Download International Business Transactions-SBA

Survey
yes no Was this document useful for you?
   Thank you for your participation!

* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project

Document related concepts

Patriot Act, Title III, Subtitle A wikipedia, lookup

History of competition law wikipedia, lookup

Contract wikipedia, lookup

R (Factortame Ltd) v Secretary of State for Transport wikipedia, lookup

Joint venture wikipedia, lookup

Offer and acceptance wikipedia, lookup

United Nations Convention on Contracts for the International Sale of Goods wikipedia, lookup

Murabaha wikipedia, lookup

Stipulatio wikipedia, lookup

Non-compete clause wikipedia, lookup

Law of obligations (Bulgaria) wikipedia, lookup

Unconscionability wikipedia, lookup

Uniform Commercial Code wikipedia, lookup

United States contract law wikipedia, lookup

Transcript
International Business Transactions Outline
The Basics
1) Note about practicing international transactions work:
a) Not about winning for your client in the short term
b) A rational allocation of risk will assure your client repeat business, make everyone happy
over the long term
2) What makes an international transaction different?
a) Different legal systems
i) Which law is applicable (choice of law)
b) Different currency
c) How is payment made
i) In Germany, normal that payee gives out account information
d) Language barrier
i) “normative clause” says which language prevails when there is a divergence
e) system of dispute resolution
i) forum shopping is a major issue in international transactions
ii) usually the forum is made clear
iii) Apple v. Samsung – Korean or US courts prevail in IP dispute?
f) Deal with tariffs and import controls
i) Protects domestic industry
ii) Raises revenue
g) Deal with export controls
i) 22 technologies require extensive approval process from commerce dept before
exporting
h) shipping
International Sale of Goods
The Letter of Credit Transaction
1) Glossary of terms
a) RFQ – “Request For Quotation”
b) Proforma Invoice (formal, comprehensive invoice)
i) Includes cost per good, total cost (including shipping and shipment terms (e.g. CIF,
FOB, etc . . .)), and payment terms (LOC, 30 days, etc)
c) Shipment terms (published by ICC):
i) FOB (Free On Board)
(1) Seller is obligated to have the goods packaged and ready for shipment from…
(a) “place of shipment” S puts carrier in possession
(i) this is default (if contract just says FOB)
(b) “place of destination” S must tender delivery in manner provided by the
UCC.
(c) “vessel”
(i) in addition to other duties, must actually put goods on board vessel
(ii) vessel must be named
(2) always a non-negotiable bill of lading?
(3) Buyer covers insurance, figures out how goods shipped and from where
(a) Makes sense, this scheme puts buyer in most control, most responsibilities
1
(4) Payment due on delivery, which is typically on the vessel
ii) FAS (Free Along Side)
(1) S is responsible to deliver goods to “side” of vessel. Once loading begins, off the
hook (unique to waterborn shipments)
iii) C&F (Cost and Freight)
(1) Seller pays for shipping, but not insurance
(2) Refers to delivery contract, not shipment
iv) CIF (Cost, Insurance and Freight)
(1) seller will bear the cost of shipping and insurance up to the designation
(a) IE all FOB stuff but also arranging all shipping and insurance to reach
designation, perhaps not just a port
(2) typically seen as “CIF Bath, UK”
(3) MUST use an order (“negotiable”) BOL (find where this is in supplement)
(a) Buyer has total right to transfer his right to the goods
(4) BOL is equivalent to the goods
(a) Delivery of BOL can be treated as delivery of the goods
(b) Effectively no right of inspection
(c) Under UCC, you waive right to inspect when terms are payment against
documents
(5) When must buyer pay?
(a) B1, INCOTERMS – based on the contract
(b) Payment term is usually “pay against documents”
(c) Usual rule is that bank gives buyer 3-5 days from when it gets the paper to pay
them
PracAp: If seller given more duties (insurance, ect) he’s likely to pass that onto buyer. FOB is
more common between parties who know/trust each other (parent/sub, ect).
d) PO – “Purchase Order”
i) Final order stating all relevant terms
ii) Will lead to battle of the forms if doesn’t match OA
e) OA – “Order Acknowledgment”
f) LoC – “Letter of Credit”
i) Promise from Issuing Bank (buyer’s), drawn in favor of the beneficiary (seller), to pay
to Seller’s Bank (SB), upon presentation of conforming documents
(1) usually includes a sight draft
g) Sight Draft
i) A “check-like” instrument ordering IB to pay Seller upon docs presentation.
ii) Usually is negotiable and signed over by S to SB, and then forwarded to IB with Neg.
BOL for payment
h) BoL – “Bill of Lading”
i) K for shipment of goods btwn carrier and either buyer or seller
ii) “Negotiable” (a.k.a. “order”).
(1) This is the default for unlabeled BoL’s
(2) K with carrier.
(3) Receipt for goods issued by carrier.
(4) A document of title for the goods. Person in possession of BOL, if properly indorsed
(or blank) is title.
(5) Carrier must receive BOL to release goods.
iii) “Non-negotiable” (a.k.a. “straight”).
(1) Consignee has rights to goods.
2
(2) Not title.
(3) Must be labeled as such (BoL not presumed “straight”)
iv) “On Board”
(1) issued once goods on vessel
v) “Clean”
(1) Nothing on it indicating discrepancy regarding goods or their condition
The Normal Transaction
1) Negotiation
a) Buyer sends RFQ
b) Seller sends Pro Forma invoice response
c) Buyer sends Purchase Order
d) Seller sends Order Acknowledgement
2) Performance
a) Buyer has their bank issue LoC to seller’s bank
i) Normally buyer will say who seller’s bank is
b) Seller delivers the goods to carrier, gets BoL
i) If negotiable, can be endorsed to anyone, seller likely still on hook to buyer
(1) Goods not delivered till buyer gets BoL
ii) If non-negotiable, seller entitled to payment at this point
(1) Buyer will get the goods no matter what if BoL just says “buyer” and doesn’t
require “holder of BoL in due course”?
(2) Seller usually required to notify buyer that delivery made under the contract
c) Seller sells BoL to seller’s bank, exchanges the documents for credit
i) Documents required:
(1) Bill of Lading
(2) Insurance
(3) Packing list
(4) Certificate of origin
(5) Online electronic export info
(6) Commercial invoice
ii) Seller has right to payment from seller’s bank, buyer’s bank, buyer, or US Gov
d) Seller’s bank sells BoL to buyer’s bank
e) Buyer’s bank sells BoL to buyer
f) Holder presents BoL to carrier at destination, gets the goods
i) Buyer obligated to inspect goods – Art. 38
(1) Must give notice of defect within reasonable time – Art. 39
ii) If says “freight collect”, can’t collect until freight paid
PracApp:
 What has to happen for seller to lose out?
o Buyer stiffs, buyer’s bank fails, and seller’s bank fails
o US Gov has to fail – insured up to $100,000 under USDIC
 What has to happen for buyer to lose out?
o Only if they don’t get a chance to inspect the goods and they don’t conform
 What has to happen for buyer’s bank to lose out?
o If buyer goes bankrupt
 Buyer’s bank in good position to evaluate this risk
o Might protect themselves by requiring collateral or a co-signer
3
Contract Formation
1) Choice of Law
a) Note: a forum will always apply its own choice of law rules
b) US Choice of Law Principles
i) Agreement of the parties usually controls?
ii) CISG if both parties are contracting states (U.S. Article 95 reservation)
(1) Supercedes UCC where applicable (supremacy clause)
(2) Applies to…
(a) K where parties are from different states
(i) If party location uncertain, one bearing closest relation to K counts
(3) Partial or complete derogation is permissible
(a) However, must be clear/explicit, not ambiguous
(4) Enumerated exclusions:
(a) Goods for personal or family use, Art. 2(a), unless seller neither knew nor
should have known.
(b) Intangibles (e.g. securities, IP, rights, etc . . . )
(c) Information, Probably covered if on physical media.
(d) Services – Test is whether “preponderant part of the obligations of he party
who furnishes the goods consists of labor or other services.” Art. 3(2).
iii) UCC § 1-105 if other party is not a contracting state to CISG
