The Nuts and Bolts of International Arbitration and Litigation

1. The Nuts and Bolts of International Arbitration and Litigation June 16, 2010 Los Angeles, USA International Law Section Los Angeles County Bar Association Presenters Jeffery J. Daar, Daar & Newman, P.C. Malcolm S. McNeil, Fox Rothschild, LLP

2. What are international transactions? How do disputes arise in international transactions?

3. Issues that arise in international disputes that may not arise in domestic disputes

4. International contracts, issues of where and how an agreement may be enforced are key • Uncertainty as to what law will apply in the event of a dispute and what forum will be available for its resolution can be reduced by advance planning. • Planning affords the international practitioner an opportunity to add value and manage client expectations with respect to disputes that may arise.

5. Litigation Versus Arbitration

6. Arbitration? • Where the parties have agreed on arbitration as the means of dispute resolution, the likelihood that the chosen arbitrator or panel will decline jurisdiction may be less than the likelihood of a court doing so. • Despite this apparent advantage of arbitration, arbitration may not be the best forum for the particular parties or transaction.

7. The advantages of arbitration are said to include the following: • Knowledgeable arbitrators: in specialized areas, arbitrators can be more knowledgeable than judges; on the other hand, arbitrators who have a lot of experience in an area may have their own biases and predispositions that they bring to the dispute. • Confidentiality: particularly important in cases involving trade secrets and other sensitive, proprietary information. • Quicker and/or more efficient proceedings: arbitration can be quicker and more efficient than courts; but it can also be the opposite, particularly depending on what arbitral organization is chosen; • Easier enforcement: one of the main reasons why parties choose arbitration is to facilitate enforcement of an award; • More congenial and/or relaxed atmosphere: arbitration may be procedurally simpler than litigation as well; • Forum neutrality: instead of the “home courts” of one of the parties.

8. Disadvantages to arbitration, however, include the following: • Arbitration can be expensive: proceedings may drag on longer than court proceedings; and arbitrators, unlike judges, are paid for their time and expenses by the parties to the dispute; • “Splitting the baby”: arbitrators have a reputation for awards to achieve fair results without exactly following the letter of the law; and • Limited relief: arbitrators have a limited ability to grant interim measures of relief.

9. Whether arbitration or a choice of court provision is agreed upon, careful attention must be paid to the wording of the chosen clause as even subtle differences in wording can lead to very different ramifications as applied.

10. For example, language that the chosen forum shall hear “any disputes arising under the contract” may be found to apply to a much narrower set of claims than the alternative construction, “any disputes arising under or relating to the contract.”

11. The Impact Of Differing Cultures And Legal Systems

12. What is normal to some is not normal to others

13. Different strokes for different folks

14. Level of formality regarded as “normal” • Balance between work and personal time • Attitudes towards time – punctuality • Social status/gender/age v. equality Examples of differences that vary from culture to culture

15. Practical advice Learn the basics of the culture of the country and people that you are dealing with. Stay open-minded. Show awareness of and interest in the history, customs and culture of others.

16. More Cultural Considerations Explain or apologize if you have broken “their” rules. Pay attention to what “they” say and do not say. Reciprocate as much as you can. Learn differences between different nationalities, ethnicities and religions

17. International Litigation Basics • Service of Process Issues • Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (commonly called the Hague Service Convention) • There are approximately 59 states which are parties of the Hague Service Convention

18. Service of Process • Inter-American Convention on Letters Rogatory and Additional Protocol • informs the procedures by which litigants may effect service of process only, not evidence taking as well. . • The following countries are members of both the Inter-American Convention and Additional Protocol: • Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Panama, Paraguay, Peru, United States, Uruguay, Venezuela. • Except for Mexico, Argentina, and Venezuela, most Central and South American countries have not ratified the Hague Convention • Hague Convention and Inter-American Convention may not be exclusive or mandatory channel for transmission of service of process.  Note that enforcement of any ensuing judgment will be difficult if the originating processes were not served pursuant to Convention procedures.

19. Jurisdiction Issues • A plaintiff has the initial burden of demonstrating facts, by a preponderance of evidence, justifying the exercise of jurisdiction in California. • The merits of the complaint are not at issue at a challenge over jurisdiction. However, when personal jurisdiction is asserted on the basis of a nonresident defendant’s alleged activities in California, facts relevant to jurisdiction may also bear on the merits of the complaint.

