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QUINN EMANUEL URQUHART OLVER & HEDGES, LLP

DRAFTING AN INTERNATIONAL CONTRACT WITH A FUTURE DISPUTE IN MIND:

GENERAL GUIDELINES AND ILLUSTRATIONS

Fred Bennett

Peter Calamari

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"INTERNATIONAL DISPUTES"POINTS TO REMEMBER WHEN DRAFTING A

CONTRACT

• Arbitrators in international arbitration rely on documents.

• Arbitrators are sensitive to jurisdictional issues.• Since arbitrators need not follow law, reflecting

case language and concepts in contract provisions really helps.

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FASHION SELF-EXECUTING CONTRACT PROVISIONS TO RESOLVE ISSUES

• Key terms clearly defined• Customize the Arbitration Proceeding• Conditions precedent and subsequent (including

designated procedures)• Objective standards (reasonableness and

performance)• Resolve issues during Contract Performance• Define limits of possible claims and damages• Contract interpretation rules (ambiguity; priority of

documents; integration; modifications in writing; choice of law)

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Clearly Define Legal Terms

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CLEARLY DEFINING LEGAL TERMS(BEFORE)

The warranty shall run for a period of ten years and shall cover any defect in design, materials or workmanship. Any repair of a defect in design, materials or workmanship shall be in the nature of a permanent repair.

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CLEARLY DEFINING LEGAL TERMS(AFTER)

The warranty shall run for a period of ten (10) years from the date on which the product is delivered to customer. It shall cover any and all defects in the product, including without limitation defects in design, materials or workmanship. All warranty repairs are to be of permanent nature, which shall be defined as repair sufficient to completely eliminate the defect and restore to the products or any of its components the design life, (as defined in the specification) which it/they would have had had the defect not existed.

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Customize the Arbitration Proceeding

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CUSTOMIZING THE ARBITRATION PROCEEDING

(BEFORE)

The arbitration shall be conducted in accordance with the rules of the International Chamber of Commerce ("ICC"). The arbitration shall be conducted as expeditiously as possible, before a panel of three arbitrators appointed by the ICC.

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CUSTOMIZING THE ARBITRATION PROCEEDING

(AFTER)

All disputes arising from or any way related to the Contract shall be resolved by arbitration conducted before a panel of three arbitrators in accordance with the rules of the International Chamber of Commerce, subject to the following:

(1) the arbitrators shall be experienced in the resolution of patent disputes involving computer products;

(2) the request for arbitration shall be filed no later than 180 days after the dispute has arisen and the arbitration hearing shall be held and a final award published by the parties no later than 150 days after the filing of the request for arbitration; [these time limits are to be strictly enforced, and the arbitrators shall have no jurisdiction to decide on the merits any arbitration claim which does not comply with the schedule];

(3) Following the exchange of relevant documents specified in the rules, any party shall have the right to propound up to 20 document requests (without subparts) requesting additional documentation in the possession of the responding party which may not have been provided. The request shall be responded to by production of the documents and/or written objections thereto within 30 days after service thereof. The Chairman of the arbitration panel shall be authorized to resolve all discovery disputes.

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SAMPLE "ENFORCEMENT" CLAUSES(CHOICE OF FORUM)

The arbitration shall take place in _______________. (When necessary, choose a forum where arbitration enforcement rights are consistent with those of the enforcing jurisdiction.)

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SAMPLE "ENFORCEMENT" CLAUSES(EQUITABLE RELIEF STANDARD )

The parties agree that the arbitrators shall be empowered to grant any legal or equitable relief (including without limitation injunctive relief, specific performance or a protective order preserving confidentiality of information) which they determine to be appropriate under the law governing the arbitration. To the extent that the arbitration panel grants equitable relief, the parties hereby acknowledge that any such relief will be deemed to have been granted based on and in accordance with the legal standards applicable to the issuance of such relief in the courts of ____________ (list enforcing jurisdiction(s)), and each party hereby waives its right to contest the enforceability of any arbitration award granting equitable relief on the grounds that it arguably does not meet such standards.

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SAMPLE ARBITRATION CLAUSE (AGREED TIME LIMITS)

All disputes arising from or in any way related to this Contract shall be resolved by arbitration conducted before a panel of three arbitrators in accordance with the Rules of the International Chamber of Commerce [American Arbitration Association] subject to the following:

(1) The Request for Arbitration shall be filed no later than 180 days after the dispute has arisen; and

(1) The arbitration hearing shall be held and a final award published to the parties no later than 150 days after the filing of the Request for Arbitration.

[These time limits are to be strictly enforced, and the arbitrators shall have no jurisdiction to decide on the merits any arbitration claim which does not comply with this schedule.]

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NEGOTIATING A DIFFERENT APPEAL STANDARD

In addition to any and all ground for appeal set forth under applicable law, any arbitration award may be vacated, modified or corrected (a) to the extent that the tribunal's findings of fact are not supported by substantial evidence; and/or (b) where the tribunal's conclusions of law are erroneous.

