Shareholders Disputes: Common Causes and Protective Measures

Shareholders Disputes: Common Causes and Protective Measures

Shareholder litigation is very common.

Shareholder dispute claims are typically classified as either dissenting shareholder actions or minority oppression actions. Some of the most common events triggering shareholder disputes include:

  • Deceptive practices
  • Diversion of income
  • Involuntary dissolution of a business
  • Non-payment of distributions
  • Breach of contract.
  • not invited to general meetings or otherwise squeezed out of management anticipation
  • allotments of share For no discernible purpose or otherwise resulting in unfair dilution of minority share value
  • a failure to consult the complainant or to provide information;
  • misappropriation of company business or assets;
  • mismanagement of internal company affairs;
  • failure to pay reasonable dividends.

Protective measures

Shareholders in private companies often endeavour to protect themselves from future abuses and oppressions through shareholder’s agreement.

Theoretically, shareholders who feel stiffled by their majority counterparts or the management of the company have many statutory protections which provide a vast array of remedies.

―it would be impossible and wholly undesirable to define the circumstances in which the application of equitable principles might make it unjust or inequitable (or unfair) for a party to insist on legal rights or to exercise them in a particular way ― 

Lord Hoffmann in O‘Neill vs Phillips, (1999) 2 BCLC 1

Ex-ante protections

Minority shareholders can seek to protect themselves against misuses of majority rule by bargaining for express protections in the articles of association or in separate shareholders’ agreements.

With experience, many shareholders disputes become identifiable as recurring instances. With our advice, shareholders can contemplate and agree in advance how the business will be conducted and conflicts will be resolved in future, and seek to anticipate and address likely problems insofar as these can be foreseen.

Carefully drafted incorporation agreements, partnership agreements, articles of association, and shareholder agreements can go a long way towards avoiding problems. Some of the rights that could be protected ex-ante in your shareholders’ agreement are:

  • preemption rights
  • tag-along rights
  • observer rights 
  • entrenchment of management
  • reserved matters, veto rights
  • information rights

Ex-ante contracting even addresses detailed exit provisions giving rise to a contractual right to exit on fair terms in defined events.

Reviewing existing contracts could tackle three business challenges

Reviewing existing contracts could tackle three business challenges

Introduction

This article is my expression of advice to all businesses to take a meaningful look into the health of their existing contracts and business relationships. My other advice is for businesses not to take this exercise as a step towards transformation, but to understand that at this time, a contract health check is an affordable and doable means of their survival. 

Three specific aspects of ‘contract audit’

First of all, this type of “legal audit” or ‘contract health check’ will indeed reveal where they truly stand in their existing contractual partnerships, business relationships.

It will take a detached snapshot of the monetization they can expect from existing contracts; if neither of the contracting parties does anything to improve or deteriorate the existing dynamic relationship, what type of monetization can be expected from the existing contract, as it is. 

If you identify a particular situation, which you know is bound to become an issue later, proactively addressing it will better enable you to renegotiate contract terms or discuss mutual concessions or allowances. 

Since we are all in the same boat right now, demonstrating this kind of insight and productive attitude towards your existing contractual duties will only strengthen your business relationships. The level of transparency and collaboration needed at the moment to preserve existing businesses in this market cannot come to exist without an up-close, case-by-case legal, technical and otherwise meaningful appraisal of those business relationships. 

If contractual obligations cannot be met, it is essential to maintain open lines of communication.

The second and more action-oriented approach to contract auditing is to identify contract value leakages.

Briefly put, the notion maps the value of a contract at three specific points in a contract’s lifetime. 

  1. The value captured during procurement “Value Promised.”
  2. The business case “Value Expected.”
  3. The value actually delivered by the contract “Value Realized.”

There is thoroughly documented evidence that the Value Realized reduces to 80% of the contract’s Value Promised. 

About 12% of loss in value is attributed to hard leakages, i.e. such as invoicing errors, unrealized pricing or work scoping adjustments, and non-compliance with obligations. The remaining 8% loss is caused by the company’s inferior business management capabilities, for example, poor customer experience, losing renewal opportunities, and inability to retain clients.

Typically, the generally identified sources of leakages are identified to be a result of: 

  1. Poor contract quality; 
  2. the high cost of contracting; and 
  3. inadequate contract management. 

When I first started talking about contract value leakages two years ago, I took an “all in or no-win” position to how companies must plug the leakages. At that time, my motive was for businesses to capture sustainable long-term contract management benefits, both monetary and non-monetary.

