Dispute Resolution Flashcards
Gita Sports v. SG Sensortechnik
Facts
In Gita Sports Ltd. v. SG Sensortechnik GMBH & Co. KG, the plaintiff, a North Carolina corporation engaged in the wholesale sales of racing bicycles and related equipment, entered into a Sales Exclusive Supply Agreement with the defendant, a German corporation manufacturing performance measuring instruments. The agreement made the plaintiff the exclusive distributor of certain products in the U.S. and Canada, effective retroactively from November 1, 2005, until December 31, 2008. The plaintiff alleged that a significant portion of the defendant’s products required repairs, which the defendant failed to perform as per the agreement. The defendant terminated the agreement in November 2007, citing the plaintiff’s failure to meet minimum purchase requirements, and allegedly made harmful statements about the plaintiff and violated the exclusivity provision by using other distributors. The agreement contained a forum-selection clause designating Mörfelden-Walldorf, Germany, as the venue, and specified German law as applicable. The plaintiff filed suit in North Carolina state court for multiple causes of action including breach of contract and tort claims. The defendant removed the case to the U.S. District Court for the Western District of North Carolina and moved to dismiss based on the forum-selection clause. The procedural history involved the plaintiff’s filing in state court and the defendant’s subsequent removal and motion to dismiss for improper venue.
Issue
The main issues were whether the forum-selection clause in the agreement was mandatory or permissive, and if mandatory, whether it was valid and enforceable.
Holding (Whitney, J.)
The U.S. District Court for the Western District of North Carolina held that the forum-selection clause was mandatory and valid, leading to the dismissal of the breach of contract and tort claims, while remanding the open account and account stated claims to state court.
Reasoning
The U.S. District Court for the Western District of North Carolina reasoned that the forum-selection clause, which specified Mörfelden-Walldorf, Germany, as the court of venue, was mandatory because it designated a specific venue. The court found the clause valid under the federal standard established by prior U.S. Supreme Court cases, which favor enforcing forum-selection clauses unless shown to be unreasonable. The court applied the four-factor test from Allen v. Lloyd’s of London to determine reasonableness and found no fraud, overreaching, grave inconvenience, or fundamental unfairness in enforcing the clause. Although North Carolina’s public policy disfavored such clauses, the court concluded that the other factors outweighed this policy consideration. The court also noted that under North Carolina’s choice-of-law rules, German law would apply, reinforcing the clause’s validity. Consequently, the court dismissed the breach of contract and tort claims while remanding the open account and account stated claims due to insufficient jurisdictional amount.
Key Rule
A forum-selection clause in a contract is enforceable if it is mandatory and not shown to be unreasonable, even if it contravenes local public policy.
In-Depth Discussion
Mandatory vs. Permissive Forum-Selection Clause
The court first addressed whether the forum-selection clause in the Sales Exclusive Supply Agreement was mandatory or permissive. A mandatory forum-selection clause provides the designated forum with exclusive jurisdiction over any disputes, while a permissive clause simply grants jurisdiction to the designated forum without exclusivity. The court determined that the clause, stating “The place of fulfillment and court of venue is Mörfelden-Walldor,” was mandatory. This conclusion was based on the explicit designation of a specific venue, similar to prior cases like Scotland Memorial Hosp., Inc. v. Integrated Informatics, Inc., where specific reference to venue indicated mandatory language. The court rejected the plaintiff’s argument that the clause was translated from a German form and was intended to be permissive, finding the defendant’s expert testimony more persuasive in establishing that the clause conferred exclusive venue.
Validity of the Forum-Selection Clause
The court then examined the validity of the forum-selection clause under federal law, applying the standard from the U.S. Supreme Court cases M/S Bremen v. Zapata Off-Shore Co. and Carnival Cruise Lines, Inc. v. Shute. These cases established that forum-selection clauses are generally enforceable unless shown to be unreasonable. The court applied the four-factor test from Allen v. Lloyd’s of London to assess reasonableness, which considers whether the clause was induced by fraud or overreaching, if it would deprive the plaintiff of their day in court, if the chosen law is fundamentally unfair, and if enforcement would contravene public policy. The court found no evidence of fraud or overreaching, and determined that litigating in Germany would not be so inconvenient as to deprive the plaintiff of its day in court, nor would German law be fundamentally unfair.
North Carolina Public Policy and Choice-of-Law
Although North Carolina has a strong public policy against forum-selection clauses, as reflected in N.C. Gen. Stat. § 22B-3, the court found that this policy was insufficient to outweigh the other factors favoring enforcement of the clause. Under the Klaxon principle, a federal court sitting in diversity applies the substantive law of the forum state, including its choice-of-law rules. North Carolina’s choice-of-law rules led to the application of German law, as the parties had agreed in the contract. The transaction bore a reasonable relation to Germany, as much of the contract formation and performance occurred there, and the defendant was a German corporation. Therefore, the clause was valid under North Carolina’s conflicts principles, which reinforced the decision to enforce the clause.
Treatment of Tort Claims
The plaintiff also asserted tort claims, including unfair and deceptive trade practices, fraud, and conversion, which it argued should be remanded to state court even if the breach of contract claim was dismissed. The court applied North Carolina’s independent tort doctrine, which requires a duty separate from any contractual duty to establish a tort claim. The court found that the allegations for unfair and deceptive trade practices and fraud were related to the defendant’s failure to fulfill contractual promises, and the conversion claim was linked to the contractual duty to repair and replace products. As such, these claims were not independent of the contract and were dismissed. However, the court allowed the claims of open account and account stated to proceed as they were sufficiently independent of the agreement.
Remand of Open Account and Account Stated Claims
The court decided to remand the claims of open account and account stated to the Superior Court of Mecklenburg County, North Carolina, because they were not dismissed and did not meet the federal jurisdictional amount requirement of $75,000. The court noted that these claims, while related to the agreement, involved separate allegations, such as charges for airfare unrelated to the agreement. Upon remand, the state court would not have jurisdiction over the dismissed claims but only over the claims of open account and account stated. The court emphasized that federal judgments, such as its decision to dismiss certain claims, must be given full faith and credit by state courts, ensuring clarity and adherence to the federal court’s ruling.Plaintiff: Gita Sports (Wholesaler of racing bikes and related equipment)
Defendant: Sensortechnik (Ergomo manufacturer)
* P and D enter into a Sales Exclusive Supply Agreement where P became the sole distributor of Ergomo products within the US and Canada. Agreement set to expire Dec 31 2008.
* Clauses included the place of fulfilment and court of venue is Morfelden- Walldor and the Laws of Germany were solely applicable to the agreement.
* 21% of D produts were returned for service duing 06/07 fiscal yea and under the agreement D was to replace these within 30 days of notification that they were faulty.
* D failed to meet obligations and Nov 7 2007 P received a termination notice from D for not meeting the minimum purchase amount.
* Dec 07 D made statements about P which were harmful to their reputation.
* D allegedly been selling Ergomo through other North American Distributors dispute the exclusivity agreement.
- Was the forum-selection clause mandatory or permissive?
- If mandatory, was it valid?
