International Business Transactions Li Fall 2014
I) International Legal Environments
A) International Dispute Resolution
§ Generally: There are 3 basic alternatives for dispute resolution:
(1) U.S. courts
(2) Foreign courts
(3) International commercial arbitration
§ Litigating in the U.S. or Abroad – Key Differences between U.S. and Foreign Courts:
(1) Nowhere outside of the United States are you likely to encounter a jury in a civil case. (Root of the all differences)
(a) A civil law judge is likely to hear the case. They are career judges.
o The outcome will be more predictable because the judgments and opinions of a seasoned judge will be available for comparison.
o No questions of evidence
(2) Judicial backlogs are commonplace throughout the world but they differ widely from country to country and at various places within them.
(a) Accumulation of unresolved cases (India Judiciary would take 350 years to clear up the backlog). If you have a dispute with an Indian company, you should file the lawsuit in the U.S. court unless the case falls into some specific subject-matter area. Indian government has recently adopted reforms to speed up cases (now estimated time to clear up backlog is less than 100 years).
(3) The process of proving a case is different in a civil law system.
(a) U.S.: give a short complaint and then get evidence via discovery
(b) International: P will be expected to present, along with the complaint, the major items of evidence on which it relies. No discovery. No complex discovery rules, instead there are rules that empower the judge to get the evidence.
(4) Appeals are more likely to include a more or less de novo review of the factual determinations of the trial judge since there was no jury.
(a) U.S.: Appealing in the US is much better. In the U.S., appellate courts just review the law because the jury has made the finding of fact.
(b) International: appellate judge doesn’t make much deference to the trial judge (who is the factfinder) and thus does a de novo review.
(5) The costs of litigation are assigned differently than in the U.S.
(a) American Rule: each party in the litigation bears the costs of its lawyers’ work.
(b) British Rule: the prevailing party is reimbursed for the lawyers fees its expended. Used in almost all legal systems except the U.S.
(6) Most countries do not recognize the class action.
(7) No punitive damages internationally.
§ International Jurisdiction in U.S. Courts
(a) Specific Jurisdiction: when a court exercises jurisdiction with respect to claims arising out of a defendant’s contacts with the forum
o Need the claim to arise out of D’s contacts with the forum.
(b) General Jurisdiction:
o Resident or domicile (standard)
o Doing Business Jurisdiction (more controversial): based upon the D’s “continuous and systematic” contacts with the forum.
1. Goodyear Test: only subject the corporation to jurisdiction if
a. Continuous and Systematic Activity (many contacts)
b. Essentially at “Home”
o Transient: based upon service of process while the D is temporarily in the forum.
(2) Forum Selection Clauses
(a) M/S Bremen v. Zapata Off-Shore Company (U.S. 1972) – A German corporation contracted with a United States corporation to move an oilrig from Louisiana to the Adriatic Sea. During transportation, the rig was damaged and was towed to Tampa, Florida The United States corporation filed suit in Tampa. The German corporation, however, asked the district court to enforce the forum-selection clause that was contained in the contract.
o Holding: When two parties freely consent in a contract to a forum selection clause for dispute resolution, such clause should be considered valid and be enforced unless the enforcement of such clause is shown by the resisting party to be unreasonable or unjust under the circumstances, or the clause itself was invalid for such reasons as fraud or overreaching.
1. What would be considered unreasonable?
a. Mere inconvenience is not a good basis for not enforcing a clause
b. Resisting party must show that the forum will deprive the party of a day in court.
c. Strong public policy alone is not enough
o Context: Specifics of the case were important – admiralty case, sophisticated commercial parties, arms-length bargaining, court had expertise and met standards of neutrality.
o Note: they picked the forum but not the law (choice-of-law provision), which generally gives the inference that substantive law to be applied is that of the forum.
o Public Policy Reasons:
1. Freedom to Contract
2. The expansion of American business and industry will not be encouraged it, notwithstanding solemn Ks, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts.