(1) Parties may choose the law of any State with a “reasonable relation” to the
transaction
(a) “reasonable relation” = use, purchase, assembly, ect.
iv) RESTATEMENT OF CONFLICTS OF LAW (SECOND)
(1) Used as a guide by courts?
(2) local law of state having “the most significant relationship to transaction
and parties.” § 188(1)
(3) Relevant factors are location of…
(a) Contracting
(b) Negotiation
(c) Performance
v) For shipping K’s
(1) COGSA governs carrier related disputes
c) Europe Choice of Law Principles (Rome Convention)
i) Article 3 – the choice of the parties usually governs
ii) Article 4 – if no law is chosen:
(1) Contract for sale of goods governed by law of country where seller has habitual
residence (seller default)
(a) Promotes seller certainty, more sales
(2) Contract for provision of services governed by the law of the country where the
service provider has his/her habitual residence
iii) Characteristic Performance Presumption
(1) Default is country of closest connection is where the party to affect characteristic
performance has its habitual residence
(2) Normally, seller’s law will prevail.
(a) Judgment that sellers best able to protect themselves
(b) More seller-centric than UCC § 1-105
(3) For shipping K’s, country is…
(a) Carrier’s PPOB, or
4
(b) Country of loading, or
(c) Country of discharge, or
(d) PPOB of consignor.
2) Forum selection:
a) United States
i) Virtually any forum selection clause will be accepted by the court so long as not
“unreasonable or unjust.” Bremen
(1) Also cite Carnival Cruise Lines
b) Europe – Brussells Convention
i) Contracting parties may choose the courts of any of their States as forum so long as
written in agreement. Art. 17.
c) Shipping K’s
i) Europe = Brussels Convention
(1) Unclear if COGSA is mandatory?
ii) U.S. – Any forum can be chosen which doesn’t reduce carrier liability (Fireman’s Fund)
(1) However, parties may choose forum hostile to COGSA, won’t hold carriers liable.
d) Arbitral awards (come back to this)
3) Battle of the forms
a) CISG
i) Offer requirements.
(1) It must be a proposal for concluding a K. Art. 14.
(2) Intention to be bound. Art. 14
(3) Sufficiently definite offer. Art. 14.
ii) Acceptance
(1) Mirror-Image Analysis. If acceptance differs in any way, it is deemed to be a
rejection and counter-offer. Art. 19(1).
(2) EXCEPTION. Difference is immaterial. Art. 19(3).
(3) Silence not usually acceptance. Art. 18. UNLESS result of practices which the
parties have established or usage. Id.
iii) Terms
(1) Essentially Mirror Image Rule. Art. 19(1)
(a) Terms must be more or less identical to form a contract
(b) however, change must be “material” to be a rejection/counteroffer
(c) judges have rebelled here (2/3), tend to use knockout rule
(2) Last Shot Principle. If seller ships goods, governing terms are those of the last
non-terminated offer. If buyer accepts goods, he accepts terms on order
acknowledgement.
(3) Intent relevant. Ct. may look at party’s intent to ascertain if terms are part of K.
Art. 8.
(4) No Parole Evidence. Art. 8(3).
b) U.C.C.
i) Acceptance
(1) Acceptance, purporting to be so, is, even if terms differ. UCC § 2-207(1).
(2) If one form prohibits contract on any other terms and other form has additional
terms, there is no K.
ii) Validity of Additional Terms. §2-207
(1) First Shot Rule. Are offers for modification, UNLESS b/t merchants and:
(a) Offer expressly prohibits modification, or
(b) Material, or
(c) Notification of objection to terms already given.
iii) Revised § 2-207 uses Knockout Rule.
5
(1) Ct. can still find K if subsequent conduct affirms acceptance of term. § 2-207(3).
(2) Judges can avoid the battle of the forms and examine parties intent. Filanto.
(3)
c) British
i) Acceptance:
(1) Strict Mirror Image Rule
(2) if anything is different, it is a rejection and counteroffer
ii) terms:
(1) Last shot principle – if seller ships (performs) whoever sent the last offer defines
the contract
(a) Incentivizes a lot of back and forth of forms, kind of talking past each other
4) Implied Terms
a) C.I.S.G. (doesn’t call them implied terms).
i) Fitness for Particular Purpose. Art. 35
ii) Merchantability. Art. 35.
iii) Waivable by parties though seemingly more liberally. Art. 35.
iv) Derogation avail. under Art. 6.
b) U.C.C.
i) Merchantability. § 2-314.
ii) Fitness for Particular Purpose if seller knows or has reason to know buyer is relying
on its representations. § 2-315.
iii) Disclaiming. § 2-316
(1) Conspicuous language using specific words (e.g. “as is”).
(2) Course of dealing.
(3) Full opportunity to inspect and no latent defects.
PracApp:
 You HAVE TO understand CISG to negotiate contract, never guaranteed that it won’t
apply
 How can you minimize risk to the client?
o Constantly sending forms to win last shot rule is risky, inadvisable
o Have the buyer test the goods or test them yourself
o Good idea for client to look up what standards apply abroad and test the product
under those conditions
o To avoid consequential damages, really bargain, understand what’s at stake for the
other side
o Above all, maintain the business relationship, don’t just try to win
Impossibility/Impracticability/Excuse
1) CISG
a) Art 79(1) – No liability if
i) [complete] non-performance results from…
(1) Impediment…
(2) Beyond his control…
(3) And he could not reasonably be expected to account for it in K
ii) And pary gives timely notice, Art 79(4)
b) Frustration is not a defense
c) Art 79(2) – If a third party is responsible for non-performance, party not exempt unless
i) Party already exempt under (1) OR
ii) Third party would be exempt under (1)
6
d) Excuse is presumed not to be permanent
i) May be exception if K and/or drafting history suggests otherwise
e) Damages:
i) Cover Damages. CISG Art. 75. Substantially similar to UCC
ii) Market Damages. Gets difference in market price and K price at time of avoidance, if
doesn’t purchase substitute.
2) Anglo-American Approach
a) UCC § 2-615 – Excuses
i) Seller (and only seller) excused IF
(1) seller hasn’t assumed risk
(2) excuse is for failure or delay in delivery
(3) performance is made commercially impracticable by:
(a) the occurrence of a contingency “the non-occurrence of which was a basic
assumption on which the contract was made, OR
(b) by compliance in good faith with any applicable foreign or domestic
governmental regulation or order whether or not it later proves to be invalid.
ii) Applies only to seller.
b) Frustration (UK rule) – if due to unprovided-for circumstance, a situation changes
sufficiently that it would be unjust to hold party accountable, then the contact is at an
end.
i) The Eugenia (Ct. of App. 1963)(holding seller in violation of K when it took ship
through Suez Canal despite blockage rather than taking circuitous route which would
add 30% time. Ct. held add’l time not sufficiently different.
c) U.S. Damages are cover damages.
i) Calculated as difference between K price and market price at time of delivery (i.e.
when title changes).
ii) Buyer may “without unreasonable delay” purchase substitute and cover. Buyer can
recover difference b/t that and amt. paid. UCC § 2-712.
3) Civil Law Jurisdictions (generally)
a) Similarities to common law:
i) Occurrence of an event after the making of contract
ii) Exceptionality and unforeseeability of event
iii) Alteration of contract to intolerable degree
iv) No fault on obligor’s part
b) Differences:
i) Generally less willing to excuse performance
(1) Germany prefers modifying K
(2) France has extremely high threshold (“absolute” impossibility)
4) UNIDROIT
a) Force Majeure excuses performance if impediment…
i) Is beyond party’s control AND
ii) party could not reasonably have taken into account, OR avoided
b) Hardship authorizes K renegotiation or court modification where occurrence of events
“fundamentally altering” the equilibrium of the contract either b/c cost has increased or
value received has decreased.
i) 50% or more change in price or value might be enough.
PracApp:
 universally, a simple rise in price almost never excuses performance
 look for contractual language that specifies the source or exact composition of the product
o IE does contract for oil require Araby-sourced oil? Can replace on spot market?
7


