subsequent dispute resolution proceedings.
The costs of said mediations shall be shared equally by the parties;
(4) If the mediation proceedings are not successful, either party may
commence binding arbitration in accordance with the arbitration
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provisions of Article 11.
Contract Interpretation Rules
(ambiguity; priority of documents;
integration; modifications in writing;
choice of law)
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