This Presentation was given by Preet Sethi on the 19th of Feb 2013 at the RIS’ (Research and Information Systems for Developing Countries) Capacity Building Programme on 'International Economic Issues and Development Policy (IEIDP)' under the ITEC / SCAAP Programme of the Ministry of External Affairs, GOI. The topic of the presentation is ‘Legal Issues in Global Business Negotiations’

1. Legal Issues in
Global Business
Negotiations
By Preet Sethi
[e-mail: preet13_sethi@yahoo.com]
At RIS‟ Program on International Economic Issues and Development Policy (IEIDP) under ITEC / SCAAP Programme on
19th Feb 2013

2. Introduction
 Negotiation - is a process where each party
involved in negotiating tries to gain an
advantage for themselves by the end of the
process through a mutually beneficial
compromise.
 To reach a Win-Win situation
 Especially important in
business negotiations as
the parties have to
continue to work together
for a long time
contd…..

3. Introduction - International
Business Negotiation
 Negotiating international business transactions requires
the ability to meet unique challenges, the primary one
being navigating through the web of foreign laws;
 All rights, liabilities and obligations in the modern world
are often governed by laws.
 The legal rights of the parties affect their negotiations
 All business negotiations should necessarily be carried
out within the realm of law so as to give legal effect to
the negotiation concluded between the parties.
 Therefore, various legal aspects should be taken into
consideration while negotiating international business

4. Important Elements
 Legal Framework
 Relevant Laws & International
Conventions/Treaties
 Dispute Resolution
 Proper Documentation

5. Legal Framework

6. Legal Framework…
Examining the Legal System
Local Legal Expertise
Due Diligence
Political Stability

7. Legal Framework…
 It is imperative to examine the legal system of a particular
jurisdiction in order to assess any risks that may be associated
in any business transaction
 Differences in legal system can affect the negotiation process
 Businesses need to understand the do‟s and don'ts of the
specific country they wish to invest it, as well as looking into
the legal protections offered in these countries towards their
business assets
 It also needs to be ascertained if there is no difference in
treatment of foreign companies in all matters relating to
tax, labour, social security, civil, or commercial law

8. Legal Framework…
Local Legal Expertise
It is recommended to consult a local legal
expert for procuring the advice in terms of the
local laws.
Due Diligence
Legal due-diligence
and risk analysis
needs to be
conducted for the
existing legal
framework so as to
know whether a
particular project/
investment/ deal/
contract and any is
permissible or not,
including
enforceability of an
international
arbitration award.
Political Stability
The difference in political factors of
nations across the globe can influence
the negotiation process in international
business
Despite reduced trade barriers through
globalization, deregulation and
privatization, government policies still play
major roles on business are run
globally, through promulgated and
enforced economic policies and
regulations that directly change the
competitive atmosphere a company is
existing in

9. Relevant Laws &
International
Conventions/Treaties

10. Relevant Laws & International
Conventions/Treaties
 Applicable law of contract/ Proper Law of
Contract – determines the substantive rights
and obligations of the Parties to each other.
 Laws differ across jurisdictions – necessity to
check the validity of transaction under the
jurisdiction where it is to be performed

11. Relevant Laws & International
Conventions/Treaties
Examining the Bilateral Investment Treaty
o Bilateral Investment Treaties (BITs) make up one part of a global investment
regime that governs how countries and their governments can regulate
foreign-owned assets. As the name suggests, the general purpose of BITs is
the “promotion and protection” of investments from one contracting party
in the territory of the other contracting party. The key investor protections in
BITs restrict governments‟ ability both to encourage the potential
social, economic and environmental benefits of foreign investment and to
minimize potential damage from such investment.
o BITs are international treaties between two countries which seek to create a
stable investment environment by giving investors rights against States‟
abuse of sovereign powers.
o The principal objective of BITs is to provide a stable investment climate, inter
alia, by protecting investments from the arbitrary actions of a foreign
government.

