758599

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What Is an International Contract? An American and a Gallic Dilemma Author(s): G. R. Delaume Source: The International and Comparative Law Quarterly, Vol. 28, No. 2 (Apr., 1979), pp. 258-

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WHAT IS AN INTERNATIONAL CONTRACT? AN AMERICAN AND A GALLIC DILEMMA

By

G. R. DELAUME *

IN two leading cases, Zapata 1 and Scherk,2 decided in 1972 and 1974, respectively, the Supreme Court of the United States held that, " in an era of expanding world trade and commerce," the parties to an "international contract " could validly stipulate provisions which, in a domestic setting, would be prohibited. Specifically, the court held that the American party to such a contract could not renege on commitments freely undertaken towards a foreign party by seeking refuge in an American forum, under the umbrella of American law. In the words of the court:

We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws and resolved in our courts.3

In so holding, the Supreme Court has made a most significant contribution to the harmonious development of an orderly regulation of international transactions. It has freed the parties from the constraints of domestic law in a field in which reliance on domestic rules may hinder rather than foster international relations. It has also reaffirmed the binding character of contractual commitments voluntarily and freely entered into by alert and experienced businessmen.

Gratifying as they are, these decisions leave important questions unanswered, not the least of which concern the definition of what constitutes an " international contract " and the possible extension of the new philosophy to areas which, at the present time, fall exclusively within the orbit of American law as administered by American courts. These are, however, issues of vital concern to businessmen and their

legal advisers attempting to assess in advance of litigation the effectiveness of contractual stipulations in the making or, in other words, of

techniques of conflict avoidance. So far, this aspect of the problem has been the object of relatively scant attention in the existing and

already abundant literature which has been published since Zapata and Scherk.4 Only a few judicial decisions rendered since then have shed

* Legal Policy Adviser, International Bank for Reconstruction and Development; Professorial Lecturer in Law, George Washington University. The views expressed in this paper are those of the author and do not necessarily represent those of the IBRD.

1 MIS Bremen and Unterweser Reederei GmbH v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed. 2d 513 (1972). The case is sometimes referred to also as the " Bremen " or " Chaparral " case, because of the names of the vessels involved.

2 Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed. 2d 270 (1974). 3 Zapata, 92 S.Ct. 1912; Sherk, 94 S.Ct. 2457. 4 No attempt will be made to list all the articles or comments in point.

258

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APR. 1979] What is an International Contract? 259

new light on some of the implications of the Supreme Court's pronouncements.5 In a sense, it may, thus, be premature to attempt to forecast the future evolution of American law in this area. Yet the time has perhaps come to take stock of the major issues likely to arise and of their possible solution.

In this connection a comparative approach to the problem may be of some assistance. The Supreme Court's concern for the peculiarities of international trade follows, somewhat belatedly, that voiced by the French Court of Cassation, almost 50 years ago and reaffirmed by it ever since." In a nutshell, the Gallic approach to the problem is to compel the parties to " international contracts " to honour their solemn promises, regardless of the provisions of the law, whether French or foreign, which, under the usual conflicts rules, would be the applicable law. The principle is thus clearly stated. What is less clear, however, is the precise significance of the principle. In the first place, notwithstanding the number of decisions in point, the French concept of " international contracts " remains somewhat fluid. In the second place, it is remarkable that the concept has been used primarily in specific areas of international trade, and especially in connection with monetary matters and arbitration, to the exclusion of other sectors of international commerce. The French experience, thus, illustrates the difficulty of arriving at a satisfactory and comprehensive definition of the basic concept, and also suggests that, however important the sanctity of contract may be to international businessmen, there are nevertheless limits to party autonomy, which cannot be ignored with impunity.

In order to set the comparison in proper perspective, it may be useful to recall briefly the history of Zapata and Scherk, since both cases supply the springboard from which new solutions may emerge.

Zapata concerned the validity of a foreign choice of forum in favour of the English courts, in a contract between Unterweser, a German company, and Zapata, an American corporation, for the towage of an ocean-going drilling rig from Louisiana to a point off the Italian Adriatic Coast. The contract contained exculpatory clauses which were apparently valid under English law, implicitly applicable to the contract,7 but which would have been invalid under American law. An accident happened in the international waters of the Gulf of Mexico and the rig was towed back to Florida, where Zapata instituted suit for damages. The district court and the Fifth Circuit Court of Appeals refused to

5 See text and nn. 51, 53 to 55, 87 and 91 infra. 6 Delaume, Transnational Contracts (updated 1978), ? 4.08. 7 At the time the contract was entered into, the English courts followed the maxim

qui eligit judicem eligit jus, according to which, in the absence of contrary indication, the parties were presumed to have accepted that the chosen forum would apply its own law. The excessive rigidity of this rule has now been repudiated. See Compagnie Tunisienne de Navigation, S.A. v. Compagnie d'Armement Maritime, S.A. [1970] 3 All E.R. 71 (H.L.). See also Delaume, op. cit. supra n. 6, ? 3.03 text and nn. 18 to 26.


260 International and Comparative Law Quarterly [VOL. 28

dismiss the action and to refer the parties to the English court on the grounds, inter alia, that (i) the parties could not " oust " an American court of its jurisdiction; (ii) under the American law, the exculpatory clauses would have been invalid 8; and (iii) Zapata's substantive rights would be materially affected if the dispute were litigated in England.Y Vacating the judgment below, the Supreme Court rejected the argument based on the " ouster " of jurisdiction as " hardly more than a vestigial legal fiction,10 and held that the American prohibition of exculpatory clauses in towage contracts " rested on considerations with respect to the towage business strictly in American waters, and those considerations are not controlling in an international commercial agreement." 11

Turning to the basic issues involving forum selection clauses, the Supreme Court acknowledged that such a clause is often a " vital part " of the agreement and as a factor of certainty is an "indispensable element of international trade." 12 In the light of today's realities of international commerce, such clauses should control in the absence of a "strong showing" that the clause should be set aside.13 Since the choice of forum was made " in an arm's length negotiation by experienced and sophisticated businessmen.., .it should be honoured by the parties and enforced by the courts." 14 In general terms, the court stated that enforcement might be denied if it were " unreasonable and unjust" 15 or if " the clause was invalid for such reasons as fraud or overreaching," 16 or if enforcement would be contrary to public policy.17

Scherk gives a new dimension to the rules formulated in Zapata. Zapata was an Admiralty case and there was some doubt whether it would be followed in regard to other international contracts. Scherk supplies an affirmative answer. Alberto-Culver, an American manufacturer with its principal office in Illinois, had purchased from Scherk, a German citizen, three enterprises organised under the laws of Germany and Liechtenstein, together with the licensing of related trade marks. Following an initial contract in Germany, and further meetings in both Europe and the United States, a contract was signed in Austria and closed in Switzerland. The contract contained a clause which provided

8 Bisso v. Inland Waterways Corp., 349 U.S. 85, 75 S.Ct. 629, 99 L.Ed. 911 (1955). 9 428 F. 2d 888 (5th Cir. 1970), vacated, 407 U.S. 1 (1972). 10 92 S.Ct. at p. 1914. 11 Ibid. at p. 1916. 12 Ibid. at p. 1915. 13 Ibid. at p. 1916. Claiming simply that the chosen forum is seriously inconvenient is

not sufficient since the parties must have contemplated the inconvenience at the time of the contract. " [I]t should be incumbent upon the party seeking to escape his contract to show that trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court. Absent that, there is no basis for concluding that it would be unfair, unjust, or unreasonable to hold that party to his 'bargain.' " Ibid. at p. 1917.

