The Resolution of
International Disputes
Chapter 3
© 2002 West/Thomson Learning
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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
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Alternative dispute resolution
(ADR)
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arbitration
mediation
other
Litigation
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Arbitration
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Provides neutral “third country” forum
 Parties choose location and forum
 Parties choose arbitrator(s)
Procedural rules of arbitration organization
 Limited discovery
 Cost Issues
 Flexible rules of evidence
 Privacy
Agreements to arbitrate: national laws support
enforceability
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Scherk v. Alberto–Culver
Limited right of appeal
Enforcement of Awards: UN 1958 Convention on
Recognition & Enforcement of Foreign Arbitral Awards
(NY Convention)
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Enforcement of Agreements to
Arbitrate under the 1958 NY
Convention
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US judicial approach to enforcing
international agreements to arbitrate –
4 questions:
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Is there a written agreement to arbitrate
the dispute?
Does the agreement provide for arbitration
in the territory of a signatory to the
convention?
Does the agreement arise out of a legal
relationship considered commercial?
Is a party to the agreement not a US citizen,
or does the commercial relationship have
some connection to a foreign state?
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Enforcement of Arbitration Awards
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US Courts will enforce arbitration awards under the
1958 Convention if:
 Award would be enforceable under local law where
award made
 D was properly subject to jurisdiction of arbitration
tribunal
 D had proper notice and opportunity to participate in
proceedings
 Enforcement not contrary to public policy
US Courts won’t enforce award if:
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Contract with arbitration clause in unlawful under
applicable law
The agreement is void for fraud or incapacity of one
party
Arbitration procedure violates law where the
arbitration took place
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Arbitration: Plusses & Minuses
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Plusses:
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More reliability of enforcement due to the
New York Convention
Parties choose forum and rules
Speed of Process
Confidentiality
Minuses:
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Limited appeal
Limited discovery and pretrial procedures
Rules of evidence don’t apply as in a court
of law
“Adhesion” – was choice of arbitration
voluntary and knowing?
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Litigation
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Jurisdiction: does the court have the
power to hear the case?
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Jurisdiction over dispute: subject matter
jurisdiction
In Personam Jurisdiction: over the parties
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Based on 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
Service of Process: Hague Convention or
use letters rogatory
Venue: which court will hear the case
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US Recognition of Foreign Court Decisions
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US courts may enforce foreign court decision
if:
 Foreign court had competent jurisdiction
 Subject matter jurisdiction
 Personal jurisdiction
 D had notice and opportunity to participate
in proceedings
 Court was neutral adjudicator – no bias or
fraud
 Court decision does not violate a
fundamental public policy
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Illustration of “Minimum contacts”
Asahi v. Court of California
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Agreement btwn Cheng Shin( Taiwanese
tire manufacturer) and Asahi ( Japanese
valve maker)
Zurcher sues Cheng Shin in California; CS
settles suit with Z
Cheng Shin seeks indemnification from
Asahi in California court – should Cal. Court
hear dispute?
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Asahi v. Court of California
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Issue: Did Asahi’s sale of valves to
Cheng Shin which were then
placed into tires that were sold in
California 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
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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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Jurisdiction in the E.U.
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EU Council Reg. No. 44/2001: Jurisdiction is generally
determined by the domicile of the defendant
Exceptions:
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Cases involving commercial contracts for sale of goods: where the
goods were or should have been delivered
Cases involving contracts for services (other than insurance or
employment): where the services were or should have been
provided
Tort cases: where the wrong occurred
Consumer contract cases: where the other party is domiciled or
where the consumer is domiciled; lawsuits against consumers can
only be brought in the consumer’s home country
Employers may sue employee or former employee only where the
employee is domiciled; employees may sue employer where the
employee is domiciled, where the employer is domiciled, where a
branch or agent is located, or where the employee regularly or last
worked
Where at least one party is domiciled in the EU, pursuant to an
agreement / forum selection clause specifying the courts of a
specific EU country
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Jurisdiction and the Internet
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When has the person or company
met the test of minimum contacts?
Graduate Mgmt. Admission Council
v. Raju (E.D.Va. 2003):
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Zippo test – look to nature and
quality of commercial activity
conducted over Internet
Sliding Scale of contacts: passive
site, “interactive site”, or “clearly
doing business”
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Litigation
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Forum Non Conveniens:
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Concept in US as well as other countries
Discretionary refusal to hear case in particular
forum because another court would be more
convenient – closer connection
Factors: (Gulf Oil v. Gilbert): access to
sources of proof, availability of witnesses,
costs of obtaining attendance, choice not
vexatious or oppressive
Avoid “Forum Shopping”:
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In re Union Carbide (Bhopal case)
Iragorri v. United Technologies Corp. & Otis Elevator
Co.
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Choice of Forum Clauses
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Parties provide in contract for
forum in which to resolve disputes
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Eliminate uncertainty and “forum
shopping”
Changing judicial attitudes towards
forum selection clauses
Bremen v. Zapata example – policies
behind recognition of such clauses
Effect of clauses on 3rd parties?
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Conflict of laws
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Which law to apply?
Restatement (2nd) of Conflict of Laws:
 Use law of jurisdiction with closest
relationship to action
 Contracts: where acceptance took
place; where contract negotiated;
where performed; location of subject
matter; domicile, place of
incorporation, residency, nationality
or place of business of parties
 Torts: where injury occurred; where
conduct causing harm occurred; place
of incorporation, residency, domicile,
nationality, or place of business;
place where the relationship btwn
parties is centered
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Choice of Law Clauses
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Choice of Law Clauses: Parties choose
in contract the law to apply
 US courts free to determine what
foreign law is as a question of law
(Finnish Fur Sales Co., Ltd. V. Juliette
Shulof Furs, Inc.)
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Procedures for pretrial discovery and
collection of evidence (Hague
Convention or US Federal Rules of
Civil Procedure)
Letters rogatory
Anti-suit injunctions
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Enforcement of Foreign Judgments
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Not automatic -- depends on principles
of “comity”
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Reciprocity
Fairness of procedures
No general treaty as to enforcement of
judgments
US:
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“Full faith and credit” doctrine among states
Uniform Recognition of Foreign Money
Judgments adopted by states
Manches & Co. v. Gilby – which exchange
rate to use
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How do businesses
manage conflict?
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Try to minimize the chance of
litigating in two countries
Forum selection and choice of law
clauses
Consider ADR
Business may be able to deter
litigation with a prompt response
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