But as I said in the beginning, I am not talking about spurring a transformation anymore. I am talking about embracing contract management for its use in a crisis management context. For present purposes, businesses do not need to venture into some ambitious overhaul of their contract management systems (as much as businesses clearly need it.)

For now, any business prompted to implement a contract performance management plan by its working capital needs or other immediate concerns will be wise to start by prioritizing those aspects of contract management that will reap benefits in the short-run.  

Following a systematic contract performance review, businesses almost always are incited to make deliberate and planned collection efforts – because there will be collectables. Of course, it’s important to be creative in how you will actually go about making those recoveries. Proactive intervention and regular contact with contracting parties and business partners will be critical here.

In my view, a priority-based approach to embracing and implementing contract performance management should first target contract value leakages caused by inadequate contract management and focus only on correcting instances of hard-leakages. 

This means that building a single contact repository, creating contract playbooks, standard terms, and templates would not be an immediate priority. Nor will the businesses attend to creating processes or building the culture, work ethics, and soft skills needed to tap the opportunities they lose from the soft leakages (poor customer experience, inability to retain clients etc.)

The third aspect of the contract audit will be related to the pandemic’s direct impact on a company’s legal exposure, risks, and liability. Addressing this element of the contract audit is where businesses may have to explore unique legal positions under the laws of frustration, force majeure and ‘mistake of contract’. 

If the ‘contract audit identifies any such threat’, the particular situation will become a matter for early legal assessment, followed by a concrete strategy and action plan. 

Starting parameters of the audit scope

For example, a shipping company can initiate a contract health check or legal audit by pulling out all of its:

  1. active charter parties for hire collections, payments or rate adjustments related issues. 
  2. shipbuilding, sale and purchase agreements, loans and mortgage documents for upcoming financial commitments and related mutual obligations. 
  3. Any joint ventures, alliances and investment agreements it may have with strategic partners for any renegotiations or actions needed to protect these ventures. 

Similarly, contract performance review by other businesses such as construction companies, real estate developers, oil exploration and drilling companies will be of similar volume and limited to core types of transaction documents. 

I think a contract audit of this scale would be a fantastic start to adopting the holistic and integrative contract management framework. 

Fixing Contract Value Leakages: a massive opportunity to increase revenue this year.

Fixing Contract Value Leakages: a massive opportunity to increase revenue this year.

Every business transaction creates a strategic partnership, whether this is a contract with a supplier or a customer. A strategic partnership is a recognized union of two parties that establishes rights and obligations between them.

I often compare business partnerships to marriage. Consider entering into a marriage without the knowledge and understanding of the promises you have made to your partner and the promises your partner has made to you.

If lawyers and consultants are akin to vow writing service providers; you may consider seeking their help to articulate your thoughts into words, but is it conceivable that you enter into a marriage based on mutual intentions and promises determined entirely by a third party, and unbeknown to you?

Did not think so.

Yet, you do just that in your business relationships when you turn over the formation and implementation of business contracts entirely to lawyers and managers. 

Food for thought

We are all struggling to maintain stakeholder returns and profitability in current economic times.

Yet we are losing roughly 17% to 40% of the value on our typical contract – from the time of execution to the close-out date. The main sources of value leaks are 1. disagreements over contract scope; 2. failures due to over-commitment; 3. weaknesses in contract change management; and 4. performance issues due to disagreement over what was committed.

In this blog, we share solutions that can help increase revenue from contracts.

A massive boost to bottom-line figures can well be achieved by focusing on an often neglected discipline: Contract Management. Good contract development and management could improve your business profitability by the equivalent of a massive 9% of annual revenue.

Symptoms of Contract Value Leakage

  1. missed expiration dates or deadlines.
  2. serving outside the scope of agreed obligations.
  3. not knowing and utilizing their rights either timely or at all.
  4. not adjusting price, scope creeping
  5. time spent on non-value adding activities 

FIRST Understand the Contract because you don’t

Contract language expresses the intent of the parties, but many times one party or both parties don’t even know what the contract says. The contract lays out a framework, but it is people who actually assure that it comes to fruition. Relationships, not contracts, produce meaningful results.

THEN, Create Contract Playbooks 

Start with the simple, thought profound project, improving the quality of contract templates.