14 Ibid. at p. 1914. Zapata was again involved (and again lost) in choice-of-forum litigation. See Zapata Marine Service v. 0/ YFinnlines Ltd., 571 F. 2d 208 (5th Cir. 1978).

15 Loc. cit. 16 Loc. cit. 17 Loc. cit.


APR. 1979] What is an International Contract ? 261

for the settlement of disputes by arbitration in Paris, in accordance with the rules of the International Chamber of Commerce, although the laws of the State of Illinois were applicable to the agreement, "its

interpretation and performance." Subsequently, Alberto-Culver allegedly discovered that the trade

marks were significantly encumbered and offered to rescind the contract. Scherk refused and Alberto-Culver brought suit in a federal district court in Illinois, contending that Scherk's fraudulent representations concerning the status of the trade marks violated section 10 (b) of the Securities Exchange Act of 1934. Scherk moved to dismiss on the ground of forum non conveniens or alternatively to stay the action pending arbitration. The motion was denied but the Court of Appeals of the Seventh Circuit, relying on Wilko,18 held that the arbitration clause was unenforceable and enjoined the arbitration.19 By a five to four decision, the Supreme Court reversed and upheld the validity of the arbitration clause.

Emphasising the international character of the transaction and the

similarity between an arbitration and a forum selection clause as factors of contractual predictability,20 the Supreme Court held that the invalida- tion of the clause would sanction a repudiation by Alberto-Culver of its solemn promise and, in the words of Zapata, reflect a " parochial "

concept. Distinguishing Wilko on the ground that it related to an

essentially domestic situation,21 whereas the dispute between Scherk and Alberto-Culver concerned a "truly international agreement," 22 the court listed three factors as characteristic of the " international " nature of the agreement, namely: (i) the fact that the parties were of different nationalities, with their principal place of business and the bulk of their activity in their respective countries; (ii) negotiations took place in a number of countries and involved consultation with legal and trade mark experts from these countries; and (iii) " finally, and most significantly, the subject-matter of the contract concerned the sale of business enterprises under the laws of, and primarily situated in, European countries, and whose activities were largely, if not entirely,

18 Wilko v. Swam, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 1968 (1953). 19 484 F. 2d 611 (7th Cir. 1973), rev'd 94 S.Ct. 2449 (1974). 20 " A contractual provision specifying in advance the forum in which disputes shall

be litigated and the law to be applied is . . . an almost indispensable precondition ot achievement of the orderliness and predictability essential to any international business transaction " (94 S.Ct. at p. 2455). " An agreement to arbitrate before a special tribunal is, in effect, a specialised kind of forum-selection clause that posits not only the situs of the suit but also the procedure to be used in resolving the dispute " (ibid. at p. 2457).

21 In Wilko the court had held that an agreement to arbitrate future controversies in a stock agreement between an individual customer and a large brokerage firm was void under s. 14 of the Securities Act. As noted by the court, in Wilko there was no question that the parties, the negotiations, and the subject-matter of the contract were all situated in the United States and that the laws of the United States were to govern disputes arising out of the agreement. See 94 S.Ct. at p. 2455.

22 94 S.Ct. at p. 2455.



directed to European markets." 23 Referring to Zapata, the court concluded that an arbitration, like a forum selection, clause " should control absent a strong showing that it should be set aside." 24

As a result of Scherk and Zapata, the elements of a definition of the concept of " international contract " are identifiable. Identifiable also are the exceptions to the rule that the stipulations found in a freely negotiated international agreement should normally be enforced. Unanswered are many practical questions which pertain to the com- ponents of the definition, the scope of the exceptions and the types of transactions with regard to which the notion of " international contract " may, so to speak, displace rules of domestic law in order to achieve the " orderliness and predictability " 25 of results essential to the needs of international commerce. These are the issues which now deserve consideration.

I. WHAT IS AN " INTERNATIONAL CONTRACT " ? In a sense Zapata and Scherk and their recent progeny are " simple" cases because the international features of the relevant agreement were present beyond the shadow of a doubt. That less clearly cut situations may occur is not only a distinct possibility, but a real certainty. Under the circumstances, it may be proper to consider at some length the possible implications of each of the factors on which the overall definition is based, i.e. the nationality of the parties, the situs and character of the negotiations and the subject-matter of the contract, and the weight to be attached to each factor or a combination of them.

A. The Parties Both Zapata and Scherk involved contracts between parties, whether corporate or individual, of different and clearly identifiable nationalities. The same is true, with two exceptions, which do not really touch upon the " international " character of the contract involved,26 of subsequent cases.27

23 Ibid. at p. 2455. 24 Ibid. at p. 2457. 25 Ibid. at p. 2455. 26 The first exception is found in Roach v. Hapag Lloyd, 358 F.Supp. 481 (N.D.Cal.

1973) in which, following an action for damages by a longshoreman against a German cargo-owner, the cargo-owner filed a third party complaint against the German shipper. The complaint was dismissed, albeit reluctantly, on the ground that the two German companies had, pursuant to a bill of lading signed in Germany, agreed to submit disputes to the courts of Hamburg, Germany.

The second exception is Fuller Co. v. Compagnie des Bauxites de Guinde, 421 F.Supp. 938 (W.D.Pa. 1976), discussed infra in text related to n. 32.

27 Republic International Corp. v. Amco Enterprises, Inc., 516 F. 2d 161 (9th Cir. 1975) upholding the validity of a choice of an Uruguayan forum in contracts for civil works to be performed by a California corporation in Uruguay for the account of the Government of that country. Gaskin v. Stumm Handel GmbH, 390 F.Supp. 361 (S.D.N.Y. 1975) concerning a German forum selection clause in an agreement between a German company and a New York citizen employed to act as manager in charge of the company's New York operations; Tai-Kien Industry Co. Ltd. v. M/V Hamburg, 528 F. 2d 835 (9th Cir. 1976) relating to a towage contract dated Hamburg, Germany, between a German company and a Taiwan corporation; Sanko S.S. Co. Ltd. v. Newfoundland Refining Co.,



The use of the alter ego concept between parent corporations and subsidiaries or agents by American courts in the jurisdictional field,28 or in antitrust laws,29 may, however, import a new ingredient in the relevant characterisation. Presumably, an American court would hold that the nature, " international " or " domestic," of a contract between an American parent corporation and its foreign subsidiary, or vice- versa, would depend upon their mutual interdependence or their effective independence, and only in the second instance could the agreement qualify as a genuine " international " transaction.

In the same connection, it is worth recalling that section 202 of the United States Code,30 implementing the New York Convention of June 10, 1958, on the Recognition and Enforcement of Foreign Arbitral Awards,31 provides that:

. . . An [arbitration] agreement or [arbitral) award arising out of [a legal] relationship [which is considered as commercial] which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad envisages performance or enforcement abroad or has some reasonable relation with one or more foreign States. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States." [Emphasis added.]

In other words as between American parties, including, in the case of integrated corporations, alter ego parents and subsidiaries, the presumption would run against the " international " character of the agreement, unless some other factors were present.

