The Resolution of
International Disputes
Chapter 3
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© 2005 West Legal Studies in Business/Thomson Learning
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?
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Spans continents
Different legal systems
Possible litigation in multiple forums
Question of enforcement
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Methods of Resolution
• Litigation
• Alternative dispute resolution (ADR)
(arbitration, mediation, other)
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Litigation
• 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 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
• 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 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 nonprofit 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
• 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 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
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unless
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
• 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!
• Enforcement of foreign judgments
• Not automatic, why not?
• No treaty
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One kind of ADR: Arbitration
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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?
• 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
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that
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?
• 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?
• Not binding
• When would you use in a business
context?
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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
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