3465-ON-Module 11 Settlement of International Business Disputes

Course 3465-International
Business Law and Negotiation
Module 11: Settlement of International
Disputes
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Course Plan
Module Titles
Module 1 – International Organizations and International Law
Module 2 – The World Trade Organization
Module 3 – The European Union and the North American Free Trade Agreement
(NAFTA)
Module 4 – Ethics and Global Business
Module 5 – Canada’s Response to Global Rules: Domestic Rules on Imports &
Exports
Module 6 – Review/Q&A/Mid-term (No Content)
Module 7 – Negotiation of Contracts (1)
Module 8 – Negotiation of Contracts (2)
Module 9 – Intellectual Property and International Business
Module 10 – Legal Aspects of Different Foreign Market Strategies
Current Focus: Module 11 – Settlement of International Disputes
Module 12 – Final Exam (No Content)
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Learning outcomes for this Module
• Describe the different forms of alternative dispute resolution
legal options in an international contract
• Identify the international agreements that provide for
common rules for international arbitrations and enforcement
of arbitral awards
• Explain the relationship between arbitration and the courts
• Differentiate between enforcing a judgment made by a
foreign court and enforcing a foreign arbitral award
• Describe the significance of foreign elements when you
wish to begin or defend a lawsuit
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Topics for this Module
11.1 Introduction: Settling a dispute through litigation or
alternative dispute resolution
11.2 Arbitration
11.3 Actions in domestic courts: suing and being sued
11.4 Enforcement of foreign judgments
11.5 Actions involving foreign states
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Module 11 – Section 1
Introduction: Settling a dispute
through litigation or alternative
dispute resolution
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Introduction
Settling a dispute when the contract involves an international
party raises three potential issues:
1. Which country’s law will apply to the dispute?
2. Which country’s courts will hear the case, or will differences be
arbitrated?
3. Will the courts of one country recognize and enforce a judgement or
award obtained in another country?
• The parties to a contract will have some control over the
first two issues but are less able to control the third
• As such, it is important that the parties to a transaction
address these issues when they are negotiating their
contract and every international contract should include a
choice-of-law clause
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Litigation or Alterative Dispute Resolution?
Litigation is the process whereby a plaintiff (the person suing)
initiates a lawsuit to enforce a right in court against the
defendant (the person being sued)
• Litigation is traditionally more acceptable in Canada, the
United States and other common law countries
• It involves a discovery process for the disclosure of
information through the examination of documents or
people
• This method of resolving disputes promotes a ‘winner takes
all’ adversarial approach and the court/judge makes the final
decision in deciding the ‘winner’
• In litigation, there is the option of appealing the decision
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Alternative Dispute Resolution (ADR)
Alternative dispute resolution refers to methods of resolving
disputes other than by litigation in the courts, the most
common examples include:
1. Mediation
2. Conciliation
3. Arbitration
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Mediation
• Mediation is a voluntary dispute process resolution in which
the parties involved attempt to resolve a dispute on a
consensual basis through the use of a neutral third party
• The neutral third party assists the parties in working towards
a negotiated agreement
• The parties maintain the ultimate control of the decision to
settle and of the terms of the resolution
• However, the outcome is not binding on the parties
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Conciliation
• Conciliation is where the third party meets with each
disputing party separately and interprets and transmits each
party’s position to the other party
• The neutral third party usually suggests proposals for an
acceptable resolution of the dispute
• The third party is also expected to provide a written report of
the proceedings
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Arbitration
• Arbitration is a more formalized voluntary process where a
neutral third party listens to the evidence and makes a
decision that the parties have agreed in advance to honour
• Arbitration is the method of choice for international disputes
because there are international rules, making arbitral
awards much more easily enforced globally than mediation
or conciliation decisions or court judgments
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The advantages of Arbitration
• It is cheaper than litigation
• Pre-trial discovery is more limited than it is in litigation,
hence it is cheaper and less time consuming for the parties
• Arbitration is usually faster than litigation
• The rules governing admissibility of evidence are more
flexible than those in litigation
• An arbitral award is more easily enforced in foreign
countries
• An arbitration may be more private than litigation
• Arbitration proceedings are less adversarial than court
proceedings and may be less destructive to the
relationships of the parties
• There is a limited right to appeal in arbitration
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Hollywood’s use of arbitration
See the article below: “Warner Bros. Defeats Weinstein Co. in
‘Hobbit’ Dispute Over Profits”
https://variety.com/2014/film/news/hobbit-warner-brosweinsteins-profit-dispute-1201356828/
An arbitrator sided with Warner Bros. in the dispute with Bob
and Harvey Weinstein over the profits from “The Hobbit”
movies. Warner Bros. bought the rights from Miramax (owned
by the Weinsteins) to ‘The Hobbit’ for $11.7 million and
decided to split movies into three parts. The Weinsteins sued
Warner Bros, stating that the studio should have paid them the
profits for the second and third films, not just the first film.