An example in point is Fuller Co. v. Compagnie des Bauxites de

Guinde.32 In that case, Fuller, the plaintiff, a Pennsylvania corporation, had agreed to sell to the defendant (CBG), a Delaware corporation, a drying and calcining plant and certain related equipment to be used at CBG's bauxite plant in the Republic of Guinea. The equipment was to be manufactured by Fuller in the United States and shipped FOB at Philadelphia. The contract envisaged that Fuller personnel would (and in fact did) provide extensive technical services in Guinea and for the

411 F.Supp. 285 (S.D.N.Y. 1976), which, although the nationality of the parties is not clearly stated, would seem to imply that one of them was British and the other American; Antco Shipping Co. Ltd. v. Sidermar, SpA, 417 F.Supp. 207 (S.D.N.Y. 1976) concerning an arbitration clause in a charterparty between an Italian shipowner and a Bahamian charterer, Farmanfarmaian v. Gulf Oil Corp., 437 F.Supp. 910 (S.D.N.Y. 1977) affirmed 588 F. 2d 880 (2d Cir. 1978) 9; decided on forum non conveniens grounds) regarding the choice of an Iranian forum in an agreement between an Iranian and American citizens. Comp. Hanes Corp. v. Millard, 531 F. 2d 585 (C.A.D.C. 1976) concerning the issue of limitations in the context of the assignment of a patent by French to American citizens and referring the determination of the issue to arbitrators, in accordance with the terms of the contract. See Delaume, op. cit. supra n. 6, ? 2.09 text and nn. 17-20. 28 Delaume, ibid., para. 7.03. 29 See e.g. Call Carl, Inc. v. BP Oil Corporation, 391 F.Supp. 367 (D. Md. 1975). See also nn. 42 to 44 and related text infra.

30 9 U.S.C. 31 330 U.N.T.S. 38. 32 421 F.Supp. 938 (W.D.Pa. 1976).



delivery of replacement parts to a port in that country. Acceptance of the equipment was subject to the issuance of a certificate by a Belgian consulting firm retained by CBG. The contract provided for arbitration in Geneva, under the rules of the International Chamber of Commerce, although the parties agreed that the law applicable to the contract was New York law.

In 1975 CBG submitted a request for arbitration to the Court of Arbitration of the International Chamber of Commerce, while Fuller filed a petition for a declaratory judgment in the state court of Penn- sylvania, alleging that the dispute had been settled by an earlier agreement between the parties. CBG removed the case to the federal courts and moved to stay the proceedings pending arbitration. The motion was granted. The court held that the contract bore a sufficient connection to the Republic of Guinea to meet the test of ?202 USC and to sustain the binding character of the arbitration agreement.

French precedents give support to the view that the nationality of the parties, while relevant, is not necessarily the determining factor in the characterisation of a transaction as an " international contract."

In its latest pronouncements on the subject, the French Court of Cassation upheld a decision of the Court of Appeals of Paris for having characterised as " international " a contract between a Dutch company and its French commercial agent.33 There exist, however, earlier decisions of the same court in which the nationality of the parties was considered immaterial to the process of determination. Thus, transactions taking place in France between Frenchman and foreigners have been characterised as purely domestic when it was shown that other connecting factors were essentially French oriented. 34 On the contrary, transactions between French parties have repeatedly been declared valid when it was shown that they were ancillary to genuine international transactions. Typical examples concern transactions between French brokers, 35 or between French principals and agents,36 providing for

payment in a foreign currency (at a time when such payment was domestically prohibited) in connection with import-export transactions. Similar solutions have obtained in the case of guarantee agreements

33 Cass. July 4, 1972, Hecht v. Socidetd Buismans [1972] Clunet 843; [1974] Rev.Crit. Dr.Int.Pr. 82.

34 Cass. May 17, 1927 Pdlissier du Besset v. Soc. The Algiers Land and Warehouse, [1927] Sirey 1,289, holding void a provision for payment in pounds sterling either in London or in Algiers (then part of France) in a lease contract between a Frenchman and an English company regarding immovable property located in Algiers; Cass. Nov. 2, 1932, Socidtd des Music Halls Parisiens v. Socidtd Victoria Palace [1933] Clunet 1197, declaring null and void a loan contract providing for repayment in sterling between an English and a French company when it was established that the funds used for making the the loan were funds held in France by the lender.

35 Cass. April 18, 1931, Delafontaine et Deleau v. Perret, and May 30, 1933, Liquidation Judiciaire Delafontaine v. Mondon [1934] Rev.Crit.Dr.Int.Pr. 455; Cass. Nov. 20, 1935, Dambricourt v. Lecouteux et Proffit [1937] Clunet 90.

36 Cass. July 8, 1931, Dupille et Guiguan v. Maroger et Devigne [1931] Sirey 1.387.



between French banking institutions when it was shown that the principal debt was a real international transaction involving a foreign debtor and a foreign banking establishment,7 or that the use abroad by a French bank of funds raised in the French capital market gave to its borrowings in France a dimension which exceeded " the limits of domestic economy." 38

In all these cases, the nationality of the parties as a factor of determination recedes behind the subject-matter of the transaction. The same remark applies, but only to a certain extent, to contracts concluded in France between Frenchmen and the French subsidiary of a foreign corporation. Thus, an arbitration clause providing for arbitration in London in accordance with the rules of the London Corn Trade Association in a contract between a French company, which was the subsidiary of a Dutch company, and a French merchant was held valid, at a time when arbitration was still prohibited in a domestic context, on the ground that the prohibition did not apply to contracts which, even though they concerned French parties "involved the interest of international commerce." To buttress this opinion, the Court of Cassation emphasised the fact that: (i) the contract related to the importation of foreign goods into France; (ii) payment was to be made by cheque on a London bank; (iii) the contract followed the standard form of contract of the London Corn Trade Association, and (iv) somewhat subsidiarily, the plaintiff was the subsidiary of a foreign company.39 In another case,40 a Swiss company had sold, through its French subsidiary, printing equipment to a Frenchman, payment to be made in Swiss francs. The purchaser, who was in arrears, sought to have the contract annulled as contrary to French monetary laws, which prohibited foreign currency stipulations in domestic contracts. It was held, however, that the stipulation was valid since: (i) the sale concerned the importation into France of equipment manufactured in the United States; (ii) the equipment had been imported into France for the sole account of the purchaser; and (iii) although preliminary discussions had

37 Cass. Feb. 14, 1934, Banque Hipothicaire Franco-Argentine v. Bonnau and Reynaud v. Banque Hipothecaire Franco-Argentine [1934] Sirey 1.297. A French mortgage bank had issued bonds in France, which were subscribed by French citizens, to finance its lending operations in Latin America. The Latin-American loans were " pledged " as security for the repayment of the bonds. A dispute arose as to whether the bonds contained a gold clause and, in the affirmative, whether the validity of the gold clause (then prohibited in domestic transactions) could be upheld. The answer was found in the affirmative on both counts since the bonds were characterised as having an " international " character. The Court said (as translated): " The international character of a transaction does not depend upon the location of the place of performance, but upon its nature and the varied elements to be taken into account, whatever the domicile of the parties, to give to the transfer of funds that are inherent to it a character beyond the limits of domestic economy."

38 Cass. Oct. 27, 1943, Socie't des Grandes Minoteries Bassot et Cie v. Credit Foncier d'Algdrie et de Tunisie [1947] Sirey 1.17.

39 Cass. Feb. 19, 1930, Mardeld v. Muller et Cie [1933] Sirey 1.41. 40 Cass. Nov. 17, 1943, Rion-Reuz6 v. Socidtd Interprint [1946] Sirey 1.17.



taken place between the purchaser and the French subsidiary of the seller, the purchaser knew that he was dealing with the seller's head- quarters since the contract was dated in Bern.

