The last few years has witnessed the pandemic, the conflicts in Ukraine and Israel (and many other less publicised areas), and increasing political, economic and social uncertainty. Against that background, conducting business is perhaps fraught with more risk than has been the case in recent times. In these circumstances, parties legitimately have concerns about how they might protect themselves if things go wrong.
We are increasingly seeing disputes involving such issues. By way of example, we have seen the following scenarios:
- Parties to contracts claiming they are unable to perform due to force majeure or frustrating events. This includes scenarios where the parties in question hold advanced prepayments that they refuse to return.
- Claims against companies and individuals that have commenced before those parties become sanctioned and have their assets frozen.
- Parties in warzones claiming that newly implemented local laws would prevent them from satisfying orders in relation to the provision of security.
- Parties dissipating assets by moving them to jurisdictions less favourable for enforcement purposes, or seeking to conceal their ownership by transferring them to third parties.
Prevention is of course often better than cure, and there are some steps that businesses can take to try and make life easier if a dispute does arise. Some of the considerations may include:
- Due diligence on counterparties and intended transactions: there is perhaps a greater need for this in the current climate, not least given the potential impact of sanctions. It may also be prudent to identify where a counterparty’s assets are located, if ultimately there is a need to enforce (albeit the situation may change by the time enforcement is required).
- Contingency planning: having in place alternatives if issues arise with the principal contractor.
- Insurance: seeking sufficient insurance cover.
- Contractual drafting: when drafting a contract, giving careful consideration as to whether it offers adequate protection if things go wrong and, where possible, involving lawyers in the drafting. One aspect of this involves the drafting of clauses in relation to termination and force majeure. Another aspect, often given insufficient attention in our experience, is the governing law and jurisdiction clause. Sometimes the governing law of the contract, and in what forum any dispute is to be resolved, is left out completely. That can lead to uncertainty, as well as substantial time and cost resolving the issue before the substantive dispute can be addressed. Even if the governing law/jurisdiction is addressed in the documentation, problems can arise, for example if the scope of the clause is insufficiently narrow, or is itself uncertain. One regular issue involves clauses that refer to the laws and/or courts of the United Kingdom or Great Britain whereas England and Wales, Scotland, and Northern Ireland are separate jurisdictions. An alternative issue is where clauses are certain but unfavourable – for example, if the parties agree upon a jurisdiction or governing law which may be unfamiliar or unfavourable, including for the purposes of enforcement.
- By seeking to address issues before they arise or surmount. This may not only reduce or even eliminate any potential losses, but result in a quicker resolution. Care needs to be taken however to ensure that any steps taken do not inadvertently enable a counterparty to terminate the contract and claim damages or amount to a waiver of any rights.
Sometimes, however, despite best efforts, a cure is necessary. Although it may be tempting to wait until things get better (if they ever do), the risk with that is that you run out of time to take action as there will be statutory (and sometimes also contractual) limits on when claims can be commenced. As soon as a dispute is in prospect, it is best to check what limits and obligations are relevant.
If claims cannot be resolved without the involvement of the courts, then the English courts have at their disposal some very powerful and flexible tools which can assist claimants in identifying, preserving and recovering assets. For example, parties can be required to disclose information and documentation about assets. In extreme cases, orders are granted permitting parties to search premises or image data. The courts can also freeze assets worldwide, whether in support of domestic proceedings, overseas proceedings or arbitration. Receivers can be ordered to take control of and protect assets, and are also appointed in order to effect enforcement. Insolvency practitioners also have a wide array of powers available at their disposal which can achieve similar ends. The English courts are also well alive to actual or potential debtors seeking to dissipate their assets, and there are mechanisms in place which allow claimants to target third parties involved in such activity.
It is an unfortunate feature of our times that businesses now need to concern themselves increasingly with the prospect, or reality, of things going wrong because of change at an international level. Although risk cannot be eliminated, and not every scenario can be resolved satisfactorily, there are steps that can be taken that seek to improve the position. In that regard and whilst often an additional expense, taking legal advice at an early stage can serve to save time and money and reduce risk in the long run.
For more information: https://cyklaw.com/