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Risks with new relationships: adopting a ‘litigators eye’

Published by , Editor
Global Mining Review,

Airlie Goodman, Partner at global law firm Mayer Brown, looks at why it is important for mining companies to keep a proactive ‘litigator’s eye’ on issues, even when times are good.

The mining and metals sector is facing growing pressure to pivot away from the extraction of fossil fuels towards extracting cleaner commodities and assist in accelerating the global transition to cleaner energy. With this comes the opportunity to work and contract with new counterparties from multiple different industries and sectors (e.g. automotive, technology, and renewable energy).

However, such opportunities can also create risks for mining companies, as parties from different industries can have different pre-conceptions of how risks should be allocated under a contract, different regulatory concerns and commercial drivers and different assumptions about how a contractual relationship should play out. Well-drafted contracts, which deal comprehensively with all aspects of a contractual relationship, are vital in preventing disputes from arising or crystallising into formal dispute resolution processes.

A recent example of cross-industry collaboration has seen mining companies enter into offtake agreements with car manufacturers. Car manufacturers see this as a way to strengthen and guarantee their supply chains for commodities (e.g. lithium, nickel, and cobalt) to be used in batteries in the race to scale up their production of electric cars.

While such cross-industry collaboration and direct contracting provides a host of opportunities for mining companies to obtain finance and secure the long-term future of projects, it always pays to proceed with caution and manage risk appropriately. Car manufacturers are under significant pressure to source metals in the face of limited supply and in the context of their own emissions targets. Mining companies may well find that pressure passed on to them if they are unable to deliver under these direct agreements, so will no doubt be seeking to ensure that the drafting is robust and provides them with sufficient protection if things do not go to plan.

Involving disputes lawyers (whether in house or external counsel) early on, and having a ‘litigators eye’ on the documents at the drafting stage, can provide a fresh perspective on a proposed agreement, help avoid common contractual pitfalls, and help ensure clarity on the parties’ respective rights and liabilities.

Further, disputes lawyers can advise on the inclusion of a thoughtfully drafted dispute resolution clause. This may include tiered mechanisms intended to resolve disputes efficiently (including mandatory negotiation and mediation) before matters can be escalated to litigation or arbitration (which can take a long time to conclude and have a negative impact on the wider commercial relationship).

In the unfortunate event that a dispute does crystallise and require resolution through more formal processes such as litigation or arbitration, having a disputes lawyer across the detail early on can assist you in efficiently navigating the contract to minimise losses, develop a clear strategy and to quickly turn the parties’ attention to avenues of resolution and settlement before they become entrenched in their respective positions.

Mining companies are adept at managing long-term, capital-intensive and heavily regulated projects, often involving cross-border counterparties and underpinned by a network of complex contracts. The need to get the documents right is nothing new but has increasing importance as the industry evolves and its participants change. Prevention is always better than cure when it comes to disputes, so for many industry participants it pays to plan ahead and involve a disputes lawyer before a dispute is on the horizon rather than reacting after the fact.

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