You will need a separate playbook for each contract type: think of key vendors, customers, partners, contractors, and employees. A contract playbook is a playful and creative term for a spreadsheet that breaks down the company’s standard contract terms in four to six columns:

  1. contains the standard clause language
  2. meaning and purpose of the clause/ language
  3. common anticipated objections from the other party.  
  4. alternative language for the clause that is otherwise acceptable to the company. 

For example, your standard governing law preference is Dubai, United Arab Emirates, but your clients may object to that option, particularly those outside the UAE. So, for fall back, you might add that you will accept DIFC law in the UAE, and the laws of England or Singapore outside the UAE. 

You might alert the playbook user that if the client responds to fall back options, the company must go to the legal department or a contract approval committee. This is called the escalation process.

The playbook would develop contract quality more systemically and prevent it from being eroded in the negotiation process.

Post-Award Phase

Just because the contract is signed, it does not mean that the work is done and the negotiation has ended. The organization must ensure those contract responsibilities, benchmarks, and expectations are fulfilled. All of this needs consistency and a high degree of commitment to settle all claims and conflicts, and comply with terms and conditions.

Without a well-functioning system, it’s easy to miss a crucial contractual responsibility essential to both parties. The agreement’s post-award period is just as important. You have a signed contract and commitments at this stage and must comply and behave on contract terms.

Contract Orientation

Begin with a post-award presentation to take note of the rights and obligations of each party. Consider adding flowcharts and graphs – visuals are always helpful for creating understanding.

Contract Administration

Contract administration is necessary to successful management of:

  • compliance of terms and conditions
  • contract restructuring needs
  • contract milestones including payments
  • expirations and renewals
  • service delivery requirements
  • disputes, and claims

Go a step further and leverage technology

  1. A playbook is a dynamic document that requires continuous updates. Leverage technology to maintain deviation trackers to monitor the change of policies/regulations/business strategies, and publish updated versions to all ‘concerned.’
  2. Get an online contract repository – the single source of truth.
  3. If you cannot retrieve it, why retain it? Contracts must be stored in one place, have master templates and allow for quick retrieval and limited-time retention after project closure.
  4. consider taking baby steps towards contract management solutions generating additional value through mining contract data. Machine learning and AI help in the identification and analysis of clauses and other data. AI can pull out previously unseen patterns and relationships, identify anomalies, and optimisation.

The purpose here is to raise awareness and provide food for thought to all corporate leaders to do something about these issues and explore opportunities to increase bottom-line performance.

Where to begin?

Have you done any analysis around value leakage? Ever? This is an ongoing mental exercise. This is not a delegable exercise. The stakeholders themselves know best the source and extent of value leakage. Reflect on your past experiences. Examine company experiences on what has caused problems?

Let’s say you have decided to do something about the loss of contract value. Start with the playbook. Consider what contracts do you want to include in this playbook? Start with the simplest standard contract, for example, a Non-Disclosure Agreement?

Who is the playbook for? Consider your audience to be the business, in particular, the sales or business procurement teams. You are the audience of your first playbook. Hence, you must keep the playbook relatively short and written in a way that the business-savvy can understand. 

How and why to use it? For a contract playbook to be effective, consider annual or intermittent training. The purpose of the business training is to get users of the contracts familiar with basic legal concepts and the “what” and the “why” of the company’s positions on different clauses in the contract. 

Where will you store the playbooks and standard clauses? Consider how your company contracts are stored and managed after signing. Consider a repository. Store the master playbook online. Sometimes contract value leakage may be due to difficulties in finding the contract, not having access to the contracts, or having multiple versions of a contract that have a lot of amendments making it difficult to read the contract and understand your obligations.

The reality is that successful alliances don’t just happen. Board members are good at the start-up phase of contracts but then step back and leave the execution and management to others. The Board will have an important role to play in making sure companies are systematically optimizing contracts.

It is critical that senior executives remain involved in oversight of the partnership.

Recent Works: Fund Formation

Recent Works: Fund Formation

RECENT WORK

Established a private fund structured as a limited liability company with multiple share classes available to investors. Each share class with different shareholder rights and distribution arrangements. To direct dividend income to certain shareholders and determine income distribution patterns.

“Deal by Deal” Investment Structures

“Deal by Deal” Investment Structures

Having worked with clients in the GCC and MENA jurisdictions over the years, I have found it interesting to see certain practices that are not commonly undertaken in others. It is not to say that these practices are subpar, on the contrary, these are outright ingenious and resourceful.