Once the international character of the transaction is ascertained, the French courts no longer seriously consider the nationality of the parties. A typical example is found in cases concerning the validity of a gold clause in bonds issued in Canada and in the Netherlands by a French shipping company and subscribed by French and foreign investors. Regardless of the nationality of the bondholders, the French courts upheld the validity of the gold clause.41

These liberal decisions contrast with certain American cases, such as Bersch v. Drexel Firestone, Inc.42 which, in a class action brought by American residents, and American and foreign non-residents, upheld jurisdiction as to all American claimants, but not as to non-American nationals, even though the alleged violations of the domestic laws on which the action was based were, as to all non-residents, whether American or foreigners, identical. Such decisions, which would make jurisdiction dependent upon "the plaintiff's passport," 43 and may violate the equal protection clause of the Constitution and treaty commitments of the United States.44 are regrettable. They reveal a parochialism which is contrary to the holdings of Zapata, and Scherk and out of context with the fundamental prerequisites of international commerce.

B. The Negotiations Much emphasis has been placed in both Zapata and Scherk upon the fact that the parties were experienced and sophisticated businessmen, assisted by legal and other experts and that arm's-length negotiations had resulted in freely agreed contracts, which were far from routine

transactions.45 The selection of an English forum in the case of Zapata was clearly a compromise between the preference of Unterweser for a German forum and of Zapata for an American one.46 Both in Zapata and Scherk, the forum selection and arbitral clauses were factors of certainty, preventing one of the parties from bringing suit in a forum

41 Paris, May 16, 1951, Trdsor Public et Socidtd Royal Bank of Canada v. Schumann [1952] Clunet 1228, aff'd on other grounds Cass. Jan. 24, 1956 [1956] Clunet 1012; Cass. Oct. 29, 1964, Etat Frangais v. Veuve Hermann [1965] Clunet 637; Cass. Jan. 1, 1950, Etat FranVais v. Comitd de la Bourse d'Amsterdam [1950] Rev.Crit.Dr.Int.Pr. 609; [1951] Sirey 1.1. See also, Delaume, Legal Aspects of International Lending and Economic Develop- ment Financing (1967), p. 114.

42 519 F. 2d 974 (2d. Cir. 1975), cert. denied 96 S.Ct. 543 (1975). 43 Sanberg, "The Extraterritorial Reach of American Economic Regulation: The

Case of the Securities Law," (1975) 17 Harv.Int.L.J. 316 at p. 323. 44 Note, " American Adjudication of Transnational Securities Fraud " (1976) 89

Harv.L.Rev. 553 at p. 569. 45 Zapata, 92 S.Ct., at pp. 1912, 1914, 1916 and 1917; Scherk, 94 S.Ct., at p. 2455. 46 92 S.Ct., at p. 1915. The same was probably true in Scherk since notwithstanding the

provision for arbitration in Paris, the contract stipulated that it was governed by the laws of Illinois.



hostile to one of them.47 At least in Zapata, it would have been " un- realistic to think that the parties did not conduct their negotiations, including fixing the monetary terms, with the consequences of the forum clause figuring prominently in their calculations." 48

The facts surrounding these cases, while not unusual in the context of" big business," would, if they were strictly adhered to for the purpose of identifying " international " contracts, lead to a restrictive interpretation of that concept. Aside from the transactions of powerful businessmen and corporations engaged in international commerce, there is a myriad of transactions of a less sophisticated character, which nevertheless deserve special attention.

This consideration probably explains why it is only on relatively rare occasions that reference to the process of negotiations appears in French judgments."4 In most cases, the courts are satisfied to note either that the parties have a different nationality and operate within the context of different legal systems or that the contract involves a financial or commercial transaction relating to international trade and business operations.50 This approach, it is submitted, is to be favoured since the needs of international commerce are not necessarily commensurate with the size of the transaction, its complexity, the use of experts or the degree of sophistication of the parties.

Gaskin v. Stumm Handel Gmbh.51 shows that there is reason to believe that American courts may lean towards an approach similar to that of the French courts and give to Zapata and Scherk their full practical significance. In that case, an agreement between a German corporation and a New York citizen, who was employed as manager in charge of the corporation's New York operations, provided for the submission of disputes to a German forum. The manager, the plaintiff, argued that the clause was not binding since it was written in German, a language of which he had no knowledge. It was shown, however, that he had been orally informed of the content of the clause and it was held that he was bound by it. The court pointed out that this was a contract negotiated at arm's length and in a business-like fashion, and that the plaintiff had voluntarily subscribed to it in the hope of " reaping a great economic benefit " from it 52; the plaintiff had ample opportunity to assess the content and meaning of the clause and the clause should be enforced as a matter of contract law.

Other cases make practically no mention of the negotiating process and either simply refer to Zapata to uphold forum selection clauses in

47 Zapata, 92 S.Ct. w. p. 1915; Scherk, 94 S.Ct. at pp. 2455-2456. 48 92 S.Ct., at p. 1915. 49 See n. 67 and associated text infra. 50 See nn. 32 to 42 and associated text supra, and nn. 65, 66, and 68 and associated

text infra. 51 390 F.Supp. 361 (S.D.N.Y. 1975). 52 Ibid., 363.



international contracts,53 or lay emphasis on the nationality of the parties,54 or on the particular subject-matter of the contract,55 which now deserves attention.

C. The Subject-matter of the Contract Both Zapata and Scherk stress the fact that the contract involved concerned international trade,56 that it had contact with many jurisdictions 57 with different laws,58 including conflicts rules, which would cast considerable uncertainty on the law applicable to the resolution of disputes arising out of the contract.59 Dealing with the specific features of each case, Zapata takes into account the fact that, in the course of the voyage, the vessels were to " traverse the waters of many jurisdictions " and that if an accident occurred, there would be " countless ports of refuge " to which the vessels could retreat for repairs.60 Scherk notes that Alberto-Culver was bent on expanding its overseas operations and on penetrating new markets in Europe.61 On the basis of these and the few cases decided since,62 all that can be said is that, in regard to the " subject-matter " test of the definition, legal and economic considerations seem to play a complementary role. On the legal side, the contract must have contacts with several countries, expose the parties to the vagaries of conflicts law, enable them to forum shop and " jockey " in order to secure "tactical litigation advantages." 63 On the economic side, the factors to be considered are the particular transnational nature of the services rendered or the aggressive economic penetration of new fields of activities by one of the partners.

On the basis of this analysis, it would clearly be presumptuous to make an attempt at generalisation. So much the more, since Zapata and Scherk are in a way one-sided. Both cases involve American

53 See e.g. Sanko S.S. Co. Ltd. v. Newfoundland Refining Co., 411 F.Supp. 285 (S.D.N.Y. 1976) aff'd 538 F. 2d 313 (2d Cir. 1976), cert. denied 429 U.S. 858, 97 S.Ct. 158 (1977), simply relying on Zapata to uphold an English forum selection clause in a charterparty.

54 See e.g. Republic International Corp. v. Amco Enterprises, Inc., 516 F. 2d 161 (9th Cir. 1975); Tai-Kien Industry Co. Ltd. v. M/IV Hamburg, 528 F. 2d 835 (9th Cir. 1976).

55 See the cases cited in the preceding note. See also Fuller Co. v. Compagnie des Bauxites de Guinde, 421 F.Supp. 938 (W.D.Pa. 1976).

56 Zapata, 92 S.Ct. 1915. 57 Ibid. 1915; Scherk, 94 S.Ct. 2455. 58 Loc. cit. 59 Scherk, 94 S.Ct. 2455 and n. 9; referring to Scherk's initial motion to stay on the

ground that the federal securities laws did not apply to this international transaction. 60 92 S.Ct. 1915. See also Tai-Kien Industry Co. Ltd. v. M/IV Hamburg, 528 F. 2d 835

(9th Cir. 1976). 61 94 S.Ct. 2451 at p. 2455. See also, Republic International Corp. v. Amco Enterprises

Inc., 516 F. 2d 161 (9th Cir. 1975), noting that the completion of the drafting and design works regarding civil works to be performed in Uruguay by a California corporation had taken place in Los Angeles, where Uruguayan governmental engineers had been sent for five to six months, and that, in order to perform work in Uruguay, the California Corpora- tion had to set up a Uruguayan subsidiary.