- As in Scotland Memorial Case the parties had clearly and specifically designated a forum as the court of venue. It does not say the parties consent, but it says that M-W IS the court of venue. The court therefore won’t take it as anything other than mandatory and one that must be enforced IF it is valid.
- Validity
- clause must be reasonable and pass judicial scrutiny for fundamental fairness.
- The test for if it reasonable: The choice of forum and law provisions may be found unreasonable if:- formation was induced by fraud/overreaching
- the complaining party will, for all practical purposes be deoreived of their day in court because of grave incompetency/unfairness of the selected forum
- fundamental unfairness of the chosen law may depive the plaintiff of a remedy; or
- their enforcement would contravene a strong public policy of the forum state.
Here’s a concise summary of the Validity section from the Gita Sports case:
Summary: Validity of Forum-Selection Clause
The court evaluated the enforceability of a mandatory forum-selection clause requiring disputes to be litigated in Germany. The key legal framework used was the federal standard, as established in M/S Bremen v. Zapata, Carnival Cruise Lines, and Stewart v. Ricoh Corp., and applied through the Allen v. Lloyd’s of London four-factor test:
- Fraud or Overreaching – No evidence; both parties were sophisticated international businesses.
- Grave Inconvenience/Day in Court – Procedural differences between German and U.S. courts do not amount to grave inconvenience; Germany’s legal system is fair and civilized.
- Fundamental Unfairness – Remedies may differ (e.g., no punitive damages in Germany), but a remedy still exists; differences in law do not equate to fundamental unfairness.
- Public Policy – North Carolina law disfavors out-of-state forum clauses, but this factor alone is not determinative. Other Allen factors outweighed this concern.
The court held the clause valid under federal law and noted that even under North Carolina law, the result would be the same due to:
- The Klaxon principle (applying state choice-of-law rules in diversity cases).
- North Carolina’s commercial code allowing parties to choose applicable law when the transaction has ties to another state or nation.
- German law and European Community law (Brussels-I Regulation) both supporting the mandatory and valid nature of the forum clause.
Outcome: The court granted the defendant’s motion to dismiss, enforcing the German forum-selection clause.
Problem 8-7
Amco Ukrservice v. American Meter
Facts:
Plaintiffs, Amco Ukrservice and Prompriladamco, are Ukrainian corporations that entered into two joint venture agreements with defendant, American Meter Co., a Pennsylvania-based manufacturer of utility meters.
The agreements involved American Meter supplying meters for sale in former Soviet republics.
Plaintiffs allege breach of these agreements.
American Meter moved for summary judgment, arguing the agreements were unenforceable under the Convention on Contracts for the International Sale of Goods (CISG) or Ukrainian law.
The court had already ruled the CISG did not apply and turned to whether Ukrainian or Pennsylvania law governed the enforceability of the agreements.
Issue:
Does Pennsylvania or Ukrainian law apply to determine the enforceability of the joint venture agreements, and if Ukrainian law applies, are the agreements invalid under that law?
Rule:
Under Klaxon Co. v. Stentor, a federal court sitting in diversity must apply the choice-of-law rules of the forum state—here, Pennsylvania.
Pennsylvania follows the Griffith hybrid approach, combining:
Interest analysis (governmental interest in applying its law),
Significant relationship test (contacts with the forum).
A false conflict occurs when only one jurisdiction’s interest would be impaired by applying the other’s law. In such a case, the law of the interested jurisdiction applies.
Application:
Pennsylvania’s interest:
Strong contacts—defendant based in Pennsylvania; project overseen, financed, and shipped from Pennsylvania.
Enforcing the agreement supports Pennsylvania’s interest in commercial stability and the protection of business expectations.
Ukrainian law:
Defendant argued the agreements were invalid under:
1988 Regulations: Deemed inapplicable to joint ventures.
1995 Provisions: Also inapplicable to joint ventures.
Foreign Economic Activity Law (FEAL) and the two-signature rule: While possibly still applied by Ukrainian courts for contracts made pre-1999, its repeal in 1999 and the arbitrary enforcement undermine any continuing governmental interest.
The court found no current Ukrainian interest in enforcing the repealed two-signature rule.
Conflict Analysis:
This was a false conflict: Pennsylvania’s interests would be impaired if Ukrainian law applied, but Ukraine had no compelling interest in applying its law to this contract.
Conclusion:
The court found a false conflict and applied Pennsylvania law. Therefore, the joint venture agreements were enforceable, and American Meter’s motion for summary judgment was denied.
What is a common assumption lawyers make about dispute resolution?
Litigation will occur
What are alternative methods of dispute settlement commonly used in international business?
- Arbitration
- Mediation
- Conciliation
When is the best time to deal with the possibility of a dispute in international business?
At the outset of the relationship
What is the focus of this chapter regarding dispute resolution?
Resolution of international business disputes
What is a key consideration in international business dispute resolution?
Choice of forum
What factors influence a U.S. company’s choice of forum in litigation?
- Familiarity with the legal system
- Sophisticated judges
- Conducting proceedings in English
- Convenience
- Costs
What might create a strong strategic advantage for a U.S. company in litigation?
Compelling a foreign defendant to appear in a U.S. court
What is a potential consequence of filing a lawsuit for a U.S. company?
Termination of the business relationship with the foreign entity
What is the doctrine that may allow a U.S. court to dismiss or stay a U.S. action in favor of a foreign court?
International comity and forum non conveniens
What is a significant consideration for a U.S. defendant in a foreign jurisdiction?
Potentially lower damage awards
What is a primary source of law in international business disputes if no agreement exists?
Domestic laws of either the plaintiff or the defendant or international law
What is the importance of choice of law in international business transactions?
Avoiding uncertainty in applicable law
What determines whether a U.S. court can assert jurisdiction over a foreign defendant?
Minimum contacts with the United States
What landmark case established the principle of minimum contacts for jurisdiction?
International Shoe Co. v. State of Washington
What is the act of state doctrine?
U.S. courts must respect the sovereignty of foreign sovereigns
What does the Foreign Sovereign Immunities Act of 1976 provide?
Exceptions to foreign state sovereign immunity
What is a common issue when foreign sovereigns are involved in international business transactions?
Limited immunity from suit
What is typically a less than optimal way to resolve preliminary issues in disputes?
Litigation
What can parties do to avoid disputes over preliminary issues like choice of forum or choice of law?
Agree to forum selection and choice of law clauses in contracts
Fill in the blank: In international business disputes, the choice of law is usually included in _______.
[business agreements]
True or False: A U.S. company has no preference regarding the forum of a dispute.
False
What is the primary disadvantage of litigation?
It is time-consuming and inflexible due to formal rules and procedures.
What is one potential negative outcome of adversarial litigation?
It may poison or destroy long-term business relationships.
What does ADR stand for?
Alternative Dispute Resolution.
When is it best to agree on ADR methods?
At the outset of a dispute.
What is negotiation in the context of dispute resolution?
An informal method that does not require a third party.
What role does a mediator play in mediation?
An impartial third party who reconciles positions and suggests solutions.
True or False: A mediator has the power to impose a binding decision.
False.
What distinguishes conciliation from mediation?
Conciliation is more formal and involves findings of fact and law.
What is the main characteristic of arbitration?
It is a private and voluntary dispute resolution process that is final and binding.
List some advantages of arbitration for international business disputes.
- Saving Time
- Saving Money
- Flexibility
- Expertise
- Neutrality
- Confidentiality
- Enforceability
- Availability of Institutional Help
- Mitigation of Hostilities
What does the New York Arbitration Convention facilitate?
Enforcement of arbitral awards in over 150 countries.
What does the Federal Arbitration Act (FAA) establish?
Rules for recognizing and enforcing arbitration agreements.
What are the three chapters of the FAA?
- Chapter 1: Domestic FAA
- Chapter 2: Convention Act
- Chapter 3: Panama Convention Act
What was the significance of Scherk v. Alberto-Culver Co.?
It upheld a choice of law/forum clause as essential for international business transactions.
What did Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. establish?
A U.S. antitrust claim could be arbitrated in Japan as agreed by the parties.
What was enforced in Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer?
An arbitration clause in a bill of lading for the carriage of goods by sea.
Fill in the blank: The principal centers of international arbitration include the International Chamber of Commerce in Paris, the London Court of Arbitration, and the _______.
Stockholm Chamber of Commerce.
What are some ancillary issues in international business disputes?
- Enforcement of U.S. court judgments abroad
- Enforcement of foreign judgments in the U.S.
- Enforcement of arbitral awards
- Evidence
- Discovery
- Service of process
What was the main issue considered in Hall Street Associates v. Mattel?
Whether parties can expand the grounds for vacating arbitration awards beyond those listed in the Federal Arbitration Act
Hall Street Associates v. Mattel, 552 U.S. 576 (2008)
What did the Supreme Court rule regarding expanding grounds for vacating arbitration awards?
Disputing parties may not expand the grounds for vacating an award beyond those listed by statute
Hall Street, 552 U.S. at 581
What is the most common means to resolve international business disputes?
Arbitration
What should be carefully drafted in an international business contract?
The arbitration clause
What is the purpose of the arbitration clause in a contract?
It serves as the basis upon which the arbitration is conducted
What are some considerations when drafting an arbitration clause?
Fast-track arbitration, multi-tiered arbitration, exclusion of class arbitrations, waiver of sovereign immunity
What is the Model Clause recommended by the AAA?
Any controversy or claim arising out of or relating to this contract shall be determined by arbitration administered by the International Centre for Dispute Resolution in accordance with its International Arbitration Rules
What should the arbitration clause specify regarding the place of arbitration?
The place of arbitration and the law applicable to arbitration procedure
What is a key advantage of choosing an established arbitration forum?
Institutional support for the proceedings
What is ad hoc arbitration?
Arbitration that is private and typically less expensive, not administered by an institution
What rules do parties commonly select for ad hoc arbitration?
The Rules of the United Nations Commission on International Trade Law (UNCITRAL)
What should parties decide regarding the scope of the arbitration?
Whether to subject all questions and disputes or only selective issues to arbitration
What should the arbitration clause include regarding judicially enforceable preliminary relief?
Authorization for arbitrators to grant such relief
What is the importance of a choice of law clause in the arbitration provision?
It settles questions regarding the interpretation of the arbitration provision
What is an amiable compositeur?
A method where arbitrators decide issues based on justice and equity without reference to any law
What are some additional practical matters to address in the arbitration provision?
- Separate notice provision
- Currency for payment of arbitration award
- Pre- and post-judgment interest
- Definition of costs and their apportionment
- Discovery issues
- Waiver of sovereign immunity
What was ruled in Triple A International, Inc. v. Democratic Republic of the Congo?
A seller could not recover for military equipment sold to the Republic of the Congo under the commercial activity exception of the FSIA
What does 28 U.S.C. § 1605(a)(6) state about foreign states and arbitration awards?
A foreign state shall not be immune from jurisdiction in cases to confirm an award made pursuant to an agreement to arbitrate governed by a treaty or international agreement
What was affirmed in Blue Ridge Investments, LLC v. Republic of Argentina regarding immunity?
Argentina waived immunity by becoming a party to the ICSID Convention
What should be carefully considered when drafting an arbitration clause?
A checklist of considerations may include:
* Broad or narrow clause?
* Location
* Language
* Notice provisions
* Substantive law
* Rules of evidence and extent of discovery
* Arbitrators
* Procedures
* Confidentiality
* Consolidation of claims
* Interim measures
* Waiver of sovereign immunity
* Currency
* Costs and interest
* Finality
What happens if the parties fail to make a choice of law in arbitration?
The arbitrator may follow the law of the forum country or may use applicable conflicts of law principles to choose the law
This solution is mandated by the Rome Convention (Article 13) and the UNCITRAL rules (Article 33.1).
Which institutions do parties generally prefer for arbitration?
Parties generally prefer institutions such as:
* International Chamber of Commerce
* American Arbitration Association
What are the options for applicable law in arbitration?
Parties may choose:
* National law
* Lex mercatoria (law merchant)
* Justice and fairness (ex aequo et bono)
What is a concern regarding the use of lex mercatoria in complex conflict of laws issues?
The concern is whether a principled and technically correct solution can be reached without bias, as neutral principles of conflict of laws may be an illusion
This reflects the complexities of reasonable behavior and expectations in commercial enterprises.
What is the scenario involving Jones and New Age Products, Inc.?
Jones, a senior executive, signed a nonnegotiable employment contract with New Age, requiring arbitration in Beijing for employment-related claims. After being passed over for a promotion, Jones filed a Title VII claim in California federal court.
What are Jones’s arguments against the motion to dismiss the Title VII claim?
Jones argues that:
* The vital interests of the United States embodied in Title VII cannot be fully vindicated in China
* Title VII and federal antidiscrimination laws are inconsistent with China’s communist system and authoritarian state
Fill in the blank: If the parties do not choose a law, the arbitrator may follow the law of the _______.
[forum country]
True or False: The lex mercatoria is always preferred over national law in arbitration.
False
What are some key considerations for the arbitration clause’s location?
[Specific geographical location]
What can affect the procedures in arbitration?
The choice of rules of evidence and extent of discovery
These can vary significantly between different arbitration institutions.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.
Sure! Here’s a FIRAC (Facts, Issue, Rule, Application, Conclusion) breakdown of Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985):
FIRAC – Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.
F – Facts:
- Mitsubishi, a Japanese automaker, and Soler, a Puerto Rican car distributor, entered into a Sales Procedure Agreement that included an arbitration clause requiring disputes to be resolved in Japan.
- Soler ran into trouble selling vehicles and attempted to resell them in the U.S. and Latin America, but Mitsubishi and its joint venture partner CISA blocked this.
- Mitsubishi sued Soler in federal court to compel arbitration under the agreement.
- Soler counterclaimed, alleging antitrust violations under the Sherman Act, among other statutory claims.
- The District Court ordered arbitration of all claims, including antitrust ones. The Court of Appeals reversed in part, holding antitrust claims were not arbitrable.
I – Issue:
Are antitrust claims under the Sherman Act arising out of an international commercial agreement subject to mandatory arbitration under the Federal Arbitration Act (FAA) and the New York Convention?