One such structure, which in recent years has been termed “deal by deal” is when clients have wanted to set up a dedicated vehicle created for purposes of making an investment in a single target opportunity (or single portfolio of target opportunities).

In the early stages of my career, driven by logic and concepts, I knew what I was doing was for all intents and purposes a private equity transaction. After all, the transaction was creating an investor’s ownership or interest in an entity that is privately owned. But with private equity being used interchangeably with private equity funds that it distorted by conceptual appreciation.

UAE has always been the playing field for investors who want to invest directly in private companies. They have long preferred structures that allow investors to participate entirely on a deal-by-deal basis. My personal observation says that private equity deal structures are influenced by culture.

The traditional private equity fund model uses the general partner/limited partner arrangement, which epitomizes the full delegation model of investment in private markets, with investors playing the role of pure passive providers of capital. In our part of the world, we like to delegate but we do not like to be uninformed. We want to be passive investors but not aloof investors. I doubt that family offices and HNWI individuals in the UAE can just rely on passively committing capital to private equity funds.

A relatively recent paper published by Boston Consulting Group accumulated data from 2009 (post-crises) to 2018 showed that in the MENA region solo investments are the default deal type. BCG reported that “MENA funds stick out in terms of the preference afforded to direct solo investments, accounting for more than half of deals.”

Co-investments

direct equity investing

direct investment partnership,

co-invests with a strategic partner (such as a
venture fund, or infrastructure or real estate operator) or with other like-minded
investors

Investment platforms

strategic partners to form investment platforms, namely funds or joint ventures operating with a specific focus or
mandate. P

this structure is used to invest in a single deal

In the context of the deal-by-deal approach, investors will need to perform their own diligence on investments prior to deciding whether or not to invest,

There is a less well-defined set of “market standard” terms and approaches for deal-by-deal and pledge funds compared to the traditional private equity fund model. As a consequence, there is scope for a broader variation of economic and governance-related terms and more flexibility as to the terms offered by any one manager

Revenue Based Financing: A Promising Venture Capital Model

Revenue Based Financing: A Promising Venture Capital Model

Revenue Based Financing: A Promising Venture Capital Model

Legal advisors are confronted with legal problems requiring structured solutions which has led them to become innovators of the capital finance world. The increasing availability of structured investment vehicles coupled with the liquidity shortage across all major economies, has led the way for a capital raising model labelled, amongst its other names, known as ‘revenue-based financing’

In this article we will describe RBS to the reader, and share our views on its use in venture capital (which means ‘seed’ or start-up or first phase financing), and expansion and early growth finance.

What is Revenue based financing?

It is first and foremost a debt instrument – because the investor does not gain an ownership stake – where repayment liability and the payment terms are linked to the revenues generated by the company. Investors continue to receive such pay-outs until they obtain a predetermined amount.

Here’s an example of how basic RBF terms:

  1. you invest USD 200,000 with a 35 month payback term.
  2. You require $400k (2x of investment) to be paid back over this term – its not cheap you can easily end up paying back twice as much as you take.
  3. Company pays you back through a % of its monthly cash receipts – whatever those maybe.

If your revenue increases, you’d be paid off sooner. If it decreases, it would take longer.

Who is it for?

Because this model relies on the business generating revenue, investors will want to see you generating that, preferably with strong gross margins. Companies that may not be revenue-positive for an extended period of time are generally not a great fit for revenue-based financing.

Not all businesses are established to be sold, merged, or go public. Venture capital financing model typically assumes that you intend to sell your company within a determinable time period. 

investors receive a percentage share of the ongoing monthly gross revenue of the businesses they invest in. Unlike traditional angel and VC capital, this form of financing prevents equity dilution for founders and simultaneously provides regular returns to investors from fast-growing startups. Investors continue to receive such pay-outs until they obtain a predetermined amount.

“new-age entrepreneurs and asset-light businesses access to debt capital with flexibility.”

The Force Majeure Excuse: A History

The Force Majeure Excuse: A History

The Force Majeure Excuse: A history

Force-majeure is purely a creation of a contract, thereby entailing an application of the general principles of contractual interpretation.
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What is Force Majeure?

Force majeure is a civil law concept and equivalent counterpart of frustration in contracts under common law. Although the origin of the concept is Roman, it was adopted by civil law countries and is most notably found today in the French Civil Code (the Napoleonic Code) dating back to 1804.’