o Strengthens the case for excuse if so
Renegotiation is the norm internationally because force majure signals complete
breakdown in relationship
o IE there will be no repeat business
How does a middleman protect himself vis a vis his obligor to provide and his obligee he
delivers to?
o One method: line up the excuse clauses in your contracts
 write supplier contract that says supplier has to deliver oil no matter what,
not necessarily from their refinery
 Supplier probably won’t agree to it, makes them broker with no
premium
 Write obligee contract to excuse you if refinery burns down
 Probably won’t accept this, damage relatiohship
o Better method: buy futures on product you must provide (insurance by another
name)
 If your supplier fails, you have the right to buy replacements at a price that
won’t ruin you
5) Carrier Liability
a) Hague Rules apply to contracting states, even if not implemented
i) US implemented as COGSA
(1) Carrier liability limited to $500 per package UNLESS shipper declares value on
BOL.
(2) Limitation narrowly construed.
(a) Carrier misrepresenting count may not invoke $500 limitation. (Berisford
Metals Corp. v. S/S Salvador) (carrier couldn’t invoke limitation when it
erroneously wrote 100 bundles of tin ingots instead of actual 30 where 70
disappeared while stored in dock and carrier could have noticed discrepancy).
ii) Clean Bill of Lading creates prima facie presumption that goods are as described.
(1) Carriers can still avoid liability if they state “Shipper’s load and count” or
“particulars furnished by shipper.”
(2) Of course, this creates an unclean BOL which is frequently unacceptable to
consignee.
Commercial terms, BoL, Insurance
1) Bill of Lading
a) Hague rules – ("International Convention for the Unification of Certain Rules of Law
relating to Bills of Lading") – 1924
i) Requires carriers take on at least $500 in liability
(1) Most countries raised this, US hasn’t
ii) Limited instances where carrier is liable
b) Rotterdam Rules
i) Recently negotiated, haven’t been put into effect
c) Federal Bills of Lading Act (FBLA)
i) Warranties and Liability. 49 U.S.C. § 80107.
(1) Unless contrary intention appears, person negotiating or transferring BOL
warrants that
(a) BOL is genuine
(b) He or she has right to transfer
(c) He or she is unaware of any fact affecting validity or worth
8
(d) Goods are merchantable or fit for particular purpose if that would have been
implied absent a BOL.
* This encourages people to know their endorser *
(2) Shipper liable if passes off duplicate as original.
(3) Endorser not liable for prior false endorsements.
ii) Duty to Deliver. 49 U.S.C. § 80110.
(1) Carrier must deliver to consignee or holder of BOL.
(2) Carrier may deliver to
(a) Consignee.
(b) Holder. Carrier is liable if BOL is fraudulently indorsed.
(3) Carrier may retain goods while investigating multiple claims.
iii) Carrier liability for misdirection
(1) Liable for non-receipt and mis-description UNLESS
(a) Uses words “Shippers weight, load and count” or almost exactly similar on
BOL. 49 U.S.C. § 80113, AND
(i) “Particulars furnished by shipper” not necessarily sufficient, so best to use
exact terms. (Industria Nacional)
(ii) Must indicate that shipper loaded. (Industria Nacional)
(b) Carrier wasn’t aware of non-conformity.
(2) Carrier liable for kind, quantity and weight for bulk freight where shipper makes
adequate facilities available to carrier.
(3) Carrier has duty to count packages if package freight.
(4) Carrier has duty to determine kind and quantity for bulk freight.
iv) Carrier liability for forgery
(1) If carrier issues BOL and there are no goods, carrier liable.
(2) If the carrier did not issue BOL and its signature is a forgery or unauthorized, that
signature is not effective – carrier not liable, absent actionable negligence. See
Adel (Ct. found carrier liable for misdelivery upon a clearly forged BOL).
v) Bank Liability
(1) Banks can escape liability for forged BoL’s by…
(a) Specifically disclaiming warranty under § 80107, OR
(b) Claiming it is holding as security for a debt (problematic since it is never a
creditor. Id.
(2) Banks generally have no liability other than appear to be as listed – Uniform Rules
for Collection, I.C.C.
(3) Bank generally not responsible for payments upon forgeries. Unless if fails to
disclaim warranty of genuineness.
2) Fraud/screwups
a) What if someone improperly gets hold of BoL and endorses to third party bank?
b) Federal Bill of Lading Act (Pomerine Act)
i) Holder is person having BOTH possession of AND property rights in a BoL
ii) Each party in the transaction, terms are “deliver to buyer’s bank, or ordered”
(1) Means only person with property interest is buyer’s bank or whoever he
orders it to
iii) If there is a break in the chain of endorsements, only buyer’s bank can be
holder
c) What if someone forges buyer’s bank endorsement?
i) Civil law – if it looks correct (names are right) will be treated as valid
ii) Common Law – a forged endorsement is not an endorsement
iii) Federal Bill of Lading Act – basically helps to invalidate forged docs
9
(1) Applies to outbound shipments from US to a foreign country
PracApp:
 The expectations for carriers are relatively clear, and don’t change based on the precise
wording of the BoL
o Rule: you are liable for those goods which you describe
o Don’t expect them to open boxes and do a full inspection
 How do you get client’s money in case of fraud?
o If carrier delivers to someone who’s stolen the document, the carrier IS liable
o Sue the bank
 How can carrier get rid of liabilities?
o use language “said to contain” or just say “I received x number of boxes”
o however, the commercial invoice might require carrier to state what’s in the boxes
 How can the bank get rid of liabilities?
o Warranties that the bill is genuine are implied
o Therefore, you would have to explicitly disclaim them
 “Deliver to buyer’s bank or order, no warranties”
 have to show this “contrary intention”
Letters of Credit
1) General principles
a) LoC is independent of the sales contract
i) Obligations under LoC unconnected to obligations of underlying contract
2) UCC
a) Letters of Credit
i) § 5-108 (letters correspond)
(1) General Rule. Bank must honor presentation that strictly complies, by the
standard practice of financial institutions, as determined by court.
(2) Courts interpret UCC very strictly
ii) Bank must either honor or notify of all discrepencies within 7 days
(1) Exception – can bring up fraud or forgery at any time
iii) Banks not responsible for:
(1) Performance or non-performance of underlying obligation.
(2) Other’s acts or omissions.
(3) Observance of standards of other than (e)
iv) Only written stuff matters
v) Party honoring the documents…
(1) Has right to immediate payment.
(2) Takes documents free of claim of beneficiary or presenter.
(3) Generally barred from seeking damages for apparent defects.
(4) Has their performance discharged.
vi) Fraud/forgery
(1) § 5-109(a)(1) requires payment in broad circumstances
(a) Banks are not liable for paying if documents appear to comply
(b) However, bank may dishonor in good faith to avoid material fraud by
beneficiary
(2) § 5-109(a)(2) allows for nonpayment in others
