Tag Archives: jurisdiction

WHY INTERNATIONAL BUSINESS CONTRACTS SHOULD CONTAIN PROVISIONS REQUIRING THE APPLICATION OF UNITED STATES LAW

     More than two hundred years after its birth, the United States of America is still a magnet for immigrants.  All over Europe and Asia, people still wish to immigrate here to obtain the best possible education, the greatest business opportunities and to succeed.      The other reason is that the United States Constitution is, in reality, only second to the Tenth Commandments as one of the greatest sets of legal regulations ever created.   Even though the Constitution can be vague in places, the framework it sets out has established a legal system in the United States that is second to none.   The legal systems of foreign countries which which do not have the protections of our Constitution often involve laws which would shock many Americans.   Here are some good reasons to stipulate in your business contracts to the laws of one of the states of the United States[1].

1.            Service of Process.

     In the United States, service of process is accomplished by a process server who is generally required to hand you the paper reflecting a lawsuit.   Sometimes there is a possibility for posting the process on your door, or handing it to a relative who lives with you.   However, it is the rare circumstance that process can simply be accomplished by publication without prior efforts to effectuate service.   Nonetheless, service by publication, and posting outside of the courthouse is often the norm in foreign countries.   Imagine if the only way that you could learn about a potential lawsuit is if you are lucky enough to be walking past the courthouse and see your name on the bulletin board.   To Americans, this may seem ridiculous but it is, in fact, reality in many countries.

2.            Jurisdiction.

            In many countries, whether the Court can obtain jurisdiction can be based on citizenship.   Here, in the United States, jurisdiction is most often based upon “minimum contacts” – – the idea that you must have some connection to the forum state before you are sued there.   There is a stark contrast between countries who apply jurisdiction based upon citizenship than the United States in which it is based upon “minimum contacts.”   In sum, for countries that apply a citizenship analysis, there is no reason for there to be minimum contacts.  In fact, it doesn’t matter whether the individual and/or corporation has been present in that particular jurisdiction for many years since citizenship is the test.   This leads to the anomalous result that two citizens of a foreign country, living in the United States, who have a child can make that child subject to jurisdiction of a foreign country even when the child has never even been to that country !   To American lawyers, this may seem silly but it is, in fact, the norm in many countries.

 

3.            Ex Parte Hearings.

     Most of the time, in the United States, the law requires that both sides be present at a hearing.   Not so in other countries.   In certain foreign countries there is ample opportunity for one side to approach the Judge alone.   This is often done informally in the courthouse or even on the street.   What may seem preposterous to Americans, can be routine in other countries.    

4.            Access to Court Files.

     In the United States, anyone can pull up an internet website and search court files.   Sometimes, files are protected for privacy reasons, particularly in family law cases.   However, most of the litigation in the United States Federal courts is available for review by anyone.   Do you think that this is the case in every country in the world?   It is not.   In many countries, the court file is not open to a review by anyone.   In fact, if you wish to inspect the court file, often you must file a motion with the court which has the discretion to deny you access.  So much for free speech! 

5.            Discovery.

     In the United States, in the typical lawsuit both parties are allowed to discover facts about the other party’s case.   That is often done with depositions, interrogatories and document requests.   Parties are required to produce documents and show them to the other side prior to trial.   You would think that this practice would be routine.   This is not the case either.  In fact, in many countries there is no such thing as discovery.   There are countries in which the Judge conducts discovery if there is discovery conducted at all.   And, guess what?   If the Judge is conducting the discovery, there is no opportunity to complain about it.   You just have to presume that the Judge conducted adequate discovery procedures and that the information that the Judge discovered was accurate.  There is no such thing as a “Motion to Compel.”   

6.            Restrictions on Speech.

     In some countries, you are not allowed to mention the names of your clients or witnesses.   Thus, at a deposition or similar proceeding it is entirely permissible for the witness to decline to answer certain questions on the grounds of “privacy.”   There is simply no way to get around this and the person being questioned may, in certain instances, be subject to criminal penalties.   Imagine being subject to criminal penalties for saying the wrong thing!   This is a concept that is totally foreign to Americans.

7.            Conclusion.

  Companies which do business abroad would be well-advised to include provisions in their agreements which provide for the application of American law and jurisdiction in the United States.   Otherwise, there is a possibility that the company could be subject to jurisdiction in a foreign country, with foreign laws, which do not contain the familiar concepts of the United States Constitution.  