12. Relevant Laws &
International
Conventions/Treaties
A typical BIT assures foreign investors:
 No Discrimination- BITs usually assure both National Treatment and Most-Favored
Nation (MFN) treatment (i.e., a foreign investor will be treated no less favorably
than investors from the host country, or from third countries)
 Fair and Equitable Treatment- A foreign investor will be protected against
arbitrary, unfair, or inequitable treatment, under international law standards, and
often be assured of full protection and security for its investments.
 No Expropriation Without Due Process and Full Compensation- Expropriation of
investments will be prohibited, except under due process of law, and
accompanied by full compensation. This usually includes indirect expropriation,
by measures “tantamount to expropriation.”
 Additional Protections- Investment treaties also may include prohibitions on
performance requirements (i.e., investments conditioned on domestic content or
export performance), protection of financial transfers, freedom to staff the
investment, transparency undertakings and other protections.
 Arbitration of Investor Claims- In a BIT, the host state usually agrees to submit a
foreign investor‟s claim of a treaty violation to arbitration before an independent,
ad-hoc tribunal. The arbitral award will be binding, subject to very limited review,
and enforceable under treaty.

13. Dispute Resolution

14. Dispute Resolution
 Arbitration Vs. Litigation
 Choice of Ad Hoc or Institution Arbitration
 Drafting of a proper arbitration clause
 Place, Venue, Seat & Language of arbitration

15. Dispute Resolution
Arbitration Vs. Litigation

16. Dispute Resolution
Arbitration is a legal technique for
the resolution of disputes outside
the courts, wherein the parties to
a dispute refer it to one or more
persons (the "arbitrators” or
"arbitral tribunal"), by whose
decision (the "award") they agree
to be bound.
Why Arbitration?
 Neutrality
 Avoidance of
multiplicity of
proceedings
 Certainty of Forum
 Finality
 Ease of
Enforceability
Arbitration Vs. Litigation

17. Dispute Resolution
Choice of Ad Hoc or Institution
Arbitration

18. Dispute Resolution
Ad-hoc Arbitration
 An arbitration
without an arbitral
institution being
specified to
supervise the
proceedings, or at
least to supply the
procedural rules for
the arbitration
Institutional
Arbitration
 Disputes submitted
to arbitration with
institutional
oversight; usually
conducted under
the institution‟s own
comprehensive
rules of procedure.

19. Advantages
 Party autonomy & Higher
party control over the
procedure
 Parties can write their own
arbitration rules
 Flexibility – akin to a Tailor
made suit can be shaped
to meet the wishes of the
parties and the facts of the
dispute
 Complete freedom to
choose an arbitrator of
your own choice
 Can be less costly in
certain circumstances
 Can be faster in certain
circumstances
Disadvantages
 Advantages subject to the
caveat that parties, advocates and
the Tribunal work together, however
cooperation is very difficult when
parties are in a dispute
 No control over the Arbitral Tribunal
 Lack of checks and balances over the
Tribunal
 Arbitrator Fees usually negotiated
between the parties and the Tribunal-
an extremely delicate matter
 Usual complaints - high fees, delays
 liberal grant of adjournments
 delay in delivering the award
 Reluctance of parties to raise these
issues on account of the fear of losing
favour with Tribunal
 Assistance of the Courts is required
when parties are unable to agree. e.g.
choice of arbitrator
Ad-hoc Arbitration

20. Institutional Arbitration
How institutional arbitration works to ensure procedural and
cost efficiency in arbitration
 The rules of an institution provide the safety net
 Supervise the appointment of a Tribunal, ensuring
impartiality and quality of the Tribunal Terms of
Appointment of Arbitrators
 Prevents Challenge of Arbitrators
 Institutional oversight over the process
 Managing costs and delays Containing costs of
arbitration (in particular, arbitrator‟s fees and
expenses)
 Reducing delays/ Time management
 Monitoring the progress of arbitrations

