SIB 520 INTERNATIONAL BUSINESS LAW

INTERNATIONAL DISPUTE RESOLUTION

Disputes can arise in international business in a number of situations.. It could

be contractual dispute, a tort claim such as negligence, a breach of treaty
obligation or a question of public law between governments and private parties.
There are 4 basic methods of resolving such disputes. They are summarized
below as follows:

1. Litigation-suing in court. A judge makes a binding decision.

Advantages: Better discovery process, familiarity with the court rules,

precedents to base decisions on, sometimes there is a need for a public
hearing, decisions are appealable, can be less costly than arbitration, a court
can make orders that an arbitrator cannot such as an injunction, an order for
witnesses to appear, an Anton Pillar Order, there is no international convention
with Canada on the reciprocal enforcement of judgments except between
Canada and the UK so a judgment might not be enforced; results tend to be
more predictable than arbitration because judges must follow statutory or
case law whereas arbitrators do not, finally, there is a clear winner and
loser.

Disadvantages: Can be costly, can take a long time, the outcome of litigation
can be uncertain, litigation can destroy a business relationship (people don't
like to be sued).

The next three are called Alternative Dispute Resolution (ADR) because they
are an alternative to litigation.

2. Negotiation - the parties try to work it out themselves. It is common to

have an internal dispute escalation procedure that parties must try first.

Advantages: quick, cheap, preserves the business relationship between

parties

Disadvantages: may be a waste of time and have to sue anyway

3. Mediation - a neutral third party (the mediator) tries to get the parties to
come to a compromise. Not binding. Under the Ontario Rules of Civil
Procedure there is mandatory mediation.

Advantages & disadvantages: same as negotiation

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 4. Arbitration - a neutral third party (the arbitrator) hears the case and
makes a usually binding decision that is enforceable. Arbitration awards
are enforceable under the New York Convention on Recognition and
Enforcement of Foreign Arpitral Awards. Arbitrations are more like court
decision in that a third party makes a binding decision and one party is
usually comes out a loser. Commercial arbitration is now the most widely
used method of dispute resolution in international transactions.

Advantages: the main advantage is that arbitrations are easier to enforce than
court judgements between member states of the New York Convention; other
advantages include, confidentiality, you have more control over the adjudication
process by being able to pick an arbitrator with expertise in a particular area, it
can be less expensive than litigation (Note: international arbitration is often
more expensive that litigation contrary to what you may have read elsewhere
or been told by others)', arbitration is generally quicker than litigation,

Disadvantages: international arbitration is often more expensive than

litigation, the outcome of arbitration can be uncertain, an arbitrator has no
authority to order injunctive relief so you may have to go to court anyway, an
arbitrator has no authority to compel witnesses to appear, there are limited rights
of appeal, if there are multiple parties it is difficult to get all of the parties to agree
on a uniform set of rules or procedures, if one party does not contribute their
portion of the costs to proceed with an arbitration then the other party will have to
put up its own costs plus the other party's costs to proceed with the arbitration,
finally, arbitration could destroy business relationships for the same reason as
litigation.

When parties should not choose arbitration:

-if the parties cannot agree on arbitration terms or an arbitrator - where there

are multiple parties

- if the case is complex

- if you want better discovery of evidence - if there are third party witnesses

- if you need equitable relief eg. an injunction, Anton Pillar order, Mareva
Injunction

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Unconscionable Arbitration Clauses

The courts will not enforce unconscionable (unfair) arbitration clauses in a

contract. One of the key factors that a court-will look at in determining whether an
arbitatrion clause is unconscionable is whether the enforcement of the arbitration
clause would effectively deny the plaintiff of any remedy. If for example, the
costs of arbitration would exceed the amount of the claim, then the courts may find
it to be unconscionable and unenforceable.2 If an arbitration clause is held to be
unenforceable then the plaintiff will be entitled to proceed with his /her dispute
in court.

Huras v. Primerica Financial Services Inc. (2000) Ont C.A.

The Facts: Arbitration clause in employment contract held to be unconscionable

and therefore unenforceable. Court looked at the following factors:

The Legal Issues:

1) the contract was standard form

2) there was no equality of bargaining power
3) the arbitration clause was one-sided
4) the claims were small relative to the cost of three arbitrators and the risk of a
substantial costs award in the event of loss by plaintiffs and so it was unlikely that
the plaintiffs could afford to proceed with arbitration proceedings 5) the clause
inhibits and effectively frustrates individuals from obtaining any
resolution of their dispute

Litigation

The first step in the litigation process is for a court to assume jurisdiction. The
Supreme Court of Canada has stated that a court must satisfy the "real and
substantial connection test” in determining whether the court has jurisdiction.
Unfortunately the Supreme Court of Canada like many of its decisions, did not
clearly define what" real an substantial connection " means.

The Ontario Court of Appeal in a precedent setting decision in May of 2002

involving five cases where foreign defendants were being sued in Ontario for torts
committed outside of Ontario stated that the test is whether the court's jurisdiction
has a real and substantial connection to either the defendant or

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the subject matter of the action. " The Court identified eight factors that
permit a court to assume jurisdiction:

1. The connection between the forum and the plaintiffs claim. Eg. the plaintiff

suffering damage here 2. The connection between the forum and the

defendant

If the plaintiff has done anything within the jurisdiction in connection with the
claim then the courts are more likely to assume jurisdiction. E.g a product is
made somewhere else but sold in Ontario.

