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

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