CHAPTER 3
Resolving International Commercial
Disputes
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Avoiding Business Disputes
• Old adage “hope for the best but plan for the worst.”
• Business relationship very important as well rights
spelled out in contract.
• Dispute resolution is difficult because it:
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Spans continents.
Involves different legal systems.
May involve possible litigation in multiple forums.
Involves issues of enforcement.
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Alternate Dispute Resolution
• Mediation: voluntary, nonbinding, conciliation
process.
• Arbitration: binding award that can be enforced by
courts of law in different countries.
– National Arbitral Laws.
– Arbitration Bodies.
– Arbitration Clauses.
– Enforcement of Arbitration Awards.
– See the Scherk v. Alberto-Culver (1974) case. 
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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.
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Scherk v. Alberto Culver
• The Court concluded that “a parochial refusal”
to enforce the agreement would result in a kind
of business chaos.
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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
• Jurisdiction raises the fundamental question:
does the court have the power to hear the
case?
• In personam jurisdiction: power over the
person. Courts 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.
• Case Asahi Metal Industry, Co. v. Superior
Court of California, Solano County (1987). 
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Asahi Metal v. Superior
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 Metal v. Superior
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 Metal v. Superior
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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Jurisdiction
• Jurisdiction in the European Community.
– Case General Monitors Ireland Limited v. SESASA Protection SPA (2005).
• Jurisdiction in the Internet Age.
– When has the person or company met the test of
minimum contacts?
– Differentiation between active and passive website.
– However, law is unsettled.
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Internet Jurisdiction: Graduate
Management Admission Council v. Raju
• Raju, a citizen of India, registered
gmatplus.com and gmatplus.net. He sold books
to prepare students for the GMAT through his
website. GMAT is a registered trademark in the
U.S. GMAC , the non-profit that owns rights in
GMAT and is based in Virginia, sued Raju for
cyber piracy, infringement, unfair competition
and other torts.
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Internet Jurisdiction: 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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Internet Jurisdiction: Graduate
Management Admission Council v. Raju
• What result?
• Will enforcement be easy?
• Obtaining Jurisdiction by Service of Process.
– Advised to consult attorneys in the defendant’s country.
– Procedures is addressed in the Hague Convention on
the Service Abroad of Judicial and Extra-Judicial
Documents in Civil and Commercial Matters.
– Safest method: “Letter Rogatory.”
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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?
– Case Iragorri v. United Technologies Corp. & Otis
Elevator Co (2001). 
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Venue: 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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Venue: 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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Venue: 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 Clauses
• How are they different?
• Why was there judicial hostility to these
contractual provisions?
• Why don’t they work with 3rd parties?
• See M/S Bremen v. Zapata Off-Shore Co
(1972). 
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Forum Selection: 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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Forum Selection: 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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Forum Selection: 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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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 under Restatement (Second) of
the Conflict of Laws.
– Application to Contracts under Restatement (Second).
– Application to Torts under Restatement (Second).
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Choice of Law Clauses
• Contract clauses in which parties stipulate the
country or jurisdiction whose law will apply in
interpreting the contract or enforcing its terms.
• 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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Application of Foreign Law
in American Courts
• Application of Foreign Law in American
Courts: Federal courts are free to determine
as a matter of law what the foreign law is.
– Follow 44.1 Federal Rules of Civil Procedure.
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Judicial Assistance:
Discovery and Evidence
• Judicial Assistance: Discovery and
Collection of Evidence.
– 1970 Hague Convention on the Taking of
Evidence Abroad in Civil or Commercial Matters.
– See Finnish Fur Sales Co., Ltd v. Juliette Shulof
Furs, Inc. (1991). 
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Evidence: 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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Evidence: Finnish Fur Sales v.
Juliette Shulof Furs
• Issue: Should the U.S. court enforce the Finnish
law and auction contract provision holding an
individual responsible for the corporate debts?
• Holding: Yes. The court found it reasonable to
enforce the provision. The court also reasoned
that even if New York law would not require such
a result that New York court enforce foreign laws
unless
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Evidence: 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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Judicial Assistance
• Letters Rogatory.
– Most countries will accept requests for assistance,
except for Japan and China.
• Antisuit Injunctions.
– U.S. courts have power to enjoin a party over whom
they have jurisdiction from bringing a lawsuit in a
foreign country.
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Enforcement of Foreign Judgments
• Winning party can obtain judgment for damages
or other award.
• In the U.S. judgments can be enforced in
another state under the “full faith and credit
clause” of the U.S. Constitution.
• Some 30 states allow for enforcement of foreign
awards.
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Commercial Disputes with Nations
• When foreign governments operate businesses
with an intention to make a profit, they may be
sued in court as a corporation.
– See the Convention on the Settlement of Investment
Disputes Between States and Nationals of Other States
(Washington 1966).
– Case Manches & Co. v. Gilby (1995) concerns the true
amount of damages caused by differences in exchange
rates between the dollar and the British pound.
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