20. Jurisdiction Issues (cont.) • A plaintiff must do more than merely allege jurisdictional facts. The plaintiff must present evidence sufficient to justify a finding that California may properly exercise jurisdiction over the defendant. The plaintiff must provide affidavits and other authenticated documents in order to demonstrate competent evidence of jurisdictional facts. • Allegations in an unverified Complaint are insufficient to justify this burden of proof.

21. Jurisdiction Issues (cont.) • Once a plaintiff satisfies the initial burden of proof of showing a defendant’s minimum contacts in California, the burden shifts to the defendant to present a compelling case demonstrating that the exercise of jurisdiction by our courts would be unreasonable.

22. Jurisdiction Issues (cont.) • California courts may exercise jurisdiction on any basis that is not inconsistent with the state and federal Constitutions. • The court weighs the facts of each case to determine whether a non-resident defendant has sufficient “minimum contacts” with California so that the exercise of jurisdiction is reasonable and comports with principles of fair play and substantial justice.

23. Jurisdiction Issues (cont.) • Personal jurisdiction may be general or specific. • A nonresident who engages in substantial, continuous and systematic activities in a state is subject to its general jurisdiction. • A non-resident must have fair warning that a particular activity may subject it to jurisdiction in California.

24. Jurisdiction Issues (cont.) • A non-resident defendant that does not have sufficient contact in California to establish general jurisdiction may be subject to specific jurisdiction of California courts if there is a sufficient nexus among the defendant, the state and the litigation. • Specific jurisdiction depends upon the quality and nature of the defendant’s activity in the forum in relation to the particular cause of action.

25. Jurisdiction Issues (cont.) • A court may exercise specific jurisdiction over a nonresident defendant only if: • the defendant has purposefully availed itself of forum benefits; • the controversy is related to or arises out of the defendant’s contacts with the forum; and • the assertion of personal jurisdiction would comport with fair play and substantial justice.

26. Jurisdiction Issues (cont.) • The term “purposefully availed” means an action of the defendant purposefully directed or aimed toward the forum State. • Purposeful availment occurs where a nonresident defendant: • purposefully directs activities at residents of California, • purposefully derives benefit from its activities in California, • creates a substantial connection with California, • deliberately has engaged in significant activities within California, or • has created continuing obligations between itself and the residents of California.

27. Jurisdiction Issues (cont.) • The purposeful availment requirement ensures that a defendant will not be haled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts. • A defendant should have clear notice that it is subject to suit in California so that it can act to alleviate the risk of burdensome litigation by procuring insurance, passing the expected costs on to customers, or, if the risks are too great, severing its connection with California.

28. Jurisdiction Issues (cont.) • When the non-resident defendant is from another nation, rather than from another state, courts will be even more cautious in their application of the law of personal jurisdiction. • A determination of the reasonableness of the exercise of jurisdiction involves evaluation of several factors, including the burden on the defendant, the interests of California, and the plaintiff’s interest in obtaining relief.

29. Jurisdiction Issues (cont.) • Courts will also weigh the interstate judicial system’s interests in obtaining the most efficient resolution of the controversy and in furthering fundamental substantive social policies. • Where international defendants are concerned, the courts will also consider the procedural and substantive policies of the other nations whose interests are affected by the assertion of jurisdiction by a California court.

30. Venue Issues • Strategy considerations include: • Venue agreement. • Favorable forum. • The substantive law that could be applied. • If it is the law at the place of the venue there is a danger that an international dispute becomes too local.

31. Venue Issues (cont.) • Alien and alien corporation defendants may be sued in any United States District Court [28 U.S.C. § 1391(d)] . • Challenging Improper Venue [28 U.S.C. § 1406(a)] .

32. Venue Issues (cont.) • A forum selection clause is presumptively valid and should not be set aside unless the opposing party shows that it is invalid for such reasons as: • fraud or overreaching, • that enforcement would contravene a strong public policy of the forum in which the action is brought, • or that enforcement would be unreasonable and unjust. • The party seeking to avoid the enforcement of a forum selection clause bears a heavy burden of proof.

33. Forum Non Conveniens Issues • Forum non conveniens is an equitable doctrine invoking the discretionary power of a court to decline to exercise the jurisdiction it has over a transitory cause of action when it believes that the action may be more appropriately and justly tried elsewhere. • “When a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just.” [California Code Civ. Proc. § 410.30(a)].