(3) generally requires “material fraud”
(a) systemic misrepresentation of fact, scheme of deceptive action
10
(4) Contrast with UN Convention On Independent Guarantees
(a) Allows for non-payment if underlying obligations not honored
b) Standby Letters of Credit
i) Relevant provisions substantially similar to normal LoC transactions
(1) Fraud exception, obligation of bank, ect.
ii) Agreements may incorporate UCP to override UCC, unless UCC provision “nonvariable”
c) Fraud in general:
i) May Bank dishonor? § 5-109(a)
(1) Bank my refuse to honor in good faith if
(a) Presentation appears to strictly comply, AND
(b) Required document is forged or materially fraudulent, OR honor would
facilitate material fraud by the beneficiary on the issuer or applicant.
(2) BUT, bank must pay if honor demanded by
(a) Nominated person, giving value in good faith.
(b) Confirmer
(c) Holder of draft drawn under LOC.
(3) In practice, most banks pay to minimize litigation
ii) Buyer may enjoin bank from payment of LoC IF
(1) Fraud is material AND
(2) Fraud is intentional AND
(3) All other procedural requirements are met
iii) UCC § 5-103(c) says you can contract out of § 5-109(a)
3) UCP 500 “Uniform Customs and Practice” (USE 600!!!!!!!!!)
a) Not binding law unless referenced by agreement and accepted by the court
i) However, considered customary in some jurisdictions
b) Letters of Credit
i) Standard of Examination
(1) Banks must examine docs with “reasonable care” to determine their compliance
with stated terms and conditions.
(a) Determination of compliance made “by international standard banking
practice” as defined by UCP
(2) For Commercial Invoice
(a) Article 18(c) description in the commercial invoice must correspond with that
appearing in the credit
(3) For all other documents
(a) Article 14(e) for documents other than the commercial invoice, the description
of the goods/services/performance may be in general terms not conflicting with
their description in the credit
ii) Procedures for issuer, parties
(1) Issuing, Confirming or Nominated Bank (acting on their behalf) has “reasonable
time,” but no more than 7 days to determine facial compliance
(2) If Bank fears documents not in compliance
(a) Banks may refuse to take up documents in non-compliance
(i) has reasonable time up to 7 days to notify
(ii) Notice must include specific discrepancies and whether it is returning or
holding documents
(b) OR issuer may approach applicant for waiver (almost always granted)
(i) NOTE: confirming bank does NOT have this option
(3) If dishonoring bank fails to comply with procedure, can’t claim non-conformity
later
11
c) Standby Letters of Credit
i) Provisions substantially similar to those for normal LoC’s
ii) No anti-fraud provision
(1) However, courts may use UCC or UN Convention as gap-filler
iii) Parties rarely choose UCP for SLoC
d) Fraud in general
i) No explicit fraud provisions
ii) Most courts say doesn’t preempt local fraud law, can apply UCC standard here
4) ISP 98 “International Standby Practices”
a) May be incorporated into agreements, not yet deemed customary
b) Only applies to SLoC?
c) Compliance:
i) Strict, but clear typos don’t justify dishonor
ii) Level of conformity required in docs is only to extent provided in standby
d) Fraud
i) If bank pays wrong beneficiary, must pay right one, applicant reimburses bank
ii) Fraud no cause for dishonor
(1) However, supplemented by local fraud rules
5) UN Convention on Independent Guarantees and SLoC’s
a) Only four nations (including US) have signed
b) Applicable when:
i) Issuer/guarantor is in Contracting State, OR
ii) Ag. Incorporates law of Contracting State, OR
iii) Document expressly incorporate.
c) Standard of examination
i) “good faith and reasonable care”, cannot be disclaimed
ii) “due regard for generally accepted standards”
iii) reasonable time, no more than seven days
d) fraud:
i) non-satisfaction of underlying obligation justifies non-payment
(1) direct contrast with UCC
ii) standard is when demand “has no conceivable basis.” Art. 19
(1) Contingency or risk has undoubtedly not materialized
(2) Ct. or arbitral tribunal invalidated underlying debt or obligation.
(3) Underlying obligation to beneficiary has been fulfilled.
(4) Fulfillment has been willfully prevented by beneficiary’s willful misconduct.
6) Standby letter of credit
a) Applicable laws:
i) UCC – apply same principles as with normal LoC (fraud exemption exists but very
hard to prove)
(1) To enjoin payment of SLoC requires showing of (Bell Atlantic):
(a) Irreparable harm AND
(b) Probable success on the merits OR sufficiently serious questions going to the
merits to make them a fair ground for litigation AND a balance of hardships
tipping decidedly toward the party requesting the preliminary relief
(2) Underlying claim requires “material misrepresentation” on the documents
(a) IE can only point to underlying contract to extent it is represented in
documents
(b) There are rare exceptions to this rule (Midland Tire)
ii) Civil Law – generally “guaranty payment upon first demand”
(1) Bank shouldn’t investigate anything, just pay
12
(2) However, German courts decide fraud exception should be available here
iii) UCP – does not mention fraud, relies on UCC or UN Convention
iv) ICC/ISP – generally leaves fraud up to each jurisdiction
v) URDG – created by ICC, sets up a basic standard:
(1) demand must state that seller is in breach and the respect to which he/she is in
breach
(2) protection from fraud because requires statement of verifiable facts
b) Procedures:
i) Buyer demands it, seller gets if from seller’s bank
(1) Seller’s bank usually requires seller to put up assets to cover it
(a) This is why bank so willing to let the money go on a simple demand
ii) Particularly susceptible to fraud because there are no (or very low) costs attached to
calling on it
PracApp:
 In reality, courts are still very attached to mirror image rule in document compliance
 Banks in foreign countries have different standards
o Creates a race to the courts so that interpretation will be by the standards of your
local banks
 Around 70% of documents are rejected in the real world
o There is reform to try and change this, new version of UCP is a bit liberalized
o Professor believes that strict compliance regime will nevertheless be the basic
standard for the foreseeable future
 Strict compliance is a means to protect the buyer
o With order BoL he is paying for only paper, so he demands that the paper is
exactly what is needed to acquire title to the goods
 In reality, banks usually pay
o However, (a)(2) in UCC is very significant
 Buyer generally less protected. How does he protect himself?
o Demand fee to cover potential cost of getting screwed
o Government certificate inspection system – if government approves, guarantees
certain amount of assets
o Use a standby LoC to get paid if he doesn’t get what he wants
 How can seller make SLoC less suicidal?
o While requirement to state basis of claim for calling on a SLoC seems like a good
idea, the Prof thinks this is a slippery slope
o Can ask a third (neutral) party to validate a LoC
E-Commerce
1) International Law
a) CISG
i) Applies to sale of goods, generally applicable to software on a disk