A force-majeure event, when it occurs, excuses performance of the contract in spite of its express provisions obligating the parties to perform. It is one of the several other exceptions that excuse the parties from the performance of the contract.

French law requires no less than three criteria to be satisfied before an event can be considered one of force majeure:
 
(a) unpredictable,
(b) uncontrollable, and

(c) external.

(a) Unpredictability

If the event could be foreseen at the time of entering into the contract, it should have been provided for in the contract and the relying party is expected to have prepared for it or insert such event in the definition of force majeure under the contract. A party’s failure to
specify a foreseeable risk gives an assumption that the party intended to take such risk at the time of entering into the contract.

(b) Externality

The event must not be attributable to the fault of the relying party, and the relying party must have had nothing to do with its occurrence.

(c) Irresistibility

The event must be insurmountable and the relying party could not have done anything to mitigate it or avoid its occurrence. Financial difficulty or economic hardship does not excuse non-performance as contracting parties are expected to have reasonable business acumen and are expected to have calculated the economic risks of entering into particular contractual obligations. 

In other words, the courts must be satisfied that the contract’s performance has become impossible because of an event that could not have been foreseen by the parties at the time of making the contract. The performance must be impossible and not merely onerous or impractical. The French courts, until 1914 were extremely reluctant to accept an event as force majeure and safeguarded the principle of the sanctity of the contract. Owing to World War I in 1914, one could observe a general trend in French courts to end contracts and end obligations.

 

However, the French Court of Cassation has never openly accepted the principle’s relaxation and maintained its intent to protect the sanctity of contracts.

This principle was recently relied on in the case of Maralex Resources Incorporation v. Gilbreath (2003) whereby the Supreme Court of New Mexico stated that .. “applying this doctrine, we look to the specific terms employed and seek the common characteristics among them, excluding anything that does not share those characteristics”.

This means that if the list specifies events such as natural disasters, wars, government decisions followed by a catch-all phrase stating ‘any other event beyond the reasonable control‘, it would be interpreted to have meant analogous events similar in characteristics and interpreted in the light of specific list of events. Therefore, it is pertinent for the draftsmen to attain the right balance between specificity and broadness of the force majeure clause.

Force-Majeure Clauses and Catch-All Phrase

A force-majeure clause is purely a creation of a contract, thereby entailing an application of the general principles of contractual interpretation.

 
A typical definition of a force-majeure clause contains catch-all phrases to extend the exemption of liability. Examples of such catch-all phrases are “including but not limited to” and “any other event beyond the reasonable control of parties“. As appealing as these phrases seem to a party relying on it, it is ultimately an example of poor drafting by lawyers for the reasons mentioned below. Courts require specificity in the list of events if they ought to exempt the parties from the liability.

 
Pursuant to the doctrine of ejusdem generis which literally means ‘of the same class’, in some circumstances the use of catch-all phrases might actually prevent a party from relying on an event which in the absence of the ‘catch-all’ phrase could have successfully amounted to a force-majeure event.

If the force majeure clause specifically covers the relying event, then the parties have a better chance to excuse themselves of further obligations as they have explicitly agreed in the contract to this condition. A court would uphold the sanctity of the contract and the freedom of the parties to define the parameters of their obligations as they see fit. The court cannot go contrary to explicit clauses in order to make the contractual bargain fairer. A court would only go contrary to a clause should it contain an illegality, in which case the illegal clause can be severed from the contract.

Confidentiality in International Arbitration

Keys to Efficient Arbitration

Parties arbitration agreement with each other is their key to having efficient arbitration proceedings. Expensive arbitration is largely caused by the parties’ (inadvertent) consent.

 

The key to cost-effective arbitration

 

The arbitration procedure is prescribed by consent.

There are different sets of procedures for arbitrations but no set procedure of arbitration. The procedure of arbitration is the creation of a contract between the parties. Unlike the court procedure rules which apply as a matter of procedural law, there is no one set decreed procedure for arbitration. There are different sets of procedures for arbitrations but no set procedure of arbitration.

 

EXPENSIVE ARBITRATION IS BECAUSE OF BAD DECISIONS

The procedure of arbitration is the creation of a contract between the parties. Unlike the court procedure rules which apply as a matter of procedural law, there is no one set decreed procedure for arbitration.

When you find yourself obligated to follow a certain procedure, it is not the procedure which is being imposed on, it is the agreement you made to use that procedure. Parties choose the arbitration procedure, the law holds them accountable for that choice.

