CHAPTER 3 Resolving International Commercial Disputes

1. CHAPTER 3Resolving International Commercial Disputes

2. Avoiding Business Disputes • Old adage “hope for the best but plan for the worst.” • Business relationship very important as well rights spelled out in contract. • Dispute resolution is difficult because it: • Spans continents. • Involves different legal systems. • May involve possible litigation in multiple forums. • Involves issues of enforcement.

3. Alternate Dispute Resolution • Mediation: voluntary, nonbinding, conciliation process. • Arbitration: binding award that can be enforced by courts of law in different countries. • National Arbitral Laws. • Arbitration Bodies. • Arbitration Clauses. • Enforcement of Arbitration Awards. • See the Scherk v. Alberto-Culver (1974) case. 

4. Scherk v. Alberto Culver • Facts: 1969 Alberto Culver (Del. Corp) signed an agreement to purchase Scherk’s companies and trademarks. The contract had an arbitration clause (I.C.C. Paris) and a choice of law clause (Illinois). AC discovered that there were other claims on the trademarks. AC filed suit in U.S. federal court alleging SEC violations. Scherk moved to dismiss or stay pending arbitration.

5. Scherk v. Alberto Culver • Lower court denied motion to dismiss and stayed the arbitration. Court of Appeals affirmed • Issue: Is the arbitration clause enforceable even though it involves a SEC claim? • Holding: Yes. The Court reviewed the purposes of the United States Arbitration Act. The Court noted the contract was a “international agreement” and looked at a number of factors.

6. Scherk v. Alberto Culver • The Court concluded that “a parochial refusal” to enforce the agreement would result in a kind of business chaos.

7. Jurisdiction • Territorial: power to hear cases related to crimes committed within a territory. • Subject matter: jurisdiction over certain types of cases like torts or contracts. • Diversity of citizenship: federal courts have jurisdiction over matters between citizens of different states or citizens of one state and a foreign country when controversy exceeds $75,000.

8. Jurisdiction • Jurisdiction raises the fundamental question: does the court have the power to hear the case? • In personam jurisdiction: power over the person. Courts need to have “minimum contacts” with the forum.

9. “Minimum Contacts” • Due process clause of the Fourteenth Amendment of the U.S. Constitution has been interpreted to require that before a person or company be brought before a court, it must have had some contacts with the place or forum. • Based upon a notion of “fairness.” • Many other countries have similar concept. • Case Asahi Metal Industry, Co. v. Superior Court of California, Solano County (1987). 

10. Asahi Metal v. Superior Court of California • Cheng Shin (Taiwanese tire manufacturer) and Asahi (Japanese valve maker) • Zurcher sues Cheng Shin who settles in California • Cheng Shin seeks indemnification from Asahi in California court • Why?

11. Asahi Metal v. Superior Court of California • Issue: Did Asahi’s sale of valves to Cheng Shin which were then placed into tires that were sold in California constitute sufficient contacts to warrant the California court to take jurisdiction over Asahi consistent with the Fourteenth Amendment of the Constitution?

12. Asahi Metal v. Superior Court of California • No. “Considering the international context, the heavy burden on the alien defendant. and the slight interests of the plaintiff and the forum state, the exercise of personal jurisdiction by a California court over Asahi in this instance would be unreasonable and unfair.”

13. Jurisdiction • Jurisdiction in the European Community. • Case General Monitors Ireland Limited v. SES-ASA Protection SPA (2005). • Jurisdiction in the Internet Age. • When has the person or company met the test of minimum contacts? • Differentiation between active and passive website. • However, law is unsettled.

14. Internet Jurisdiction: Graduate Management Admission Council v. Raju • Raju, a citizen of India, registered gmatplus.com and gmatplus.net. He sold books to prepare students for the GMAT through his website. GMAT is a registered trademark in the U.S. GMAC , the non-profit that owns rights in GMAT and is based in Virginia, sued Raju for cyber piracy, infringement, unfair competition and other torts.

15. Internet Jurisdiction: Graduate Management Admission Council v. Raju • Issue: Does this interactive website provide the basis for jurisdiction over Raju? • Holding: Yes, the website targeted the U.S. market in part and Raju did ship materials to the U.S.. Thus following the AlS Scan test, the exercise of personal jurisdiction comports with due process.

16. Internet Jurisdiction: Graduate Management Admission Council v. Raju • What result? • Will enforcement be easy? • Obtaining Jurisdiction by Service of Process. • Advised to consult attorneys in the defendant’s country. • Procedures is addressed in the Hague Convention on the Service Abroad of Judicial and Extra-Judicial Documents in Civil and Commercial Matters. • Safest method: “Letter Rogatory.”

17. Venue • Geographical location of a court of competent jurisdiction. • Forum Non Conveniens: inconvenient forum (already discussed in the Bhopal case). • Forum shopping: what is it? • Case Iragorri v. United Technologies Corp. & Otis Elevator Co (2001). 

