The financial crisis has forced each of us to take a hard look at one’s business with a view to restructure, refinance, retrench and, generally, to cautiously reflect on prospects going forward. As a law firm, we understand caution in any business climate.
With caution in mind, we recently hosted a seminar on dispute resolution with the focus on arbitration. I thought it would be useful to share some basics with a wide audience that may or may not normally seek out pricey lawyers such as myself for advice.
Aside from the nuts and bolts of the arbitration process, which is technical, we have a simple 10-step message to everyone:
1. Read the fine print of your “boilerplate” arbitration and dispute resolution clauses. Re-read them and fix them if needed. Do it while you are still friends. Without a good dispute-resolution clause, your contract is useless. You can’t fix it if you are already in dispute.
2. If you are in the process of preparing contracts, don’t leave dispute resolution to a boilerplate copy-and-paste procedure the day before or of closing. You will hurt yourself in the long run. You need to consider: Where will you litigate or arbitrate? Under what rules? In what language? If arbitration, is the location convenient for everyone? Is the country “arbitration friendly?” You do not want a location where your arbitration per se can be challenged in the local courts.
3. Consider whether arbitration works for your particular situation. Legally, will it be enforced in Ukraine or in the jurisdiction of your counterparty? Certain exemptions apply. In Ukraine, certain recent legislative changes as to shareholder agreements are not particularly arbitration (and I mean foreign arbitration) friendly. You can win the arbitration, but get screwed at the enforcement stage and lose the war.
Commercially (it’s expensive), is it worth it, bearing in mind the amount in dispute? Logistically (it takes time), so by the time the arbitration and enforcement are finished, will there be anything left to collect, any asset to foreclose against or anyone left to chase?
4. Do you have security against which you could foreclose? Do not go in unsecured. Is it an asset that can be seized relatively painlessly? Will it hold its value by the time you go in to seize it? Have you actually physically viewed and inspected the mortgaged property or is it “only on paper”?
5. Have you signed with your counterparty or simply with its “no-assets-just-organized yesterday” offshore special purpose vehicle? Try to get the parent company or holding company on the hook through a three-party arrangement, parent company guarantee or similar structure. This goes to the general caveat in any negotiation. Do you know who your partner really is? It’s not the chap at the negotiating table, not the nice office you have visited, but the person listed in the contract.
6. Your arbitration award will be in U.S. dollars or euros, but your enforcement order will be in Ukrainian hryvnia. Move fast to avoid devaluation.
7. You may have pegged your contract to U.S. dollars or euros on the date of signing, but do you have a devaluation adjustment clause? You may have advanced or lent “the equivalent of XXX euros,” but is your counterparty bound to repay “the equivalent of XXX euros” or simply the hryvnia amount actually borrowed?
8. Try to settle. It is cheaper and faster. That is why lawyers often try to talk you into it. It’s a compromise, but generally it’s worth it unless you have gone beyond the point of no return.
9. And on that note, just because you initiate proceedings (judicial or non-judicial), does not mean you cannot settle. The big stick is often a successful bargaining tool.
10. If it was all black and white, you would likely not be arbitrating or litigating, and the other party would not be saying that it completely disagrees with you. Shouting “liar” during a hearing won’t help your case. So keep an organized file of everything, including the e-mails and old drafts. You will be surprised how often you may be asked in a proceeding: When was that clause introduced into the contract? What did you intend by that clause? Do you have notes from the meeting?
In other words, you have to plan for the worst before you sign anything. That’s why contracts exist. Your new litigation or arbitration lawyers can only work with the contract that your old lawyers wrote and the file they left you. That is Common Business Sense 101, but it’s always worth repeating.
Good luck! And if does not look good, then do consider that pricey lawyer after all.
Myron B. Rabij, a U.S.-born lawyer with Ukrainian roots, is a partner in Salans’ Kyiv office. In addition to heading Salans’ real estate practice in Kyiv, he also specializes in merger and acquisition deals, secured financing and the oil-gas industry. He can be reached at [email protected].
