Zafar Azeem

Many challenges may be posed by international business transactions in the form of disputes and litigation arising out of international sales contracts. The factors that disturb the attorneys are the following:

(a) Choice of Forum; (b) Jurisdiction; (c) Service of Process; (d) Forum Non-Conveniens; (e) Parallel Proceedings; (f) Choice of Law; (g) Discovery Rules; (h) Enforcement of Judgements; and (i) Issues involving litigation against Foreign Sovereigns.

When a conflict or dispute arises, the first thing to determine is which is the appropriate forum having jurisdiction to settle the dispute – usually the prudent parties settle this issue by incorporating a clause in the contract by authorizing a specific forum to hear the disputes. International business contracts include a forum selection clause; a typical one might read as under:

“All suits arising out of or relating to the subject matter of this contract

Shall be decided solely and exclusively by the courts of the city of London”

One has to be careful while distinguishing between mandatory and permissive selections. The clause quoted above is mandatory as it requires to approach the courts of London for settlement of the dispute if arises, whereas a permissive clause would allow but not require litigation in London courts. A better way is to draft a clause broadly to include disputes relating to their contractual relationship, to include not just breach of contract claims but also related tort claims. And where such choices are not made then uncertainty looms.

The forum selection clause is now generally accepted by the municipal courts. In the light of Bremen and Carnival cruise cases, which were decided by the US Supreme Court, the US courts recognize this practice generally; similarly the European Union does recognize the forum selection clause. It may however be noted that courts apply foreign law in such cases and not the domestic law and this factor poses more difficulties.

Personal Jurisdiction is a more significant issue in international cases and for its determination there is a two-part test: first whether the defendant has minimum contacts with the jurisdiction and second whether the exercise of personal jurisdiction over the defendant is reasonable according to notions of fair play and substantial justice. (See Worldwide Volkswagen Corp’s case).

Plaintiffs in such cases seek to establish either specific or general personal jurisdiction over the defendant. The elements which determine general jurisdiction over the defendant include either extensive contacts or operations in that jurisdiction or in other words a place of residence; however, for a corporation the scene is different. The required element includes the place of incorporation, the place of principal operations and includes conducting extensive business activities at the disputed place. However, for establishing general jurisdiction the recent trends of the courts are only to consider business operations. (In this regard, attention is invited to the case of Goodyear Dunlop Tires Operations).

In order to determine a specific jurisdiction, Plaintiff is required to establish that the harmful conduct of the defendant had a direct connection to the jurisdiction but the disputed acts must be connected to the jurisdiction. For example, In the Asahi Metal Industry Co’s case, plaintiff was injured in a motorcycle accident in California, allegedly due to a defective part manufactured in Japan. The manufacturing company had not sold the part in the US nor taken action to cause it to be sold or used in the United States, the court found that there was no specific jurisdiction. However on the basis of negotiation of a contract at a specific place, it is easy to establish specific jurisdiction. For establishing such jurisdiction the contacts of a subsidiary, affiliate or agent are also relevant factors. It may however be noted that lack of personal jurisdiction can be waived, a forum selection clause is generally treated as an implicit consent to personal jurisdiction in the chosen forum, or there may a specific expression of consent to jurisdiction. However, in civil law the said two concepts tend to be fused under the doctrine of judicial competency.

As regards service of process in international disputes, the issue is governed by an international convention namely, The Hague Service Convention and it addresses service of process. So far 65 nations have become party to the convention. The Convention is the exclusive means of serving process in foreign countries. The convention requires each party to establish a central authority to receive requests to carry out service in their territory. The convention also lays down procedural steps that reasonably assure the plaintiff that compliance with convention will greatly reduce the possibility of successful challenge to the service of process or other documents. Where service is to be made in a country that is not party to The Hague Service Convention, the parties have to proceed through a process called rogatory or in other words, through diplomatic requests.

Forum non-conveniens or an incontinent forum doctrine allows courts to decline to decide a case even where they have jurisdiction for seeking more appropriate place for resolution elsewhere. It is generally dependant on case law. The considerations in this regard are: plaintiff’s residency, availability of more adequate foreign forum, private and public factors, promises of the defendant; however this consideration is not available in non common law countries.

Sometimes parallel proceedings are initiated in two countries independently; for example, one party might file for damages in one country and the other party may seek rescission, or a declaration that no breach has occurred in a foreign country. In the United States defendant can ask for lis alibi pendens, that is, proceedings pending elsewhere, a court can grant injunction which is known as anti suit injunction, but such motions are granted in very unusual circumstances, but generally there is no presumption against parallel litigation. The EU law, however, does not recognise parallel litigation rule.

The Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters (Called the Hague Evidence Convention and not to be confused with the Hague Service Convention) is the instrument to manage international discovery. The Convention has been adopted by 58 nations; the convention helps to meet needs of a dispute resolution forum to obtain evidence while not imposing upon foreign entities demands that are excessive under rules of their nations. This convention also requires nations to establish a central authority to process requests. However, countries may decline to honour discovery requests for different reasons.

Choosing an appropriate law applicable to the dispute is an important decision for a court because the outcome may be very different depending on which substantive law the court applies. Parties may agree in their contract about the choice of law. Often the choice of law and appropriate forum clauses are added to the contract to avoid uncertainty. A typical choice of law clause may read as under:

“The rights and duties of the parties arising from or relating to this contract shall be governed solely and exclusively by the laws of the city of London with regard to its conflict of law rules.”

In the United States, such clauses are permissible to be incorporated under UCC, in the EU applicable regulations also allow broadly unlimited party autonomy (see EC Regulation No. 593/2008, other sets of rules are also available under the auspices of ICC or UN).

Choice of law for international sales of goods transaction has been partly harmonized by the UN Convention on Contracts for the International Sales of Goods (CISG) which provides a single set of substantive rules for international sales transactions within its scope.

As is evident international contracts for sale of goods provide numerous problems for the parties to the contract and that is why the choices regarding forum and law become important. Another issue relates to proving foreign law, and the courts generally rely on the opinion of the experts in this regard.

Another related problem is that of recognition of foreign judgements. There are different rules regarding enforcement of foreign judgements and parties to the contracts must be careful about these problems. In the Commonwealth countries, for example, it may be reciprocal or can be made binding through reciprocal arrangements. However, recent notable trend is that in many areas the states are recognizing the awards and decisions of foreign tribunals and courts by making these arrangements as part of the domestic law. For example, the awards given by ICSID are being recognized as part of the domestic law in many countries. There is also the Hague Convention on Choice of Court Agreements, which requires recognition and enforcement where the parties chose the foreign court by contractual agreement.

There are special issues in litigation relating to Foreign Sovereign. The limitations include act of state doctrine. This doctrine comes into play even in those cases where sovereign may not be a party. However if possible, it is better to obtain waiver of enforcement immunity.

One has to consider alternate remedies available in this regard to avoid complex legal rules. Many different commercial arbitration options are available to parties; these include arbitration under, ICC, ICSID, UNICITRAl and others. These options are cost efficient and easy to handle

(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi)