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British Institute of International and Comparative Law

What Is an International Contract? An American and a Gallic Dilemma


Author(s): G. R. Delaume
Source: The International and Comparative Law Quarterly, Vol. 28, No. 2 (Apr., 1979), pp. 258279
Published by: Cambridge University Press on behalf of the British Institute of International
and Comparative Law
Stable URL: http://www.jstor.org/stable/758599
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WHAT IS AN INTERNATIONALCONTRACT?
AN AMERICAN AND A GALLIC DILEMMA
By
*
G. R. DELAUME

IN two leading cases, Zapata 1 and Scherk,2decided in 1972 and 1974,


respectively, the Supreme Court of the United States held that, " in an
era of expanding world trade and commerce," the parties to an
"international contract " could validly stipulate provisions which, in
a domestic setting, would be prohibited. Specifically, the court held
that the American party to such a contract could not renege on commitments freely undertakentowards a foreign party by seeking refuge in an
American forum, under the umbrella of American law. In the words of
the court:
We cannot have tradeand commercein worldmarketsand internationalwaters
exclusivelyon our terms,governedby our laws and resolvedin our courts.3

In so holding, the Supreme Court has made a most significant


contribution to the harmonious development of an orderly regulation
of internationaltransactions. It has freed the parties from the constraints
of domestic law in a field in which reliance on domestic rules may
hinder rather than foster international relations. It has also reaffirmed
the binding character of contractual commitments voluntarily and
freely entered into by alert and experienced businessmen.
Gratifying as they are, these decisions leave important questions
unanswered, not the least of which concern the definition of what
constitutes an " international contract " and the possible extension of
the new philosophy to areas which, at the present time, fall exclusively
within the orbit of American law as administered by American courts.
These are, however, issues of vital concern to businessmen and their
legal advisers attempting to assess in advance of litigation the effectiveness of contractual stipulations in the making or, in other words, of
techniques of conflict avoidance. So far, this aspect of the problem
has been the object of relatively scant attention in the existing and
already abundant literature which has been published since Zapata and
Scherk.4 Only a few judicial decisions rendered since then have shed
* Legal Policy Adviser, International Bank for Reconstruction and Development;
Professorial Lecturer in Law, George Washington University. The views expressed
in this paper are those of the author and do not necessarily representthose of the IBRD.
1 MIS Bremenand UnterweserReederei GmbH v. Zapata Off-Shore Co., 407 U.S. 1,
92 S.Ct. 1907, 32 L.Ed. 2d 513 (1972). The case is sometimes referred to also as the
" Bremen " or " Chaparral" case, because of the names of the vessels involved.
2 Scherk v. Alberto-CulverCo., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed. 2d 270 (1974).
3 Zapata, 92 S.Ct. 1912; Sherk, 94 S.Ct. 2457.
4 No attempt will be made to list all the articles or comments in point.

258

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new light on some of the implications of the SupremeCourt's pronouncements.5In a sense, it may, thus, be prematureto attempt to forecast the
future evolution of American law in this area. Yet the time has perhaps
come to take stock of the major issues likely to arise and of their
possible solution.
In this connection a comparative approach to the problem may be
of some assistance. The Supreme Court's concern for the peculiarities
of international trade follows, somewhat belatedly, that voiced by the
French Court of Cassation, almost 50 years ago and reaffirmedby it
ever since." In a nutshell, the Gallic approach to the problem is to
compel the parties to " international contracts " to honour their solemn
promises, regardless of the provisions of the law, whether French or
foreign, which, under the usual conflicts rules, would be the applicable
law. The principle is thus clearly stated. What is less clear, however, is
the precise significance of the principle. In the first place, notwithstanding the number of decisions in point, the French concept of
" international contracts " remains somewhat fluid. In the second place,
it is remarkable that the concept has been used primarily in specific
areas of international trade, and especially in connection with monetary
matters and arbitration, to the exclusion of other sectors of international commerce. The French experience,thus, illustratesthe difficulty
of arriving at a satisfactory and comprehensive definition of the basic
concept, and also suggests that, however important the sanctity of
contract may be to international businessmen, there are nevertheless
limits to party autonomy, which cannot be ignored with impunity.
In order to set the comparison in proper perspective, it may be
useful to recall brieflythe history of Zapata and Scherk, since both cases
supply the springboard from which new solutions may emerge.
Zapata concerned the validity of a foreign choice of forum in favour
of the English courts, in a contract between Unterweser, a German
company, and Zapata, an American corporation, for the towage of an
ocean-going drilling rig from Louisiana to a point off the Italian
Adriatic Coast. The contract contained exculpatory clauses which were
apparentlyvalid under English law, implicitly applicableto the contract,7
but which would have been invalid under American law. An accident
happened in the international waters of the Gulf of Mexico and the rig
was towed back to Florida, where Zapata instituted suit for damages.
The district court and the Fifth Circuit Court of Appeals refused to
5 See text and nn. 51, 53 to 55, 87 and 91 infra.

6 Delaume, TransnationalContracts(updated 1978), ? 4.08.


7 At the time the contract was entered into, the English courts followed the maxim
qui eligit judicem eligit jus, according to which, in the absence of contrary indication, the
parties were presumed to have accepted that the chosen forum would apply its own law.
The excessive rigidity of this rule has now been repudiated. See CompagnieTunisiennede
Navigation, S.A. v. Compagnied'ArmementMaritime, S.A. [1970] 3 All E.R. 71 (H.L.).
See also Delaume, op. cit. supra n. 6, ? 3.03 text and nn. 18 to 26.

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dismiss the action and to refer the parties to the English court on the
grounds, inter alia, that (i) the parties could not " oust " an American
court of its jurisdiction; (ii) under the American law, the exculpatory
clauses would have been invalid 8; and (iii) Zapata's substantive rights
would be materially affected if the dispute were litigated in England.Y
Vacating the judgment below, the Supreme Court rejectedthe argument
based on the " ouster " of jurisdiction as " hardly more than a vestigial
legal fiction,10and held that the American prohibition of exculpatory
clauses in towage contracts " rested on considerations with respect to
the towage business strictly in American waters, and those considerations are not controlling in an international commercial agreement." 11
Turning to the basic issues involving forum selection clauses, the
Supreme Court acknowledged that such a clause is often a " vital part "
of the agreement and as a factor of certainty is an "indispensable
element of international trade." 12 In the light of today's realities of
international commerce, such clauses should control in the absence of
a "strong showing" that the clause should be set aside.13 Since the
choice of forum was made " in an arm's length negotiation by experienced and sophisticated businessmen.., .it should be honoured by the
parties and enforced by the courts." 14 In general terms, the court
stated that enforcement might be denied if it were " unreasonable and
unjust" 15 or if " the clause was invalid for such reasons as fraud or
overreaching,"16or if enforcementwould be contraryto public policy.17
Scherk gives a new dimension to the rules formulated in Zapata.
Zapata was an Admiralty case and there was some doubt whether it
would be followed in regard to other international contracts. Scherk
supplies an affirmative answer. Alberto-Culver, an American manufacturer with its principal office in Illinois, had purchased from Scherk,
a German citizen, three enterprisesorganised under the laws of Germany
and Liechtenstein, together with the licensing of related trade marks.
Following an initial contract in Germany, and further meetings in both
Europe and the United States, a contract was signed in Austria and
closed in Switzerland. The contract contained a clause which provided
8 Bisso v. Inland Waterways
Corp., 349 U.S. 85, 75 S.Ct. 629, 99 L.Ed. 911 (1955).

9 428 F. 2d 888 (5th Cir. 1970), vacated, 407 U.S. 1 (1972).