R – Rule:
- Under the Federal Arbitration Act (9 U.S.C. § 2) and the New York Convention, valid arbitration agreements are enforceable, including those covering statutory claims, unless Congress explicitly excludes such claims from arbitration.
- Courts must resolve doubts in favor of arbitration unless the statute or legislative history indicates otherwise.
- Arbitration of statutory rights is valid so long as the party can still effectively vindicate those rights in the arbitral forum.
A – Application:
- The Court found the arbitration clause broad enough to include statutory claims, even if not explicitly listed.
- The Court rejected the American Safety doctrine, which barred arbitration of antitrust claims, particularly in an international context.
- It dismissed concerns over arbitrators’ competence, complexity of antitrust law, and lack of adherence to U.S. public policy, emphasizing that:
- Arbitration does not strip substantive rights — just changes the forum.
- Antitrust laws can be enforced adequately in international arbitration.
- National courts can still refuse enforcement of an award under the Convention if it violates public policy.
- The Court emphasized the need to respect international arbitration agreements to promote the global commercial legal order.
C – Conclusion:
Yes, antitrust claims arising from an international commercial transaction are arbitrable. The Court reversed the Court of Appeals in part and compelled arbitration of Soler’s antitrust claims under the arbitration agreement.
Let me know if you want this turned into a one-pager, case brief, or outline format too!
Polytek Engineering v Jacobson
Here’s a FIRAC case brief for Polytek Engineering Co., Ltd. v. Jacobson Companies, 984 F. Supp. 1238 (D. Minn. 1997):
FIRAC – Polytek Engineering Co., Ltd. v. Jacobson Companies
F – Facts:
- Polytek, a Hong Kong company, contracted with Hebei, a Chinese company, to supply rubber recycling equipment.
- Polytek then contracted with Jacobson, a Minnesota-based manufacturer, to supply that equipment. The contract took the form of a Purchase Order referencing and attaching the Hebei Contract, which contained a Chinese arbitration clause (CIETAC arbitration in Beijing).
- When Hebei alleged the equipment was nonconforming, it arbitrated and won a CIETAC award against Polytek.
- Polytek then initiated CIETAC arbitration against Jacobson, claiming breach of the Hebei contract (which Jacobson had followed via the Purchase Order).
- Jacobson denied being bound by any arbitration clause and refused to participate in the hearing. CIETAC found jurisdiction and ruled in favor of Polytek for $1.7 million.
- Polytek sought to enforce the award in U.S. federal court under the New York Convention.
I – Issue:
Was there a valid written agreement to arbitrate under the New York Convention between Polytek and Jacobson, such that the foreign arbitral award is enforceable in the United States?
R – Rule:
Under the New York Convention and 9 U.S.C. §§ 201–208, a U.S. court must confirm a foreign arbitral award unless one of the Convention’s narrow exceptions applies.
A valid agreement in writing to arbitrate must be:
- an arbitration clause in a contract or,
- an arbitration agreement signed by the parties or
- evidenced by an exchange of letters or telegrams.
A – Application:
- The Purchase Order from Polytek to Jacobson explicitly referenced the Hebei Contract and attached it.
- The Hebei Contract contained a binding arbitration clause (Section 19), calling for CIETAC arbitration in Beijing.
- Jacobson, by accepting the Purchase Order and performing under it (manufacturing and shipping the equipment, accepting payment), assented to the attached contract and its terms, including arbitration.
- Jacobson’s conduct and communications (e.g., referencing the contract, adjusting terms from it, accepting the deposit) demonstrated acceptance of the terms, including the arbitration clause.
- Jacobson did not contest the award on other Convention grounds (e.g., incapacity, improper notice, invalid panel, etc.).
- Therefore, the court found that the arbitration clause was binding and enforceable.
C – Conclusion:
Yes, there was a valid written arbitration agreement. The court enforced the CIETAC arbitral award under the New York Convention, ordering Jacobson to pay $1,700,367.41 plus interest and to remove the equipment at its own expense.
Stolt Nielsen v Animalfeeds
Here’s an updated FIRAC analysis that includes the Supreme Court decision in Stolt-Nielsen SA v. AnimalFeeds International Corp., 559 U.S. 662 (2010):
FIRAC:
Facts:
AnimalFeeds filed for class arbitration against Stolt-Nielsen, alleging antitrust violations in the shipping industry. The parties’ contracts contained arbitration clauses that were silent regarding class arbitration. The arbitration panel ruled that class arbitration was permissible under the silent clauses. Stolt-Nielsen sought to vacate the arbitration award, asserting that the panel had exceeded its powers by imposing class arbitration, which they did not consent to. The Second Circuit upheld the panel’s decision, but the U.S. Supreme Court reviewed the case.
Issue:
Whether the arbitration panel exceeded its powers by ordering class arbitration despite the parties’ agreement being silent on the issue of class arbitration.
Rule:
Under the Federal Arbitration Act (FAA), arbitration awards may be vacated if the arbitrator exceeds their powers, as specified in § 10(a)(4). An arbitrator cannot impose their own policy views; they must interpret and apply the contract as written. Additionally, parties cannot be compelled to submit to class arbitration unless there is clear contractual agreement to do so. The FAA upholds that arbitration is a matter of consent, and class arbitration fundamentally changes the nature of arbitration.
Analysis:
- The Supreme Court emphasized that arbitration is based on mutual consent, and that arbitrators cannot infer an implicit agreement for class arbitration from the mere fact that the parties agreed to arbitrate.
- The Court noted that class arbitration differs significantly from bilateral arbitration, which is based on the parties’ choice for more efficient, private dispute resolution. Class arbitration increases complexity and procedural rigor, which undermines the expected benefits.
- The arbitration panel, by permitting class arbitration, effectively imposed its own view of policy, contrary to the principle of consent that underpins arbitration agreements.
- Since the parties explicitly agreed that they had reached “no agreement” on class arbitration, the Court concluded that the panel exceeded its powers by awarding class arbitration.
Conclusion:
The Supreme Court reversed the Second Circuit’s judgment and remanded the case for further proceedings, holding that an arbitration panel cannot order class arbitration unless the parties had agreed to it. The Court reaffirmed that arbitration is based on consent, and class arbitration fundamentally alters the nature of the arbitration process.
Dissent:
Justices Ginsburg, Stevens, and Breyer dissented, arguing that the Court should have affirmed the decision of the Court of Appeals, allowing the class arbitration to proceed.
M/S Bremen v Zapata
Here is a FIRAC case brief of M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972):
FIRAC:
Facts:
- Zapata, an American company, entered into a towage contract with Unterweser, a German corporation, for the transportation of an ocean drilling rig (Chaparral) from Louisiana to Italy.
- The contract contained a forum-selection clause stating that any disputes must be handled in the London Court of Justice.
- During the voyage, a storm damaged the Chaparral, and Zapata instructed the towage company to take the rig to Tampa, Florida, rather than proceeding to Italy.
- Zapata filed a lawsuit in the United States District Court in Tampa, despite the forum-selection clause mandating litigation in London.
- Unterweser sought to enforce the forum-selection clause and dismiss the suit, but the District Court and the Court of Appeals ruled in favor of Zapata, treating the case under the doctrine of forum non conveniens.
