QUESTION ONE – What is your best practice approach when advising General Counsel, to ensure dispute resolution clauses are to their real advantage and do not obstruct enforcement proceedings?
Dispute resolution clauses should be included towards the end of modern commercial contracts. In this field, there is an increasing trend among commercial parties engaged in international business to provide for a mechanism other than litigation.
An increasingly popular alternative for commercial contracts is arbitration and mediation. Arbitration and mediation provide the privacy that commercial parties seek when resolving disputes. Other mechanisms commonly found in international commercial contracts include adjudication and expert determination. Sometimes, those involved in the negotiations often pay less attention to these clauses than ought to be the case. A lack of attention to the drafting of a dispute resolution clause may lead to defective drafting and the clause becoming unworkable, or ‘pathological’.
The aim when drafting a dispute resolution clause should, therefore, be to ensure that it is clear, internally consistent, workable and reflects the intentions of the parties. Therefore, sufficient time should be allowed in negotiations for careful consideration of the dispute resolution mechanism to be included in the contract. Where the subject matter of the contract is of significant commercial value, expert advice should be sought to ensure that pathological defects are avoided and the dispute resolution mechanism is effective in the manner intended by the parties.
QUESTION TWO – Are there any particular rules around funding litigation in your jurisdiction that General Counsel should be aware of?
Litigation funding is becoming increasingly popular in Switzerland. One major force behind this trend is procedural law. At the beginning of proceedings when the action is filed, the plaintiff may already have incurred substantial costs. Swiss civil courts may demand the plaintiff to make an advance payment up to the amount of the expected court costs. There will be a decision on the procedural costs in the final award. Costs are allocated in accordance with the outcome of the case. The plaintiff, in addition to the general risk of litigation, always bears the defendant’s credit risk should the defendant be incapable of reimbursing the plaintiff for the advances paid.
According to the Swiss Federal Supreme Court of 10 December 2004, DTF 131 I 223, litigation funding is generally permitted in Switzerland.
A substantial legal restriction in Switzerland is the prohibition of the pactum de quota litis, which severely restricts the financial participation of the mandated attorneys in the success of the relevant proceedings. Another crucial question revolves around how the funder will be refinanced since the individual refinancing structures might violate Swiss financial market regulations.
The aforementioned judgment by the Federal Supreme Court ruled that litigation funding is considered as permissible (see also Federal Supreme Court decision 2C_814/2014 of 22 January 2015).
Up to the present day, there are no best practice guidelines or another legal framework in Switzerland for funding schemes. Accordingly, the regulatory framework has not been conclusively defined in Switzerland. Even the Federal Supreme Court did not comment on the legal qualification of the litigation funding agreement but denied a qualification as an insurance contract.
Drafting a litigation funding agreement under Swiss law, the following parts should be reviewed.
In return for financial support, the funder participates in the litigation gain in case of success. In addition to the reimbursement for the invested capital, the plaintiff undertakes to pay a share of the remaining net proceeds to the funder. The funder’s share may vary greatly, depending on the funder, the plaintiff and the individual disputed claim. In practice, quota participations of approximately 30 per cent to 50 per cent, are observed. Other forms of participation are also conceivable, such as in the form of a multiple of the costs paid. Concerning the legal boundaries of the amount of profit-sharing, there has not been a judgment from the Federal Supreme Court yet. Certain types of funding agreements or individual clauses may be inadmissible.
The individual funding entity is not regulated by any state supervision. However, the funders have to ensure that their internal funding structure is compliant with the applicable Swiss financial market laws.
The mandated attorney must be independent and as free as possible from conflicts of interest. In case of litigation funding, the Federal Supreme Court argued that even if the plaintiff gives the funder the right to be informed about the progress of the proceedings or to be able to codetermine a settlement offer, such contractual rights do not affect the independence of the mandated attorney.
The funder’s conduct, on the other hand, is not regulated. Funder’s involvement in a procedure does not have to be disclosed. The funder can directly influence the litigation only if they substantiate a legal interest, merely economic or factual interest is not sufficient. The interests of the funder are in most cases mainly of an economic nature. There is a functioning market in Switzerland for litigation funding, but only relatively small.
QUESTION THREE – What techniques are typically used by international counterparties in your experience when attempting to gain the initiative during a dispute? How important are civil procedural rules?
Switzerland is one of the preferred venues for hosting international arbitrations and mediations, whether in ad hoc proceedings or in proceedings administered under the rules of the leading arbitration and mediation institutions.
Many international contracts referring to arbitration or mediation in Switzerland are governed by Swiss substantive law too since Swiss Law is easily accessible and intelligible for lawyers or non-lawyers. In other words, the liberal and predictable legal framework of Swiss law attract contract negotiators and drafters from all over the world. Swiss Law has been tested in thousands of contracts, including in international litigation and arbitration proceedings
Switzerland’s international arbitration law (Chapter 12 of the 1987 Federal Private International Law Act) is one of the forerunners of modern arbitration laws worldwide and has been an inspiration to many jurisdictions.
While many arbitrations are ad hoc, i.e. not governed by a specific set of arbitration rules, parties frequently choose the specific arbitration or mediation rules of a specialised institution. The most frequently used arbitration rules are:
• The Rules of the ICC International Court of Arbitration (ICC Rules) (www.iccwbo.org)
• The Swiss Rules of International Arbitration (Swiss Rules) and Swiss Rules of International Mediation, a uniform set of arbitration rules issued by the Swiss Chambers (i.e. the Chambers of Commerce of Basel, Bern, Geneva, Neuchâtel, Ticino, Vaud and Zurich) (www.swissarbitration.ch)
TOP TIPS FOR: Successful negotiations
Prepare
The most effective negotiation strategy is preparation. Be sure to determine the desired outcome. Setting a bottom line will enable you to know when to step back from negotiations and when to move forward. Also, research the person with whom you’ll be negotiating.
Use a friendly approach
Warmth and friendliness in business negotiations go a long way, even as you’re aware of the need to be cautious and not too open. Do listen to others; give them time to outline their position, but, on the other hand, don’t let your emotions dictate your approach. One
potential pitfall of negotiating is underestimating what you and/or your organisation have to offer the other party.
Alternative options
It’s important to keep your mind open to a variety of options. All possible options should be considered. Business negotiations require compromises. The best negotiation tactics are those that focus on developing a mutually beneficial deal for both parties.
Act professionally in any respect
Whatever the outcome of your negotiations is, act as professionally as you did throughout your discussions. After all, businesses change quickly. The person you gloated in front of yesterday may be the person you’re working with or reporting to tomorrow.
Respect your opposite
Regardless of the number of people or appearance of strength and size (or lack thereof) on either side, don’t underestimate the power of a determined competitor. Financial worth and business size may be powerful, but so are preparation, a solid plan, and a great attitude.
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