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Class discussion:
Question: What are some of the advantages of arbitration as a
method of dispute settlement?
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Module 11-Section 2
Arbitration
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Types of arbitration
There are two types of arbitration:
1. Ad hoc arbitration: the parties initiate and proceed with
arbitration without the assistance of a permanent arbitral
institution
–
There may be issues as it requires that the arbitration provisions be
thought through and drafted by the individual parties (specifying
where the arbitration is to occur and domestic legislation may
supply the parties with the necessary framework and rules for their
arbitration)
2. Institutional arbitration: occurs when the parties have
agreed that arbitration will be conducted by a specified
arbitral institution according to its rules
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Wording of the arbitration clause or agreement
• The wording of the arbitration clause should not be too
restrictive or too broad
• Specific reference should be made to the particular arbitral
institution chosen, with a proviso that its rules ‘presently in
force’ or ‘in force at the time of the signing of this
agreement’ will apply
• Should specify the nationality of the arbitrators
• Stipulate an acceptable place of arbitration because this
may determine the procedural law applicable to the
arbitration
• Ensure that the location is in a country that is party to the
New York Convention and has adopted the UNCITRAL
Model Law
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Wording of the arbitration clause
A well-worded arbitration clause will contain the words:
“all disputes arising in connection with the
present contract”
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Arbitration clause
• Arbitration has become the favoured form of alternative dispute
resolution (ADR) for international trade disputes and as a result, it
has become common practice to include an arbitration clause in
most international commercial contracts
• Even when parties fail to include an arbitration clause, a dispute
may be referred to arbitration by special submission or
agreement
• The use of international commercial arbitration has been assisted
by the following international agreements which provide for:
1.
2.
Common rules for arbitration:1976 UNCITRAL Arbitration Rules of
Conciliation and Arbitration and 1985 UNCITRAL Model Law on
International Commercial Arbitration
Enforcement of foreign arbitral awards: 1958 Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention)
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Enforcement of international arbitration decisions:
the importance of the New York Convention
• As Canada has adopted the New York Convention and the
UNICTRAL Model Law, this means that international arbitral
awards related to Canada are enforced almost
automatically
• The New York Convention establishes rules for the
recognition of an arbitration clause and requires the contract
or arbitration agreement to be in writing, signed by the
parties or contained in the exchange of letters
• The UNICTRAL Model Law provides for the recognition and
enforcement of awards
– Article 35 states that an arbitral award, irrespective of the country in
which it was made, shall be recognized as binding, and upon
application in writing to the competent court, shall be enforced
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Do courts always honour the arbitration clause?
• Traditionally, courts have asserted their traditional
jurisdiction over legal disputes
• In some cases in the past, courts were reluctant to apply the
arbitration clause agreed to by both parties; in these cases,
if one party sued and the other party asked for a stay of
action on the grounds of the agreement to arbitrate, the
courts would often find a reason to assert jurisdiction
(usually on the grounds that the dispute concerned
questions of law or that the dispute fell clearly within the
court’s jurisdiction)
• In the present, Canadian courts have fully accepted
international legal public policy in favour of allowing private
arbitrators to resolve international business disputes
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Judicial review of arbitral awards
• Canadian courts have increasingly exercised restrain in
reviewing international commercial arbitral awards made in
Canada and have refused to overturn such awards except
in very limited circumstances
• Only in extreme cases of corruption, bribery, or fraud will the
courts review the decision of the arbitrator(s)
• This approach was established in the case of Quintette Coal
and has been followed in numerous court decisions in
Canada
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Quintette Coal Limited v. Nippon Steel Corporation
(BC Supreme Court and BC Court of Appeal, 1991)
Facts of the case:
• The case involved a lengthy arbitration in BC over a longterm supply agreement between Japanese purchasers and
Quintette Coal Limited, a supplier of coal from norther BC
• The agreements provided for arbitration of all unresolved
disputes between the parties in BC according to BC law
• After a lengthy arbitration lasting 142 days, an award was
made fixing the price to be paid to Quintette
• Quintette was dissatisfied with the award and sought to
attack the award in the courts on the basis that it decided
matters beyond the scope of submission
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Quintette Coal Limited v. Nippon Steel Corporation
(BC Supreme Court and BC Court of Appeal, 1991)
Issue
Is this a suitable case for the award to be reviewed by the
courts?