34. Forum Non Conveniens Issues (cont.) • In assessing motions to dismiss based on forum non conveniens,courts must consider the following: • A court first determines whether the alternate forum is a suitable place for trial. • If it is, the next step is to consider the private interests of the litigants and the interests of the public in retaining the action for trial in California.

35. Forum Non Conveniens Issues (cont.) • No one factor determines the outcome of a forum non conveniens motion. • The trial court will carefully balance all relevant factors. • The trial court will decide which party will be more inconvenienced.

36. Forum Non Conveniens Issues (cont.) • Prior to balancing the private and public interest factors, the court must first make a threshold finding that the alternate forum is a suitable place for trial. • What is a suitable alternative forum depends not on the factors relevant to the convenience of the parties and the interests of the public, but on whether an action may be commenced in the alternative jurisdiction and a valid judgment obtained there against the defendant.

37. Forum Non Conveniens Issues (cont.) • To prove that the alternative forum is suitable, a defendant need only show that: • (1) the forum would have jurisdiction over the case, and • (2) no statute of limitations bars the claims from being decided on their merits.

38. Forum Non Conveniens Issues (cont.) • The private interest factors relate to the convenience of the parties and potential witnesses. Such factors include: • the ease of access to sources of proof; • the cost of obtaining friendly witnesses; • the availability of compulsory process for attendance of unwilling witnesses; and • other factors that make a trial and enforceability of an ensuing judgment easy, expeditious and relatively inexpensive.

39. Forum Non Conveniens Issues (cont.) • Courts will also consider the public interest factors, such as: • avoidance of overburdening local courts with congested calendars; • protecting the interests of potential jurors so that they are not called upon to decide cases in which the local community has little concern; and • weighing the competing interests of California and the alternate jurisdiction.

40. Limited International Discovery Issues • Documents: Under Hague Convention, a Letter of Request must be issued by Court where action is pending and transmitted to Central Authority where discovery is sought • Depositions: Obtained via a Letter of Request, request to take testimony before a diplomatic or consular officer, or a specially appointed Commissioner in foreign country • Most signatories have rejected the “no stone unturned” approach in pretrial discovery typical in U.S. litigation. • Signatories are allowed to opt out or limit their willingness to accept the various provisions under the Convention

41. International Arbitration Basics

42. Arbitration Considerations • Implications of location • The venue and timing can influence settlement negotiations • venue off easy plane connections ? • Agreements on length of arbitration • Agreements on limitation of evidence • Language arrangements reduce costs, and influence the atmosphere of the hearing (pre-selection on who can attend) • Agreements on integration of IBA Rules on Ethics

43. Arbitration Choice of Law Issues • The choice of the substantive law is independent from the rules or the venue chosen • Be careful that if choice of law is the law at the place of the venue there is a danger that an international dispute may become too local • If a neutral legal regime is chosen (e.g. UNIDROIT), an arbitration tribunal can handle choice better than a national judge

44. Even with planning, there are limits to reducing uncertainty: • Choice of law and forum selection clauses may or may not be honored by the forum in which a dispute is heard as each forum has its own jurisdictional rules, some of which cannot be overcome by contractual choices. • Likewise, forums will apply their own procedural requirements and honor the parties’ chosen remedies in conformance with what is acceptable in the jurisdiction of the forum.

45. CHOICE OF LAW • Where the parties have selected the law to govern in the event of future disputes, the question is whether that choice will be respected by the forum charged with resolving the dispute.

46. Many jurisdictions, including the United States, allow contracting parties to choose applicable law

47. In the United States, most states decide choice of law issues in accordance with the Restatement 2d, Conflicts of Law § 187(a)-(b), which provides: • The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue; • The law of the state chosen by the parties to govern their contractual rights and duties will be applied even if the issue is one which the parties could not have resolved by explicit provision in their agreement directed to that issue, unless…

48. ….unless either: • the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or • application of the law of the chosen state would be contrary to the fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which…would be the state of the applicable law in the absence of an effective choice of law by the parties.

49. A simpler framework has been proposed by international conventions that address the subject, such as: • The 1986 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods; • The 1980 Rome Convention on the Law Applicable to Contractual Obligations; and • The 1994 Inter-American Convention on the Law Applicable to International Contracts • All contain nearly identical language recognizing that parties to an international contract may select the law applicable to the contract, in accordance with principles of “party autonomy” and without regard to the reasonableness of the parties’ choice.

50. Selection of Arbitrators • Typically governed by arbitration clause or governing rules • Agreements on procedural aspects