Issue:
Whether a forum-selection clause in an international contract should be enforced or can be disregarded due to the convenience of the forum and public policy considerations.
Rule:
- A forum-selection clause is prima facie valid and enforceable unless the resisting party can show that enforcement would be unreasonable or unjust.
- Courts must give effect to the parties’ legitimate expectations as expressed in their freely negotiated agreements, particularly in international commercial contracts.
- The public policy against forum-selection clauses in domestic cases is less significant in international commercial agreements, particularly when there is no evidence of fraud, undue influence, or overreaching in the formation of the contract.
Analysis:
- The Court acknowledged the growing global nature of business and international contracts, where forum-selection clauses provide certainty and reduce disputes over jurisdiction.
- The Court noted that the forum-selection clause was an important element of the contract, likely considered by both parties when negotiating terms.
- The case involved an international transaction with parties from different countries, and the Court emphasized that allowing lawsuits to be filed in any jurisdiction where an accident occurred would lead to uncertainty and inconvenience.
- The Court rejected the idea that enforcing the forum-selection clause “ousted” the jurisdiction of U.S. courts, highlighting that courts should enforce such clauses unless it is shown that doing so would be unreasonable or unjust.
- The Court further rejected concerns raised by the Court of Appeals regarding public policy, explaining that the situation did not involve domestic laws or public policy considerations that would override the enforceability of the clause.
- The majority concluded that the forum-selection clause should be enforced unless Zapata could show specific reasons why enforcement would be unjust or unreasonable.
Conclusion:
The Supreme Court vacated the judgment of the Court of Appeals and remanded the case for further proceedings. The Court held that forum-selection clauses in international commercial contracts should be upheld unless enforcement would be unreasonable or unjust.
Let me know if you’d like to explore any other aspect of the case!
What is the traditional method of resolving international business disputes?
Court-based litigation
This method contrasts with arbitration, which was discussed in the previous section.
What are the five important aspects of international litigation?
- Choice of forum
- Choice of law
- Jurisdiction
- Evidence and discovery
- Recognition and enforcement of judgments
What is a major difference between international arbitration and international litigation?
International arbitration is dominated by the New York Convention, while international litigation lacks a corresponding wide-ranging international treaty.
What is the Brussels Regime?
The jurisdiction and recognition of judgments law of the EU.
What is the latest version of the Brussels Regime?
Recast Regulation, Regulation 1215/2012.
When does the Brussels Regime apply?
- When the defendant is domiciled in the EU
- When parties select an EU forum
- In cases with exclusive jurisdiction of EU member state courts
What happens to a judgment rendered in any EU member state under the Brussels Regime?
It is automatically recognized and enforced without any special procedure.
What does the Brussels II regulation apply to?
Family law matters.
What is an ‘Italian torpedo’ in litigation?
A litigation tactic that frustrates the application of arbitration agreements by filing suit in a national court.
What remedies exist to resist litigation in the EU in contravention of an arbitration agreement?
- Motion to dismiss or stay litigation
- Injunction against pending litigation
- Action for damages for breach of arbitration provision
- Resist recognition/enforcement of judgment due to arbitration clause violation
What is the general rule under Brussels I regarding jurisdiction clauses in insurance contracts?
A member state court will give effect to the jurisdiction clause, allowing the insured to sue only in the specified court.
What is the significance of Case C-368/16, Assens Havn v. Navigators Management (UK) Ltd.?
It held that a third-party victim can file a direct action against an insurer, bypassing the jurisdictional clause.
What are the three main regulations under the Rome Regime?
- Regulation 593/2008 (Rome I)
- Regulation 864/2007 (Rome II)
- Council Regulation 1259/2010 (Rome III)
What is the primary rule regarding choice of law in the Rome I Regulation?
Parties to a commercial agreement are free to choose the law applicable to their contract.
What happens in the absence of an agreement on a choice of law?
The law applicable will be the law of the country most closely connected to the contractual obligations.
What is the role of the Court of Justice of the European Union regarding the Brussels and Rome Regulations?
It interprets these regulations in particular cases.
What is a preliminary consideration in any business litigation?
The choice of the court in which to commence the action.
Are agreements on choice of forum always enforceable?
No, they are not always enforceable.
What is the Hague Convention on Choice of Court Agreements?
A Convention concluded on June 30, 2005, designed to serve as a litigation counterpart to the New York Arbitration Convention.
When did the Hague Convention on Choice of Court Agreements go into force?
October 1, 2015.
What types of agreements does the Hague Convention apply to?
International business-to-business agreements that designate a single court or the courts of a single country for dispute resolution.
What is an exclusive choice of court agreement?
An agreement that designates a single court or the courts of a single country for the resolution of disputes.
Which types of contracts are excluded from the Hague Convention?
- Consumer contracts
- Purely domestic agreements
- Contracts of employment
- Intellectual property (except copyright)
- Carriage of goods
What does Article 5 of the Hague Convention state?
The court or courts of state parties designated in an exclusive choice of court agreement shall have jurisdiction to decide the dispute.
What is required by Article 6 of the Hague Convention?
Courts other than those of the chosen state must dismiss or suspend the proceeding.
What does Article 8 of the Hague Convention govern?
Recognition and enforcement of judgments.
Under what conditions can recognition or enforcement of a judgment be refused according to Article 9?
- The agreement was null and void under the law of the chosen court
- A party lacked the capacity to conclude the agreement
- The initiating document did not give the defendant notice
- The judgment was obtained by fraud
- Recognition or enforcement would be incompatible with public policy
What additional option does Article 22 of the Hague Convention provide?
Parties may declare that their courts will recognize and enforce judgments from non-exclusive choice of court agreements.
What is the aim of the Hague Convention on Choice of Court Agreements?
To create a legal regime for choice of court agreements that rivals the arbitration regime of the New York Convention.
How are forum selection clauses treated by U.S. courts?
They are universally upheld.
What does the lex loci rule refer to?
The applicable law is the place of the contract.
What is the ‘most significant relationship test’ in choice of law?
A test that balances diverse interests and expectations of the parties involved in a dispute.
List the seven factors considered in the ‘most significant relationship test’.
- Needs of interstate and international systems
- Relevant policies of the forum
- Policies of interested states
- Expectations of the parties
- Basic policies underlying the field of law
- Certainty, predictability, and uniformity of result
- Ease of applying the law
What is ‘governmental interest analysis’?
A method requiring courts to analyze the interests of involved states and determine the nature of the conflict.
True or False: The Hague Convention allows for the review of the merits of a judgment given by the court of origin.
False
What is jurisdiction in the context of international law?
An aspect of sovereignty allowing states to exercise control over persons and properties within their national sphere.
What are the three types of jurisdiction in international law?
- Prescriptive
- Adjudicative
- Enforcement
What is prescriptive jurisdiction?
The power of states to prescribe or enact laws that are valid and have binding authority over their objects.
What are the three primary principles of prescriptive jurisdiction?
- Territoriality
- Nationality
- Effects
What does the territoriality principle entail?
States have the power to prescribe binding laws over all persons, property, and conduct within their territorial boundaries.
What does the nationality principle refer to?
States can enact binding laws covering their nationals wherever they are in the world.
