Legal Strategy for Early Prevention of Disputes in a JV
Updated: Jul 19, 2019
Despite JV negotiation may take months of boardroom meetings, bills worth of hundreds of thousands dollars of lawyers and mediators' work, tons of emails and piles of research notes, still we are seldom confident that the result will satisfy all the parties. If certain issues like the effective dispute resolution (its prevention), future management control procedures and compliance with requirements of all jurisdictions involved do not receive proper attention, the clients are not fully protected against the unpleasant surprises in the future.
In a fairy atmosphere of early negotiations, when thoughts of a great project coming make the mindset so optimistic and exciting, negotiators tend to skip the nuances of dispute resolution procedures, sometimes copypasting details of the arbitration institution from the previous contract, or even deciding randomly on the nearest one from the prospective headquarters of JV. The issues of jurisdiction and admissibility, if not considered in this moment, can add up some headaches after. We may stipulate, for example, the London Court of International Arbitration as a general institution for any disputes arising, if not settled in the amicable negotiations, but forget the exclusive jurisdiction of domestic national courts for a range of issues, or the issue of settling emergency measures, which may not be quite suitable to settle in the LCIA for cost/time purposes. Very frequently the parties unconsciously fall foul of conflict of law clauses, if not checked the jurisdictional requirements properly, especially in disputes associated with land, interim measures, or bankruptcy.
Negotiators may want to bear in mind that the nature of disputes arising from the contract performance, JV compliance with international commercial law and domestic law of production/service/place of business, disputes arising of construction of contract may be subject to different jurisdictions, and, if not thought over and stipulated clearly in the early stage, may cause delays and extra-cost after.
It is never enough just to agree on a certain type or institution for dispute resolution. Careful consideration shall be given to structuring the mechanism of pre-action protocol and negotiations that follow minor defaults of the parties. The advisor shall be mindful that there are cases where the parties start operation, marketing, or other joint business activity while the contract itself is not finalised and duly valid. Sometimes possibility of disputes on such an early stage is underestimated. Special attention shall be gven to the JV management control proceedings (left in the contract "to be defined" after formation). Even temporarily created groups working on JV formation must be defined as short-time "management" and controlled by the parties since the beginning to ensure the fair practice, compliance with all applicable requirements, and cost efficiency. We do not want to spend a couple of millions which will fall after in "other expenses for JV preparation" (to be read as unnecessary third market overview somehow ordered, or a 3D model of JV logo of a size of a small mansion, or a couple of Miami parties).
When we have reacted the effective control procedure from the very beginning, as well as clear understanding of future dispute resolution, there is more time to deal with non-contractual issues: getting to know the market global perspective, obtaining local community support and upgrading the JV's product.