It’s a different world today than many of us grew up with because of the proliferation of electronically-oriented commerce. With the increased used of “social media”, which are online methods of mass communication such as Facebook, Google+, and blogging, folks are constantly trying to enlarge their sphere of influence to garner customers and trading partners. Certainly with these options available people are making connections that the world would have never dreamed possible even 20 years ago.
In part, driven by the overall decline in the economies of the Western world, people are taking their financial futures into their own hands and setting up businesses online. It now seems commonplace to do business with companies when you have never met a single person who works for the company. You have never met their salesperson, their distributor, their manufacturer or even their limo driver.
Because the “world wide web” is, well, worldwide, often these potential trading partners are located in other countries or on other continents. There is not necessarily a problem with that as long as things are going well with that trading partner. What happens when there is a dispute though and the parties are not able to solve it by amicable means?
Often a contract dispute occurs. How that dispute is resolved will often hinge on three clauses: the “venue” clause, the “governing law” clause, and the “mediation/arbitration” clause. You may be thinking, “Well, if I have a problem with this trading partner, I will just sue them in small claims court!” Not so fast.
Generally toward the end of the contract, probably on one of the last two pages, you will find a clause governing where the dispute is to be handled. The chances are very great that the location, or venue, for the handling of the dispute is in the town, county, province, state and/or country of the party that drafted the agreement, not where you live. This is therefore something to look for when entering into these agreements. If the place is too hard to get to or too costly, it’s a virtually litigation-proof agreement because you will not incur the cost or effort to protect your rights in a court of law in the venue of the other party.
In case you were wondering, Timbuktu is a real place. It is located in the landlocked country of Mali, found in West Africa. Fortunately it does have an airport, and flights can be booked through AirGorilla. The chief export of Mali is cotton, according to Wikipedia.
The general standard of most advanced countries and courts is to apply the law that relates to the dispute. This question is one of “choice of law”. Unless the specific governing law is specified, the default is not necessarily the law of the venue. There may be some other reason to apply the law of a different jurisdiction. Often, however, the contract will specify that the law of a particular state or a particular country applies. The law of that foreign location may not be the same as the law of the jurisdiction where you will perform your end of the contract.The very remedy to the dispute may hinge on the choice of law. When you enter into an agreement that specifies that the governing law shall be law that is out of your home country or out of your home state, you might have the added cost of consulting an attorney versed in that law, from that foreign state or country, to advise you of the law. Your local attorney cannot probably advise you of that law.
This is an additional cost to entering into the contract. Ultimately, you may decide that the value of the contract does not merit incurring the additional cost of hiring counsel in the jurisdiction of the governing law. That is a risk that any business may choose to take.
Mandatory Mediation and/or Arbitration
Some contracts contain a requirement that the parties attempt mediation prior to the institution of court proceedings. In some instances, failure to seek mediation before filing suit can cost you the attorneys fees of the other side.
Mediation is a settlement process where the parties are assisted in attempting to settle but neither side is forced to settle. The mediator does not issue a ruling but will help prepare a settlement agreement.
Mediation, in and of itself is not a bad thing, but it does cost money. The better trained mediators generally charge as much or more than your attorney per hour. So that is an added expense prior to instituting suit. But, it can save you money in the long run, if you manage to settle and avoid litigation altogether.
Arbitration is a different type of proceeding. It is more similar to a trial, but somewhat streamlined. The arbitrator acts neutral and does hear the matter and the evidence from both sides and comes to a decision. That decision is either binding or non-binding depending on what the law requires or the agreement specifies. Arbitration is not necessarily bad, but it is a private procedure and does cost you money for the arbitrator and possibly the arbitration meeting location.
Having explained these three clauses in the most general of terms, it gives contracting parties something to think about when they decide to take on the risk of partnering with people who live and do business at some distance in different States, countries or territories.
Thankfully, the worldwide web only extends, currently, to the world, i.e. Earth, as we know it, or who knows what kind of being you could get connected with.
If you have a question about the meaning of terms within your contract, you should consult with an attorney. In accord with our disclaimer, this article is not intended to be legal advice for any particular person or company.