What is the effects principle in prescriptive jurisdiction?
States have jurisdiction over persons, property, and conduct in other states when they cause substantial effects within the prescribing states.
What are the three additional principles of jurisdiction recognized in international law?
- Passive personality
- Protective principle
- Universal jurisdiction
What is passive personality in the context of jurisdiction?
Jurisdiction based on the nationality of the victim or person at whom the conduct at issue was directed.
What is the protective principle of jurisdiction?
Jurisdiction over conduct involving state security.
What is universal jurisdiction?
Jurisdiction over a few egregious international crimes.
What is adjudicative jurisdiction?
The authority of the court over the subject matter of a dispute and the persons involved in that dispute.
What are the two types of adjudicative jurisdiction?
- Subject matter jurisdiction
- Personal jurisdiction
What is subject matter jurisdiction?
The authority of courts over named topics or subject matters.
What is personal jurisdiction?
The authority of a court over the parties to a lawsuit, particularly the defendant.
How was personal jurisdiction traditionally established?
Based on the physical presence of the defendant within the territorial reach of the court.
What landmark case established minimum contacts for personal jurisdiction?
International Shoe Co. v. State of Washington, 326 U.S. 310 (1945).
What is the minimum contacts requirement?
A defendant must have certain minimum contacts with the state of the judicial forum to be subject to the court’s adjudicative power.
What did the Supreme Court hold in Shaffer v. Heitner regarding personal jurisdiction?
Ownership of property in the forum state alone cannot justify jurisdiction without minimum contacts.
What are the two due process clauses that limit personal jurisdiction?
- Fourteenth Amendment
- Fifth Amendment
What is general personal jurisdiction?
Present where the defendant’s contacts are so continuous and systematic as to render it essentially ‘at home’ in the forum state.
What is specific personal jurisdiction?
Confined to adjudication of issues deriving from or connected with the very controversy that establishes jurisdiction.
What is the three-step analysis for determining specific personal jurisdiction?
- Purposeful direction of activities toward the forum
- Cause of action arising out of defendant’s forum-related contacts
- Fair and reasonable exercise of personal jurisdiction
What was the ruling in Bristol-Myers Squibb Co. v. Superior Court of California regarding specific personal jurisdiction?
The Court ruled that plaintiffs’ injuries did not arise out of or relate to BMS’s activities and contacts with California.
What was the outcome of Ford Motor Co. v. Montana Eighth Judicial District Court regarding specific jurisdiction?
The Supreme Court held that specific jurisdiction requires only that the defendant’s contacts sufficiently ‘relate to’ plaintiffs’ claims.
Ashahi Metals v Superior Court
Asahi Metal Indus. Co., Ltd. v. Superior Court (1987) is a United States Supreme Court case that addressed the limits of personal jurisdiction under the Due Process Clause of the Fourteenth Amendment, specifically concerning foreign defendants and the “stream of commerce” theory.
Facts:
- Background: The case arose from a product liability action filed in California by Gary Zurcher, who was injured in a motorcycle accident caused by a defective tire valve assembly. Zurcher initially sued various defendants, including Cheng Shin Rubber Industrial Co. (Cheng Shin), the Taiwanese manufacturer of the motorcycle tire, and Asahi Metal Industry Co., Ltd. (Asahi), the Japanese manufacturer of the defective valve assembly.
- Jurisdictional Issue: Asahi moved to quash service of summons, arguing that California could not assert jurisdiction over it because it did not purposefully avail itself of the forum state’s laws, given that it did not do business in California. Asahi only sold valve assemblies to Cheng Shin in Taiwan, and the products were eventually sold in California, but Asahi did not directly target California.
Issue:
The Supreme Court needed to determine whether Asahi’s awareness that its products would end up in California (through Cheng Shin’s distribution system) was sufficient to establish “minimum contacts” for the California courts to exercise personal jurisdiction over the Japanese corporation, in line with the Due Process Clause.
Court’s Ruling:
- Minimum Contacts: The Court emphasized that for a state to assert personal jurisdiction over a foreign defendant, the defendant must purposefully avail itself of the forum state’s benefits. In this case, merely placing products into the stream of commerce, with knowledge that they may reach a particular state (California), is not enough to establish the necessary minimum contacts. The defendant must have directed actions specifically at the forum state.
- Purposeful Availment: The Court distinguished this case from others where defendants had engaged in more substantial and directed actions, such as advertising, direct sales, or establishing channels to serve a particular state’s market. Here, Asahi did not do any of those things—it merely sold its components to Cheng Shin in Taiwan, and the components eventually reached California through Cheng Shin’s distribution system.
- Reasonableness and Fairness: The Court also considered the reasonableness of asserting jurisdiction over Asahi, taking into account the significant burdens on the foreign defendant, as well as the minimal interests of California in this dispute. Since the case involved an indemnification claim between two foreign corporations (Cheng Shin, a Taiwanese corporation, and Asahi, a Japanese corporation), California’s interest was limited. The Court pointed out that the interests of the other affected nations (Taiwan and Japan) and the burden on Asahi in defending a lawsuit in California weighed against exercising jurisdiction.
Conclusion:
The Supreme Court reversed the decision of the California Supreme Court and ruled that exercising personal jurisdiction over Asahi in California violated the Due Process Clause. The mere awareness that products might enter California through the stream of commerce was not sufficient to establish the “purposeful availment” needed to justify jurisdiction.
Key Takeaways:
- Minimum Contacts: A defendant’s knowledge that its products will eventually reach a forum state through the stream of commerce does not, on its own, establish the necessary minimum contacts for personal jurisdiction.
- Purposeful Availment: There must be purposeful availment of the forum state’s laws, such as targeted marketing, direct sales, or other actions directed at the forum state.
- Reasonableness of Jurisdiction: The burden on the defendant, the interests of the forum state, and international considerations must be weighed to determine whether asserting jurisdiction is fair and reasonable.
This case illustrates the limits of personal jurisdiction, especially in cases involving foreign defendants and products that reach a forum state through an indirect distribution system.
Goodyear Dunlop Tires v Brown
Case Brief: Goodyear Dunlop Tires Operations, S.A. v. Brown
Citation: 564 U.S. 915 (2011)
Court: United States Supreme Court
Date: 2011
Facts:
Two 13-year-old boys from North Carolina were killed in a bus accident near Paris, France. The accident was attributed to a defective tire manufactured by Goodyear’s Turkish subsidiary. The parents of the boys filed a lawsuit in North Carolina state court, naming Goodyear USA, an Ohio corporation, and its foreign subsidiaries in Turkey, France, and Luxembourg. Goodyear USA did not contest jurisdiction in North Carolina, but its foreign subsidiaries argued that North Carolina lacked personal jurisdiction over them because their operations did not have sufficient contacts with the state. The North Carolina court initially found that the foreign subsidiaries were subject to jurisdiction based on the “stream of commerce” theory.
Issue:
Whether foreign subsidiaries of a U.S. parent corporation are subject to general jurisdiction in a state court for claims unrelated to any activity in that forum state.
