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Cross-Border Contract Dispute

Summary: This cross-border contract dispute proved to be costly & frustrating.

Mr I, a wholesaler in the UK, sourced a unique innovative end-user product overseas. He flew overseas to meet the manufacturer, Mr X, at his factory and placed his order. An agreement was drawn up which was signed by the parties and Mr I returned home.

On confirmation that the order was ready for shipment, the agreed percentage of the payment was transferred to the manufacturer’s nominated bank account.

When the shipment eventually landed in the UK, it was discovered that a substantial part of the shipment was missing and what had been shipped was either the wrong item or defective. Mr I realised that even holding on to the balance of the monies due to be paid, was not going to compensate for the deficient order.

On a practical level, because of the geographic distance and time zone differences, Mr I found it impossible to pin down the manufacturer. After a number of frustrating months, the manufacturer offered to give Mr I a credit note against future orders rather than a refund or making good the original order.

Trying to litigate across jurisdictions under such circumstances proved to be a frustrating almost impossible task for Mr I who approached me for my input. Having agreed to take on the case – I like a challenge! – my first task was to make contact with the manufacturer, which, predictably proved easier said than done. But having pinned Mr X down it was then up to me to try and persuade him to see the reality of the situation.

I did a lot of legwork and eventually put together a small but not insignificant list of wholesalers who use Mr X. I persuaded Mr X to understand that what he was achieving was a short term gain but a much larger longer term loss which would undoubtedly impact on his business. As a result, Mr X agreed to mediation proceedings which were arranged at a mutually convenient location.

What came out at the mediation was that Mr X had substantial tax liabilities and was effectively insolvent. Notwithstanding, a negotiated settlement was agreed between the parties whereby Mr I’s company agreed to make a significant investment in Mr X’s company thereby gaining control of both manufacture and supply of the goods. Further, a localised structure would be setup to reinforce Mr I’s control of the situation.

Settlement agreement is always a matter of compromise – what are the parties willing to do or accept to make this type of cross-border dispute go away? What this particular case showed was that business opportunities can appear in the most surprising circumstances.