Opinions on Choice of Law, Forum Selection, Arbitration, and Enforcement of Foreign Judgments or Arbitral Awards in Cross-Border Transactions

Transcription

1 Opinins n Chice f Law, Frum Selectin, Arbitratin, and Enfrcement f Freign Judgments r Arbitral Awards in Crss-Brder Transactins With increasing frequency U.S. lawyers are delivering clsing pinins t nn-u.s. parties in crss-brder transactins. The ABA Legal Opinins Cmmittee is clse t releasing fr publicatin a reprt that cvers crss-brder clsing pinins f U.S. cunsel, the first cmprehensive reprt n the subject since the reprt by the Internatinal Bar Assciatin prepared by Michael Grusn many years ag. 1 These pinins ften are given in transactins in which the agreement chses the law f a cuntry ther than the U.S. as its gverning law. The pinins can nly cver U.S. law and therefre d nt include an enfrceability pinin n the agreement as a whle. Instead they are based n an assumptin (which the reprt recmmends be express) that under the law f the nn- U.S. cuntry whse law has been chsen t gvern, the agreement is valid and binding and each f its prvisins, including the chsen-law clause, is enfrceable under the gverning nn-u.s. law. In the absence f a remedies pinin, nn-u.s. recipients rdinarily request pinins specifically cvering the effectiveness under U.S. law f key aspects f the agreement, such as chice f law, frum selectin, the recgnitin and enfrcement f freign judgments, internatinal arbitratin and the enfrceability f freign arbitral awards. Assuming that the agreement as a whle is enfrceable under the gverning nn-u.s. law, cmfrt n the effectiveness f these prvisins under U.S. law matters a great deal t nn- U.S. parties because f the ptential impact f these prvisins n hw claims t enfrce rights against U.S. parties will be reslved (e.g., being cnfident in ne s ability t litigate breach f a German law cntract befre a German curt as the exclusive frum r being cnfident that a suit brught by a U.S. party befre a U.S. curt will be dismissed in favr f binding internatinal arbitratin abrad). Therefre crss-brder pinins typically include separate pinins n these prcedural prvisins f the agreement, whereas dmestic pinins ften d nt because these matters may either be cvered by a remedies pinin (chice f law, frum selectin) r be excluded frm the cverage f the pinin (e.g. arbitratin) r simply are nt applicable (e.g., recgnitin f ther state curts judgments). CHOICE OF LAW Sample pinin language: If a dispute is prperly presented, a curt f [COVERED LAW STATE] r a United States federal curt sitting in [COVERED LAW STATE] having prper jurisdictin and applying the law f [COVERED LAW STATE] wuld give 1 M. GRUSON, S. HUTTER, & M. KUTSCHERA, LEGAL OPINIONS IN INTERNATIONAL TRANSACTIONS (4th ed. 2003) [hereinafter IBA REPORT] (a prject f the Subcmmittee n Legal Opinins f the Cmmittee n Banking Law f the Sectin n Business Law f the Internatinal Bar Assciatin). 1

2 effect t the express chice f [FOREIGN COUNTRY S] law as the law gverning the Agreement, unless applying [FOREIGN COUNTRY S] law wuld vilate a fundamental plicy f [COVERED LAW STATE] r f anther state r cuntry whse law wuld apply in the absence f a gverning law prvisin and that has a materially greater interest in the determinatin f the issue. This language is designed t cver agreements that chse freign law ( utbund chice f law) as their gverning law based n the applicatin f the Restatement Secnd f Cnflict Laws ( 187). Sectin 187(2) f the Restatement has a tw-prnged test: whether there is a sufficient relatinship between the parties r the transactin and the chsen law jurisdictin whether applicatin f the chsen law wuld be cntrary t a fundamental plicy f the jurisdictin whse law wuld have applied in the absence f a chice-f-law clause and that jurisdictin has a greater interest in the issues (the default state) A number f states have statutes addressing chice f law. Statutes like NY /1402 nly validate inbund chice f law and chice f frum clauses (assuming the transactin satisfies the cnditins set frth in the statute), but d nt apply t utbund chice f law. Cnversely statutes like Tex. Bus & Cmm Cde ch. 271 d give effect t an agreement s chice f anther state s (and therefre anther cuntry s) law if specific cnditins are met. If the cvered law state has the latter type f statute, the Restatement apprach may nt be applicable t the extent the transactin falls within ne f the statutry safe harbrs. Even thugh the chsen law in the agreement is nn-u.s. law, an pinin cvering matters f U.S. law (federal and state) is predicated n the agreement s being valid and enfrceable under the gverning law. Omnibus Crss Brder Assumptin: the agreement, including the chice f law clause, is valid, binding and enfrceable under the chsen nn-u.s. law. The reprt recmmends that the assumptin be stated expressly. Applying the secnd prng f the Restatement test is difficult, see TriBar Supplemental Chice f Law Reprt. The TriBar reprt describes in detail hw practice differs in dmestic practice when chice-f-law pinins are requested and given. Sme pinin givers rely n the cverage limitatin. Sme bar reprts (e.g. Califrnia) state that the pinin des nt cver the secnd prng f the Restatement test. Sme pinin givers prefer t make it clear that they are nt cvering the secnd prng and d s in a variety f ways. Our bjective here is nt t take sides in that debate, but t pint ut hw crss-brder pinins differ frm dmestic pinins and t pint ut what the ABA crss-brder reprt recmmends. 2