Rule:
A state court may assert general jurisdiction over a foreign corporation only if its affiliations with the forum state are so “continuous and systematic” as to render it essentially “at home” in the state. Specific jurisdiction may exist if the case arises from activities in the forum state, but general jurisdiction requires more substantial connections. The mere flow of a foreign corporation’s products into a state does not suffice to establish general jurisdiction.
Application:
The North Carolina court mistakenly applied the stream of commerce theory, asserting general jurisdiction over the foreign subsidiaries based on the fact that a small percentage of their tires had reached North Carolina. These tires were not related to the accident in question, and the foreign subsidiaries did not conduct business in North Carolina. The Court held that this limited connection did not meet the constitutional requirements for general jurisdiction, distinguishing between the specific jurisdiction for cases related to forum activities and general jurisdiction, which requires more significant and ongoing connections.
Conclusion:
The Supreme Court reversed the North Carolina court’s decision, ruling that the foreign subsidiaries of Goodyear USA were not subject to general jurisdiction in North Carolina. The mere flow of products into the state via the stream of commerce was insufficient to establish the “continuous and systematic” affiliations required for general jurisdiction.
Glencore v Shivnath Rai Harnarain
Case Brief: Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co.
Citation: 284 F.3d 1114 (9th Cir. 2002)
Court: United States Court of Appeals, Ninth Circuit
Date: 2002
Facts:
Glencore Grain, a Netherlands corporation, and Shivnath Rai Harnarain Co., an Indian rice manufacturer and exporter, entered into contracts where Glencore agreed to purchase rice. Disputes arose regarding the delivery of rice, which were submitted to arbitration before the London Rice Brokers’ Association (LRBA). The LRBA ruled in favor of Glencore, awarding it approximately $7 million. Shivnath Rai did not challenge the decision in England or make payment. In July 2000, Glencore sought to confirm the arbitral award in the federal district court for the Northern District of California. Shivnath Rai filed a motion to dismiss based on lack of personal jurisdiction. Glencore submitted evidence of Shivnath Rai’s shipments of rice to various U.S. ports, including California, and a sales agent in California. The district court dismissed the action for lack of personal jurisdiction, and Glencore appealed.
Issue:
Whether the district court had personal jurisdiction over Shivnath Rai, an Indian corporation, in California, given its contacts with the forum state.
Rule:
Personal jurisdiction over a foreign defendant is determined by two types:
1. Specific jurisdiction: Exists when the cause of action arises out of or is related to the defendant’s activities within the forum state.
2. General jurisdiction: Exists when the defendant’s contacts with the forum state are so continuous and systematic that the defendant can be considered “at home” in the forum.
The court must evaluate:
1. Whether the defendant purposefully availed itself of the forum state’s benefits.
2. Whether the claim arises out of the defendant’s forum-related activities.
3. Whether the exercise of jurisdiction is reasonable.
Application:
1. Specific Jurisdiction:
The court applied a three-part test for specific jurisdiction:
- Purposeful availment: The court found that Shivnath Rai had regular shipments to California but did not purposefully avail itself of California’s laws.
- Arising out of forum contacts: The court determined that the claim did not arise out of Shivnath Rai’s California-related activities, as the contract was negotiated abroad, required performance in India, and involved arbitration in England.
- Reasonableness: The court found the exercise of jurisdiction unreasonable as the contract, parties, and performance were foreign-based, and California had no substantial interest in the case.
-
General Jurisdiction:
The court concluded that Shivnath Rai’s contacts with California—such as using a sales agent in California and shipping rice to California ports—were insufficient for general jurisdiction. These activities did not constitute continuous or systematic operations akin to being “at home” in the state. The sales agent’s presence did not significantly increase Shivnath Rai’s California activities, and its contacts with the forum were not continuous enough for general jurisdiction. -
Reasonableness:
Even if minimum contacts existed, the court considered the reasonableness of exercising jurisdiction. Factors such as the burden on Shivnath Rai (being based in India), the conflict with Indian sovereignty, and the availability of alternative forums (India and England) all weighed against asserting jurisdiction in California. The court concluded that asserting jurisdiction in California would be unreasonable.
Conclusion:
The Ninth Circuit affirmed the district court’s decision, holding that it lacked personal jurisdiction over Shivnath Rai. The court found that Shivnath Rai’s contacts with California were insufficient to establish either specific or general jurisdiction, and even if they were, exercising jurisdiction would be unreasonable under the circumstances.
Affirmed.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.
United States Supreme Court, 1985
473 U.S. 614
Facts:
Soler Chrysler-Plymouth, Inc. (Soler), a Puerto Rican car dealer, entered into agreements with Mitsubishi Motors Corporation and its affiliate CISA (Chrysler International) for the distribution and sale of Mitsubishi-manufactured vehicles. These agreements included an arbitration clause mandating arbitration in Japan under Japanese rules. Disputes arose when Soler attempted to delay shipments and sell vehicles outside its assigned territory. Mitsubishi refused and initiated arbitration in Japan and litigation in federal court to compel arbitration under the Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Soler counterclaimed, including claims under U.S. antitrust laws (Sherman Act), alleging a conspiracy to restrain trade.
Issue:
Can statutory claims under U.S. antitrust law (e.g., Sherman Act) be compelled to arbitration under an international commercial agreement that includes a broad arbitration clause?
Rule:
Under the Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, arbitration agreements in international commercial contracts are generally enforceable. Statutory claims, including antitrust claims, are not per se exempt from arbitration unless Congress has explicitly stated otherwise.
Analysis:
The Court emphasized a strong federal policy favoring arbitration, including for statutory claims, unless Congress expressly prohibits arbitration for a specific statute. It rejected concerns that arbitration was inherently inadequate for complex antitrust issues or that foreign arbitrators were incapable of applying U.S. law. The Court noted that arbitration could be a suitable forum, provided statutory rights can be effectively vindicated. The Convention permits courts to refuse enforcement of an arbitral award if it violates public policy, allowing courts to ensure antitrust principles are respected post-award. The Court distinguished domestic arbitration precedent (like American Safety) and concluded that international arbitration requires more deference to contractual commitments in global commerce.
Conclusion:
Yes, statutory antitrust claims can be compelled to arbitration under an international commercial agreement. The Supreme Court reversed the appellate court’s decision in part and held that Soler’s antitrust claims must be arbitrated in accordance with the arbitration clause.
Polytek Engineering v. Jacobson
Facts
Polytek Engineering Co., Ltd. (Polytek), a Hong Kong-based company, entered into a contract with Jacobson Companies (Jacobson), a Minnesota corporation, for the manufacture and shipment of rubber recycling equipment. This contract was initiated after Polytek entered into an agreement with Hebei Import & Export Corp. (Hebei) in China, which contained an arbitration clause requiring disputes to be settled by CIETAC (China International Economic and Trade Arbitration Commission) in Beijing. The Hebei contract was attached to the purchase order Polytek sent to Jacobson.
After issues arose with the equipment’s conformity, Hebei initiated arbitration and won damages from Polytek. Polytek then sought indemnification from Jacobson through CIETAC arbitration. Jacobson contested CIETAC’s jurisdiction, claiming no arbitration agreement existed. CIETAC found jurisdiction, awarded Polytek over $1.7 million, and ordered Jacobson to remove the equipment. Polytek sought to enforce the award in U.S. federal court.
