1. Limitation Periods
When your contract has been breached, how long do you have before you must commence legal proceedings (or lose your right to do so)? Some contracts provide surprisingly short timelines (amounting to just a few days in the case of some standard trading contracts) and different jurisdictions apply different statutory time limits for different types of claims (e.g. some commercial contract claims in England must be commenced within 6 years; in Japan, the limit is 5 years; and in China, the limit is 3 years).
Therefore, one of the first things you should do when there has been a breach of contract is identify the limitation period so that you do not lose the right to bring a claim.
2. Jurisdiction & Governing Law
A contract will usually set out the parties' agreement on (i) jurisdiction (e.g. England & Wales, Singapore); (ii) forum (i.e. court or tribunal); and (iii) the governing law that will apply if a dispute arises. If foreign, you may need early input from a foreign counsel before deciding on strategy.
If there is no governing law clause, you may need to ask for advice on what law should apply as this will be important in terms of the practice and procedure that will apply to the dispute (e.g. this will be relevant to document disclosure, availability of interim remedies, recovery of costs etc). It can be a complicated issue and again, different jurisdictions apply different rules in determining which law should govern the dispute.
3. Know Your Opponent: Enforcement and Insurance
It is important that before you spend time and money on legal proceedings, you consider the possibility that if you win, you may need to enforce a judgment or award – you therefore need to know your opponent and decide whether they are worth pursuing. Some questions that should be considered include: (i) where the opponents are located; (ii) where their principal assets are located; (iii) whether they operate or trade from another jurisdiction; (iv) are the courts in that jurisdiction "arbitration friendly" or can foreign judgments be enforced there; and (v) whether you may need to apply for a freezing order or other interim (security) measures. If necessary, engage local counsel with a view to understanding what is necessary to enforce (or challenge) an award in the future. What is enforcement likely to cost and how long might it take?
In addition, if there is a risk that enforcement may be difficult/expensive, consider insuring that risk. Equally, consider whether the losses arising from the claim are insured and if so, confirm that insurers been notified, and policy requirements met. Have insurers approved the appointment of lawyers and the commencement of proceedings? If you know your opponent is insured, consider requesting that they confirm their insurers have been notified of a potential claim.
There is little point in pursuing a party through expensive legal proceedings if there will be practical difficulties in terms of enforcement or making a monetary recovery.
4. Understand the Public/Private Nature of your Dispute
If an arbitration, it is most likely to be conducted in private but if in court, the proceedings are most likely to be conducted in public. Therefore, consider any sensitive commercial or reputational issues that may arise – competitors and the media may be able to obtain copies of court documents, the judgment etc. If this is a concern, it may be necessary to apply to court for certain documents to be withheld from public disclosure or to consider alternative methods of resolving the dispute such as neutral evaluation, mediation etc.
Similarly, it may be helpful to engage a PR expert to advise on mitigating any adverse publicity.
5. Pre-Dispute Steps and ADR
Many contracts contain various mandatory pre-conditions that must be met before any formal legal proceedings can be commenced. These can include deadlock provisions with "cooling-off" periods and options for the use of sealed bids to avoid damaging a good business when partners are in dispute. The aim is to preserve the value of the business as a going concern when parties cannot agree a solution to a problem.
Also common is the use of escalation clauses, whereby parties must first try to discuss, negotiate, mediate etc before commencing legal proceedings.
Beware also of procedural requirements (e.g. notice/service of documents) – this will in part turn-upon whether the forum is an institutional tribunal, local court, ad hoc tribunal.
There may also be an opportunity to explore other options for resolving the dispute before the parties become stuck in formal legal proceedings. Commercial solutions such as the sale of one party's shares in a JV dispute or the sale of one party's interest in a business to a third party. Or perhaps an agreement in relation to future business which takes the existing dispute into account. Alternative solutions can be explored through negotiation, neutral evaluation, mediation etc, and should always be considered before starting formal legal proceedings.
6. Managing Internal and External Correspondence
Most international disputes are governed by laws which require much broader disclosure of documents than under Japanese law. The way in which documents may be protected from disclosure through the rules on "privilege" can also be quite different to what is expected in Japan.
In English law proceedings, legal advice and communications exchanged with your external legal advisor for the purpose of the legal proceedings may be privileged from disclosure. Whereas, internal and otherwise private exchanges are usually not protected (e.g. internal confidential memos, board meeting minutes etc).