10 92 S.Ct. at p. 1914.
11 Ibid. at p. 1916.
12 Ibid. at p. 1915.
13 Ibid. at p. 1916. Claiming simply that the chosen forum is seriously inconvenient is
not sufficient since the parties must have contemplated the inconvenience at the time of
the contract. " [I]t should be incumbent upon the party seeking to escape his contract to
show that trial in the contractual forum will be so gravely difficult and inconvenient that
he will for all practical purposes be deprived of his day in court. Absent that, there is no
basis for concluding that it would be unfair, unjust, or unreasonable to hold that party to
his 'bargain.' " Ibid. at p. 1917.
14 Ibid. at p. 1914. Zapata was again involved (and again lost) in choice-of-forum
litigation. See Zapata Marine Service v. 0/ YFinnlinesLtd., 571 F. 2d 208 (5th Cir. 1978).
16 Loc. cit.
17 Loc. cit.
15 Loc. cit.

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for the settlement of disputes by arbitrationin Paris, in accordance with


the rules of the International Chamber of Commerce, although the
laws of the State of Illinois were applicable to the agreement, "its
interpretation and performance."
Subsequently, Alberto-Culver allegedly discovered that the trade
marks were significantlyencumberedand offered to rescind the contract.
Scherk refused and Alberto-Culver brought suit in a federal district
court in Illinois, contending that Scherk's fraudulent representations
concerning the status of the trade marks violated section 10 (b) of the
SecuritiesExchange Act of 1934. Scherk moved to dismiss on the ground
of forum non conveniens or alternatively to stay the action pending
arbitration. The motion was denied but the Court of Appeals of the
Seventh Circuit, relying on Wilko,18held that the arbitrationclause was
unenforceable and enjoined the arbitration.19By a five to four decision,
the Supreme Court reversed and upheld the validity of the arbitration
clause.
Emphasising the international character of the transaction and the
similarity between an arbitrationand a forum selection clause as factors
of contractual predictability,20 the SupremeCourt held that the invalidation of the clause would sanction a repudiation by Alberto-Culver of its
solemn promise and, in the words of Zapata, reflect a " parochial "
concept. Distinguishing Wilko on the ground that it related to an
essentially domestic situation,21 whereas the dispute between Scherk
and Alberto-Culver concerned a "truly international agreement," 22
the court listed three factors as characteristic of the " international "
nature of the agreement, namely: (i) the fact that the parties were of
different nationalities, with their principal place of business and the
bulk of their activity in their respective countries; (ii) negotiations
took place in a number of countries and involved consultation with
legal and trade mark experts from these countries; and (iii) " finally, and
most significantly, the subject-matter of the contract concerned the
sale of business enterprisesunder the laws of, and primarily situated in,
European countries, and whose activities were largely, if not entirely,
18 Wilko v. Swam, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 1968 (1953).
19 484 F. 2d 611 (7th Cir. 1973), rev'd 94 S.Ct. 2449 (1974).
20 " A contractual provision specifying in advance the forum in which disputes shall
be litigated and the law to be applied is . . . an almost indispensable precondition ot
achievement of the orderliness and predictability essential to any international business
transaction " (94 S.Ct. at p. 2455). " An agreement to arbitrate before a special tribunal
is, in effect, a specialised kind of forum-selection clause that posits not only the situs of
the suit but also the procedure to be used in resolving the dispute " (ibid. at p. 2457).
21 In Wilko the court had held that an agreement to arbitrate future controversies in
a stock agreement between an individual customer and a large brokerage firm was void
under s. 14 of the Securities Act. As noted by the court, in Wilko there was no question
that the parties, the negotiations, and the subject-matterof the contract were all situated
in the United States and that the laws of the United States were to govern disputes arising
out of the agreement. See 94 S.Ct. at p. 2455.
22 94 S.Ct. at p. 2455.