21. Dispute Resolution
Drafting of a proper arbitration clause

22. Drafting Of A Proper
Arbitration Clause
 Don‟t have Pathological
Clauses-A pathological
clause is a clause which
contains defects, that are
liable to disrupt the smooth
progress of the arbitration
 Examples of Pathological
Clauses:
 Reference to litigation with
an option to go to
arbitration
 Clause providing an option
between arbitration and
litigation
 Clause designating a non-
existing institution
 Clause referring to two
arbitration institutions &
multiple places of
arbitration
 Uncertain Seat
 Clause referring to two
arbitration institutions
POINTERS
Devote enough time in your
contract drafting schedule to draft
an appropriate arbitration clause
Keep it simple and get all the basic
points [Rules, curial law, seat,
venue, number of arbitrators and
language]
Use tried and tested institutional
clauses, whereever possible
Seek the assistance of an
arbitration expert

23. Dispute Resolution
Place, Venue, Seat & Language of
Arbitration

24. Place, Venue, Seat & Language of
Arbitration
Seat of the arbitration
 Influences the law governing the conduct of the arbitration
 The law of the seat may enlarge the grounds on which a curial
court may set aside an award
 The court of the seat will have the power to set aside the award
and/or supervise the arbitration proceedings if necessary
 It determines the nationality of the award for enforcement under
the New York Convention
 There is a distinction between the seat of an arbitration and the
physical location where the arbitration is conducted, which can
be referred to as place.
 The word „seat‟ is preferable to the word „place‟ as the seat of
an arbitration is a legal concept, while the place of an
arbitration could refer to the physical place where the arbitral
proceedings are conducted.
 Possible to have different „seat‟ and „place‟ of arbitration.

25. Place, Venue, Seat & Language of
arbitration
Procedural Law
 Also called curial law of the arbitration, or lex
arbitri, or law of the situs or seat
 May be different from the substantive law of the
arbitration
 Matters dealt with by the procedural law - the
number of arbitrators , the default appointing
procedure, the duties and powers of arbitrators , the
power of the court to order security for
costs, discovery, injunctions, judicial review of awards
In theory possible to have a different procedural law
than the seat of arbitration, but not advisable

26. Proper Documentation

27. Negotiating Contracts
The 3 C’s of a Contract
Clarity
Certainty
Code of Conduct

28. Negotiating, Drafting & Executing
Business Document
 Key Contractual Provisions
 Parties
 Recitals or Whereas Clauses
 Definition of Terms
 Delivery Mechanism Transfer of Title
 Price and Terms of Payment
 Shortfall or Failure to Deliver / Perform
 Risk
 Anticipation of changes in future regulatory
framework etc.
 Warranties and Representations
3 C’s

29.  Key Contractual Provisions
 Liabilities and Indemnities
 Default, Termination and Remedies
 Progress Reports and Audit Rights
 Confidentiality
 Arbitration and Dispute Resolution
 Force Majeure
 Third Parties
 Compliance of Local/Domestic Laws
 Taxes, Levies and Charges
3 C’s
Negotiating, Drafting & Executing A Business
Document

30.  Key Contractual Provisions - Miscellaneous
provisions
 Entire agreement
 Assignment
 Governing law and enforceability
 Jurisdiction
 Variation /amendments
 Successors and Assigns
 Severability
 Delay or Omissions
 Waiver
 Public Relations
 Survival
 Notice
3 C’s
Negotiating, Drafting & Executing Business
Document

31. Negotiating Contracts – Some
Pointers
 Term Sheet – must be the starting point of negotiations
 Document to flow from Term sheet
 Standard form Contracts – a Boon & a Bane – to be used
with caution.
 Doctrine of Contra Proferentem [is a doctrine of
contractual interpretation which provides that an
ambiguous term will be construed against the
party that imposed its inclusion in the contract –
or, more accurately, against the interests of the
party who imposed it]