3. Unfairness to the defendant in assuming jurisdiction 4. Unfairness to the

plaintiff in not assuming jurisdiction 5. Involvement of other parties to the lawsuit

6. The courts willingness to recognize and enforce a judgment rendered

on the same jurisdictional basis

The court looks at whether it would recognize and enforce a foreign judgment
against a domestic defendant on the same jurisdictional basis if the situations
were reversed.

7. Whether the case is international or inter-provincial

8. Comity and the standards of Jurisdiction, recognition and

enforcement of judgements

If the defendant is resident in the U.S. the Ontario court will look at the US minimum
contacts doctrine and the Rules of Civil Procedure in the US.

In Ontario who can be sued in this jurisdiction is governed by Rule 17 of the

Rules of Civil Procedure. s Ontario courts have jurisdiction If,

1) The defendant was served while in Ontario;

2) The defendant was served outside of Ontario but there is a real and
substantial connection to Ontario. Rule 17 lists the situations in which a
defendant can be sued in Ontario and served with a statement of claim
outside of Ontario without having to obtain leave of the court.
3) The plaintiff obtained leave of the court to serve a statement of claim outside
of Ontario.

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 A defendant could object to the jurisdiction of the Ontario courts on the
following grounds:

1) The case does not fall within those items listed in Rule 17 which permit a
plaintiff to serve a defendant outside of the jurisdiction without leave of
the court and the plaintiff failed to obtain leave of the court;
2) If the court granted leave then the case is one in which leave should
not have been granted because either there is no real and substantial
connection to Ontario; or
3) Forum non conveniens.

If the defendant is successful, the court can set aside the service of the
statement of claim and either stay or dismiss the claim.

Choice of Law

The law applicable to a contract should be specified. If no law is specified, the

courts will try and determine the proper law of the contract. Under common law,
this is the legal system with which the transaction has the closest connection.
The court looks at factors such as: 1) the place the contract was made; 2) the
place the contract is formed; 3) the place of business of the parties, 4) the
language, form and terminology of the contract.

Forum Selection

In a forum selection clause the parties can stipulate in advance the jurisdiction
(or forum) where disputes arising out of a deal will be held. Because different
national legal systems may result in different outcomes of the same dispute, it is
advisable for the parties to pick a forum that both parties are familiar with and
where the courts are prepared to accept jurisdiction. The courts of England and
Wales are a common choice of forum in international business because most
parties are familiar with English common law principles and the English courts
have a history of accepting jurisdiction over cases with foreign
elements to it.

Interpretation of forum selection clauses

The two issues that arise in how courts interpret forum selection clauses are 1)
whether the cause is mandatory or merely permissive and 2) the scope of the
clause.

On the first issue, a permissive forum selection clause means that the parties may
submit their dispute to a particular forum for resolution but it does not require that
disputes be resolved there. Mandatory means that disputes must be resolved in
the forum specified in the contract. Forum selection clauses can be exclusive - all
disputes heard in that forum or non-exclusive - not all disputes have to be heard

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On the second issue, disputes can arise whether non-contractual matters are
covered under the clause such as negligence claims or claims that arise under
statute.

Forum selection clauses are honoured by most countries subject to two criteria:
1) must not violate public policy of a country having connection with the contract;
2) the forum is not seriously inconvenient for one or more of the parties or
the court itself.

Forum Non Conveniens

Forum non conveniens is where a court that has jurisdiction declines to

accept jurisdiction because it is not the appropriate forum and justice requires
that the plaintiff litigate in another jurisdiction. In Canada, where a Canadian
plaintiff seeks to sue a foreign defendant in a Canadian court, the onus of proving
that the Canadian court is not the appropriate forum is on the moving party. In
determining whether to stay the action on the basis of forum non conveniens,
Canadian courts follow the English decisions. The Ontario Court of Appeal in
Frymer v. Brettscheidei' listed a number of factors to consider in
determining whether another jurisdiction is more appropriate for the action than
Ontario. These include:

1. the location of the key witnesses

2. the governing law of any contract

3. the location of the majority of the parties 4. the location of key evidence

5. the avoidance of a multiplicity of proceedings

6. the governing law and its weight compared with the factual questions to be
decided. For example which law of tort applies if it is a negligent design or
manufacture case or which law of contract if it is a breach of contract case.

7. the presence of a jurisdiction (forum selection) clause in a contract

8. whether a party would be deprived of a legitimate personal or juridical

advantage that would be available if the action were conducted in the competing
jurisdiction

9. the distances that witnesses or parties will have to travel 10. any

geographical factors suggesting a natural forum 11. the rules of evidence in the

competing jurisdiction
12. the ability of the plaintiff to execute on the judgment in the competing
jurisdiction.

13. where was the damage sustained?

Enforcement of Foreign Judgments

In general, Canadian courts will recognize and enforce a foreign judgment

against a Canadian defendant who did not attorn to the jurisdiction of the
foreign court if the territory of the foreign court had a "real and substantial
connection" with the action. The Exceptions to this are:

1. where there is fraud going to the jurisdiction

2. if there is a breach of the Canadian concept of "natural justice",
3. public policy
4. lack of jurisdiction over the subject matter.
5. penal or revenue judgments