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directed to European markets." 23 Referring to Zapata, the court


concluded that an arbitration, like a forum selection, clause " should
control absent a strong showing that it should be set aside." 24
As a result of Scherk and Zapata, the elements of a definition of the
concept of " international contract " are identifiable. Identifiable also
are the exceptions to the rule that the stipulations found in a freely
negotiated international agreement should normally be enforced.
Unanswered are many practical questions which pertain to the components of the definition, the scope of the exceptions and the types of
transactionswith regardto which the notion of " internationalcontract "
may, so to speak, displace rules of domestic law in order to achieve the
" orderliness and predictability " 25 of results essential to the needs of
international commerce. These are the issues which now deserve
consideration.
I. WHAT IS AN " INTERNATIONALCONTRACT" ?
In a sense Zapata and Scherk and their recent progeny are " simple"
cases because the international features of the relevant agreement were
present beyond the shadow of a doubt. That less clearly cut situations
may occur is not only a distinct possibility, but a real certainty. Under
the circumstances, it may be proper to consider at some length the
possible implications of each of the factors on which the overall
definition is based, i.e. the nationality of the parties, the situs and
character of the negotiations and the subject-matter of the contract,
and the weight to be attached to each factor or a combination of them.

A. The Parties
Both Zapata and Scherk involved contracts between parties, whether
corporate or individual, of differentand clearly identifiable nationalities.
The same is true, with two exceptions, which do not really touch upon
the " international " character of the contract involved,26 of subsequent
cases.27
24 Ibid. at
25 Ibid. at
Ibid. at p. 2455.
p. 2457.
p. 2455.
The first exception is found in Roach v. Hapag Lloyd, 358 F.Supp. 481 (N.D.Cal.
1973) in which, following an action for damages by a longshoreman against a German
cargo-owner, the cargo-owner filed a third party complaint against the German shipper.
The complaint was dismissed, albeit reluctantly, on the ground that the two German
companies had, pursuant to a bill of lading signed in Germany, agreed to submit disputes
to the courts of Hamburg, Germany.
The second exception is Fuller Co. v. Compagniedes Bauxites de Guinde,421 F.Supp.
938 (W.D.Pa. 1976), discussed infra in text related to n. 32.
27 RepublicInternationalCorp.v. Amco Enterprises,Inc., 516 F. 2d 161 (9th Cir. 1975)
upholding the validity of a choice of an Uruguayan forum in contracts for civil works to
be performed by a California corporation in Uruguay for the account of the Government
of that country. Gaskin v. Stumm Handel GmbH, 390 F.Supp. 361 (S.D.N.Y. 1975)
concerning a German forum selection clause in an agreementbetween a German company
and a New York citizen employed to act as manager in charge of the company's New
York operations; Tai-KienIndustry Co. Ltd. v. M/V Hamburg, 528 F. 2d 835 (9th Cir.
1976) relating to a towage contract dated Hamburg, Germany, between a German
company and a Taiwan corporation; Sanko S.S. Co. Ltd. v. NewfoundlandRefining Co.,
23
26

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1979]

What is an InternationalContract?

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The use of the alter ego concept between parent corporations and
subsidiaries or agents by American courts in the jurisdictional field,28
or in antitrust laws,29 may, however, import a new ingredient in the
relevant characterisation. Presumably, an American court would hold
that the nature, " international " or " domestic," of a contract between
an American parent corporation and its foreign subsidiary, or viceversa, would depend upon their mutual interdependence or their
effective independence, and only in the second instance could the
agreement qualify as a genuine " international " transaction.
In the same connection, it is worth recalling that section 202 of the
United States Code,30 implementing the New York Convention of
June 10, 1958, on the Recognition and Enforcement of Foreign Arbitral
Awards,31provides that:
. . . An [arbitration] agreement or [arbitral) award arising out of [a legal]
relationship [which is considered as commercial] which is entirely between
citizens of the United States shall be deemed not to fall under the Convention
unless that relationship involves property located abroad envisages performance
or enforcement abroad or has some reasonable relation with one or more foreign
States. For the purpose of this section a corporation is a citizen of the United
States if it is incorporated or has its principal place of business in the United
States." [Emphasis added.]