62 See nn. 54, 55, 60 and 61 supra. ,63 Scherk, 94 S.Ct. 2456.



nationals engaged in outward transactions, off-shore of the United States. Assuming that the situations were reversed and that the same sophisticated businessmen were engaged in a far from routine transaction, with the assistance of their experts and in full knowledge of the legal and economic factors inherent to these transactions, and intended to pursue an inward voyage or the penetration of the American market, would the courts be so willing to diagnose an " international " contract in a transaction whose American roots would be exposed to greater light? As yet, there is no clear answer to the question. So far, only Gaskin would seem to supply an affirmative answer."6

In France, the answer is unequivocal: the concept of international contract applies regardless of whether the centre of gravity of the contract is in France or abroad. However, it does not follow that the French approach to " international " contracts solves all the problems. Over the years, the criteria used to identify international contracts on the basis of their subject-matter has indeed shifted significantly.

Historically, the French theory was based on economic considerations. The initial cases held that a contract would be considered as " international " in character if it implied a mutual transfer (flux et reflux) of economic values whether in the form of a transfer of money or of goods, across national borders, one of which was French.65 When this was the case, the courts have had no hesitation in holding that the contract ought to be enforced even though enforcement was forbidden under the proper law of the contract.66

In recent years, particularly in connection with the validity of arbitration clauses, the courts have appeared to substitute for the traditional notion a new definition. According to the new approach, which is also based on economic considerations, a contract would be considered as "international" if it were to affect "the interest of international trade," such as the exportation by a Frenchman of goods intended for delivery abroad. The Impex case illustrates this reasoning.67 Pursuant to a series of contracts, the appellant, a French company, had agreed to sell barley to the respondent, an Italian corporation. In order to take advantage of subsidies given to exporters of goods sold to countries outside the Common Market, the appellant informed the respondent that it intended to ship the barley through Portuguese and Swiss channels. The respondent simply acknowledged. The appellant, without hiding the facts, sought an export licence from the French authorities. The licence was denied on the ground that the proposed

64 See nn. 51 and 52 and associated text supra. 65 Cass. May 17, 1977, Pelissier du Besset v. Socidtd Algiers Land Warehouse [1928]

Clunet 419; [1921] Sirey 1.289. 66 See n. 41 supra. 67 Cass. May 18, 1971, Socidtd Impex v. Socie'ts P.A.Z., Malteria Adriatica and Malteria

Terrena [1972] Clunet 62; [1972] Rev.Crit.Dr.Int.Pr. 124.



scheme was contrary to existing regulations. The appellant then informed the respondent that it could not fulfil its obligations and that the denial of a licence constituted impossibility of performance. The respondent instituted arbitration proceedings. Pending the proceedings, the appellant brought action in the French courts to have the contract annulled as contrary to public policy. The action was dismissed on the

ground that the subject-matter of the dispute, involving transactional commerce, was truly international and should be dealt with by the arbitrators who, under the arbitration clause, had jurisdiction, not

only in regard to contractual disputes, but also over disputes concerning the existence and validity of the principal contract.

A similar approach was followed when the French Government attempted to challenge the arbitrability of disputes with foreign ship- owners and it was established that, notwithstanding the non-arbitrability of governmental contracts under French domestic law, the arbitration clause in the contract in question conformed to the "customs of maritime trade." 68

According to the latest judicial pronouncements on the subject, however, economic considerations may now be superseded or supple- mented by factors of a juridical nature. Thus, in the Hecht case,69 the Court of Appeals of Paris, whose decision was affirmed by the Court of Cassation, was confronted with a dispute involving an ICC arbitration clause in a contract between a Dutch company and a French commercial

agent (which clause would have been void under French law). The court

upheld the validity of the clause on the ground that the contract:

... executed in Holland between a commercial company and a Frenchman, is an international contract, i.e. a contract connected with juridical norms in force in several States [and] that such a contract possesses this character because of its execution in Holland, the nationality of the parties and its purpose, which was to give authority to Hecht, a French national, to perform in France juridical acts on behalf of a company, incorporated under Dutch law and having, therefore, a Dutch legal status, in order to increase its exports to France of goods produced by it ... .70

This approach is not far remote from that followed in Zapata and Scherk. Unlike the normal conflicts situation, in which a court would look to the "grouping" of contracts showing the most significant relationship between the contract and the proper law, or, under functional analysis, where the balancing of interests should give the

solution, the French and the American courts join forces in considering

68 Cass. April 14, 1964, Office National Interprofessionel des Cdriales v. Capitaine du San Carlo [1965] Clunet 646; [1966] Rev.Crit.Dr.Int.Pr. 68; Cass. May 2, 1966, Trdsor Public v. Galakis [1966] Clunet 648; [1967] Rev.Crit.Dr.Int.Pr. 553. See also Delaume, op. cit. supra n. 6, ? 13.05, and nn. 8 to 18 and text.

69 Cass. July 4, 1972, Hecht v. Socidtd Buismans [1972] Clunet 843; [1974] Rev.Crit. Dr.Int.Pr. 82.

70 As translated from Paris, June 19, 1970, Hecht v. Sociktd Buismans [1971] Rev.Crit.

Dr.lInt. 692; [1971] Clunet 843.


APR; 1979] What is an International Contract ? 271

that it is the multifarious contacts of the transaction with several.legal

systems which gives it its " international " status.

II. CONSEQUENCES AND LIMITATIONS OF THE'" INTERNATIONAL CONTRACT " CONCEPT

A. Consequences of the Concept Under French law, once a contract is considered as falling under the " international " label, it becomes, and is to remain, binding upon the parties notwithstanding the fact that the contract or some of its provisions, would be, or may become, invalid under the system of law chosen by the parties or that with which the contract is most closely connected. In the circumstances, it is not without significance that when the courts upheld the validity of monetary 71 or arbitration 72 clauses in international contracts, they refrained from either determining the applicable law or, in the event that the parties had stipulated the law applicable to the contract, from expressing any opinion as to the possible effect of the stipulation.73

It is primarily because of this superb indifference towards conflicts issues that the French theory has been criticised. In effect, it leads to the extraordinary result that an international contract is removed from the reach of French law and, to the extent that the proper law would be that of a foreign country, from that of the foreign applicable law.74

The American approach differs from the French and follows orthodox methods. Both Zapata and Scherk are limited to relaxing the " parochialism " of earlier American rules, but do not exclude the applicability of these rules to the extent necessary to determine whether effect can be given to the stipulation of the parties. Far from ignoring conflicts issues, both cases insist upon the complexities of such issues and the obvious advantage for the parties of anticipating them at the outset and arranging their relations in such a way as to obtain the minimum of certainty which is an " indispensable element of international trade." 75 More specifically, Zapata notes that English law was the proper law of the contract 76 and that, following proceedings instituted in England by Unterweser against Zapata, the English courts held that the forum selection was binding upon the parties.77 Scherk is also characteristic since the court, in upholding the validity of the arbitration clause, felt compelled to state that its decisions had " no bearing on the scope of the substantive provisions of the federal securities laws," 78 thus clearly keeping alive the issue of consistency of the award with the

71 See n. 41 supra. mC 72 See nn. 67 and 68 supra. " See nn. 69 and 70 supra. _.A 74 Delaume, op. cit. supra, n. 6, at para. 4.08. 75 See nn. 56 to 60 supra and associated text. 76 See n. 7 supra. 77 92 S.Ct. 1910, n. 4. 78 94 S.Ct. 2456, n. 12.



securities laws in the event that the recognition and enforcement of the award would be sought in the United States. This is the time to recall, as the court did in Scherk,79 that under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards,s80 a country may refuse recognition and enforcement of an award if recognition or enforcement " would be contrary to the public policy of that country." To the extent, therefore, that the proceedings instituted by Scherk in Paris would result in an award, the substance of which would be contrary to the Federal Securities Laws, and that these laws would

represent U.S. public policy, the courts in the United States would be entitled to deny recognition or enforcement to the award.