Issue
Did an enforceable written agreement to arbitrate exist between Polytek and Jacobson, such that the court should confirm the foreign arbitral award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
Rule
Under the Convention (codified at 9 U.S.C. §§ 201–208), a foreign arbitral award must be confirmed unless one of the limited defenses under Article V applies. For an agreement to arbitrate to be enforceable under the Convention, it must:
Be in writing (e.g., a signed contract or an exchange of communications),
Arise from a commercial relationship,
Provide for arbitration in a Convention signatory country,
Involve at least one non-American party or a foreign element.
Application
The court found that the arbitration clause in the Hebei contract—attached to Polytek’s purchase order—was incorporated by reference and constituted an agreement in writing. The conduct of both parties (including references to the Hebei contract in correspondence and compliance with its terms, like the letter of credit provision) demonstrated mutual intent to be bound by its terms, including arbitration.
Although Jacobson claimed it never explicitly agreed to arbitration, its failure to object to the arbitration clause and its conduct in performing under the terms of the attached contract indicated assent. Jacobson raised no valid defenses under Article V of the Convention. There was no evidence of incapacity, invalidity, lack of notice, or public policy concerns.
Conclusion
The court confirmed the CIETAC arbitral award under the Convention, finding a valid arbitration agreement existed and no valid defenses to enforcement were present. Jacobson was ordered to pay $1,700,367.41 with interest and to dismantle and collect the equipment at its own expense.
Stolt Nielsen v. Animalfeeds
Key Rule
A court may not vacate an arbitration award for manifest disregard of the law unless the arbitrators were aware of a clear legal principle and willfully ignored it, effectively failing to interpret the contract at all.
In-Depth Discussion
Manifest Disregard of the Law Standard
The U.S. Court of Appeals for the Second Circuit explained that for a court to vacate an arbitration award based on manifest disregard of the law, the arbitrators must have been aware of a clearly defined legal principle and willfully ignored it. The court emphasized that this standard is highly deferential and is only met in exceedingly rare cases where the arbitrators exhibit egregious impropriety. The court noted that arbitration is intended to be a streamlined, cost-effective alternative to litigation, and interfering with arbitration outcomes without a compelling reason would undermine this intent. As such, the court explained that manifest disregard does not cover simple misinterpretations or errors in applying the law, but rather requires a situation where the arbitrators effectively failed to interpret the contract at all. The court highlighted that this doctrine is not a means to obtain judicial review over the merits of the arbitration decision but rather to ensure that the arbitration process adhered to the agreed-upon legal framework.
Presentation of Legal Principles
The court found that Stolt-Nielsen did not adequately present a clear and applicable legal principle to the arbitration panel that would have precluded class arbitration. Although Stolt-Nielsen argued that federal maritime law and industry customs precluded such arbitration, the court determined that the arbitration panel did not willfully ignore these principles. The court highlighted that Stolt-Nielsen’s brief to the arbitration panel mentioned choice-of-law principles only briefly and assured the panel that the analysis would be the same under either federal or state law, suggesting that there was no clear legal rule mandating a particular outcome. The court also noted that Stolt-Nielsen had conceded during oral arguments that the issue of class arbitration in this context was one of first impression, meaning there was no established precedent specifically prohibiting class arbitration in international maritime contracts.
Interpretation of Contracts
The court explained that the interpretation of the arbitration clauses was a matter of contract interpretation, which is generally within the purview of the arbitrators. The court emphasized that arbitrators are tasked with interpreting the contract language and determining the parties’ intent, including whether silence on a particular issue, such as class arbitration, should be interpreted as permitting or precluding such proceedings. The court found that the arbitration panel did not exceed its authority nor exhibit manifest disregard of the law in interpreting the clauses to permit class arbitration. The court noted that the panel considered industry customs and usage, as well as previous clause construction awards, and found no reason to conclude that the parties intended to preclude class arbitration. The court reiterated that even if the panel’s interpretation might differ from what a court might decide, it was not a basis for vacating the award under the manifest disregard standard.
Authority of Arbitration Panel
The court concluded that the arbitration panel acted within its authority as agreed upon by the parties. The parties had specifically agreed that the arbitration panel would decide whether the arbitration clauses permitted class arbitration, which was outlined in their Class Arbitration Agreement. The court pointed out that the arbitration panel was empowered to issue a Clause Construction Award, determining whether class arbitration was permissible. The panel’s decision was therefore within the scope of the authority granted to it by the parties’ agreement. The court rejected the argument that the panel exceeded its authority, stating that the panel’s interpretation of the contract terms was precisely the task it was assigned to perform. The court affirmed that as long as the arbitrators acted within the scope of their designated powers, their decision should stand, regardless of whether a different interpretation might be reached by a court.
Conclusion of the Court
The U.S. Court of Appeals for the Second Circuit reversed the district court’s decision to vacate the arbitration panel’s award, holding that the panel did not act in manifest disregard of the law. The court determined that there was no clear legal principle that the panel willfully ignored, and the panel’s interpretation of the contract was within its authority. The court emphasized that the manifest disregard standard is intended to uphold the parties’ choices to arbitrate their disputes and to limit judicial interference in arbitration outcomes. By concluding that the arbitration panel acted within its powers, the court reinforced the principle that arbitration is a matter of contract and should be respected as such unless there is a clear and egregious violation of the legal framework agreed upon by the parties.
M/S Bremen v. Zapata
F: Facts
Zapata, a U.S. corporation, contracted with Unterweser, a German company, to tow a drilling rig from Louisiana to Italy.
The contract included a forum-selection clause requiring any disputes to be litigated in the London Court of Justice.
During transit, a storm damaged the rig in the Gulf of Mexico. Zapata redirected the tow to Tampa, FL.
Zapata then sued in U.S. federal court, alleging negligence and breach of contract, ignoring the forum-selection clause.
Unterweser moved to dismiss based on the forum clause and filed suit in London. The English court upheld jurisdiction under the contract.
U.S. courts (District Court and Fifth Circuit) refused to enforce the forum-selection clause, citing precedent that such clauses were contrary to public policy unless the foreign forum was more convenient.
I: Issue
Should U.S. courts enforce a forum-selection clause in an international commercial contract, or is such a clause unenforceable as contrary to public policy or forum non conveniens?
R: Rule
A forum-selection clause in an international contract is presumptively valid and should be enforced unless the resisting party shows:
The clause is unreasonable or unjust,
It is the result of fraud or overreaching, or
Enforcement would contravene a strong public policy of the forum state.
A: Application
The contract was freely negotiated between two sophisticated parties from different countries.
The clause aimed to provide a neutral and predictable forum, important in international transactions.
The lower courts erred by requiring Unterweser to prove London was more convenient than Tampa, instead of placing the burden on Zapata to show enforcement would be unjust.
No evidence showed fraud, overreaching, or that enforcement would violate strong public policy.
The damage occurring in the Gulf and the redirection to Tampa were fortuities and do not justify ignoring the clause.
C: Conclusion
The Supreme Court vacated the Fifth Circuit’s decision and remanded the case, holding that the forum-selection clause should be enforced unless Zapata could meet the burden of showing unreasonableness, injustice, or violation of public policy.