In other words as between American parties, including, in the case


of integrated corporations, alter ego parents and subsidiaries, the
presumption would run against the " international " character of the
agreement, unless some other factors were present.
An example in point is Fuller Co. v. Compagnie des Bauxites de
Guinde.32 In that case, Fuller, the plaintiff, a Pennsylvania corporation,
had agreed to sell to the defendant (CBG), a Delaware corporation, a
drying and calcining plant and certain related equipment to be used at
CBG's bauxite plant in the Republic of Guinea. The equipment was to
be manufactured by Fuller in the United States and shipped FOB at
Philadelphia. The contract envisaged that Fuller personnel would (and
in fact did) provide extensive technical services in Guinea and for the
411 F.Supp. 285 (S.D.N.Y. 1976), which, although the nationality of the parties is not
clearly stated, would seem to imply that one of them was British and the other American;
Antco Shipping Co. Ltd. v. Sidermar, SpA, 417 F.Supp. 207 (S.D.N.Y. 1976) concerning
an arbitration clause in a charterparty between an Italian shipowner and a Bahamian
charterer,Farmanfarmaianv. Gulf Oil Corp., 437 F.Supp. 910 (S.D.N.Y. 1977) affirmed
588 F. 2d 880 (2d Cir. 1978) 9; decided on forum non conveniensgrounds) regarding the
choice of an Iranian forum in an agreement between an Iranian and American citizens.
Comp. Hanes Corp. v. Millard, 531 F. 2d 585 (C.A.D.C. 1976) concerning the issue of
limitations in the context of the assignment of a patent by French to American citizens
and referringthe determination of the issue to arbitrators, in accordance with the terms
of the contract. See Delaume, op. cit. supra n. 6, ? 2.09 text and nn. 17-20.
28 Delaume, ibid., para. 7.03.
29 See e.g. Call Carl, Inc. v. BP Oil Corporation,391
F.Supp. 367 (D. Md. 1975). See
also nn. 42 to 44 and related text infra.
30 9 U.S.C.

31 330 U.N.T.S. 38.


32 421 F.Supp. 938 (W.D.Pa. 1976).

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delivery of replacement parts to a port in that country. Acceptance of


the equipment was subject to the issuance of a certificate by a Belgian
consulting firm retained by CBG. The contract provided for arbitration
in Geneva, under the rules of the International Chamber of Commerce,
although the parties agreed that the law applicable to the contract was
New York law.
In 1975 CBG submitted a request for arbitration to the Court of
Arbitration of the International Chamber of Commerce, while Fuller
filed a petition for a declaratory judgment in the state court of Pennsylvania, alleging that the dispute had been settled by an earlier agreement between the parties. CBG removed the case to the federal courts
and moved to stay the proceedings pending arbitration.The motion was
granted. The court held that the contract bore a sufficient connection
to the Republic of Guinea to meet the test of ?202 USC and to sustain
the binding character of the arbitration agreement.
French precedents give support to the view that the nationality of the
parties, while relevant, is not necessarily the determining factor in the
characterisationof a transaction as an " international contract."
In its latest pronouncements on the subject, the French Court of
Cassation upheld a decision of the Court of Appeals of Paris for having
characterisedas " international " a contract between a Dutch company
and its French commercial agent.33 There exist, however, earlier
decisions of the same court in which the nationality of the parties was
considered immaterial to the process of determination. Thus, transactions taking place in France between Frenchman and foreigners have
been characterised as purely domestic when it was shown that other
connecting factors were essentially French oriented. 34On the contrary,
transactions between French parties have repeatedly been declared
valid when it was shown that they were ancillary to genuine international
transactions. Typical examples concern transactions between French
brokers, 35 or between French principals and agents,36 providing for
payment in a foreign currency (at a time when such payment was
domestically prohibited) in connection with import-exporttransactions.
Similar solutions have obtained in the case of guarantee agreements
Buismans [1972] Clunet 843; [1974] Rev.Crit.
33 Cass. July 4, 1972, Hecht v. Socidetd
Dr.Int.Pr. 82.
34 Cass. May 17, 1927 Pdlissier du Besset v. Soc. The Algiers Land and Warehouse,
[1927] Sirey 1,289, holding void a provision for payment in pounds sterling either in
London or in Algiers (then part of France) in a lease contract between a Frenchman and
an English company regarding immovable property located in Algiers; Cass. Nov. 2,
1932, Socidtd des Music Halls Parisiens v. Socidtd Victoria Palace [1933] Clunet 1197,
declaring null and void a loan contract providing for repayment in sterling between an
English and a French company when it was established that the funds used for making the
the loan were funds held in France by the lender.
35 Cass. April 18, 1931, Delafontaineet Deleau v. Perret, and May 30, 1933, Liquidation
Judiciaire Delafontaine v. Mondon [1934] Rev.Crit.Dr.Int.Pr. 455; Cass. Nov. 20, 1935,
Dambricourtv. Lecouteux et Proffit [1937] Clunet90.
36 Cass. July 8, 1931, Dupille et Guiguanv. Maroger et Devigne [1931] Sirey 1.387.

