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The Resolution of International Disputes

The Resolution of International Disputes

Chapter 3

© 2005 West Legal Studies in Business/Thomson Learning

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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

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Why is dispute settlement more difficult in an

international transaction?

Why is dispute settlement more difficult in an

international transaction?

• Spans continents

• Different legal systems

• Possible litigation in multiple forums

• Question of enforcement

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Methods of ResolutionMethods of Resolution

• Litigation

• Alternative dispute resolution (ADR) (arbitration, mediation, other)

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LitigationLitigation

• Jurisdiction raises the fundamental question: does the court have the power to hear the case?

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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

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Jurisdiction:

• In personam jurisdiction means over the person

• Need to have “minimum contacts” with the forum

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Minimum contactsMinimum 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

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Illustration of “Minimum contacts”: Asahi v. Court of California

Illustration of “Minimum contacts”: Asahi v. 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?

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Asahi v. 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?

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Asahi v. Court of CaliforniaAsahi v. 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.”

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How is jurisdiction affected in the age of the internet?

• When has the person or company met the test of minimum contacts?

• Differentiation between active and passive website

• Law is unsettled however

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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.

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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.

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Graduate Management Admission Council v. Raju

• What result?

• Will enforcement be easy?

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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?

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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.

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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

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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.

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Forum Selection Clause/ Choice of Law Clause

Forum Selection Clause/ Choice of Law Clause

• How are they different?

• Why was there judicial hostility to these contractual provisions?

• Why don’t they work with 3rd parties?

• Bremen v. Zapata example

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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.”

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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?

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Bremen v. Zapata

• Holding: yes, the forum selection clause controls.

• What result?

• Why did courts used to be hostile to forum selection clauses?

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Choice of law and forumChoice of law and forum

• In some cases the court may not enforce where “enforcement would be unreasonable and unjust,” or “invalid for fraud and overreaching.”

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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.

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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

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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.

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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.

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Litigation differences between countries

Litigation differences between countries

• Common vs. civil law countries

• Role of lawyers

• Collection of evidence, discovery

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Problem: even if you win, you still have to collect!

Problem: even if you win, you still have to collect!

• Enforcement of foreign judgments

• Not automatic, why not?

• No treaty

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One kind of ADR: ArbitrationOne kind of ADR: Arbitration• Cost

• Limited discovery

• Speed

• Flexible rules of evidence

• Privacy

• Enforceability

• Limited appeal

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Arbitration and Mediation

• Mediation is a voluntary, nonbinding conciliation process

• Arbitration is a voluntary process whereby the parties agree to be bound by the decision of the arbitrator(s)

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Why is arbitration attractive to business?

Why is arbitration attractive to business?

• More reliability of enforcement due to the New York Convention

• Case example: Scherk v. Alberto Culver

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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.

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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. The Court concluded that

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Scherk v. Alberto Culver

• “a parochial refusal” to enforce the agreement would result in a kind of business chaos.

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Any disadvantages of arbitration?

Any disadvantages of arbitration?

• Limited appeal

• Limited discovery

• Rules of evidence don’t apply as in a court of law

• Advantages can become disadvantages

• Would Microsoft choose ADR?

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How is mediation different?How is mediation different?

• Not binding

• When would you use in a business context?

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How do businesses manage conflict?

How do businesses manage conflict?

• Try to minimize the chance of litigating in two countries

• Forum selection clauses

• Consider ADR

• Business may be able to deter litigation with a prompt response