The procedure is chosen by the parties at two events:

  1. under the arbitration clause signed at the time of signing the main contract; and
  2. during the course of arbitration when multiple procedural decisions are taken.

Many business users believe that it is expensive to refer disputes to arbitration; to which I would say that it is expensive to make a bad agreement.

Whatever the cause, arbitration is failing to adequately meet the desires of business users.

The plight of business users

Let me tell you about last week, a company wanted to take appropriate legal action to enforce the payment of a considerable sum due pursuant to a contract of services. The company showed me cogent evidence of the other party admitting the liability and acknowledging the full amount of the ‘debt’. The predicament was that the contract contained an agreement to arbitrate any dispute or claim according to the rules of the London Court of International Arbitration (LCIA).

The client couldn’t conceive the artificiality of going through the full procedure of arbitration, obtain a judgment recognizing the arbitration award and only then be able to enforce the debt. The company’s position is that there is no dispute, the money is due, therefore, the company should be entitled to go to court and ask for summary judgment.

Indeed if the matter were to go to the court, the prescribed court procedures in most jurisdictions would have allowed the client to start execution procedures after obtaining an “Order for Payment” or “Enforcement of Debt” judgment through initiating summary proceedings.   

Such a claim may be met, however, by the argument that there is an arbitration clause in the underlying agreement with the debtor, hence the remedy is to go to arbitration.

So what can parties do to ensure speed, efficiency and economy of arbitration procedures?

Limitations of the Pre-Dispute Arbitration Agreement

A lot has been written about making the right choices at the time of signing the contract. The agreement is easier to reach at the time of signing the contract when the parties are entering into their new relationship. But I think it is very dangerous to be too creative with an arbitration clause. It is too early to predict the circumstances of future disputes, and a suitable arbitration procedure for each type. The best time to reach an agreement on arbitration procedure is also the worst to choose a procedure for arbitration(s). This is the Catch-22.

The arbitration agreement should keep many procedural possibilities open, but minimize the room for obstructing the use of those possibilities. For example, instead of making expedited procedure mandatory for claims under a certain value, give the claimant the right to choose the expedited procedure.

1. what you bargain in your contract

Influence in the selection of the sole arbitrator

I got this idea from the AAA rules of arbitration. The AAA sends simultaneously to each party to the dispute an identical list of 10 names of persons.  From among the persons who have been approved on both lists, and in accordance with the designated order of mutual preference, the AAA shall invite the acceptance of an arbitrator to serve.

Process server

In actions to enforce an arbitration award, service of process may become a tricky issue. Service of process outside the jurisdiction where enforcement is sought may require leave of court or compliance with complex mechanisms. Service through these channels can prove costly and time-consuming, in some cases taking a year or more. Parties may wish to consider including in their arbitration clause a designated agent for service of process by first- class mail or courier, with an express waiver of any objection based on service of process.

Expedited Procedure

Whether or not arbitrators have the power to grant summary procedures in a particular case will depend, at least in the first instance, on what the parties have agreed. To begin with, consider a clause to the effect that ‘expedited procedure shall apply in any case in which no disclosed claim or counterclaim exceeds, for example, USD 1000,000, exclusive of interest, attorneys’ fees, and arbitration fees and costs.’

Absent this degree of specificity in the arbitration clause, the question shifts to the arbitral the parties have selected. A few sets of rules deal with this issue explicitly.

  • SIAC permits the tribunal to dismiss a claim or defence that is “manifestly without legal merit” or “manifestly outside the jurisdiction of the Tribunal” (Rule 29.1).
  • The ICDR offers two administrative fee options for parties filing claims or counterclaims: the Standard Fee Schedule with a two- payment schedule, and the Flexible Fee Schedule with a three- payment schedule that offers lower initial filing fees but potentially higher total administrative fees for cases that proceed to a hearing.
  • Stockholm Chamber of Commerce Article 39 Summary procedure: A party may request that the Arbitral Tribunal decide one or more issues of fact or law by way of summary procedure, without necessarily undertaking every procedural step that might otherwise be adopted for the arbitration. (2) A request for the summary procedure may concern issues of jurisdiction, admissibility or the merits. It may include, for example, an assertion that: (i) an allegation of fact or law material to the outcome of the case is manifestly unsustainable

2. what you acquiesce along the way

Parties often do not know that they do not have to acquiesce to many of the costly and time-consuming steps taken during the arbitration. It is true that after signing the arbitration agreement, you will be bound to the framework of the set of rules you selected under the arbitration clause. Notwithstanding, there is plenty of room for parties to save costs and speed up the procedure.