ii) Not totally clear if applicable to electronically transmitted software
b) UNCITRAL Model Law on Electronic Commerce
i) Lays down general principles for e-commerce, states that information does not lose
effect or validity in electronic/data form
c) UNIDROIT Principles
i) Complete set of e-contract rules laid down by world legal systems
ii) Applicable by reference in agreement, perhaps under “general principles of law”
2) National laws
13
a) United States
i) U.C.C. – very flexible, key is intent to contract
(1) Typically not a barrier to E-commerce
ii) E-SIGN Act (pg 297)
(1) Applicable only to extent transaction is not covered by UCC
(2) Applies only to records and signatures relating to a transaction
(3) E-Signature cannot be denied effect soley b/c in electronic form. § 101.
(4) Electronic signature valid is an “electronic sound, symbol, or process attached to or
logically associated with a record and executed or adopted by a person with the
intent to sign the record.” § 106(5).
(a) Burden of Proof upon person seeking enforcement.
(5) States can go farther if they want to.
(6) Agents. Cannot be denied effect so long as action is “legally attributable to the
person to be bound.”
(7) Electronic records satisfy Statutes of Frauds if they can be retained and
reproduced as they existed at the time of forming the K.
iii) UETA (Uniform Electronic Transaction Act)
(1) Model law, applicable only in states which adopt it
(2) Applies only to records and signatures relating to a transaction (like E-SIGN)
(3) “a record or signature may not be denied legal effect or enforceability solely
because it is in electronic form”
iv) UCITA
(1) Another model law, only works if states adopt it
(2) Legal framework for computer information transactions
(3) Limited to computer information transactions (license to purchase software, ect.)
(4) Applies only if parties have not agreed otherwise
v) Conflict of Laws
(1) Agreement normally controls
(2) Internet transaction for electronic transfer of info governed by law where licensor
is located (UCITA)
(a) However, if licensor is foreign, foreign law governs only if protection of rights to
parties outside that jurisdiction is “substantially similar” to UCITA protections
(b) Otherwise law of state with most significant relationship to transaction governs
(3) In all other cases, law of deciding forum applies if transaction “bears an
appropriate relation to this state.” (UCC § 1-105(1))
(a) However, second restatement on CoL says “rights and duties… determined by
the local law of the stat which… has the most significant relationship to the
transaction and parties”
(i) This is UCITA approach
vi) Rules:
(1) A contract may be formed in any manner sufficient to show agreement (UCC,
UCITA)
(2) Contract formed when electronic acceptance is received (UCITA § 203(4))
(a) Seasonable and definite acceptance is acceptance provided differing terms do
not materially alter contract (UCITA) (rejects mirror image rule)
(b) Acceptance includes conduct/operations indicating acceptance (including by
electronic agents) (UCITA)
(3) Contracts may be formed by electronic agents (UCITA)
(a) However, UCC § 2-204(1) leaves uncertainty
(4) Requirement for “writing” may be interpreted as electronic “record” (UETA,
UCITA, E-SIGN)
14
(a) Never invalid due to electronic form
(b) Not clear how long record needs to be retained
(5) Electronic process or symbol are equivalent to written signatures (UCITA § 107(a))
(6) Not necessary that both parties expressly agreed to use electronic methods
(UCITA, UCC)
(a) Willingness can be inferred from circumstances (UCITA)
(b) However, UETA requires this, inapplicable otherwise
b) European Union
i) Electronic Commerce Directive – member states remove legal obstacles to use of
electronic contracts
ii) Electronic Signature Directive – legal framework for electronic signatures and
certification
iii) Rules:
(1) E-commerce favored and valid, generally
(2) Acceptance covered by national laws
(a) Generally same as UCC – anything sufficient to show agreement
(3) Requirements that cannot be met electronically forbidden (ECD Art 9(1))
(a) Not necessary that parties agreed to use electronics
(4) Signatures not denied validity because they are electronic
PracApp:
 What should seller put on their website?
o Article 14 of CISG requires a price
o Put maximum/minimum per order to define what you’re willing to do
o Disclaim orders from Iran, DPRK, ect?
 What covers purely digital material like digital cookbook?
o UCC – preponderance is that goods must be tangible
o CISG – prof thinks same applies here
o UCITA – stronger case because passed to deal with technology issues, but still
unclear as to what constitutes “software”, ect
 Can you incorporate UCITA?
o Probably can’t have it be basis for entire contract, as in choice of law
o However, can incorporate it if chosen law allows this
 Can you return e-commerce?
o Often depends on if you are merchant (chef, in case of cookbook)
Transfer of Technology
Franchising
1) Intellectual Property
a) Patents
i) 1883 Paris Convention (100 signatories)
(1) date of protection in foreign countries retroactive to date filed in home country
(2) 12 months to register patents in other countries
(3) May backfire: After 12 months, right is lost, countries may reject as already
patented elsewhere.
ii) Patent Cooperation Treaty (50 countries)
(1) Holders may register with International Searching Authorities (ISAs) who issue
15
advisory opinion regarding patentability.
(2) These opinions carry great weight with many countries and facilitates registration
iii) European Patent Convention
(1) Single patent authority for EU
b) Trademarks
i) 1957 Paris Convention.
(1) 6 months to register trademark in other Signatory states.
(2) If patent is sufficiently well-known, it may still be registered after 6 months if
someone else hasn’t registered first.
ii) The Vienna Trademark Convention (not ratified) creates centralized registration
authority.
iii)
c) Copyright
i) Most countries afford such protection by default, so long as appropriately marked
ii) Universal Copyright Convention. “©” mark demonstrates copyright.
(1) excuses foreigners from registration requirements provided notice of a claim of
copyright is adequately given
iii) Berne Convention (1989) suspends registration requirements in countries other
than originating countries.
(1) Minimum copyright term is 50 years, though countries can give more.
(2) Doesn’t require notice to foreign countries to gain protection (unlike UCC)
d) Know-how – Very difficult to protect legally. Economic Espionage Act prohibits stealing
know how for foreign govs
2) Type of franchising
a) Wholly owned
b) Direct franchising – someone wants to use your brand
c) Master license
d) Area development
e) General provisions
i) Usually about 10-20 years
ii) Using other people’s money, just selling your mark
iii) All you need to do is
(1) Give them training, minimal support
iv) You get
(1) Royalties
(2) Expertise for the area
v) Downside
(1) Harmful to reputation
vi) What to do:
(1) Have a business plan
(2) Examine the benefits of the country carefully
1) Regulatory considerations
a) Franchise Laws
i) Disclosure is main provision
(1) Objective is to give franchisee info a good investor would want to know