3 It is tugher t apply the secnd prng f the Restatement test crss-brder because: determining which is the default state r cuntry is even mre difficult hw des the pinin giver knw hw applicatin f the chsen nn-u.s. law t a given issue wuld turn ut when the pinin giver knws little r nthing abut the law f the default state r cuntry? even if the pinin giver assumes that the cvered law state is the default state and is cnfident that it knws what cvered state fundamental plicies are, hw des it knw whether they are implicated by applicatin f nn-u.s. law? Can a lawyer always determine what cvered state plicies are fundamental? The ABA crss-brder reprt cncludes that giving chice-f-law pinins crss-brder is bth pssible and imprtant because the pinin giver is nt giving a remedies pinin. But the challenges f cvering the secnd prng f the Restatement test are such that, regardless f hw the pinin giver feels abut that issue in dmestic practice, t help reduce the risk f misunderstanding the reprt recmmends that the pinin expressly state that it des nt cver the fundamental plicies f any jurisdictin, including thse f the cvered law state. FORUM SELECTION Sample language: [IF THE AGREEMENT CONTAINS A MANDATORY (i.e., EXCLUSIVE) OUTBOUND FORUM SELECTION CLAUSE] A curt f [COVERED LAW STATE] r a United States federal curt sitting in [COVERED LAW STATE] having prper jurisdictin and applying the law f [COVERED LAW STATE] wuld give effect t the Cmpany s agreement that [FOREIGN COUNTRY S] curts will have exclusive jurisdictin with respect t disputes arising frm r in cnnectin with the Agreement r the perfrmance by the Cmpany f its bligatins thereunder, unless giving effect t the Cmpany s agreement that [FOREIGN COUNTRY S] curts will have exclusive jurisdictin wuld be unfair r unjust r cntravene a strng public plicy f [COVERED LAW STATE]. [IF THE AGREEMENT CONTAINS A PERMISSIVE OR (i.e., NON- EXCLUSIVE) FORUM SELECTION CLAUSE] A curt f [COVERED LAW STATE] r a United States federal curt sitting in [COVERED LAW STATE] having prper jurisdictin and applying the law f [COVERED LAW STATE] wuld [IF THE AGREEMENT SPECIFICALLY NAMES NON-US COURTS - - give effect t the Cmpany s agreement t submit t the nn-exclusive jurisdictin f the curts f [FOREIGN LAW COUNTRY] [IF THE AGREEMENT SPECIFICALLY NAMES US COURTS -- recgnize the Cmpany s submissin t the nn-exclusive jurisdictin f the curts f [COVERED LAW STATE] and United States federal curts sitting in 3