It is therefore important that the business team understands how the concept of privilege works and how it can be maintained/protected. For example, if the business team wishes to discuss the merits of the claim amongst itself/with management, it is better to do so orally rather than to exchange memos, emails etc.
To address these and related concerns, a communications protocol should be issued by the legal team. A protocol involves setting-up a matter-specific email group (including corporate and external counsel) through which all communications should go. The communications should all be marked "privileged" so that documents are not disclosed by mistake. A common error to avoid is the use of long email chains containing legal advice within the chain which are forwarded/copied to those not directly involved in managing the case. Note also that the group should not be too large and should not include those who are not directly involved – otherwise privilege can be lost.
As a general rule, corporate counsel should be kept informed of any direct exchanges with the opponents – again, matter specific email circulation lists can help to facilitate this so that corporate counsel are copied (even if blind-copied) into all exchanges.
Similarly, detailed contemporaneous notes should be kept of any meetings or discussions with your opponents and an internal protocol should be put in place to ensure this happens.
7. Letter Before Action
In most cases, it will be appropriate (and sometimes necessary where formal pre-action protocols exist in some jurisdictions) to send a claim letter to your opponent before legal proceedings are commenced. It should be neutral and non-aggressive in tone – aim to maintain a balanced, factual approach setting out clearly the basis for your claim and the requested remedy/compensation. It is likely that if proceedings are commenced, the letter will be seen by the court/tribunal.
In this context, letters before action can be strategically useful – they represent a contemporaneous paper-trail evidencing for example, that your actions have been reasonable and that you have been willing to discuss an amicable solution rather than just head straight into court/arbitration. It can be helpful to show that you have given your opponent a reasonable opportunity to remedy the situation.
They may also provide a basis on which commercial negotiations can be explored and a proposal to settle can be made. This can be useful for two reasons – the first because if successful, it can obviously save both parties a lot of time and money; and the second because if not accepted, there may be adverse cost consequences for your opponent where they are considered to have acted unreasonably. This kind of approach can often help to force an overly aggressive or unrealistic opponent adopt a more constructive approach.
Of course, there may be occasions when letters before action should not be sent. For example, if you intend applying for a freezing order, you will not want to give your opponent any advance notice of your intentions. Similarly, it may be important to commence proceedings in the agreed/your favoured jurisdiction before your opponent has an opportunity to commence proceedings elsewhere in an attempt to frustrate/create delay.
8. Interim Remedies
Before any formal steps are taken, it is important to consider the need to apply for interim remedies. The availability of interim remedies in support of either court or arbitration proceedings will differ depending on the jurisdiction and applicable procedural law. For example, you may want to seek a freezing order over your opponent's assets in case they try to hide those assets. Similarly, a disclosure order may be needed where information is needed to identify your opponent's bank accounts or assets.
Or perhaps a search order may be necessary when there is a risk that your opponent may try to destroy important evidence.
9. Costs, Third-Party Funding
Before external counsel, experts etc are appointed you should obtain an estimate covering the costs that will be incurred if proceedings are commenced. This should include both counsel and experts' fees as well as the court/tribunal's administrative fees, translators & travel costs (including for likely witnesses) etc. Also useful when it comes to managing internal budgets and expectations is an indication of which stages of the proceedings are likely to be the busiest and therefore most costly. There should be regular communication with external counsel regarding costs for more effective planning and financial management. This is also obviously an important factor to be considered in the context of any negotiations, mediation process etc when weighing up the comparative merits of trying to find a commercial solution as against pressing ahead with legal proceedings.
In cases where the estimated level of costs is high, you may want to consider a third-party funding ("TPF") arrangement. These are not yet used in relation to Japanese proceedings but are popular in Australia, the UK etc and have recently been introduced with new legislation enacted in both Singapore and Hong Kong. TPF is an arrangement between a specialist funding company and a party in dispute, whereby the funder will agree to finance some or all of the party's legal fees in exchange for a share of the 'case proceeds' (usually a percentage of the damages). The funder only gets paid if the case is won and a recovery is made from your opponent. This means that even in cases where you are in a strong position and would expect to make a recovery, TPF arrangements can be a great (albeit costly[1]) way of minimising disruption to the business – the costs of litigation and the risk of loss are removed from the company's books and wasted management/administrative time is reduced. In addition, even if the case is lost, the risk of an adverse costs order is normally covered by ATE insurance.