18. Venue: Iragorri v. United Technologies • Facts: A U.S. citizen visiting his mother in Cali, Colombia fell to his death via an open elevator shaft in 1993. His survivors sue the elevator company, Otis, and its parent company, United Technologies, in federal court. The District court dismissed the case on the basis of forum non conveniens.

19. Venue: Iragorri v. United Technologies • Issue: Should the federal district court in Connecticut take jurisdiction over the matter or will forum non conveniens force the plaintiffs to pursue the matter in Colombia? • Decision: The Court should give deference to the plaintiff’s choice of the U.S. forum. The court notes that there is a balance of factors to consider but

20. Venue: Iragorri v. United Technologies • Remand the matter to the lower court to consider the Plaintiff’s interest, the hardship of litigating in Colombia, the witnesses on the defective design theory reside in Connecticut, and any public interest factors.

21. Forum Selection Clauses • How are they different? • Why was there judicial hostility to these contractual provisions? • Why don’t they work with 3rd parties? • See M/S Bremen v. Zapata Off-Shore Co (1972). 

22. Forum Selection: Bremen v. Zapata • Facts: 1967 Zapata (Texas corp.) entered into contract with a German corp., Unterweser. U was supposed to tow a rig from Louisiana to Italy. Storm intervened and Z instructed U to drop off damaged rig in Florida. Contract had a forum selection clause stating disputes would be heard by “London Court of Justice.”

23. Forum Selection: Bremen v. Zapata • Z sued in U.S. federal court. U moved to dismiss. U filed in London. The U.S. district court and the court of appeals sided with Z and denied U’s motion to stay the U.S. proceedings. • Issue: Does the forum selection clause control requiring any disputes to be heard in London?

24. Forum Selection: Bremen v. Zapata • Holding: yes, the forum selection clause controls. • What result? • Why did courts used to be hostile to forum selection clauses?

25. Conflict of Laws • Absent a choice of law clause, generally the court will apply the law of the state, country or jurisdiction that has the closest relationship to the transaction under Restatement (Second) of the Conflict of Laws. • Application to Contracts under Restatement (Second). • Application to Torts under Restatement (Second).

26. Choice of Law Clauses • Contract clauses in which parties stipulate the country or jurisdiction whose law will apply in interpreting the contract or enforcing its terms. • In some cases the court may not enforce where “enforcement would be unreasonable and unjust,” or “invalid for fraud and overreaching.”

27. Application of Foreign Law in American Courts • Application of Foreign Law in American Courts: Federal courts are free to determine as a matter of law what the foreign law is. • Follow 44.1 Federal Rules of Civil Procedure.

28. Judicial Assistance: Discovery and Evidence • Judicial Assistance: Discovery and Collection of Evidence. • 1970 Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters. • See Finnish Fur Sales Co., Ltd v. Juliette Shulof Furs, Inc. (1991). 

29. Evidence: Finnish Fur Sales v. Juliette Shulof Furs • Facts: Shulof, an officer of JSF, Inc. went to 2 auctions in Finland in 1987. JSF paid for the skins but left an unpaid balance of approximately $200,000. FFS sued Shulof in federal court for the balance owed. The conditions of sale at the auction had stated if a person bids for another entity that person is “ jointly and severally liable…”. They also stated that Finnish law applied to all sales. Shulof claimed that under N.Y. law he is not personally responsible for the debt.

30. Evidence: Finnish Fur Sales v. Juliette Shulof Furs • Issue: Should the U.S. court enforce the Finnish law and auction contract provision holding an individual responsible for the corporate debts? • Holding: Yes. The court found it reasonable to enforce the provision. The court also reasoned that even if New York law would not require such a result that New York court enforce foreign laws unless

31. Evidence: Finnish Fur Sales v. Juliette Shulof Furs • “the transaction… is inherently vicious, wicked or immoral..”. The court also noted that even without a choice of law clause like this one, the New York court had enforced foreign law base on conflict of law principles.

32. Judicial Assistance • Letters Rogatory. • Most countries will accept requests for assistance, except for Japan and China. • Antisuit Injunctions. • U.S. courts have power to enjoin a party over whom they have jurisdiction from bringing a lawsuit in a foreign country.

33. Enforcement of Foreign Judgments • Winning party can obtain judgment for damages or other award. • In the U.S. judgments can be enforced in another state under the “full faith and credit clause” of the U.S. Constitution. • Some 30 states allow for enforcement of foreign awards.

34. Commercial Disputes with Nations • When foreign governments operate businesses with an intention to make a profit, they may be sued in court as a corporation. • See the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (Washington 1966). • Case Manches & Co. v. Gilby (1995) concerns the true amount of damages caused by differences in exchange rates between the dollar and the British pound.