Looking for general advice, experience, suggestions and resources for choice of law & jurisdiction where the parties don't agree to either home state--non-sales contract.
Does anyone have experience with enforcement under UNIDROIT and whether arbitration or choice of a third state is preferable?
I recently sent an email to the U.S. Members of the Contract clauses / model agreements / contract standards Community of Interest regarding this topic. Please see the note below for direct contact info.
One of our members is developing a series of choice-of-law crib sheets, summarizing key differences in various states’ laws, for use as a reference in negotiating the choice of law clause in a draft contract. The crib sheets are publicly accessible on the Web. He would be grateful for any insights our members have about particular laws that negotiators should keep in mind.
See http://www.ontechnologycontracts.com/notebook/choice-of-law-crib-sheet/ for more details.
You may send your comments directly to D. C. Toedt at dc@toedt.com
My experience is that a third state is definitely preferable to UNIDROIT.
You can pick a third state's law to apply and many courts will honor that choice even if there is little or no connection between the state selected and the transaction/service or work. Of course the more connection between the state and transaction/service/work the more likely the choice will be honored.
Choice of venue (this may be what they mean by jurisdiction)plays here also and may be more of the issue than choice of which state's law will apply.
There is a greater reluctance of a court to accept venue when that venue bears no relation to the parties especially if that court will not be applying their own law. Also better deal with how process will be served if the state chosen has little or no relation to the parties.
Perhaps these parties are candidates for an escalating alternative dispute resolution process which requires parties to talk and/or mediate before they file suit.
To give a better answer I would have to know more facts.
I consulted one of our most experienced international general counsel's and received the following observations:
IMMEDIATE THOUGHTS Arbitration is always a good idea but it is often after taking the matter to mediation; mediation is even better since it really requires both sides to look for a solution rather than argue the rights and wrongs.
Choice of law clauses don't affect the type of dispute resolution. They are a matter that makes some difference if the choice is between civil law and common law, and need to be resolved at the outset. New York is harsher than English law and is more customer friendly. Texas more supplier friendly.
Generally most lawyers don't know what the differences are in any detail and external counsel are an expensive luxury when doing the deal. In most multinationals it has become recognised that in the EU, English law is frequently taken as a reasonable basis ( and with 3 of the 4 top law firms being in London this looks set to continue).
USA - Delaware is taken as a preference by New York firms, or New York law. In IT firms I have seen some take on Texas law which is allegedly more supplier friendly.
Singapore, Hong Kong Australia and New Zealand still get most used in Asia pac; Chinese law is to be avoided if possible.
Any jurisdiction or law where the King or President can make it up is to be avoided..
With all due respect for Councils opinion, in my experience, arbitratione after failed mediation. is not always preferable to the traditional court systems of dispute resolution, especially where specialised commercial court processes are in existance. However, this may be better addressed in a separate discussion.
On a related matter, one of the more problemmatic aspects of choice of law/cross jusidictional court actions - renvoi - is being rationalised. see http://en.wikipedia.org/wiki/Renvoi (with the usual caveat that applies to wiki :) )
Another leading international law expert makes the following comments:
First and foremost, you ought to have a contract that you regard as satisfactory. By a satisfactory contract, I mean:
- A contract that has been constructed based on your industry, your product and the environments it is apt to encounter;
- A contract that takes suitable cognizance of risks that, based on your experience, you can reasonably anticipate.
Where you have such a contract, choice of law becomes less important in the sense that virtually every jurisdiction – certainly each of the major trading jurisdictions – subscribes to the concept of freedom of contract, in other words, will support your contract terms (subject only to possible exceptions applicable to contract terms that may be regarded as overly leonine).
Therefore, where you have – as you should have – a reasonable contract that takes suitable cognizance of risks that your product and industry experience has enabled you anticipate, choice of forum can be more important than choice of law.
If push comes to shove, you want a fair hearing. Where you can’t get your home state and you are reluctant to accept the other party’s home state, neutral forum arbitration can be a good compromise that, in my experience, will fly in most instances. Another advantage of arbitration – an advantage to both parties – is that, by virtue of the New York Convention, there can be situations in which an arbitral award is easier to enforce than a court judgment.
Both the CISG and the UNIDROIT Principles support freedom of contract (by this I mean, the language of your contract basically trumps either one). Moreover, either of these regimes can be a good “stalking horse” for what I want most when I can’t get my home state and am reluctant to accept the other party’s home state: neutral forum arbitration. After all, no national court has unique expertise with respect to either of these legal regimes.
The question is posed as to enforceability of an award in a contract dispute governed by the UNIDROIT Principles. Enforceability of arbitral awards – whether the contract dispute is governed by the UNIDROIT Principles or some other legal regime – ought to turn, not on the legal regime selected, but on the applicability of the New York Convention. And the NY Convention is applicable in well over 100 jurisdictions.
To answer a question not posed, When would I not opt for arbitration? If my client is the seller and I have obtained for my client the type of letter of credit protection that I prefer, I am normally less keen on including an arbitration clause in the contract.
UNIDROIT is used in a very limited manner in int'l contracting and normally not recommended by counsel, e.g. it has to be specifically incorporated into a contract and there are very few court decisions interpreting same.
Why not rely upon the CISG... if the sale involves goods? The provisions of the CISG could also be utilized in a services contract. The choice of law provision therein provides, in my view, flexibility for all.
As to arbitration...I have a little bias, i.e. disclosure issue...since that is what I do full time, etc. No one would think of getting "caught" in a foreign court and thus after negotiation/mediation fails have a contract provision calling for arbitration and one can rely upon the New York Convention for enforcement--an aspect not currently available for court judgments. The choice of law and venue for arbitration are important aspects.
Call if you would like to discuss further...but consult with your attorneys on drafting, legal implications, etc.
Anonymous posted on 8/13 "My experience is that a third state is definitely preferable to UNIDROIT."
Would you be willing to share your reasons?
You also said you would need more facts. It was a question of general experience and preferences, so there really are no facts. What I need is overall guidance in how to determine when to use each of the options (one size does not fit all). I think this may be a complex topic that cannot be fully evaluated in this forum. Can anyone suggest resources--publications, forums, authorities, gov't sites, etc.--that would help to determine when one option is better and why?