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Liability Conditions Precedent and Subsequent

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LIABILITY-CONDITION PRECEDENT(BEFORE)

Claims. Any claim by a party for additional compensation under Sections _____ or _____ of this Contract shall be supported by documentation and presented for resolution within six months after the claim arises.

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LIABILITY-CONDITION PRECEDENT(AFTER)

Claims. Any claim by a party in connection with Sections 10.1 to 10.5 of this Contract must be supported by a contemporaneous record, kept in the ordinary course of business, of time spent and/or expenses incurred in performing any work on which the claim is based including identification of individuals performing the work, description of the work performed and a record of the actual costs of said work. If such claim is arbitrated as set forth herein, the Arbitrator shall initially make a determination as to whether this requirement has been satisfied before proceeding further with the hearing of said claim. If the Arbitrator determines that the foregoing requirement has not been satisfied, the claim shall be denied.

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LIABILITY-CONDITION SUBSEQUENT(BEFORE)

The parties shall transfer all patent rights set forth in Exhibit A to a corporation to be formed by them under the laws of the State of Nevada in which J. Smith, the current holder of the patents shall hold 51% of the stock and act as the corporation’s president.The corporation shall manufacture and sell at least 5,000 of the patented devices during each calendar year of the term of this agreement.

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LIABILITY-CONDITION SUBSEQUENT(AFTER)

The parties shall transfer the patent rights set forth in Exhibit A to a corporation to be formed by them under the laws of the State of Nevada, provided that should manufacture of the patented devices not exceed $5,000 per year for any year of this agreement, then all of said patent rights shall be reassigned to J. Smith, the current holder of the patents, upon demand.

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Resolve Issues During Contract Performance

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SPECIFY ACTIONS BY PARTIES TO RESOLVE ISSUES DURING CONTRACT PERFORMANCE

• Interim and final releases• Written acknowledgment of or action confirming

adequate performance (milestones)• Advance notice and rights to cure• Self-help

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DEFINING OBJECTIVE STANDARDS TO MEASURE ADEQUACY OF PERFORMANCE

(BEFORE)

Any claim for extra compensation for work performed on the Project shall be submitted within 21 days after the claim has arisen, and shall be supported by adequate internal accounting and other documentation of the Contractor.

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DEFINING OBJECTIVE STANDARDS TO MEASURE ADEQUACY OF PERFORMANCE

(AFTER)

Any claim for extra compensation for work on the project shall be submitted within 21 days after the claim has arisen. Contractor shall not be entitled to recovery of any amounts which are not supported by detailed labor and material records showing clearly time spent and materials purchased for the extra work for which compensation is being sought.

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REQUIRING WRITTEN ACKNOWLEDGMENTOR ACTION CONFIRMING

ADEQUACY OF PERFORMANCE(BEFORE)

Work shall be completed and progress payments made in accordance with the milestone chart attached as Exhibit A.

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REQUIRING WRITTEN ACKNOWLEDGMENT OR ACTION CONFIRMING ADEQUACY OF

PERFORMANCE(AFTER)

Upon the completion of any milestone set forth in Exhibit A, Manufacturer shall submit and the Owner shall sign a document confirming adequate completion of the milestone, following which Owner shall pay in full the progress payment associated with the milestone.

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Define Limits of Possible Claims and Damages

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DEFINE LIMITS OF POSSIBLECLAIMS AND DAMAGES

• Limiting remedies (tort claims (fraud, alter ego) vs. contract claims; limited warranties)

• Areas of equitable relief• Special statutes of limitation and notice periods• Damage limitations• Evidence required to support claim• Confidential and proprietary matters

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LIABILITY-LIMITATION OF CLAIMSALTER EGO(BEFORE)

14.7 Non-Recourse. Contractor specifically acknowledges and agrees there shall be no personal liability on the part of Owner’s respective officers, employees or directors for the payment of any amounts due hereunder or for the performance of any obligation hereunder.

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LIABILITY-LIMITATION OF CLAIMSALTER EGO

(AFTER)

Paragraph 14.7 No recourse. The parties specifically agree that there shall be no personalized liability on the part of any officers, shareholders, directors, partners, parent or affiliate corporations of any party for the payment of any amounts due hereunder or in connection with any dispute arising from this agreement, or the performance of any obligations hereunder. __________ and ___________ expressly acknowledge that each is adequately capitalized, have duly followed the corporate partnership procedures in connection with the business operations, for purposes of this contract that no unity in ownership or alter ego relationship exists between the parties to this contract and any person or entity referenced in this provision. The parties shall look solely to each other and their assets for the satisfaction of their respective claims.

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INJUNCTIVE RELIEF(AFTER)

12.1 Contractor’s Warranty. (After warranty language add the following). To the extent that Contractor is unable to satisfactorily repair or replace the warranty defect after the exercise of a good faith reasonable effort to do so, the Contractor may at its option elect to pay liquidated damages in lieu of repairing or replacing said defect. Said damages shall consist of a one time payment made in accordance with the formula set forth in Section _____.

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DAMAGES-LOST PROFITS(BEFORE)

The parties agree that X Corp. will be entitled to recover any and all damages that are a direct and proximate result of a breach of this contract by 2 Corp.