(2) Problem: will government require you to disclose business secrets?
(a) Secret chicken recipe, algorithm for placing restaurants
ii) Alternative is government “evaluations” model to see if business will succeed
(1) Prof doesn’t like this, not objective, would rather look at actual restaurants
b) Anti-trust considerations
i) Tying concerns
16
(1) Limits to how much you can “tie” the purchase of a trademark to other goods and
services
(2) 2 types of products
(a) “unique” products can be tied to the trademark
(i) chicken/coke recipes
(ii) products central to your business (Baskin Robbins ice cream)
(b) “interchangeable” products cannot be tied to trademark
(i) napkins, silverware
ii) Pricing
(1) Particularly suspect in US and Europe
iii) Territorial division
(1) Generally allowed in US?
(2) Sensitive in Europe because they don’t want markets divided up along national
lines
(a) You cannot restrict franchises from transferring goods to other territories
(Pronuptia)
(b) Franchises can apply for block or individualized exemptions
PracApp:
 To make sure you are constantly protected, update all IP and regularly file for protection
o Even if you aren’t protected first time, will be protected later
o You don’t risk protections running out
 Copyrights are generally better protected than trademarks
o If you have a choice, go for copyright protections
o However, requires regular policing to enforce
 When drafting a franchise agreement:
o Who controls the draft controls the world
 Make sure your clients’ priorities are in there
 Can give way on other stuff to preserve business relationship
o Can often be far more important what is NOT in the contract
 Key concerns when drafting franchise contract:
o Where does the training take place? Home country?
o Who gets to inspect the franchisee to make sure the place is up to code, cooking
done right?
o To whom are royalties paid? How are they spent?
 Concerns for franchisee:
o How good is the training?
o Can I guarantee advertising in my market?
o What is relationship between franchisor and current franchisees?
 Sued often?
 Before franchising in a new marker, consider starting store(s) that are wholly owned
o See if the market will support your model
o Proof to franchise owners it works
 When dealing with foreign governments, treat regulation as a cooperative process
o Communicate with the government, other insiders, early and often
o Get inside help whenever possible from all sectors (labor, business, suppliers)
Counterfeit and Grey Market goods
1) Counterfeit Trademarked Goods
a) Tariff Act of 1930 § 1526.
17
i) Bars unauthorized importation of goods bearing trademarks of U.S. citizens when
those marks are registered with PTO.
ii) Importer bears burden of showing authority to import.
b)
2) Copyrighted Goods
3) Grey Market Goods
a) Tariff Act, § 1526
i) A “foreign manufactured good, bearing a valid United States trademark, that is
imported without the consent of the United States trademark holder.” (K Mart)
(1) Protection limited to U.S. citizens
ii) Common Control Exception – U.S. customs allows gray market re-importation
when foreign owners and US owner are the same or affiliated.
(1) Only applies when
(a) Goods are not physically or materially different OR
(b) Goods bear conspicuous label that lets people know how different they are
iii) Importation barred
(1) Products manufactured abroad under U.S. license may be interdicted if companies
not subject to common control. (K-Mart v. Cartier)
(2) Domestic licensor of foreign-owned mark may prohibit importation of goods from
foreign owner. (K-Mart)
iv) Importation ok:
(1) Domestic subsidiary/registrant of U.S. trademark gets competition from thirdparty’s purchase and importation of foreign manufactured goods. K-Mart
b) Lanham Act § 42.
i) Prohibits importation of goods that copy or simulate a registered U.S. trademark.
ii) Material difference required by some cts. in order to stop importation. Lever Bros.
(Common control exception inapplicable when re-imported goods materially differ from
the domestic goods; Lever)
c) Customs regulations
i) Grey market goods may be imported when…
(1) Goods are identical, or
(2) Goods bear a conspicuous label states that “This product is not a product
authorized by the United States trademark owner for importation and is physically
and materially different from the authorized product.”
ii) Customs required to seize and destroy violating products
d) Copyright Act. § 103, 602.
i) Prohibits importation of copyrighted goods w/o copyright holder’s consent (§602(a))
UNLESS:
(1) First Sale Doctrine – Lawful purchaser of copyrighted item can resell it without
owner’s permission. (§109(a)) (L’Anza Research)
(a) Open question: does this apply even if the first sale is outside the U.S.?
(b) SC says first sale must be in US (Omega v. Costco)
(i) IE Omega gets to control price of first US sale, effectively controls the price
ii) Doctrine of Exhaustion – at some point, right of copyright holder to control
distribution must come to an end
(1) IE I can give my old t-shirt to my little brother
e) Japan
i) Parallel importation legal when… (Parker Pen)
(1) Mark indicated manufacturer, not distributor, as source of goods.
(2) Pens were equal quality.
(3) Domestic mfr. good will based on status as exclusive distributor.
18
(4) Parallel importation promotes competition
(5) Parallel importer did not benefit from domestic’s advertising.
f) Europe
i) First sale rule: Trademark rights can prohibit gray market imports into the common
market if the first Sale was in the EU. (Silhouette v. Hartlauer)
(1) If first sale was outside, holder can bar importation?
4) TRIPS – Enforcement of Intellectual Property Rights
a) Members can stop importation of infringing goods. Art. 44.
b) Covered Goods. Art. 51, FN 14
i) Counterfeit goods: “goods, including packaging, bearing without authorization a
trademark which is identical to the trademark validly registered in respect of such
goods, or which cannot be distinguished in its essential aspects from such a
trademark, and which thereby infringes the rights of the owner of the trademark in
question under the law of the country of importation;
ii) Pirated copyright goods: Copies made without the consent of the right holder or
person duly authorized by the right holder in the country of production and which are
made directly or indirectly from an article where the making of that copy would have
constituted an infringement of a copyright or a related right under the law of the
country of importation.
c) Damages – Articles 45-48
PracApp:
 Why do companies want to discourage parallel imports?
o Hurts brand name if imported at a lower price (L’anza)
 Generally, consumers want parallel imports, better prices for them
 Current US law incentivizes companies to ship production oversees
 Generally, you can prohibit undesired importation of goods bearing your mark
o Exceptions are if…
 The goods bear a mark valid in their country of origin OR
 The foreign manufacturer is affiliated with the US mark holder, and you
cannot show
 Goods are materially different AND
 No mandated-form disclaimer on goods
 How to protect against grey market imports on the front end:
o Direct control may be the most effective

