Control the Venue, Control the Law

Once upon a time, there was a manufacturing company from the U.S. heartland that wanted to do business in Saudi Arabia.  This company knew that to be successful in the market long term, they would need a local partner to manufacture certain parts of the product and distribute it.

Over time the manufacturing company and their partner did well in the Kingdom, growing their business and eventually dominating the market.  Then a funny thing happened -- the partner decided they wanted more markets, and demanded exclusive access to the much of the Muslim world.  The manufacturer objected, and a long discussion ensued, but when the agreement with the partner expired, it was not renewed.

Not to be stymied by the manufacturing company, the partner stole all the designs, trade secrets, manufacturing know-how, and even the manufacturer's marketing material, and started their own business competing directly with the manufacturer.

Not surprisingly, the manufacturer threatened to sue their former partner.  But a funny thing happened -- it seemed that years ago, when the original agreement was signed, it was agreed that any legal dispute between the parties would be arbitrated in the U.K. according to Sharia Law.  And any abitration award would have to be enforced through the Saudi courts.

The manufacturer investigated, and ultimately came to the conclusion that they had only a moderate chance of succeeding in the arbitration, and a very low chance of enforcing an award through the Saudi courts.  They gave up, and had to deal with a new competitor -- one they had put in the business and supplied with all the knowledge and expertise they needed.

The end.

I ended up dealing with the fallout of this situation, and I can't tell you the number of times I wished the original drafters of the contract had insisted on U.S. Law, and U.S. Courts.  It meant the difference between being able to defend ourselves, and holding a losing hand that cost millions.

So here's the lesson -- when negotiating a critical agreement, supply the attorney to draft the document, and never give up the law that will be used to interpret the contract, or the place where the dispute will be settled.  Nine times out of ten, it probably won't bite you personally, and seven times out of ten, there won't be a legal dispute, but the one time it happens can be extremely painful.

If you find my series of blog posts on LESSONS LEARNED interesting, check out my fiction.  Many of the same ideas are presented there in an entertaining and highly readable form.  Try LEVERAGE, INCENTIVIZE, or DELIVERABLES at these links.