4 [COVERED LAW STATE]] with respect t disputes arising frm r in cnnectin with the Agreement r the perfrmance by the Cmpany f its bligatins thereunder. [IF THE AGREEMENT CONTAINS AN INBOUND CHOICE OF NY LAW AND NY COURTS] If a dispute regarding the Cmpany s bligatins under the Agreement is prperly presented, a curt f the State f New Yrk r a United States federal curt sitting in New Yrk having prper jurisdictin and applying New Yrk law wuld give effect t the express chice f New Yrk law set frth in Sectin f the Agreement as the law gverning the Agreement and t the submissin by the Cmpany t persnal jurisdictin in the State f New Yrk with respect t disputes arising frm r in cnnectin with the Agreement r the perfrmance by the Cmpany f its bligatins thereunder. Again, statutes like NY nly apply t inbund frum selectin, nt when freign curts are chsen. The first issue t be determined by the pinin giver is whether the frum selectin clause is mandatry r permissive. The interpretive issue is nt as simple as it might appear due t: the language/intent f the parties being unclear the nrm utside the U.S. (e.g., EU) being that a clause is presumed mandatry unless it is clearly permissive (ppsite presumptin in the U.S.) which law a curt will apply t the determinatin f the nature f the clause nt being clear. The analysis required when the frum selectin clause is mandatry is different, and in sme respects mre cmplex, because the pinin means that a U.S. curt wuld dismiss the case and send the plaintiff ff t the chsen freign curt (s called uster ) thugh it may nt knw whether the freign curt will be available t reslve the dispute. Nnetheless the reprt cncludes that the pinin is ne that nn-u.s. parties typically expect and can be given s lng as the cvered law state has adpted the mdern view that the parties chice is entitled t great deference (vs. the ld view that the curt always knws best ). Even under the mdern view, the Bremen exceptin can be applied t rebut the presumptin f validity f an utbund frum selectin when: dismissing the suit wuld be unreasnable r unjust (i.e., the cntractual chice wuld deprive the plaintiff f its day in curt) the chice-f-frum clause was the prduct f fraud r ver-reaching by the ther party, r letting the case be decided by a freign curt wuld cntravene a strng public plicy f the cvered law state. 4

5 The pinin giver cannt predict whether/hw a curt in the cvered law state wuld apply the Bremen exceptin. The pssible applicatin f the Bremen exceptin is nt cvered by the pinin. While the exceptin need nt be expressly stated, the reprt recmmends that the pinin refer t the pssible applicatin f the Bremen exceptin expressly t help reduce the risk f misunderstanding, particularly because the public plicy dimensin f the exceptin is implicated whereas in the U.S. dmestic cntext it generally is nt. Federal vs state curts: the handling f frum selectin in the federal curts was a surce f uncertainty until a cnflict amng the circuits was reslved by SCOTUS in Atlantic Marine in Atlantic Marine strngly affirmed that the mdern view applies in the federal curt system. But pinin givers shuld be careful when the agreement cvers venue in additin t frum selectin and submissin t jurisdictin. In the federal system the venue issue is gverned by USC 1404, which gives federal curts discretin t transfer the case frm ne district t anther (even thugh Atlantic Marine clarified the interplay between chice f venue and chice f frum and strngly affirmed the enfrceability f the latter). RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENTS Sample language: A final and cnclusive judgment granting r denying recvery f a sum f mney, ther than a judgment fr taxes, a fine r ther penalty, rendered by a curt f [FOREIGN COUNTRY] against the Cmpany with respect t its bligatins under Agreement that is enfrceable in [FOREIGN COUNTRY] wuld be recgnized and enfrced by the curts f [COVERED LAW STATE] r by a United States federal curt sitting in [COVERED LAW STATE] having prper jurisdictin and applying the law f [COVERED LAW STATE] withut a re-examinatin f the substantive issues underlying the judgment, subject t: (i) grunds fr nn-recgnitin and exceptins t enfrceability set frth in the [CITE: Unifrm Freign Mney-Judgments Recgnitin Act as adpted in [COVERED LAW STATE]] (the Act ), which include, but are nt limited t: (A) lack f persnal jurisdictin by the freign curt ver the Cmpany, (B) lack f jurisdictin by the freign curt ver the subject matter, (C) lack f an impartial tribunal r prcedures cmpatible with the requirements f due prcess f law, (D) the Cmpany nt receiving ntice f the prceedings in sufficient time t enable it t defend the actin, (E) the judgment being btained by fraud r in cnflict with anther final and cnclusive judgment, (F) the judgment r the cause f actin being repugnant t the public plicy f [COVERED LAW STATE], and (G) the prceeding in the [FOREIGN COUNTRY S] curt being cntrary t an agreement between the parties under 5