 Put provisions in license preventing sub-licensing and sales in the united
states
 Customs will enforce this
 if goods are different, can get them on deceptive practices
o More difficult with subsidiaries
 More control lets you make sure they are accountable to you, so you can
punish them for competing with you
 However, if you don’t control them they may fall into common control
exemption
 Then you have to argue materially different product, deceptive
practices
 Good idea: you yourself require they sell a materially different
product
 How do you get customs to enforce your IP rights?
o Hand them the evidence to easily make a determination that the incoming product
19

will be “confusing” for consumers
Big question: Does the rule of law exist for normal commercial cases
o Will they enforce clause that says “you cannot sub-assign your rights to produce,
sell, be a subsidiary”?
Direct franchising – someone wants to use your brand
Wholly owned
Master license
Area development
Direct Foreign Investment
General Principles
1) Branch v. Subsidiary
a) Control
i) Branch
(1) Direct control
ii) Subsidiary
(1) Will still be able to make big decisions via controlling interest
(2) However, can’t micromanage
(a) If manager not performing, want to fire, have to work through board
(i) This might hurt the company
b) Liability
i) Branch
(1) Liable for all debts and actions
ii) Subsidiary
(1) Probably not on the hook for sub’s debts and judgments against them
c) Taxes
i) Less distinction between branch and subsidiary
d) Dividend and Profit repatriation
2) Corporate forms
a) Europe in general
i) Businesses incorporated anywhere in Europe have standing in place of business
(Uberseering BV v. Nordic Construction Company)
(1) Essentially, corporate forms of all market nations are valid
(2) Has created a race to the bottom? (UK laws most favorable)
ii) Respect for foreign corporate forms does not prevent double taxation
b) German: AG v. GmbH
i) GmbH – like a private limited liability company (Most popular for U.S. subsidiaries)
(1) Most popular form of company in Germany (150x more GmbH than AG)
(2) Few statutory S/H protections.
(3) Sh. not really traded.
ii) AG – for large publicly traded corporations
(1) Extensive statutory protection for S/H.
(2) Most terms in articles of incorporation are statutorily defined.
(3) About 20% of sh. traded on public market.
(4) S/H meetings must be in Germany
iii) Codetermination and Two-Tiered Management
(1) Applies to companies with more than 500 workers
20
(2) Management Board (Vorstand) and Supervisory Board (Aufsichtrat)
(a) 50% worker representation on supervisory board
c) Societas Europae
i) Formation
(1) Merger of two or more existing public limited companies from at least 2 different
EU Member States.
(2) Through a holding company holding companies in two different member states.
(3) By formation of a subsidiary of companies from 2 different member states.
(4) By the transformation of a public limited company which has for at least two years
had a subsidiary in another Member States.
ii) Characteristics
(1) Single registration allows business to operate in any member State without having
to re-register.
(a) S.E. still registers with national authority where it has its administrative head
quarters.
(2) Will still be taxed like any other company operating under that national authority.
(3) Have to apply labor law of place where the majority of the workers lie
3) Greenfields v. Acquisition
a) Greenfields (starting from scratch)
i) It will be significantly harder to deal with regulations, laws, way of doing business
(1) May need government approval, bribes
b) State enterprise privatization
i) Great for jumping through bureaucracy
ii) Downside is major loss of control, new set of regulations
c) Joint Venture
d) Acquisition
i) EU Merger Control Regulation
(1) Commission jurisdiction:
(a) when control is acquired through equity or contract. Includes companies
created by through joint venture.
(b) Community Dimension Mergers. Mergers occurring outside Europe are subject
to Commission jurisdiction if they have worldwide revenues of €5B or EU
revenues of €300M.
(i) May be different standard when 3 EU states involved?
(c) Extraterritorial Reach – Agreements made in EU even if businesses are
outside are subject to EU law. Wood Pulp.
(d) Time Limit – EU has 4 months to make determination.
(e) Exceptions to jurisdiction:
(i) If 2/3s of activities take place in one Member, its laws apply.
(ii) Members can oppose mergers on security, preservation of media plurality,
financial institution regulations and other legitimate interests.
(iii)
Members can ask for Commission investigation of smaller mergers if
they are likely to create dominant position in Member market.
(2) Substantive rules:
(a) Commission must review mergers where competition “would be significantly
impeded.”
(b) Can consider factors such as “the interests of the intermediate and ultimate
consumers, and the development of technical and economic progress.”
(c) Joint ventures can also be subject to regulation if they meet the concentration
thresholds.
4) Incentives:
21
a) Nowadays, question is “which country offers best incentives?”
i) Used to be “which country is least restrictive?”
b) Most common incentives:
i) Providing land and infrastructure
(1) Industrial park, roads, transportation
PracApp
 What do countries want in the FDI context?
o For you to make things in their country and export
o Acquire new technology
o Acquire prestigious industries
o Sometimes (rarely) they will welcome better management/techniques
 Best overall solution is to open up a dialogue and get good contacts
o Contacts in labor, suppliers, government
o It’s not what you know, it’s who you know
 While it may be possible to avoid rules like codetermination if you try really hard
(incorporate outside Germany, use series of smaller companies) this risks angering
regulators by dodging the law
o May be worse strategy in the long run
Host Country Regulation
1) Currency Controls
a) Government controls the distribution of hard currency
i) Biggest priorities: energy, food, weapons, medicine/drugs
2) Transfer Pricing
3) Insolvency
a) Jurisdictional approaches
i) Territorial – proceedings must occur where property is located
(1) More common globally
ii) Universal – one proceeding that claimants must enter or forfeit
(1) US approach
b) Lots of cooperation agreements exist in this area
i) Allows one court to be designated “master court” that other national courts defer to
c) General rule: national creditors can only go after national assets if the national
subsidiary is incorporated separately
i) However, the corporate veil does occasionally get pierced
(1) Leads to incorporating multiple times
PracApp:
 How can you get money out of a country with strict price controls?
o Increase royalty payments from sub to parent
 May be challenged as transfer pricing
 Scrutinized by tax and customs for foreign and home country
 Might get international judgment against you allowing countries to
sequester your property to enforce it
o Best option is to have a “light footprint”
 Lease land and equipment, pay for it with in-country profits
 When you need money, borrow from a local bank
 Reduces profit, but also greatly reduces risk
 What price should a subsidiary charge a parent?
22
o
Prices must be in line with normal market transactions
 However, information on this is sparse for global market
Resolution of International Commercial Disputes
Options for resolving international disputes
1) Negotiation
a) Straightforward, party to party negotiation
b) Often preferable in order to maintain business/trust relationship
2) Mediation
a) Essentially negotiation with a neutral party facilitating
i) Mediator has no/very little power to dictate outcome
b) Advantages
i) Mediator may be technically skilled in the relevant area
ii) Willing to poke holes in the arguments of either party
c) Chinese approach – conciliator
i) Big difference is the power to suggest what a solution might be
ii) Has the power to become an arbitrator, meaning he may later enforce his suggestion
3) Arbitration
a) Arbitrator(s) will make a final decision that will bind the parties