10. Documents and Witnesses
Consider document retention at an early stage. Once legal proceedings are anticipated, parties are obliged to preserve and retain all disclosable information and documents. As mentioned above in relation to privilege, although the rules governing disclosure will differ depending on the jurisdiction and forum, in most international disputes, the parties' disclosure obligations will be far wider than in Japanese legal proceedings and will include confidential, internal documents and information. A failure to comply with this obligation can significantly undermine a case and damage a party's credibility. You should therefore discuss with external counsel how best to approach the document production process: where are documents held, in what form, and how can they be identified and collected? A "litigation hold" should be issued by the legal team explaining the obligation to save and preserve information relevant to the dispute. Similarly, any internal document management policy which results in emails etc being deleted or destroyed after a period of time will need to be adjusted in so far as documents and information relevant to the dispute are concerned.
Consider also who are the witnesses of fact. Potential witnesses may leave the company, be transferred, become ill etc. Initial statements should be taken while memories are fresh and contact details recorded. Bear in mind also the possibility that your opponent may want to obtain evidence from the same witness, for example, a third party. Discuss with counsel what evidence is likely to be important and try to act quickly. The availability of credible evidence will have an important impact on strategy and the preparation of your case and submissions.
11. Internal Management of Dispute
In order to ensure the efficient, cost effective conduct of a dispute, it is important to get the right internal team in place. Consider whether if there are a lot of documents to be collected, legal costs or internal management costs can be reduced by hiring a paralegal to manage some aspects of this work. Similarly, if the volume of information is particularly high and there is a lot at stake, perhaps external IT support would be more cost effective in helping to identify and compile information/documents?
As mentioned above in connection with the public/private nature of the dispute, if the case is likely to be reported, consider the potential reputational risks involved and whether a PR firm should be engaged.
Consider also how work will be divided between in-house counsel and external counsel - what is most efficient bearing in mind the size of the claim as well as the time and cost involved?
Similarly, clear, prompt and effective communication is always essential. Focus on efficient and stream-lined internal management to help to reduce time and costs. Consider who will be the main contact for your external lawyers and the level of authority they should have to make case related decisions. Who will approve submissions, attend hearings etc? How frequently should updates, summary emails, and reports for the board be produced? Plan for the right people internally to be available at the right times and discuss with counsel expected key stages in the proceedings. Make the line of command clear, try to reduce the number of people involved and minimize the cost and time involved in obtaining internal approvals and comments.
12. Early Engagement of External Counsel, Financial Experts
Input from external counsel either in terms of an early case evaluation or specific issues-based advice can help both in framing a consistent strategy from the outset and making sure there is a clear understanding of the strengths and weaknesses of the case. Even if legal proceedings are not commenced, independent advice on the merits of a case can help guide a negotiating team in terms of how best to approach discussions and find an early commercial solution.
Advice may also be helpful in highlighting to your management the advantage of reaching an early settlement over the risks involved with potentially long and costly legal proceedings.
An early case assessment can also help in terms of (i) case management - highlighting what evidence will be important (both documentary and witness) so that steps are taken to preserve and collect it before it is lost; (ii) internal financial management and case budgets; and (iii) managing expectations as to the likely outcomes.
In addition, calculating and establishing the quantum of your claim can often be one of the most challenging aspects of a dispute. Early expert financial advice on quantum, interest and tax issues can help when building a case, identifying gaps in the evidence and deciding how to address them. Input from a financial expert can also help in analysing the commercial viability of any commercial solutions that are considered.
13. Consider Your Arbitrator, Technical Experts
If you have agreed to a tribunal with three arbitrators, you will have an opportunity to appoint one of them. You should consider carefully who to appoint early on as the time to do so can be short (e.g. 14, 21, 28 days) and it can be important to make sure you secure the services of your preferred arbitrator.
Similarly, if your case requires technical expert input, appointing an expert early on can be important both because you can prevent your opponent from appointing your preferred expert and it can be helpful to have expert input when preparing your case and agreeing a strategy.
[1] The cost of a TPF arrangement is generally high (typically about 30-40% of the damages recovered) but there is recent English case law which indicates that in arbitration, even the costs of the TPF arrangement can be recovered – however, this does not apply to court proceedings or in every jurisdiction