3. Most common law countries have already adopted the rule to generally enforce forum selection clauses in a K.
(b) Zapata is Expanded: Carnival Cruise Lines, Inc. v. Shute (U.S. 1991) – Different situation because one of the parties was an individual rather than a corporation. SCOTUS held that Ps were bound by the fine print clause in their ticket which provided that any disputes were to be litigated in Florida where D had its headquarters.
(c) Other considerations regarding Forum Selection Clauses:
o Will the forum selected accept jurisdiction?
1. Most common bases for jurisdiction: where defendant resides, where the cause of action arose, where the person has regular business (minimum contacts), and where defendant is successfully served.
a. Example: in NY it’s specifically stated that for certain large transactions there’s no need to have connections with the state.
2. There are other problems that we’ll discuss later such as the problems with enforcing judgments and gathering evidence abroad (rogatory letters, limited or non-existent discovery).
o What law will the forum apply?
1. Forums generally will apply their own choice of law rules (thus one needs, in choosing a forum, to think about what law it would apply if it’s not determined in the contract).
2. When parties do not indicate their choice of law, it may be because they did not realize the importance of doing so or perhaps because they wanted to avoid having to negotiate or bring up an additional point in the negotiation.
a. By not including it in the agreement, one could at least argue that a certain law applies depending on the circumstances of the dispute that might arise in the future.
o Is the forum we select favorable to our client’s interests (threshold of liability, damages, availability of jury trials, cost, etc.)?
§ The Enforcement of Judgments Internationally
(a) Non-U.S. Jurisdictions: have created treaties that provide for the reciprocal enforcement of one another’s court judgments.
o Example: Brussels Convention, 1990 O.J. (C 189) 1, now superseded by the Brussels Regulation provides for reciprocal enforcement of another court’s judgment
(b) U.S.: The United States is not a party to any treaty providing for the recognition and enforcement of foreign judgments.
(c) The Convention on Choice of Court Agreements (U.S. is a party but has not passed Senate): would provide that the court chosen by the parties in an exclusive choice of court agreement has jurisdiction, that other courts do not have jurisdiction and must decline to hear the case, and that judgment given by the chosen court must be recognized and enforced by other state-parties to the Convention.
(d) State Law Governs: In the absence of a treaty, the enforceability of a U.S. judgment abroad depends on the local law of the jurisdiction where enforcement is sought.
o Post-Erie, it is assumed that the enforceability of foreign judgments is a question of state law, and that federal courts sitting in diversity must follow the rules of the state in which they sit.
(e) Uniform Foreign Money-Judgments Recognition Act (adopted by a majority of states):
o §3: Recognition and Enforcement – Except as provided in §4, a foreign judgment that meets [certain] requirements is conclusive between the parties to the extent that it grants or denies recovery of a sum of money.
o §4: Grounds for Non-Recognition – (a) A foreign judgment is not conclusive of (1) the judgment was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law; (2) the foreign court did not have personal jurisdiction over the defendant; or (3) the foreign court did not have jurisdiction over the subject matter. (b) A foreign judgment need not be recognized if (1) the defendant in the proceedings in the foreign court did not receive notice of the proceedings in sufficient time to enable him to defend; (2) the judgment was obtained by fraud; (3) the [cause of action] [claim for relief] on which the judgment is based is repugnant to the public policy of this state; (4) the judgment conflicts with another final and conclusive judgment; (5) the proceeding in the foreign court was contrary to an agreement between the parties under which the dispute in question was to be settled otherwise than by proceedings in that court; or (6) in the case of jurisdiction based only on personal service, the foreign court was a seriously inconvenient forum for the trial of the action.
o §5: Personal Jurisdiction – (a) The foreign judgment shall not be refused recognition for lack of personal jurisdiction if (1) the defendant was served personally in the foreign state; (2) the defendant voluntarily appeared in the proceedings, other than for the purpose of protecting property seized or threatened with seizure in the proceedings or of contesting the jurisdiction of the court over him; (3) the defendant prior to the commencement of the proceedings had agreed to submit to the jurisdiction of the foreign court with respect to the subject matter involved; (4) the defendant was domiciled in the foreign state when the proceedings were instituted, or, being a body corporate had its principal place of business, was incorporated, or had otherwise acquired corporate status, in the foreign state; (5) the defendant had a business office in the foreign state and the proceedings in the foreign court involved a [cause of action] [claim for relief] arising out of business done by the defendant through that office in the foreign state; or (6) the defendant operated a motor vehicle or airplane in the foreign state and the proceedings involved a [cause of action] [claim for relief] arising out of such operation. (b) The courts of this state may recognize other bases of jurisdiction.