Public policy, in other words, is an issue which may be raised at two different times. First, it may be considered at the time when the validity of the forum-selection or arbitration clause is put in question, i.e. at a time when the basic problem is that of arbitrability of the subject- matter in issue or the consequences of submission to a foreign forum.

Assuming that the issue of validity is in the affirmative and that proceedings abroad result in a foreign judgment or award, the issue of

public policy may arise anew at the time of recognition and enforcement of such judgment or award in the United States, i.e. when it becomes

necessary to determine whether the judgment or award is compatible with the public policy of the United States.

Zapata and Scherk deal only with the first branch of this twofold issue and, even then, only in regard to specific sectors of international trade. The question thus arises whether the principle formulated in these decisions can be extended to other sectors, such as COGSA or the antitrust laws, or whether, in these sectors, the laws of the United States should still be considered as " public policy " and invalidate any attempt by the parties to withdraw the matter from the jurisdiction of American courts and the laws of the United States. As yet there is no clear answer to these questions.

In so far as COGSA is concerned, it should be recalled that in Muller 81 the Court of Appeals of the Second Circuit upheld the

validity of a choice of a Swedish forum in a bill of lading relating to a

shipment of goods from Sweden to Philadelphia. This decision was based on two considerations. The first consideration was that, notwith-

standing the fact that litigation in a foreign forum might expose the

plaintiff to substantial expenses, such an expense, purely " incidental to the process of litigation," could not be regarded as sufficient to lessen the liability of the carrier and that, therefore, the choice of forum

79 94 S.Ct. 2457, n. 14. 80 June 10, 1958, 330 U.N.T.S. 38, Art. V (3) (b). 81 W. H. Miller & Co. v. Swedish American Line Ltd., 224 F. 2d 806 (2d Cir. 1955),

Cert. denied 350 U.S. 903 (1955). See also, Amicale Industries Inc. v. S. S. Rantum, 295 F. Supp. 534 (D.Sth.Car. 1966).



clause was not within the scope of COGSA. The second consideration is of general application, since the court went on to say that choice of forum clauses should be enforced unless it was shown that the choice was " unreasonable " under the circumstances.

Some years later, Muller was overruled by Indussa 82 in so far as it held that the choice of forum clause was not consistent with the " lessening of liability " provision of COGSA. This decision, whatever the merits, is thus strictly a COGSA case, which leaves unimpaired the second and more general holding in Muller and, of course, the principle stated in Zapata. Zapata did not involve COGSA and the question remains, therefore, whether the United States Supreme Court may one day overrule Indussa or uphold its construction of the " lessening of liability" concept in COGSA. There are arguments against Indussa's interpretation of the COGSA concept and its extension to choice of forum clauses, and these were clearly stated in the dissenting opinion of Judge Moore.83 At the same time, the U.S. Supreme Court may not remain indifferent to the lessons of comparative analysis, which would reveal that in countries like Belgium or France, which are particularly liberal in their treatment of foreign choice of forum clauses, such clauses in bills of lading are held invalid to the extent that they would lead to the application of a foreign law more lenient to the carrier than the Belgian or French COGSA.84 For the time being the issue remains outstanding. Fireman Fund American Insurance Co. v. Puerto Rican Forwarding Co. Inc.85 does not solve the problem. In that case, a subrogation action had been brought by an insurer against a carrier in the District Court of Puerto Rico contrary to a choice of a New York forum in a bill of lading. Relying on Indussa the appellant argued that the clause was invalid. This argument failed and the action was dismissed for lack of jurisdiction. The court distinguished Indussa on the ground that Indussa applied only to choice of forum clauses in favour of foreign courts because of the possibility that the law applied by such courts might lessen the liability of the carrier. That reasoning could not apply in the instant case, where the choice of forum was made in favour of an American, as opposed to a foreign, court. Referring to Zapata, the

82 Indussa Corporation v. S.S. Ranborg, 377 F. 2d 200 (2d Cir. 1967). 83 Ibid. at p. 205. See also Delaume, op. cit. supra n. 6, at para. 6.11. 84 Delaume, ibid., para. 6.11 text and nn. 5 to 7. The Netherlands fits in a special

category. Dutch law does not permit private parties to " oust " the jurisdiction of Dutch courts. However, as a matter of contract law, Dutch courts refuse to entertain jurisdiction in the teeth of a foreign forum-selection clause, on the ground that to do otherwise would permit a party to ignore its contractual commitments, and would, therefore, sanction a breach of contract. Ibid., para. 6.03.

85 492 F. 2d 1294 (1st Cir. 1974). In Roach v. Hapag Lloyd, summarised in n. 26 supra, it was argued that a German choice of forum clause in a bill of lading between a German carrier and a German shipper was invalid under Indussa. The argument was dismissed on the ground that COGSA was not involved, since this was a suit by a long-shoreman for damages and not an action involving damage to cargo covered by the bill of lading.



court held that, in the absence of proof, the choice of forum was "unreasonable," and the clause should be enforced.

The question has been raised whether Scherk was capable of application in matters of antitrust. A negative answer has been suggested because-

Under antitrust laws, an injured competitor is suing on behalf of both itself and the public, a situation different from that under the securities laws, where each injured investor may sue on its own behalf.86

This view appears excessive in its rigidity because: (i) it ignores the fact that securities laws are matters of public concern, if not public policy; and (ii) it overlooks the basic distinction made in Scherk between matters of contract law and the substantive provisions of the securities laws (or for that matter of antitrust or similar laws) whose impact might regain its full force at the time of recognition of a foreign arbitral award. This distinction between the arbitrability of contractual issues in general and the non-arbitrability of matters falling within the scope of mandatory legislation has now been acknowledged in the Sonatrach case, 87which involved a dispute between an Algerian national company engaged in the production and marketing of natural gas and petroleum resources of Algeria and American corporations. The dispute had

originally been submitted to ICC arbitration by Sonatrach on the

ground that Sonatrach had been fraudulently induced to enter into a certain contract. During arbitration proceedings, Sonatrach brought action in the United States courts against the American corporations based essentially on the same factual assertions as those submitted to the arbitrators with the additional contention, however, that the American corporations' activities violated the Sherman Act. The defen- dants moved to stay arbitration and dismiss the action. They won on the first branch of their motion and lost on the second branch. The court noted that-

... to permit arbitration by an international tribunal of a Sherman Act claim would be particularly inappropriate considering the public interest in private enforcement of antitrust law.88

However, the court also noted that the issue of fraud in the induce- ment had already been submitted by the plaintiff to arbitration. Inasmuch as this issue was the same as the one before the court, the court felt that to refuse a stay of the action would defeat the purpose of the arbitration clause. Consequently, a stay was granted. As to the antitrust aspects of the action, however, the court denied the motion to dismiss.

