How to draft disputes clauses in Asian SPAs
Author: Ashley Lee | Published: 11 Mar 2015
There has long been a debate about how dispute clauses in Asia should be drafted, with options ranging from arbitration to local litigation.
To maximise enforceability, speakers at IFLR’s Asia M&A Forum agreed that special consideration is needed for deals involving Asia’s crossborder businesses, which span countries with different legal systems and stages of development.
“What kind of dispute clause is appropriate will depend on the circumstances of the particular transaction or matter,” said Neil Hyman, partner at Slaughter and May in Hong Kong. “For example, what jurisdiction you’re in, such as inside or outside of China, whether you’re dealing with foreign domestic parties, whether you want to be able to seek interim relief.” Instead, lawyers must discuss dispute resolution options with their clients.
“The message that we therefore give to junior lawyers is that they shouldn’t put standard dispute resolution drafting in without thinking about it,” he added, recommending that they need to discuss with the clients whether they want to the courts or arbitration.
And if they choose arbitration, they’ll then need to decide whether they’ll go to Cietac [China International Economic and Trade Arbitration Commission], Hong Kong or Singapore.
Arbitration’s advantage is that decisions can be enforced in most Asian jurisdictions. “It’s a basic legal function that court judgments in one country are not enforceable in others, hereas arbitration can be enforced directly under the New York Convention, but how valuable that is depends on many factors,” said Michael DeSombre, partner at Sullivan & Cromwell in Hong Kong.
Although China, Hong Kong and Singapore are the region’s most common options for arbitration venues, it does take time for courts elsewhere to enforce decisions – even in countries party to the New York Convention. Investors hoping to secure assets quickly may resort to other venues.
“Almost everything we do is crossborder,” said Eric Solberg, CEO at EXS Capital. “At first we preferred doing everything in Hong Kong law and under Hong Kong arbitration, but we realised that while we could get a judgment in Hong Kong, it wasn’t necessarily enforceable in, say, Australia.”
“Now we want arbitration and law wherever they happen to be, so that if we win, we can immediately go after their assets,” he added.
But these clauses are ultimately included to incentivise both parties to have conversations about their issues. “We look for processes that, as much as possible, force principals to talk to each other and resolve the issue, ideally without the presence of lawyers or other advisors,” said Solberg.
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3/13/15 How to draft disputes clauses in Asian SPAs | IFLR.com