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between French banking institutions when it was shown that the


principal debt was a real international transaction involving a foreign
debtor and a foreign banking establishment,7 or that the use abroad
by a French bank of funds raised in the French capital market gave to
its borrowings in France a dimension which exceeded " the limits of
domestic economy." 38
In all these cases, the nationality of the parties as a factor of determination recedes behind the subject-matter of the transaction. The
same remarkapplies, but only to a certain extent, to contracts concluded
in France between Frenchmen and the French subsidiary of a foreign
corporation. Thus, an arbitration clause providing for arbitration in
London in accordance with the rules of the London Corn Trade
Association in a contract between a French company, which was the
subsidiary of a Dutch company, and a French merchant was held valid,
at a time when arbitration was still prohibited in a domestic context,
on the ground that the prohibition did not apply to contracts which,
even though they concerned French parties "involved the interest of
international commerce." To buttress this opinion, the Court of
Cassation emphasised the fact that: (i) the contract related to the
importation of foreign goods into France; (ii) payment was to be made
by cheque on a London bank; (iii) the contract followed the standard
form of contract of the London Corn Trade Association, and (iv) somewhat subsidiarily,the plaintiff was the subsidiaryof a foreign company.39
In another case,40a Swiss company had sold, through its French subsidiary, printing equipment to a Frenchman, payment to be made in
Swiss francs. The purchaser, who was in arrears, sought to have the
contract annulled as contrary to French monetary laws, which prohibited foreign currency stipulations in domestic contracts. It was held,
however, that the stipulation was valid since: (i) the sale concerned the
importation into France of equipment manufactured in the United
States; (ii) the equipment had been imported into France for the sole
account of the purchaser; and (iii) although preliminarydiscussions had
37 Cass. Feb. 14, 1934, BanqueHipothicaire Franco-Argentinev. Bonnauand Reynaud
v. BanqueHipothecaireFranco-Argentine[1934] Sirey 1.297. A French mortgage bank had
issued bonds in France, which were subscribed by French citizens, to finance its lending
operations in Latin America. The Latin-Americanloans were " pledged " as security for
the repayment of the bonds. A dispute arose as to whether the bonds contained a gold
clause and, in the affirmative, whether the validity of the gold clause (then prohibited
in domestic transactions) could be upheld. The answer was found in the affirmativeon
both counts since the bonds were characterisedas having an " international " character.
The Court said (as translated): " The international character of a transaction does not
depend upon the location of the place of performance, but upon its nature and the varied
elements to be taken into account, whatever the domicile of the parties, to give to the
transferof funds that are inherentto it a characterbeyond the limits of domestic economy."
38 Cass. Oct. 27, 1943, Socie't des GrandesMinoteries Bassot et Cie v. CreditFoncier
d'Algdrie et de Tunisie [1947] Sirey 1.17.
39 Cass. Feb. 19, 1930, Mardeldv. Muller et Cie [1933] Sirey 1.41.
40 Cass. Nov. 17, 1943, Rion-Reuz6v. SocidtdInterprint[1946] Sirey 1.17.