86 Nissen, " Antitrust and Arbitration in International Commerce " (1976) 17 Harv. Int.L.J. 110 at p. 117.

87 Socidtd Nationale, Etc. v. General Tire & Rubber, 430 F.Supp. 1332 (S.D.N.Y. 1977). 88 430 F.Supp. at p. 1334.



This decision is consistent with both Scherk and non-American cases decided in Germany 89 and in France 90 in connection with issues arising at the time of enforcement of foreign arbitral awards. It would thus appear that the arbitrability of antitrust disputes, as distinguished from those arising out of related contractual disputes, is very much in doubt. In the words of the court in Parsons and Whittemore Overseas Co. Inc. v. Socite' Generale de l'Industrie du Papier (Rakta),91 concerned with the enforcement of an award on an issue possibly non-arbitrable under the New York Convention (Art. V (2) (a)):

Under this provision, a court sitting in the United States might, for example, be expected to decline enforcement of an award involving arbitration of an antitrust claim in view of domestic cases which have held that antitrust matters are entrusted to the exclusive competence of the judiciary [citation omitted]. On the other hand, it may well be that the special considerations and policies underlying a " truly international agreement " [referring to Scherk] call for a narrower view of non-arbitrability in the international than the domestic context [referring to Wilco].12

Similar uncertainties are not foreign to French law. An example concerns the treatment of foreign-forum-selection clauses in employ- ment contracts involving French expatriates. The validity of these clauses has sometimes been upheld 93 and sometimes been held contrary

89 BGH Feb. 27, 1969, S.P.A. Massolombarda v. Fruchtruck GmbH (1971) Revue de l'Arbitrage 25. In that case, an agreement between an Italian manufacturer and a German distributor contained provisions contrary to the prohibition set forth in Art. 85, para. 1 of the EEC Treaty, regarding restrictive trade practices. The agreement provided for the settlement of disputes by arbitration and an award for damages was rendered in favour of the Italian firm. Enforcement was denied, however, not on the ground that the arbitration clause was invalid since it was severable from the main contract, but on the ground that to give effect to the award, indirectly, by allowing damages to be paid to one party, would sanction the terms of a contract contrary to the EEC Treaty, which constituted public policy in Germany, as well as throughout the Common Market.

90 Paris July 12, 1974, Krebs v. Milton Stern (1975) Revue de l'Arbitrage, 196, reversed on other grounds, Cass. June 16, 1976 (1977) Revue de l'Arbitrage, 269. In that case, a contract between Krebs, a French manufacturer of perfumes, and Stein, an American distributor, contained price fixing arrangements preventing Stein from passing along price increases to consumers in the United States without Krebs' consent, which, in arbitration proceedings in Paris, was held to have been abusively refused. In judicial proceedings, Krebs argued, inter alia, that the award should not be enforced since the price fixing arrangements violated both French law and the Sherman Act. This argument was rejected on both counts. As to French law, the court held that the illegality of price-fixing arrangements concerned only domestic contracts wholly performed in France. In the present case, performance took place in the United States and the arrangements were outside the scope of French law. As to the alleged violation of the Sherman Act, the court acknowledged, in an interesting dictum, that if the arbitrators had attempted to order Stern to take some action contrary to U.S. public policy, the award could have been set aside. However, this was not the case, since the only determination made by the arbitrators was that Krebs, by arbitrarily refusing to consent to price increases, had destroyed the economy of the contract and should, as a matter of French contract law, be held responsible for the pre- judice caused to Stern. This decision is interesting, not only because it reveals a clear segregation of the various issues involved, but also because it is " conflict " oriented in the sense that it confined French rules within their territorial sphere of application while expressing a willingness to take into account American rules to the extent that they would be relevant to the determination of the issues involved.

" 508 F. 2d 969 (2 Cir. 1974). 92 Ibid. at p. 974. 93 Cass. Jan. 9, 1931, Reboulv. Socidtd Tekkah [1931] Clunet 1039; Cass. Jan. 9, 1968,

Viala v. Soc. Bank of Liberia [1968] Rev.Crit.Dr.Int.Pr. 490; Cass. June 28, 1974 (there



to public policy in accordance with domestic law concepts.94 The arbitrability of transnational disputes relating to patents is also a matter of doubt, although the French courts appear to make a distinction between issues of validity and ownership, which would not be arbitrable, and issues of contractual interpretation, which could be settled by arbitration."

B. Limitations of the Concept Zapata and Scherk set forth the perimeters within which a foreign forum selection or arbitration clause can be expected to be enforced and the limits beyond which it might be defeated.

Defeat may result from various considerations, the first of which may be a successful attempt at establishing that the clause involved does not truly relate to an international set of affairs, but rather to a domestic transaction. As already seen, this line of argument has sometimes succeeded and sometimes failed in France.96 In America, the effectiveness of this remedy will depend upon as yet unknown or not clearly per- ceptible factors, including whether the concept of " international" contract will receive an extensive or restrictive interpretation.97

Assuming that the transaction is truly international in character, a

party wishing to challenge its validity or effectiveness might attempt to

prove that the transaction is contrary to public policy,98 or is " unreasonable and unjust " or invalid for such reasons as " fraud undue

decisions), Socidtd Anonyme Industrielle de Boulangerie v. I'Abbd Socidtde Anonyme de Boulangerie v. Alcover; and Perrault v. Socidtde' Anonyme SIFRA et Socitde' Anonyme COFIMEX [1964] Dalloz Sommaires 103 (the last two decisions appear in full in [1975] Rev.Crit.Dr.Int.Pr. 110 and [1975] Clunet 82; Cass. Jan. 29, 1975, Socidtde' Centre Africaine v. Jinsa [1976] Clunet 145.

94 Cass. Oct. 18, 1967, Cie des Phosphates et du Chermin de Fer de Gafsa v. Bommelaer, and Cass. Oct. 19, 1967, Bdcue v. Soc. des Mines de Fer de Mauritainie, both reported in [1968] Rev.Crit.Dr.Int.Pr. 490; Cass. Nov. 8, 1973, Soc. Wilhelm Wolff v. Dumoulin [1974] Rev.Crit.Dr.Int.Pr. 359. A recent enactment (Decree No. 74-783 of Sept. 12, 1974, [1974] Dalloz 206) would seem to imply that any such clause is invalid. See Delaume, op. cit. supra n. 6, para. 6.15, n. 1.

95 Franqon, " l'Arbitrage en Matiere de Brevets et la Jurisprudence " (1975) Review de

l'Arbitrage 143; Cass. Ayrault v. Ste' Costamagua et Cie (1976) Revue de l'Arbitrage 110. 96 See nn. 34 to 38 and associated text infra. 97 See the Fuller case, discussed at n. 32 and associated text supra. 98 See nn. 82 to 95 and associated text supra. See also, Antco Shipping Co. Ltd. v.