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DAMAGES-LOST PROFITS(AFTER)

The parties contemplate that X Corp. will earn a profit on manufacture and sale of parts to 2 Corp. under the terms of this agreement, and also in aftermarket sales to third parties. In the event of a dispute, the parties agree that a rational basis for calculating lost profits would be to determine anticipated gross revenues under the contract less actual cost for the manufacture and sale of the unit plus a reasonable margin for profit and overhead based upon historical profit margins for sales of component parts by X Corp. less the amount of any sales which were made or reasonably should have been made by X Corp. to mitigate its damages.

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LIMITING THE REMEDIES WHICHCAN BE AWARDED

Performance of Services: Consultant warrants that its Services to be provided hereunder shall be performed in accordance with the standards customarily provided by an experienced and competent professional engineering organization rendering the same or similar services. Consultant shall re-perform the Services that were not performed in accordance with this standard; provided that the Consultant is notified in writing of the nonconformity within 180 days after the completion of the nonconforming Services.Consultant shall re-perform at its own cost, but in no event shall Consultant’s cost exceed 50% of the original total of the applicable Work Order that is the subject of the re-performance. For purposes of this clause, Consultant’s cost shall mean the aggregate of the costs, expenses, and allowances set forth in Articles 3.01, 3.02, 3.03, 3.04 and 3.05 hereof.The foregoing are Consultant’s entire responsibilities and Client’s exclusive remedies for services rendered or to be rendered hereunder, and no other warranties, guarantees, liabilities or obligations are to be implied.

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SPECIFIED INTEREST RATES(BEFORE)

The parties shall be entitled to recover interest as provided by law.

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SPECIFIED INTEREST RATES(AFTER)

In the event that payments are not made as set forth herein, an interest rate of __________ shall be applied to the amount due from the date on which any payment falls due according to the installment schedule set forth in Exhibit A. Said interest rate shall continue to run on the obligation until paid and shall supercede any other interest rate provided by law, either pre or post judgment.

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PRESERVING CONFIDENTIALITY OF THE ARBITRATION

(BEFORE)

The arbitration proceedings shall be confidential.

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PRESERVING CONFIDENTIALITY OF THE ARBITRATION

(AFTER)

Neither party shall disclose to any third party any information obtained or evidence introduced in the arbitration. At the end of the arbitration, upon request, each party shall return to the other or destroy originals and all copies of information received during the arbitration from any party to this Agreement, or of any memorialization of said written information. This obligation shall be a part of the final arbitration award and any judgment obtained on the award.

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INCLUDING CONFIDENTIALITY PROVISION IN THE ARBITRATION AWARD

Sample No. 1: The stipulated protective order between the parties is hereby incorporated by reference into this arbitration and award, and shall be fully enforceable, as a part of this award, by any court of competent jurisdiction.

Sample No. 2: In order to ensure that the confidentiality of these proceedings are preserved, the parties shall be responsible for the following:(1)The parties shall not disclose to third parties any information related to this

arbitration, including without limitation the filing of the arbitration, any aspect of the arbitration proceedings, any evidence or legal authority submitted in connection with the arbitration, and any portions of the interim or final arbitration award:

(2)Upon final conclusion of these proceedings, each party shall return to the other all copies of documentation secured from the other party in connection with and ruing the course of the arbitration, and all written witness statements prepared in connection with the arbitration;

(3)Files in each parties' possession containing any information pertaining to this arbitration shall be either destroyed or maintained in a confidential area with access restricted to legal counsel and corporate officers and executive involved with the arbitration.

The foregoing provisions shall be fully enforceable, as a material part of this award, by any court having competent jurisdiction.

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PROVIDING FOR RESOLUTION OF CERTAIN ISSUES PRIOR TO ARBITRATION THROUGH

MEDIATION (BEFORE)

The parties shall attempt to mediate the dispute prior to initiating arbitration.

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PROVIDING FOR RESOLUTION OF CERTAIN ISSUES PRIOR TO ARBITRATION THROUGH

MEDIATION (AFTER)

Before initiating arbitration, the parties shall engage in a mediation process as follows:

(1) within 30 days after the dispute has arisen, the parties shall each appoint one authorized company representative to meet on an informal basis and attempt to settle the dispute. Lawyers and other third parties shall not be involved in this process;

(2) If this process is not successful, either party may offer to commence formal mediation proceedings before a mediator who shall be appointed by agreement of the parties. The mediation shall take place no later than sixty (60) days after the termination of the informal mediation procedures described in subparagraph (1).

(3) The mediations referenced in subparagraphs (1) and (2) shall be strictly confidential, and no statements made in the mediations shall in any way be disclosed or used in any subsequent dispute resolution proceedings. The costs of said mediations shall be shared equally by the parties;

(4) If the mediation proceedings are not successful, either party may commence binding arbitration in accordance with the arbitration provisions of Article 11.

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Contract Interpretation Rules (ambiguity; priority of documents;

integration; modifications in writing; choice of law)