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Quintette Coal Limited v. Nippon Steel Corporation
(BC Supreme Court and BC Court of Appeal, 1991)
Decision
The Court held that it was not, the trial court and the BC Court
of Appeal found the award to be within the scope of the
submission and was not open to interference by a court
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Quintette Coal Limited v. Nippon Steel Corporation
(BC Supreme Court and BC Court of Appeal, 1991)
Analysis
• There is a world wide trend towards restricting judicial
control over international commercial arbitration awards
• Respect for the capacities of foreign and transnational
tribunals and the need of the international commercial
system for predictability in the resolution of disputes
illustrates the unwillingness of courts to review arbitral
awards unless absolutely necessary
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Leading arbitral institutions in the world
There are several international commercial arbitration facilities across the
world, each of these institutions has its own sets of rules that conform to
the UNCITRAL model rules
• The International Chamber of Commerce: offers arbitration suitable
for businesses from countries with sharply contrasting national systems
of law, based in Paris
• The American Arbitration Association: resolves disputes in diverse
fields including labour relations, insurance claims, election supervision,
family disputes, criminal cases commercial matters, as well as disputes
between Americans and foreign nationals; arbitration under the AAA is
common for contracts between parties in Canada and the US
• Canadian Arbitral Institutions and Rules:
– ADR Chambers with offices in Toronto and Ottawa
– The British Columbia International Commercial Arbitration Centre: well located
for contracts involving parties from the Pacific Rim countries
– The International Commercial Arbitration Centre in Quebec City: attractive to
international business as it represents both the common law and civil law
traditions
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Module 11 – Section 3
Actions in domestic courts:
suing and being sued
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Choice of law
• Parties are free to specify in a choice-of-law clause that
their contract will be governed by the law of a particular
jurisdiction
• They may do so provided that their selection is made in
good faith and not merely to avoid the public policy of a
country that has a connection to the contract
• Parties must also bear in mind that the a choice-of-law
clause governs the law that applies to the terms in the
contract, it does not affect the parties’ continuing obligations
to obey the laws of any jurisdiction in which they carry on
business
• Canadians must also specify their provincial jurisdiction in
the choice-of-law clause
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Recommended choice-of-law clause
“The conclusion, formalities, and performance of this
contract will be governed by the
laws___________(name of the province or country)”
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Proof of foreign law
• If a case is brought in a Canadian court but one or more
parties are relying on a choice-of-law clause that specifies a
foreign law, judges in the common law provinces of Canada
have no obligation to ascertain foreign law
• In litigation, if it is clear that the contract is to be governed
by a foreign system of law, the law must be proved in
Canadian courts by an expert witness
• In Canada, if the party wishing to benefit from the foreign
law fails to bring such evidence, the law of the jurisdiction
will be used
• This is different to civil law countries, where litigants are not
responsible for bringing expert witnesses to give evidence
of the foreign law, instead, judges and arbitrators have the
duty to determine the foreign law that has been found to be
applicable
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The proper law of the contract
• If the parties have not made a choice of law, the property
law of the contract must be determined by the court
• A transaction may have several different aspects and it is
possible that different law may be applicable to different
aspects of the same transaction
• The proper law is the legal system with which the
transaction has the closest and real connection
• The courts’ considerations in determining the proper law of
contract are as follows, in order of importance:
1. Have the parties made an express choice of law that is valid and
conclusive?
2. Have the parties made an implied choice of law, often through an
arbitration clause that designates an arbitrator or a place of
arbitration?
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The proper law of the contract (cont’d)
3. If the parties have made no choice of law, the court must
determine the legal system that has the closest and most real
connection with the contract; to determine that legal system, the
court looks at all the circumstances of the contract, including the
following:
•
•
•
•
•
The place the contract was made
The place the contract is performed
The place of business of the parties
The language, form and terminology used in the contract
The contract’s connection with any preceding transaction
***it is important to note that no one of these circumstances
determine the proper law, all of the circumstances are taken into
account***
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Who can sue and be sued in Canadian courts?