6 which the dispute in questin was t be determined therwise than by prceedings in that curt; (ii) the curt s pwer t stay prceedings t enfrce a freign judgment pending determinatin f any appeal r until the expiratin f time sufficient t enable the defendant t prsecute an appeal; and (iii) [IF APPLICABLE IN THE COVERED LAW STATE -- the laws f [FOREIGN COUNTRY] requiring a curt f cmpetent jurisdictin in [FOREIGN COUNTRY], in a reciprcal manner, t recgnize and enfrce a final and cnclusive civil judgment f a curt f [COVERED LAW STATE] r a federal curt applying the law f [COVERED LAW STATE] withut a rehearing f the merits f the case (the requirement f this clause (iii) hereafter referred t as the Reciprcity Requirement )]. Mst states have adpted sme versin f the Unifrm Act and therefre giving the pinin is essentially a matter f statutry analysis. Opinin givers shuld be careful t cnfrm the scpe f the pinin (and its qualificatins) t the specifics f the statute in effect in the cvered law state. Different states have different statutry exceptins/requirements (which in sme cases expand upn the Unifrm Act) and therefre the pinin must be custmized. By referring t the exceptins as set frth in the sample language abve, the pinin cnfirms that it des nt cver the pssible applicatin f the exceptins in the future t a specific freign judgment. INTERNATIONAL ARBITRATION Sample language: [ASSUMES THE FOREIGN COUNTRY IN WHICH ARBITRATION IS TO BE CONDUCTED IS A SIGNATORY TO THE NEW YORK CONVENTION, IMPLEMENTED IN THE U.S. BY CHAPTER 2 OF THE FEDERAL ARBITRATION ACT] Under the federal laws f the United States, the Cmpany s submissin t mandatry arbitratin f disputes arising frm r in cnnectin with the Agreement r the perfrmance by the Cmpany f its bligatins thereunder in [SPECIFY ARBITRAL TRIBUNAL OUTSIDE THE UNITED STATES] wuld be given effect, subject t the applicatin f the exceptins t enfrceability set frth in the Cnventin n the Recgnitin and Enfrcement f Freign Arbitral Awards (the New Yrk Cnventin ) and the Federal Arbitratin Act, 9 U.S.C (the FAA ). The principal gal f the NY Cnventin was t keep internatinal disputes ut f the natinal curts f signatry cuntries if the parties agree t arbitrate. This is a very strng plicy that U.S. curts respect by taking a narrw view f their rle when a party challenges its bligatin t arbitrate a dispute. The NY Cnventin was implemented in Chapter 2 f the Federal Arbitratin Act ( FAA/2 ), which preempts state law. Mst f the issues that have made case law at the 6

7 state level interesting n dmestic arbitratin under Chapter 1 f the FAA d nt arise in the internatinal arbitratin cntext. FAA/2 applies nly t arbitratin agreements arising ut f internatinal cntractual transactins: a transactin is nt internatinal if it is entirely between U.S. citizens unless it therwise invlves internatinal cmmerce (e.g., cncerns prperty lcated utside the U.S. r a cntract t be perfrmed utside the U.S., r bears sme ther reasnable relatinship t a freign cuntry). Reciprcity is required: FAA/2 nly applies if arbitral award is made in a cuntry that has signed the NY Cnventin. The Reprt pints ut that pinin givers shuld cnsider including an express assumptin that arbitratin will nt take place in the U.S. (unless the agreement is extremely clear that culd nt happen r the internatinal nature f the arbitratin is clear frm ther aspects f the transactin). Adhering t a plicy f prmting internatinal arbitratin as a crss-brder dispute reslutin mechanism, U.S. curts have cnsistently cmpelled arbitratin in crssbrder transactins and given great deference t the jurisdictin f the arbitratrs. U.S. curt may refuse t enfrce an agreement t arbitrate if it finds that it is null and vid, inperative, r incapable f being perfrmed: Curts fcus is n the arbitratin clause itself, nt the agreement in its entirety (dctrine f separability, -- i.e., curts try t separate the agreement t arbitrate frm the main transactin) unless a party was deceived int agreeing t arbitratin, claims that the agreement as a whle is null and vid are fr the arbitratrs t decide. There are five specific FAA/2 requirements: a written agreement t arbitrate the nn-u.s. cuntry invlved must be a signatry t the NY Cnventin the cntract invlves an internatinal transactin the relatinship amng the parties is cmmercial (see next bullet pint) and the subject matter f the transactin is arbitrable (see next bullet pint). T give this pinin the pinin giver has t cnfirm that the five FAA/2 prerequisites abve are satisfied: arbitrability: it may seem like a scary issue, but in practice U.S. curts have held very few, limited categries f disputes nt arbitrable under U.S. law cmmercial relatinship: the subject matter f crss-brder transactins in which pinins are given is extremely unlikely nt t be cmmercial. 7