Before the arbitration starts, both in-house counsel or external lawyers,

  • investigate the facts of the arbitration as soon as you receive instructions to act for the client.
  • identify all witnesses, the subject matter of their anticipated testimonies
  • using the time between the filing of the arbitration and the initial procedural conference to prepare the first merits submission so that the schedule can commence soon after the conference.

At the preliminary conference gauge the arbitrator, hear the other side’s position and have a strong say in developing the schedule. Some of the requests and suggestions that may be made at the preliminary conference:

  • focus requests for the production of documents. We believe that the standards set forth in the IBA Rules on the Taking of Evidence generally provide an appropriate balance of interests.
  • seek to avoid having multiple witnesses testify about the same facts.
  • the arbitrator may also allow for the presentation of evidence by alternative means

The claimant could consider:

  • including a detailed statement of claim with the request for arbitration so that the tribunal will be able to set the procedures with more knowledge of the issues in dispute.
  • asking for additional procedural conferences following certain submissions to consider whether the procedures could be made more efficient in light of the submissions.
  • encourage meetings of experts either before or after their reports are drafted, to identify points of agreement and to narrow points of disagreement before the hearing. Expert conferencing at the hearing can also often be time-saving and more effective.

Conclusion

When parties choose to use a particular set of rules, those rules then become the procedure for that arbitration.

With a customized arbitration clause and careful monitoring of the proceeding, the parties are uniquely situated to rein in costs and produce speedy outcomes.t

Expert evidence in international arbitration

Expert evidence in international arbitration

Expert Evidence in International Arbitration

In every arbitration proceeding, there are specific issues in dispute, out of which the parties’ claims arise. Both parties will have conflicting answers to those issues, and thus, they will provide contradictory evidence and account of what happened. Each party would give evidence to support its contentions; such evidence could be documentary or in the form of witnesses of facts.

However, for the when, what, why, and how of disputes, the arbitrators and parties approach expert witnesses.  Expert evidence in arbitration may also be needed if the issues involve scientific, technical, and specialized knowledge; or to assess the cause and quantification of damages.

01

Tribunal-Appointed experts

Parties have the right to adduce expert evidence, but cannot be ordered to do so.

When an arbitrator deems that expert evidence is necessary to make a reasoned decision on a specific issue in dispute, the arbitrator is empowered to appoint an expert. Such an expert would be a ‘tribunal-appointed expert’ and shall be treated as such.

The arbitrator should send the expert’s terms of reference to the parties as soon as possible. The “terms of reference” should be prepared in consultation with the parties. It must outline the crucial issues that the expert is to report.

The terms of reference should separate the issues an expert can determine and matters that are exclusively for the arbitrator to decide.

02

Duties 

The arbitrator may direct the parties to provide such information and documents to the expert as required and permit the expert to seek further information and material.

Expert witnesses prime duty is to the arbitrators, and not to the party which appointed them. Experts must produce an objective and even-handed analysis of the issues they are to testify.

An expert who acts more like an advocate and fails to demonstrate objectivity does not favour the appointing party. If a party wants its experts’ reports are taken seriously and have credibility before the arbitrator, they ought to ensure that the experts understand that their duty is towards the arbitrator and not the party that appointed them.

03

The substance of Expert Reports

An expert’s report is always in writing and treated as ‘read.’ Therefore, if either party requests an evidentiary hearing, the expert would go straight into cross-examination. No examination in chief would take place.

From an expert’s report, the arbitrator wants to know the facts that form the basis of the expert’s opinion and which led the expert to determine causation or quantification of damages. Expert evidence should cite the books and articles relied upon and the expert’s reasons for rejecting other experts’ contrary opinions.

04

Expert Examination

Once the expert submits the written report, the parties are allotted or may otherwise request time to submit their comments on it.

Parties’ commentary on the expert’s report may also include requests for:

  • an oral hearing to cross-examine the expert.
  • that the expert clarifies particular aspect(s) of his findings; or
  • arbitrator’s permission to produce evidence from a party-appointed expert(s).
Private and Passive Investors

Private and Passive Investors

 

Rick del Sentro, CEO & Partner at ZGrowth Partners LLC said it plainly and spot-on: “sometimes the person who thinks he or she is a business partner isn’t one at all. In my world, a business partner is someone who helps you advance the company. That is to say, they are creating value by moving the business forward. Do they need to be working in the business every day to do this? No, not necessarily.”

