What to Do When the System Breaks: Tackling Transnational Dispute Resolution

Andrew Deerin

Transnational dispute resolution. It’s where companies end up when the system fails. When governments don’t play by the rules. Or when an international partner goes dark on you. Signal’s John Procter has turned it into an art form. Have a listen.

SIGNALCAST: Welcome to SignalCast, the podcast from Signal Group. Signal’s a bipartisan communication and advocacy firm located in Washington D.C. I’m your host, Andrew Deerin, creative director at Signal. On today’s show, we’re talking about where companies end up when the system fails, when governments don’t play by the rules or when an international partner goes dark on you.

Transnational dispute resolution, ICSID, UNCITRAL, the New York Convention. It may sound super boring to most, but today’s guest lives for it, to the tune of four billion dollars in recovered assets and revenue over the past couple years. John Procter’s an EVP here at Signal, and co-chair of our international practice. John, welcome to SignalCast studios.

JOHN PROCTER: Thank you very much. Good to be here.

SC: Help us unpack this a little bit. First of all, what is the alphabet soup of acronyms and why should our listeners care?

PROCTER: Well, everybody knows about traditional litigation. There’s a harmed party, they file a complaint, and a judge or a jury rules on the merits of the case. But that takes a lot of time and money, especially when you’re dealing with international disputes and multiple judicial systems. So back in 1958, arbitration was getting more popular as an alternative. It allowed the parties to avoid dueling jurisdictions and agree to one international standard for an impartial review of the case. The outcomes being binding, save for a few exceptions.

Today, most countries are signed onto the New York Convention or other similar agreements that you mentioned, which commit the nation and the companies that have baked arbitration into their contracts to honor the outcomes of these panels. Sounds great, right? Well, increasingly, companies – often those with political ties to their government – will have a ruling issued against them, and they say, ‘Nope, not going to do it. By the way, good luck finding a judge in our country that will enforce that award.’

SC: Help them get the money back.

PROCTER: All of a sudden, this process, which is meant to streamline international legal disputes is broken. In fact, 60% of arbitral awards over the last five years have yet to be paid in full. We’re talking about big money. $500 million dispute in Kazakhstan, $12 billion in Venezuela, over $2 billion in Russia, half a billion in India, $800 million in Pakistan, and nearly $600 million in Nigeria.

SC: A country that you and I know well.

PROCTER: Indeed.

SC: But that’s for maybe a different show. What is an example? Give us an example.

PROCTER: Sure. A few years ago, we had a client that was sitting on a $750 million award. It’d been long been written off by the company’s analyst, its shareholders. They clearly won on the merits of the case, which was a dispute over revenue sharing agreement. The state-owned enterprise they’d entered into a joint venture with was avoiding enforcement, essentially by hiding behind the courts, this eastern European darling for foreign direct investment. Our client had spent years and huge sums in legal fees inside a system that had essentially already failed them. That’s where we came in.

SC: What did Signal do to handle it?

PROCTER: Well, first it’s important to realize that these decisions to not honor an obligation are both legal and geopolitical calculations. They’re not only decided in the board room, they’re blessed, and in most cases by the state itself. Given that reality, our programs quickly create an environment around that country that makes noncompliance more costly, both financially and geopolitically than honoring the obligation itself.

We accomplish that outcome by doing three things. First, we drag what are often obscure disputes into the spotlight. We inject our client’s experience into the bloodstream of that country’s broader economic and policy narratives via the news media, economic and policy conferences, government-to-government summits, and of course, online. We do that to the point that anyone conducting research, be they a reporter, a market analyst, or even a desk officer at a foreign ministry can’t help but stumble across that case.

We then position the dispute as a warning flag to these same audiences, that this market may present more risk than anticipated, that rival countries in the region might be better, safer destinations for their foreign direct investment. Finally, we position our client’s case as not only the problem but part of the solution. That by resolving the dispute, the market and its government can send a powerful signal to global business community members that they are indeed committed to playing by the rules, that they’re open for business.

SC: It sounds a little bit like beating up on smaller or more fragile economies. Is that not the case?

PROCTER: Actually, it’s quite the opposite. Again, countries make these short-term calculations so that they can essentially get away with ignoring these commercial and treaty obligations. They do that because no one that matters is paying attention. Our programs change that calculus. They get governments to eventually reaffirm their commitments to global norms, and in doing so, de-risk their own markets in the eyes of the global community. They, in honoring their obligations, make clear that you and your investments will be treated fairly. That lifts these countries up.

SC: Rising tide lifts all boats. Will this approach work anywhere?

PROCTER: No. Typically speaking, the G8 countries have such massive and diverse priorities that it would be difficult to break through. On the other end of the spectrum, you have the pariah states, Venezuela being a great example of one that would be difficult to resolve save a regime change, which is exactly what we’re seeing now with the multi-billion-dollar enforcement effort I mentioned earlier. But that leaves more than 150 countries that aspire for growth and to be embraced as part of the global financial system.

SC: What advice do you offer clients that might see issues like these emerging?

PROCTER: One of the most important things companies can do is realize again, that many of these nonenforcement challenges that they’re facing are just as much about geopolitics as they are about the law; the law can only do so much for them in that regard. The programs that we put together can not only shake free an already awarded payment, but they can even accelerate an arbitral process that’s just getting underway. If they see the warning signs, they should talk with their general counsel and their outside counsel about considering strategies beyond the confines of the court room, strategies that can help them secure the outcome they’re working toward.

SC: Well, that will do it for today’s show. My many thanks to John Procter for taking the time to sit down with SignalCast and pull the curtain back a bit into the tricky world of transnational dispute resolution.

That was pretty cool. To get in touch, check us out on the web at signaldc.com. For our entire production staff, I’m Andrew Deerin. We’ll see you next time.