• When deciding where to sue, choose the jurisdiction in
which the defendant’s assets are located
• However, a plaintiff cannot be sure that the jurisdiction it has
chosen will hear the case if it has ‘foreign elements’:
matters such as foreign law or a preponderance of relevant
evidence that is locate in another country
• In Ontario, in a contract case, the provincial court will
assume jurisdiction if the defendant has been served within
Ontario; if the defendant was served outside Ontario, there
must be a ‘connection to Ontario’
• The Canadian Supreme Court adopted the principle that
there has to be a ‘real and substantial connection’
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Forum Non Conveniens
• Once a plaintiff has brought an action in its chosen
jurisdiction (i.e. Ontario), the defendant may be able to
object to the jurisdiction on the basis of forum non
conveniens and have the action stayed or dismissed
• Under this doctrine, a court that has jurisdiction over a
defendant under national law declines to exercise it and
stays the action on the grounds that it is not the appropriate
venue for the action and that considerations of justice
require that the plaintiff litigate in another jurisdiction
• The forum non conveniens test is a discretionary test and is
only applied once jurisdiction is assumed by the court
• The onus is on the defendant to show that there is clearly a
more appropriate forum for the action
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Forum Non Conveniens (cont’d)
• If the defendant is successful, the court will stay or stop the
action, this suspends the suit either temporarily or
permanently
• If a stay is granted, the plaintiff must either give up the claim
or sue in another jurisdiction
• A good example of a forum non conveniens case is
Canadian International Marketing Distributing Ltd. V.
Nitsuko Ltd. Et al (BC Court of Appeal, 1990)
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Canadian International Marketing Distributing Ltd.
V. Nitsuko Ltd. Et al (BC Court of Appeal, 1990)
Facts of the case:
• Canadian International Marketing is a Canadian company and
started an action in British Columbia for breach of contract
against Nitsuko, a Japanese company, claiming Nitsuko failed to
deliver goods
• The contract provided that the law of Japan would govern the
relationship
• Nitsuko, the defendant, applied to the BC Supreme Court for a
ruling that the BC court lacked jurisdiction, or alternatively, should
decline jurisdiction
• The chambers judge dismissed Nitsuko’s application on the
ground that it had not established that the BC court was not a
convenient forum
• Nitsuko appealed and the case was heard by the BC Court of
Appeal
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Canadian International Marketing Distributing Ltd.
V. Nitsuko Ltd. Et al (BC Court of Appeal, 1990)
Issue
Has Nitsuko met the test to satisfy the court that it should not
assert jurisdiction over the case?
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Canadian International Marketing Distributing Ltd.
V. Nitsuko Ltd. Et al (BC Court of Appeal, 1990)
Decision
The appeal was allowed and an order was made stating that
the BC courts had no jurisdiction
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Canadian International Marketing Distributing Ltd.
V. Nitsuko Ltd. Et al (BC Court of Appeal, 1990)
Analysis
• Based on facts, the only connection between this case and the
province of British Columbia was that the plaintiff was a resident
in British Columbia and this was not sufficient
• The defendants were not residents, they were residents of Japan
and did not carry business in Canada or had assets in Canada,
nor did they have employees or agents in Canada, therefore,
they had no presence there
• Furthermore, the alleged cause of action arose outside of
Canada on an alleged breach of contract to deliver goods to
Japan
• As the contract incorporated the law of Japan to govern the
contractual relationship, the jurisdiction rested with the Japanese
courts
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Module 11 – Section 4
Enforcement of foreign
judgments
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Enforcing a foreign judgment in Canada
• The goal for a lawsuit is to recover damages, which is why
the action should be brought in a jurisdiction where the
defendant has assets against which the judgements can be
enforced
• If judgement has been obtained in one jurisdiction and the
defendant’s assets are in another, the plaintiff must obtain
recognition of the judgment in the second jurisdiction and
attempt to enforce the judgment there
• In a case where the plaintiff has obtained a judgment in a
foreign jurisdiction against a defendant in Canada, the
plaintiff must then enforce its foreign judgment in Canada,
this will require a court proceeding in which the judgment is
to be enforced
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Enforcing a foreign judgment in Canada (cont’d)
• Canadian courts are prepared to enforce judgments by US
courts and by respected courts in other jurisdictions
provided the following conditions are met:
– There was proper subject matter jurisdiction over the Canadian
parties
– The judgment is not fraudulent or contrary to public policy or natural
justice and
– There is a real and substantial connection between the deciding
court and the action
As long as the court making the initial judgment had a ‘real and
substantial connection’ with the case, the judgement should be
respected, provided that there is no manifest error or fraud in the
judgment and no natural justice or public policy problem, a good
example is in the Arrowmaster case.
