Possible Dispute Resolution Methods - Essay Example

CASTILLA S. L. AND NEW JERSEY INC A CASE STUDY by Introduction A Spanish firm, Castilla S.L, and a US firm, New Jersey Inc., as separate and independent corporate entities conclude a distribution contract in order to distribute chattels produced in the US, Spain and parts of Latin America/Caribbean. The two companies entered into a contract stipulating the conduct that the two companies were to display when doing the business together. However, things did not work as planned because after a while, the U.S. entity started suffering profit losses allegedly because of the delivery delays by the Spanish distributor. The U.S. firm, on the other hand, is facing defective products from claims by the Spanish firm. Brief Description of the Contract The contract that the two companies signed contains an arbitration clause and alternative dispute resolution provision with choice of law features. This contract defines several key issues to be observed by the two companies in their dealings as partners in the business: their conduct, litigation and dispute resolution. These include the following factors: Appointment and Acceptance Castilla S.L. and New Jersey Inc. will work on an exclusive basis to purchase and resell chattels in the region defined by the two entities. Both companies accept the appointment on the terms and conditions set forth herein that obligates the companies to fulfill the requirements of this agreement. The term “Product” will mean the chattels that will be sold by the two companies. The two companies reserve the right to delete discontinued products upon thirty days’ written notice to all stakeholders. The term “Territory” will mean the geographic area where the two companies shall sell the Product. The two companies shall not appoint any distributors or sub-distributors without notice to the other company. Distributor’s representations The distributor, the Spanish firm, shall remain in compliance with all the applicable laws in the Territory. The distributor shall not allow delays that are likely to jeopardize the business. If delays are expected, the distributor shall inform its business partner within a reasonable time. The distributor shall remain independent with respect to its relationship with its partner. Term Subject to the provisions of this contract, the term of this agreement shall be for a fixed period of 5 years but with an option to renew or rescind upon agreement by the two parties. If a dispute arises, the partners shall resolve the issue amicably. Upon failure of finding a common ground, the aggrieved party shall take the dispute to court. Companies’ Obligations During the term of this agreement, the two companies shall: Keep all information relating to the business open to the two parties and not to any other party, unless agreed by the two entities. Engage in responsibilities defined within this contract, as stated. Participate in business dealings as independent and separate partners, and Assist in making the business successful by providing information, charges, product literature and all the required materials to the stakeholders agreed upon by the two entities. Distributor’s Obligations During the term specified in this agreement, the distributor shall: Actively use its efforts to promote and penetrate the market for the Product in the Territory defined under this contract. Maintain professionalism and avoid circumstance that can hurt the business partner. Employ an adequate number of distributor agents Submit to the company weekly reports on the business proceedings with regard to distribution New Jersey Inc. Obligations The company, during the term defined under this contract shall: Share the profits equally with the distributor from the sales of the product Support the distributor in penetrating the market in the territory and in any other way that supports the business. Delivery/ Risk of Loss All the products ordered pursuant to accepted purchase orders shall be scheduled for delivery in accordance with the agreed time. Risk of loss shall pass to the specific partner who causes the loss or the risk to the loss except in inevitable circumstances. Infringement and Indemnification Any partner that infringes on the rights of the other partner shall pay fines based on a claim that can be reasonably established. None of the parties shall have liability in cases where the claiming party has caused the infringement or is found to have influenced it. If a party loses its profits because of the other party’s actions, the responsible party shall have liability over the risks or loses Possible Dispute Resolution Methods In the light of the specific features of the case, the possible dispute resolution methods and remedies available to the parties beforehand include: 1) The companies can agree to solve the problems out of court as partners because this option is available in the contract signed by both parties. They can come together to analyze the causes of the delivery delays by the Spanish distributor and the defective product claims by the Spanish firm. This option will be very important because the companies have not worked together for long and these problems could be because of minor issues that can be solved and ignored. 2) The second option would be for the firms to implement fully the clause from the contract that requires that any of the partners should pay for the risks if it is it found out that the firm deliberately caused the risk. This can be done by conducting an investigation to the problems and the participation of the firms. 3) The third option would be for the companies to allow the court to help them solve the dispute because this option is also provided under the contract. Both parties have claims against the other. Therefore, going to court could be the best option to ensure than the problems are solved without the interference of partisan issues. 4) The other option would be for the two companies to terminate the contract based on mutual agreement if they cannot resolve the problems facing their partnership amicably. The two firms should consider this as a final option because it will mean that they will no longer be business partners. Reasons why the firms preferred to include those clauses in the contract There are several reasons why the firms included the clauses discussed in this paper in the contract between them. First, the firms included the clauses to prevent infringement or violation of party rights in the partnership agreement. The only way to prevent such issues was to include clauses that emphasize on litigation in case any party causes a risk to the other party in the agreement (Atlas, Huber & Trachte-Huber, 2000:5). Secondly, the clauses were included in the contract to guide the behavior and conduct of the parties when engaging in business as a partnership. Without these clauses, it would be difficult for the parties to work in harmony because they could not have a common understanding that the clauses create in the partnership contract. In addition, the clauses were included in the contract to provide a rational on which the parties could engage in business together. The two companies are from different countries and want to do the same type of business in a different market from where they are situated. Therefore, the clauses are important in terms of guiding the two parties in the business and also in determining how they can engage in the business. The clauses determine the responsibilities of each party in the contract and what should be done by both of them (Tienhaara, 2010:13). Finally, the clauses in the contract are important in conflict resolution, for instance the conflict that the parties are experiencing now. It is important that both parties have specific ways of dealing with their conflicts if they are to achieve success. In partnerships, conflicts must occur and having clauses, such as the ones in the partnership contract of the two firms will help in a major way. Reference List Tienhaara, K. (2010). Investor-State Dispute Settlement in the Trans-Pacific Partnership Agreement. Submission to the Department of Foreign Affairs and Trade. Atlas, N.F., Huber, S.K. & Trachte-Huber, E. W. (2000). Alternative Dispute Resolution: The Litigators Handbook. New York: American Bar Association. Read More