b) Requires consent of the parties
i) Usually made ahead of time in contractual agreement
c) Procedures (generally):
i) Typically lacks discovery, motion practice, appeals process
ii) Final decision may do no more than state what the arbitrator decided, without
explanation
d) Litigation
i) Certain aspects change substantially in different court systems
(1) Service of process
(2) Discovery
ii) Will foreign judgments be enforced? (see topic below)
PracApp:
 Arbitration v. Litigation
o Arbitration is ideal for smaller, piecemeal issues
 Efficiently deal with issues without ruining business relationship
o When issues are fundamental, may want protections of due process
 Might depend on business size, familiarity with other party
o Trick is striking balance between smaller and larger issues that might come up
Choice of Forum
1) Parties choice of forum is typically at their discretion
a) Contrast choice of law, which is usually set by statute
2) United States
a) Parties to a contract may agree in advance to submit to the jurisdiction of a foreign court,
and this provision will be enforced in the US (Bremen v. Zapata)
i) Based on the requirements of modern commerce
23
(1) Give predictability to business (Carnival Cruise Lines)
ii) Exceptions mentioned by court:
(1) Fraud
(2) Undue influence
(3) Overweening bargaining power
(4) Overreaching
(5) Not inconvenience
(a) Requires a “heavy burden of proof” (Carnival Cruise Lines)
iii) However, ignores the fact that enforcing the forum essentially decides the case
(professor)
b) New test: was forum selection clause “unreasonable” (Gertrude Oldendorff)
i) Risk of foreign misinterpretation of mandatory law (COGSA) by English court
validated disregarding forum selection clause
3) Europe
a) Brussells II (pg 443) – articles I and II
i) Art 23 – choice of parties will be enforced if…
(1) In writing
(2) In form they agreed to
(3) In some other form typical for the situation
ii) Does not apply to consumers, civil matters
4) Hague Convention
a) Applicability
i) Business to business agreements
ii) Does not apply to intellectual property rights disputes
(1) However, these will not be a barrier to reaching other issues
b) Three basic rules
i) Court chosen by parties in exclusive agreement governs
ii) Courts not chosen by parties do not have jurisdiction
iii) A judgment resulting from valid choice of court agreement will be enforced by
contracting states
c) Optional fourth rule:
i) Courts will recognize judgments of given by courts of other contracting states
designated in a non-exclusive choice of court agreement
d)
Choice of Law
1) Choice of law is typically governed by statute (sometimes caselaw)
a) Each forum typically has its own choice of law rules
2) United states
a) Mandatory law can be decided by a foreign court/arbitrator when not “unreasonable”
(Firemen’s Fund)
i) Anti-trust law is reasonable (Firemen’s Fund, 9th Cir, 1997)
ii) COGSA is unreasonable (Gertrude Oldendorff SDNY 2002)
b) Foreign law must be pleaded and proven as a matter of fact before it can be applied
c) Forum non conveniens
i) Technically a choice of forum provision, but court considers whether an alternative
forum will provide something approaching justice compared to US courts
d) Personal jurisdiction
i) Is Massachusetts rule, asserting PJ over anyone “doing business” in Massachusetts,
constitutional?
24
(1) Is purposeful availment of rule of law, business environment?
PracApp:
 ALWAYS PUT CHOICE OF LAW AND FORUM IN YOUR AGREEMENTS
o These are usually enforced
o Certainty alone is a big bonus, even if not ideal forum or law
Enforcement of Arbitral Awards
1) United States
a) Federal Arbitration Act
i) Implementing legislation for New York Convention
ii) Applies to commercial disputes
iii) Arbitration clauses will be enforced
b) Basically any law can be arbitrated
i) Anti-trust, trademark law (Mitsubishi)
ii) Includes arbitration in a foreign court (Firemen’s Fund see above)
c) Complying with or advancing US foreign/anti-terrorism policies is no cause for vacating
an arbitral award (National Oil v. Libyan Sun)
2) New York Convention
a) Art 5.1 – convention is mandatory law for the signatories
b) An arbitration award issued in any other state may generally be enforced in a contracting
state
i) All we care about is the forum for the arbitration, NOT the parties themselves
ii) Some states opt for the reciprocity reservation
(1) IE they will only enforce awards issued by states which enforce theirs
c) Affirmative defenses (this list is exhaustive):
i) incapacity;
ii) arbitration agreement itself is not valid under its governing law;
iii) Inadequate opportunity to present defense
(1) Arbitration implies relinquishing courtroom rights, including right to call
witnesses (Parsons)
iv) Arbitration in excess of jurisdiction
(1) Does not sanction second-guessing of arbitrator’s interpretation of the terms
submitted (Parsons)
v) Composition of arbitral tribunal not in accordance with either agreement or rules of
the forum state
(1) Usually arbitrators have to disclose conflicts of interest
(2) However, once arbitrators approved, not appealable
vi) award not yet binding or set aside by competent authority
(1) a legal authority of the chosen forum state (ie a higher court of law) may throw out
an award under any law of the forum
(2) however, a court enforcing an arbitral award of another forum is limited to the
affirmative defenses of the NY Convention (Spier v. Calzaturificio Tecnica)
vii) subject matter not capable of resolution by arbitration
(1) refers to categories of topics not capable of arbitration, not ad hoc determination
(Parsons and Whittmore)
viii) Contrary to "public policy"
(1) test: where enforcement would violate “the forum state’s most basic notions of
morality and justice”
(2) Foreign policy and anti-terrorism policy are not “public policy” which justifies
25
throwing out an arbitral award (National Oil v. Libyan Sun)
(3) Improper application of interests rates to award may violate public policy (DC
Georgia case)
ix) Manifest disregard for the law (US only, interpreted in FAA)
(1) Does NOT sanction review of arbitral decisions for mistake of fact or law (Parsons)
PracApp:
 In international context, arbitrators often say nothing except “I’ve decided that x gets y”
o In these cases it is almost impossible to raise an affirmative defense because you
have no basis for doing so
o Only when the arbitrator gives you more will it be worth challenging
Enforcement of Foreign Judgments
1) United States
a) Old regime was based on reciprocity
b) Matter is governed by state law
i) SC has said that we should recognize foreign judgments under comity
(1) Only exception is when their system of justice is fundamentally inadequate
(2) However, this is not binding under state courts
ii) Federal courts hearing these matters will be deciding on the basis of state law (Erie)
iii) States are all over the place on how they deal with this
(1) Florida: negative reciprocity clause
(a) Enforces judgments of a jurisdiction until there is evidence they don’t enforce
ours
c) Uniform Enforcement of Foreign Judgments Act
i) States who pass it say that simply filing a foreign judgment with the court gives it the
force of a domestic judgment
ii) Any normal grounds for attacking the judgment are available
(1) Until challenged by the defendant, judgment is enforced
2) Foreign money-judgment recognition act (US law)
a) Standards for recognition and enforcement
b) Section 4: non-recognition
3) Brussels II
a) EU states will enforce EU judgments
International Sale of Goods
 CISG
 UN SLoC Convention
 UN Electronic Communications Contracts
 Harter Act, COGSA (293)
 E-SIGN (297)
 Federal BoL Act (304)
 UCC (319)
 Rome I (436)
 EU E-Commerce Directive (462)
 EU Consumer Unfair Practices Directive (467)
 EU Distance Selling Directive (476)
Transfer of Technology
26
 WTO TRIPS Agreement (92)
Foreign Direct Investment
 EU Regulation for Societeas Europea (453)
Resolution of Commercial Disputes
 NY Convention
 Convention on Service Abroad
 Convention on taking of Evidence Abroad
 Hague Choice of Court Agreements (2005)
 EU foreign judgments (Brussels II) (443)

27