Establishing Precedence Clauses in Cross-Border Earn out Agreements
Explicit precedence clauses in cross-border earn-out agreements prevent accounting schedules from overriding core legal risk allocations and governing law provisions.
International Arbitration Priority
Meaning
Contractual hierarchy provisions establish the primacy of international arbitration over local court proceedings for resolving cross-border corporate disputes. By defining an international arbitration priority, the contracting parties ensure that any legal challenges arising from the acquisition agreement are heard in a neutral forum. This priority prevents parties from seeking home-court advantages in domestic jurisdictions.
The provision stops applying if the dispute falls under a carve-out for emergency injunctive relief.
Forum Selection
Neutrality and specialized knowledge of international trade are the primary reasons for choosing arbitration over local courts. In cross-border ventures, the parties designate a specific arbitration seat and a set of international rules to govern their disputes. Establishing an international arbitration priority prevents one party from initiating preemptive lawsuits in their local jurisdiction to disrupt the transaction.
This choice of forum is respected by international treaties, which mandate that local courts stay any proceedings brought in breach of the arbitration agreement.
Enforcement Mechanism
Awards rendered by an international tribunal are highly enforceable across multiple jurisdictions due to multilateral treaties. The New York Convention requires signatory nations to recognize and enforce foreign arbitral awards with minimal judicial review. This high level of enforceability makes the international arbitration priority an essential asset for securing cross-border investments.
Parties can enforce their rights without navigating the complexities of foreign court systems. The resulting predictability reduces the risk premium associated with cross-border transactions.
Jurisdiction Exclusion
The agreement must explicitly exclude the jurisdiction of local courts to ensure the arbitration remains the sole venue for resolving disputes. If a party brings an action in a local court, the other party can use the international arbitration priority to obtain a stay of those proceedings. This contract clause ensures that all substantive disputes are handled by the chosen arbitral tribunal.
It also means that any attempt to bypass the arbitration process is treated as a breach of contract, which can trigger liability for legal costs. The exclusion must cover all tort, contract, and statutory claims arising out of the transaction to prevent a party from split-litigating their cases in different forums, which would otherwise result in conflicting judgments and excessive legal expenses.