§ Procedural Problems in International Litigation
(1) Four Factors that Foreign Countries look to determine whether to recognize a foreign decision:
(c) Public Policy
(2) Many differences in service of process and discovery of evidence between U.S. and international courts:
(a) Service of Process:
o In many countries, service of process via use of private process servers is forbidden
o Hague Service Convention: requires each state-party to designate a Central Authority to which documents may be forwarded for service in that country. The Convention also allows each country to object to other methods of service such as service by mail or service by diplomatic or consular agents (unless the documen
it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specific in said convention.”
o Article V contains a narrow list of exceptions: incapacity, not valid under law, no notice, beyond the scope of arbitration, subject matter is not capable of settlement by arbitration, contrary to public policy.
o While no other grounds for refusal can be read into the Convention by implication, the courts of the United States are authorized to apply US procedural arbitral law such as, the Federal Arbitration Act, to nondomestic awards rendered in the US
(c) Awards may be vacated in limited circumstances where the arbitrator’s award is in manifest disregard of the terms of the agreement or where the award is in manifest disregard of the law.
o Manifest Disregard for the Law: the error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Moreover, the term “disregard” implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it.
(d) You can challenge an arbitration award only if you
o Can show a clear mistake in interpreting facts or the law
o Can argue on policy grounds
o NOTE: STILL REALLY HARD
II) Transnational Law
§ Transnational Law: includes all law, which regulates actions or events that transcend national frontiers. Both public and private international law are included, as are other rules, which do not wholly fit into such standard categories.
§ International Court of Justice Article 38 (U.S. honors):
(1) The Court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply;
(a) International conventions, whether general or particular, establishing rules expressly recognized by the contesting states;
(b) International custom, as evidence of a general practice accepted as law;
(c) The general principles of law recognized by civilized nations
(d) Subject to the provisions of Article 59, judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.
§ International Conventions: refers to agreements between two or more countries, also commonly called “treaties.” “Treaties” refer to those agreements made with the concurrences of two-thirds of the Senate, as provided in Article II, section 2 of the Constitution.
§ International Custom/Customary International Law: results from a general and consistent practice of states followed by them from a sense of legal obligation. R2d of Foreign Relations Law § 102(2).
(1) Examples: the rules governing the expropriation of foreign owned property and the rules limiting “prescriptive jurisdiction” – that is, the authority of nations to prescribe rules for particular persons or conduct, sometimes outside of their own borders.
(2) Vague; gives judges a lot of discretion to assert jurisdiction.
§ International Court of Justice Article 59: “The decision of the Court has no binding force except between the parties and in respect of that particular case.”
§ General Principles of Law (Article 38(1)(c)): refers to practices by states with respect to their internal law, as distinguished from custom which is behavior vis-à-vis other states. To be distinguished from Customary International Law. Usually used in cases of estoppel and other procedural matters.
§ Public International Law: treaties and customary international law.
§ Private International Law:
(1) Outside the United States: refers to the rules for resolving private disputes having a significant relationship to more than one jurisdiction, what Americans call the “conflict of laws.”
(2) Divided into 3 Parts:
(a) It deals with the question when a court can take jurisdiction over a party or property identified as “foreign.”
(b) It deals with the extent to which the judgment of court in Country A is entitled to recognition or enforcement by the courts of Country B.
(c) It deals with the choice of law question – what rules of law are to be applied in resolving a transborder dispute.
§ Charming Betsy Canon: “an act of Congress ought never to be construed to violated the law of nations if any other possible construction remains.”
(1) Lauritzen v. Larsen: If not fairly possible to construe a statute not to conflict with international law, Congress has authority to supersede a treaty or a rule of customary international law as domestic law.