What is Happening

 

 

 

 

Private investors are presently financing 20% or more of corporate funding. But Investors are quick to assume they are forming a partnership. 

Structures presently in use are based on transaction models for private equity, venture capital funds, preferred shares, and limited partnerships. I recently came across two joint ventures which failed within 2 years because of being structured as private equity funds.

Contract Value Leakage: an opportunity to increase annual revenues this year

Contract Value Leakage: an opportunity to increase annual revenues this year

 

“We are losing roughly 17% to 40% of the value on our typical contract – from the time of execution to the close-out date. The main sources of value leaks are 1. disagreements over contract scope; 2. failures due to over-commitment; 3. weaknesses in contract change management; and 4. performance issues due to disagreement over what was committed.

Every business transaction creates a strategic partnership, whether this is a contract with a supplier or a customer. A strategic partnership is a recognized union of two parties that establishes rights and obligations between them.

I often compare business partnerships to marriage. Consider entering into a marriage without the knowledge and understanding of the promises you have made to your partner and the promises your partner has made to you.

If lawyers and consultants are akin to vow writing service providers; you may consider seeking their help to articulate your thoughts into words, but is it conceivable that you enter into a marriage based on mutual intentions and promises determined entirely by a third party, and unbeknown to you?

Did not think so.

Yet, you do just that in your business relationships when you turn over the formation and implementation of business contracts entirely to lawyers and managers.

Food for thought

We are all struggling to maintain stakeholder returns and profitability in current economic times.

Yet we are losing roughly 17% to 40% of the value on our typical contract – from the time of execution to the close-out date. The main sources of value leaks are 1. disagreements over contract scope; 2. failures due to over-commitment; 3. weaknesses in contract change management; and 4. performance issues due to disagreement over what was committed.

In this blog, we share solutions that can help increase revenue from contracts.

A massive boost to bottom-line figures can well be achieved by focusing on an often neglected discipline: Contract Management.

Good contract development and management could improve your business profitability by the equivalent of a massive 9% of annual revenue.

FIRST, Understand the Contract because you don’t

Contract language expresses the intent of the parties, but many times one party or both parties don’t even know what the contract says. The contract lays out a framework, but people actually assure that it comes to fruition. Relationships, not contracts, produce meaningful results.

THEN, Create Contract Playbooks 

You will need a separate playbook for each contract type: think of key vendors, customers, partners, contractors, and employees.

  • Standard clause language
  • Meaning and purpose of the language
  • common objections from anticipated from the other party.  
  • alternative language for the clause that is otherwise acceptable to the company.

For example, your standard governing law preference is Dubai, United Arab Emirates, but your clients may object to that option, particularly those outside the UAE.

So, for fall back, you might add that you will accept DIFC law in the UAE, and the laws of England or Singapore outside the UAE.

You might alert the playbook user that if the client responds to fall back options, the company must go to the legal department or a contract approval committee.

Post-Award Phase

Just because the contract is signed, it does not mean that the work is done and the negotiation has ended. The organization must ensure those contract responsibilities, benchmarks, and expectations are fulfilled. All of this needs consistency and a high degree of commitment to settle all claims and conflicts, and comply with terms and conditions.

Without a well-functioning system, it’s easy to miss a crucial contractual responsibility essential to both parties. The agreement’s post-award period is just as important. You have a signed contract and commitments at this stage and must comply and behave on contract terms.

Contract orientation

Begin with a post-award presentation to take note of the rights and obligations of each party. Consider adding flowcharts and graphs – visuals are always helpful for creating understanding.

Contract Administration

Contract administration is necessary to successful management of:

  • compliance of terms and conditions
  • expiration and renewals
  • disputes and claims

 

  • contract restructuring needs
  • contract milestones including payments
  • service delivery requirements

Go a step ahead and leverage technology

  • A playbook is a dynamic document that requires continuous updates.
  • Leverage technology to maintain deviation trackers to monitor the change of policies/regulations/business strategies, and publish updated versions to all ‘concerned.
  • Contract repository – the single source of truth.
  • If you cannot retrieve it, why retain it? Contracts must be stored in one place, have master templates, and allow for quick retrieval and limited-time retention after project closure

The purpose here is to raise awareness and provide food for thought to all corporate leaders to do something about these issues and increase bottom-line performance.