[1] The actual state chosen is dependent upon the type of contracts and the lawyers involved. 

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LOCATION. LOCATION. LOCATION. Why the contractual jurisdiction provision in your contract might not be enforceable.

There are, apparently, a lot of things which transpire during the negotiation of a complex business transaction and the written agreement which ultimately follows it.   The parties, and even some times their lawyers, seem to focus exclusively upon the business terms in order to ensure that their clients receive a fair and remunerative deal.   Nonetheless, basic questions like jurisdiction, venue, attorneys’ fees upon default and related items sometimes get lost in the shuffle.   It has been surprising how many times we are presented with contracts for review which contain jurisdictional clauses in remote locations in Europe, Asia and elsewhere when, in fact, the parties’ dispute, and the underlying business transaction, have nothing whatsoever to do with these locations.  Under these circumstances, is the contractual choice of jurisdiction provision enforceable?  As with many things in the law, the answer is maybe.

Courts generally like to enforce the terms of the parties’ contracts as those contracts are written.   This is because courts believe that the parties should be free to negotiate the terms of their own business transactions without interference from the court system.   However, when the parties call upon the court system to adjudicate their dispute, other factors often come into consideration.   With the courts’ burgeoning case load, courts in the modern world sometimes look for reasons to “punt[1]” and send cases elsewhere.   We will briefly review the factors that courts consider when determining whether to enforce contractual choice of jurisdiction provisions.  

Consider this scenario.  Your client comes to you with a contract which it negotiated with a business partner several years ago.   Now the business partner is in breach and a lawsuit has to be filed.   The scope of the parties’ business takes place primarily in New York.  Nonetheless, at the time that the parties negotiated this contract, a subsidiary of one of the parties was doing business in England.   The contract provision which designated England as the appropriate jurisdiction was not focused upon by the parties’ business counsel involved in negotiating the agreement.   Now, suddenly, you look across the desk at your client and explain why the courts will likely want the matter to be litigated in England.

“England?”   Your client says.   The last time I was in England was on vacation fifteen  years ago.   We do not do any business in England, we do not have any employees in England, and we are not familiar with the court system there.   “How could it be that we are required to litigate this case in England?”

This is a good question.   The answer is, as stated above, courts generally look to enforce the terms of the parties’ contract as written.   However, there are several exceptions which might be applicable in the above circumstance.   The courts often analyze these provisions and whether they are enforceable by determining whether it would be “gravely difficult” or “inconvenient” to litigate a case in a foreign jurisdiction.   Courts often use language such as “unreasonable”, “unjust”, “fraud”, and “overreaching” to make a determination about whether these provisions are enforceable.   The courts likewise consider issues such as the convenience of the parties, the convenience of witnesses and the parties’ contacts with the forum.

These issues could, potentially, provide a basis for your client to attack the provision of the contract which requires jurisdiction in England.   The problem is that these questions are often fact intensive.   In other words, your client will likely have to make a factual showing as to why litigating the case in England will be either gravely difficult or inconvenient.   Sworn declarations will have to be filed and there is a possibility that there may be a need for an evidentiary hearing.   Moreover, whenever lawyers hear the words “evidentiary hearing” the knee jerk reaction is often “we need to take depositions.”   The likelihood is that the court will allow such depositions to take place.

This means that your client will likely be involved in what is essentially a “lawsuit within a lawsuit” the purpose of which is to determine where the claims on their merits will ultimately be heard.   If you are now thinking that this will be time consuming and expensive, you would be right.   All of this time and effort expended on litigating a clause in a contract which likely had no meaning at the time it was written and certainly has no meaning once the lawsuit is filed.

Why would the Defendant even want to enforce this provision if they are doing business in the United States primarily?  The answer is simple – – to make it time consuming and expensive for your client.   If they can force your client to litigate in England, even if they know that the case does not belong there, their client will achieve a victory of sorts.   This is because litigation is often a battle of allocating resources guided, primarily, by the expenditure of funds with the wealthier party often coming out ahead.  

The best scenario would be for the business lawyers to simply focus intently on the jurisdictional provision of the contract before it is signed.   This will obviate the need for a time consuming and costly battle over home court advantage.   However, faced with such a provision that is clearly not in the client’s favor, you can attack it.   You should just be prepared to spend considerable time and money doing so.

 


[1] For those of you not familiar with American slang or,  more particularly, American football references, the term “punt” simply means to hand off responsibility to someone else. See http://onlineslangdictionary.com/meaning-definition-of/punt

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