8 ENFORCEMENT OF FOREIGN ARBITRAL AWARDS Sample language: [ASSUMES THE FOREIGN COUNTRY IS A SIGNATORY TO THE NEW YORK CONVENTION] Under the federal laws f the United States, an award rendered by [SPECIFY ARBITRAL TRIBUNAL OUTSIDE THE UNITED STATES] cnvened in accrdance with Sectin f the Agreement wuld be recgnized as valid and enfrced in accrdance with the New Yrk Cnventin and the FAA, subject t the applicatin f the exceptins t enfrceability set frth in the New Yrk Cnventin and the FAA if a prceeding is prperly brught in a United States federal curt within three years after such arbitral award is made. Bk-ends: at the frnt end f a dispute, the NY Cnventin-FAA/2 requires U.S. curts t defer t the jurisdictin f arbitratrs. At the back end, they put the state s enfrcement pwers behind an internatinal arbitral award that has been prperly rendered. The NY Cnventin-FAA/2 apply nly t freign arbitral awards, which are characterized by the fllwing: the award was made utside the US the award is nt cnsidered a dmestic award under Chapter 1 f the FAA because it cvers an internatinal cntractual transactin see abve. If arbitratin takes place in the U.S., even thugh it is pursuant t the arbitratin clause f a crss-brder transactin, Chapter 1 f the FAA (instead f Chapter 2) may apply. Judicial decisins n dmestic arbitratin have been less cnsistent than n internatinal arbitratin, and in sme cases have raised dubts as t the enfrceability f mandatry arbitratin in certain situatins (althugh the SCOTUS applying the FAA has repeatedly affirmed the validity f arbitratin clauses). Many lawyers exclude the arbitratin clause frm a remedies pinin in the U.S. dmestic cntext as a result f this incnsistency. As a result, see abve paragraph n including an express assumptin that arbitratin will nt take place in the U.S. (unless the agreement is extremely clear that culd nt happen). Under the NY Cnventin (and FAA/2 in the U.S.) curts in all signatry cuntries are required t recgnize freign arbitral awards withut re-evaluating the merits f the plaintiff s claim. A suit in U.S. curts after an award is rendered is nt an pprtunity t appeal the award, merely a mechanism t enfrce it where the lsing party has assets/peratins. This is why the NY Cnventin (and FAA/2) set frth an exhaustive (nt illustrative) list f grunds fr refusing recgnitin and enfrcement f a freign arbitral award. Under FAA/2 there are seven grunds fr refusing recgnitin and enfrcement f a freign arbitral award: 8

9 incapacity f parties r invalidity f the arbitratin agreement under gverning law the arbitratin prceedings lacked prper ntice r due prcess the arbitratrs lacked jurisdictin (e.g., the award relates t dispute nt cvered by arbitratin clause r exceeds arbitratrs authrity) the arbitratin failed t cmply with prcedural requirements (e.g., imprper cmpsitin f the panel) the award is nt binding, was set aside r has been suspended in the nn-u.s. cuntry where it was rendered the subject matter f the dispute was nt arbitrable under U.S. law the award is cntrary t U.S. public plicy. Cnsistent with U.S. plicy favring internatinal arbitratin, U.S. curts generally have declined t refuse enfrcement f freign arbitral awards n the basis f these defenses (including public plicy) t avid disrupting arbitratin as an efficient dispute reslutin mechanism crss-brder. Nnetheless, the pinin des nt cver pssible applicability f the seven defenses, whether r nt the qualificatin is stated expressly. 9