Sidermar SpA, 417 F.Supp. 207 (S.D.N.Y. 1976) in which an Italian shipowner sought an order directing the defendant, a Bahamian charterer to proceed to arbitration in accordance with an arbitration clause providing for arbitration in New York or London. The charterer objected that the clause was illegal and unforceable because the contract excluded Israel as a loading port, thus allegedly contravening the public policy of the United States. The court found, however, that this stipulation was unobjectionable because the contract of affreightment did not involve, in any meaningful sense, the United States or exports from the United States. Noting that the United States favour arbitration clauses in contracts bordering upon international commerce and that the " public policy " defence under the New York Convention should be narrowly construed, the court held that such narrow construction, applicable to the recognition of foreign arbitral awards, should apply " with equal force to considerations, within the context of enforcement of the arbitration agreement itself " (at p. 216). Consequently, the court held that the arbitration agreement should be enforced.



influence, or overweening bargaining power," 99 in contrast with such decisions as Fuller.'00 This could be the case of an agreement between two Americans " to resolve their essentially local disputes in a remote foreign forum" since this " might suggest that the agreement was an adhesive one, or that the parties did not have the particular controversy in mind when they made the agreement." 101 Another example might be a situation in which the claimant would establish that he had no knowledge of the " fine print " in which the objectionable clause was cast.102 The burden of proof is, however, on the claimant and the Supreme Court indicated that this should be a "heavy burden." o03 Contending that the selected forum is inconvenient would not do,104 nor could a party ignore its freely undertaken obligations by alleging lack of familiarity with the language of the contract, if that party had the opportunity to request and obtain proper translation of the relevant stipulation during the course of the negotiations.'05

Furthermore, the challenge, if made, should be specifically related to the stipulation in question. It would not suffice to argue that the contract as a whole was affected by fraud or such other defect. This point is clearly stated in Scherk according to which-

... any time a dispute arising out of a transaction is based upon an allegation of fraud [does not mean that] the clause is unenforceable. Rather it means that an arbitration or forum-selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion.106

In other words, the issue of validity or effectiveness of such a clause is severable from that of the main contract, in accordance with well established principles prevailing in the United States,'07 and other countries.108

99 92 S.Ct. 1914, 1916. 100 See n. 32 and associated text supra. 101 92 S.Ct. 1914, 1916. 102 Fricke v. Isbrandtsen Co., 151 F.Supp. 465 (A.D.N.Y. 1957). 103 92 S.Ct. 1917. 104 Sanko S.S. Co. Ltd. v. Newfoundland Refining Co., 411 F.Supp. 285 (S.D.N.Y.

1976) upholding an English choice of law and forum clause in a charter party after the plaintiff conceded that it could not show that the clause was " unreasonable and unjust " (ibid. at p. 286, n. 3). However, in More Electro Products Corp. v. S. S. Great Peace, 437 F.Supp. 474 (D.N.J. 1977), the court found that a choice of a (Nationalist) Chinese forum in a bill of lading governed by (Nationalist) Chinese law would have led to " impractical .and unreasonable " results when the action was one in admiralty and the court had precedent jurisdiction over State law tort and contract claims as well as ancillary jurisdiction over the parties. The significance of this decision is lessened by the fact that the parties *seemed to have waived the benefit of the choice of forum clauses during the proceedings.

105 See the Gaskin case, discussed at n. 51 and associated text supra. 106 94 S.Ct. 2457, n. 14. 107 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18L.

Ed. 2d 1270 (1967), followed in A/S Ludwig Mowinkels R. v. Dow Chemical Co., 25 N.Y. 2d 576, 307 N.Y.S. 2d 660, 225 N.E. 2d 774 (1970), cert. denied 398 U.S. 939. But see Interocean Shipping Co. v. National Shipping & Trading Co., 462 F. 2d 673 (1972) and Alco Standard Corporation v. Benalal, 345 F.Supp. 14 (E.D.Pa. 1972) and Delaume op. cit. supra n. 6, at para. 13.06, text and nn. 3 to 9.

108 Arbitration clauses are held severable in several European countries (Delaume, ibid., para. 13.06, text and nn. 11 to 24) even though a more restrictive view still prevails ?in respect of foreign-forum-selection clauses (ibid., para. 6.15 nn. 12 to 17).



CONCLUSION

Perhaps the most significant contribution that the notion of international contract, as developed and applied by the courts in France and in the United States, has made to the development of rules applicable to transnational contracts is the recognition that the doctrine of public policy, as formulated in a domestic context, should, in a transnational environment, be relaxed to the point of answering the needs of international commerce. This is a feast in itself, although it should immediately be noted that the extent of the relaxation remains, so far, limited to specific issues involving primarily the enforceability in both countries of choice of forum and arbitration clauses and, in France, the validity of monetary clauses. Uncertainty continues to obtain in respect of matters falling within the scope of the securities laws,109 antitrust legislation,110 labour laws,111 patents,112 and COGSA,113 to mention those issues which come readily to mind but do not necessarily exhaust the field.

In building up a concept of "international contracts," both the French and the American courts have been influenced by economic and legal considerations.

Economic considerations are particularly apparent in France.114 They are not, however, foreign to the decisions which, in the United States, lay emphasis on the particular needs of international trade,115 the intimate relationship between a particular stipulation, such as a choice of a judicial or arbitral forum, and the economy of the contract as a whole,1" or the intent of one of the parties to expand its activities in new economic zones.117

Legal considerations, noticeable in some French cases,118 are given particular importance in the United States. These include, although perhaps to a certain extent only, the nationality of the parties,119 and, with possible greater weight, the climate of the negotiations and their

juridical surroundings,'20 and the fact that the transaction may bear connection with a number of jurisdictions,121 and legal systems.122 Worth mentioning also in this connection, is the possible severability of certain clauses, deemed appropriate to the needs of international

109 See nn. 78 and 79 and associated text supra. 110 See nn. 86 to 92 and associated text supra. 111 See nn. 93 and 94 and associated text supra. 112 See n. 95 and associated text supra. 113 See nn. 81 to 85 and associated text supra. 114 See nn. 65 and 66 and associated text supra. 115 See n. 56 and associated text supra. 116 See nn. 48 and 52 and associated text supra. 117 See nn. 61 and associated text supra. 118 See nn. 69 and 70 and associated text supra. 119 See nn. 26 to 44 and associated text supra. 120 See nn. 45 to 47 and associated text supra. 121 See nn. 57 to 77 and associated text supra. 122 See nn. 58, 59 and 76 and associated text supra.



trade, from the principal contract, which may remain subject to different and more stringent rules.123

Under the circumstances, it cannot be said that existing judicial pronouncements provide a precise definition of the concept of " international contract." These pronouncements reveal more an awareness of the nature of the problem than a systematic effort to supply a general answer to the question of definition. Awareness of the problem is particularly illustrated by references to economic considerations and the subject-matter of the transactions involved. The ultimate solution may, thus, depend primarily on the weight to be given to legal factors considered in their proper (i.e. transnational as opposed to domestic) environment.

123 See nn. 78, 106 to 108 and associated text supra.

http://www.jstor.org/page/info/about/policies/terms.jspArticle Contentsp. 258p. 259p. 260p. 261p. 262p. 263p. 264p. 265p. 266p. 267p. 268p. 269p. 270p. 271p. 272p. 273p. 274p. 275p. 276p. 277p. 278p. 279Issue Table of ContentsInternational and Comparative Law Quarterly, Vol. 28, No. 2 (Apr., 1979), pp. 161-317Front MatterThe Interrelation of Jurisdiction and Choice-of-Law in United States Conflicts Law [pp. 161-183]The Marriage Law Reform of 1976 in the Federal Republic of Germany [pp. 184-210]The Normative Concept of Mens Rea: A New Development in Germany [pp. 211-220]The Grounds of Discrimination under the Race Relations Act 1976 in the United Kingdom [pp. 221-240]The Effect of Community Agreements in the United Kingdom under the European Communities Act 1972 [pp. 241-257]What Is an International Contract? An American and a Gallic Dilemma [pp. 258-279]Shorter Articles, Comments and NotesAn Uncertain Trumpet: The Bakke Decision [pp. 280-288]Abortion Law Reform in the German Federal Republic [pp. 288-296]The Western Sahara Case [pp. 296-312]Book ReviewsReview: untitled [pp. 313-314]Review: untitled [pp. 314-315]Review: untitled [pp. 315-316]Review: untitled [pp. 316-317]Back Matter

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