For almost every U.K. client that I counsel, this is a biggie. America has a reputation for being a litigious society – unfortunately this reputation is well-earned. Although you can never completely pre-empt a potential American plaintiff from filing a lawsuit against you, there are several distinct decisions that you can take to minimize their opportunities to do so.
First, include a pre-suit mediation provision in your contracts and Terms and Conditions that requires you and the potential plaintiff to mediate the dispute as a contractual precondition to them ever filing a lawsuit. Most disputes can be solved at pre-trial mediation without the expense and anguish that goes with defending a lawsuit.
Second, include an appropriate choice of law and choice of forum provision in your contracts and Terms and Conditions that will require a lawsuit to be litigated in the United Kingdom courts, not an American court.
Third, inclusion of an appropriate attorney's fees provision in your contract will serve as a substantial deterrent to frivolous lawsuits.
Fourth, when a dispute arises or a relationship begins to deteriorate, take charge and get proactive. These situations never solve themselves; they only get worse due to inattention. Obtain legal advice and take the action necessary to minimize your potential exposure.
Have you taken the necessary steps to limit your exposure to American lawsuits?
Case Study I
It's inevitable that your U.K. company will have a collection case against an American customer who fails to pay for goods or services. When this situation arises, I recommend that the client do the following:
First, I ask that the client assemble the relevant documents, including the contract, invoices, correspondence between the client and their customer, payment records, and other documentation that may affect the case.
Second, the client and I discuss the case, the available options, and the appropriate strategy for getting a resolution. In collection cases, the client's decisions will largely depend upon the likelihood of a recovery and the anticipated cost of proceeding. Since it makes little sense to throw good money after bad, the best decision may be to take no action. If the best decision is to take action, I explain the steps that will be necessary to initiate a lawsuit, the applicable procedure, and the complications that will likely be encountered along the way.
Regardless of the outcome of the collection case, I recommend several specific actions that the client can take to reduce their vulnerability to future problem customers. Typically, these include revisions to the client's contracts (i.e., provisions concerning pre-suit mediation, interest, collection costs, choice of law, etc.) and future proactive steps in the event that a business relationship begins to deteriorate.
Case Study II
I advised a British software developer who had entered into a License Agreement with a major American hardware company. The License Agreement contained a prohibition against the U.K. developer selling its products to specifically identified competitors of the American hardware company. Now, several years later, the prohibition represented a monumental problem - it threatened to block the U.K. developer's prospective sale of its entire company to one of the American hardware company's named competitors.
After analyzing the documents, I advised my client that although the License Agreement did prohibit the sale of products to certain competitors, the License Agreement did not prohibit the U.K. developer from the sale or merger of its business to another company (including the American hardware company's competitors) with one caveat. The specific caveat was that the U.K. developer must first provide the U.S. hardware company with a written notice and written summary of the proposed sale, and then provide twenty (20) days for the American hardware company to make an offer to purchase the U.K. developer.
My client provided the American hardware company with the written notice and written summary in accordance with their contractual obligations and then proceeded to consider the proposed sale to the competitor.