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US judgment enforced in Canada
Arrowmaster Inc. v. Unique Forming Ltd. et al. (Ontario Court
(General Division), 1993)
Facts of the case:
• Arrowmaster, the plaintiff is an Illinois corporation made a
contract with the defendant, Unique Forming Ltd., an Ontario
corporation, whereby Unique would purchase Arrowmaster’s
business
• A dispute arose and Arrowmaster initiated a claim for breach of
contract in the United States District Court, Central Division of
Illinois
• Unique, the defendant, submitted to the jurisdiction of the court
• The trial was held and the judgement was delivered in favour of
Arrowmaster, Arrowmaster then brought an action in Ontario to
enforce the Illinois judgment
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5 grounds for impeaching a foreign judgment
The Arrowmaster case indicates the five grounds available to
a defendant seeking to persuade a court in Ontario not to
recognize and enforce a judgment obtained outside the
jurisdiction:
1. Lack of jurisdiction over the subject matter or the parties
2. Lack of identity of the defendant (the defendant was not a
party to the foreign suit)
3. The judgment was procured by a fraud on the court
4. There was a failure of natural justice or
5. Enforcement of the judgment would be contrary to public
policy in Ontario
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Provision for reciprocal enforcement of judgments
• In Canada, there is legislation that provides for reciprocal
enforcement of judgments between the provisions
• The only provision Canada has for reciprocal enforcement
of judgments made outside of Canada is with the United
Kingdom (Convention Between Canada and the United
Kingdom for the Reciprocal Recognition and Enforcement of
Judgments in Civil and Commercial Matters)
• Most provinces have implemented this convention, which
provides a more convenient method of enforcing a judgment
• There is no international system for the enforcement of
awards obtained in domestic courts of other jurisdictions
and there is no international convention that provides for the
reciprocal recognition or enforcement of foreign judicial
decisions
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Provision for reciprocal enforcement of judgments
(cont’d)
• Note that there is an important difference between a foreign
judgment and a foreign arbitral award
• As courts are increasingly willing to recognize and enforce
foreign judgments, a Canadian firm or individual that is sued
in a well-recognized foreign jurisdiction (such as the US)
should defend the case on its merits in that jurisdiction,
failure to do so will likely result in a default judgment, which
may be enforced against the firm or individual in Canada
47
Class discussion:
Question: Is there more certainly involved in the enforcement
of a foreign judgment or in the enforcement in the foreign
arbitral award?
48
Module 11 – Section 5
Actions involving foreign states
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Actions involving foreign states
• If a contract is made directly with a foreign state, there is a
possibility that in legal proceedings the foreign state will
plead sovereign immunity in an attempt to escape its
commercial obligations
• Sovereign immunity is immunity from prosecution or suit
claimed by a nation state
• Absolute immunity-applies where a country has been
acting in exercise of its sovereign authority, that is, in
connection with acts that are an integral part of functions of
government
• In cases where a state has been engaged in ordinary
commercial activity, such as the sale and purchase of goods
in a regular commercial transaction, the immunity is
restricted and is not recognized
50
Extraterritorial effect of foreign state measures
• Canadian courts reject the doctrine that foreign laws can be
effective within another country as of right
• Any claims made by foreign jurisdictions affecting Canadian
sovereignty will be rejected
• Some examples of laws that will not be enforced by
Canadian courts include:
– Nationalization laws, where property is outside the territory of the
nationalizing state
– Foreign revenue laws
– Penal laws
– Similar public laws of a foreign state
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Foreign illegality: civil illegality and criminal
illegality
Canadian courts will not enforce a contract if
performance is against the law of the country
where the contract is to be performed
If Canadians commit a criminal offence under the
laws of another country, generally speaking, they
cannot be convicted and punished in Canada
because Canadian courts do not enforce the
criminal laws of another country
A criminal act committed abroad is not normally
punishable in Canada unless such an act falls
under the Canadian Criminal Code or is dealt with
in special legislation
Extradition may be applied if the offence is an
extraditable one and if Canada has an extradition
treaty with the country in which the alleged crime
was committed
52
Class discussion:
Question: How does the issue of sovereign immunity arise?
Does Canada always recognize this argument?
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Summary
• In this module, we have addressed the different
forms of alternative dispute resolution, with a
particular focus on arbitration and its advantages
• We also examined the relationship between
arbitration and the courts and the difference
between enforcing a judgment made by a foreign
court and enforcing a foreign arbitral award
• This will be the concluding course module as the
final assignment will be due on______
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Any questions?
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Thank You
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School of Continuing Studies
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