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taken place between the purchaser and the French subsidiary of the
seller, the purchaser knew that he was dealing with the seller's headquarters since the contract was dated in Bern.
Once the international character of the transaction is ascertained, the
French courts no longer seriously consider the nationality of the parties.
A typical example is found in cases concerning the validity of a gold
clause in bonds issued in Canada and in the Netherlands by a French
shipping company and subscribed by French and foreign investors.
Regardless of the nationality of the bondholders, the French courts
upheld the validity of the gold clause.41
These liberal decisions contrast with certain American cases, such as
Bersch v. Drexel Firestone, Inc.42 which, in a class action brought by
American residents, and American and foreign non-residents, upheld
jurisdiction as to all American claimants, but not as to non-American
nationals, even though the alleged violations of the domestic laws on
which the action was based were, as to all non-residents, whether
American or foreigners, identical. Such decisions, which would make
jurisdiction dependent upon "the plaintiff's passport," 43 and may
violate the equal protection clause of the Constitution and treaty
commitments of the United States.44 are regrettable. They reveal a
parochialism which is contrary to the holdings of Zapata, and Scherk
and out of context with the fundamental prerequisites of international
commerce.
B. The Negotiations
Much emphasis has been placed in both Zapata and Scherk upon the
fact that the parties were experienced and sophisticated businessmen,
assisted by legal and other experts and that arm's-length negotiations
had resulted in freely agreed contracts, which were far from routine
transactions.45The selection of an English forum in the case of Zapata
was clearly a compromise between the preference of Unterweser for a
German forum and of Zapata for an American one.46 Both in Zapata
and Scherk, the forum selection and arbitral clauses were factors of
certainty, preventing one of the parties from bringing suit in a forum
41
Paris, May 16, 1951, TrdsorPublic et Socidtd Royal Bank of Canada v. Schumann
[1952] Clunet 1228, aff'd on other grounds Cass. Jan. 24, 1956 [1956] Clunet 1012; Cass.
Oct. 29, 1964, Etat Frangais v. Veuve Hermann [1965] Clunet 637; Cass. Jan. 1, 1950,
Etat FranVaisv. Comitdde la Bourse d'Amsterdam[1950] Rev.Crit.Dr.Int.Pr. 609; [1951]
Sirey 1.1. See also, Delaume, Legal Aspects of InternationalLendingand EconomicDevelopment Financing(1967), p. 114.
42 519 F. 2d 974 (2d. Cir. 1975), cert. denied 96 S.Ct. 543 (1975).
43 Sanberg, "The Extraterritorial Reach of American Economic Regulation: The
Case of the Securities Law," (1975) 17 Harv.Int.L.J. 316 at p. 323.
44 Note, " American Adjudication of Transnational Securities Fraud " (1976) 89
Harv.L.Rev. 553 at p. 569.
45 Zapata, 92 S.Ct., at pp. 1912, 1914, 1916 and 1917; Scherk, 94 S.Ct., at p. 2455.
46 92 S.Ct., at p. 1915. The same was probably true in Scherksince notwithstandingthe
provision for arbitrationin Paris, the contract stipulated that it was governed by the laws
of Illinois.

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hostile to one of them.47 At least in Zapata, it would have been " unrealistic to think that the parties did not conduct their negotiations,
including fixing the monetary terms, with the consequences of the forum
clause figuring prominently in their calculations." 48
The facts surrounding these cases, while not unusual in the context
of" big business," would, if they were strictlyadheredto for the purpose
of identifying " international " contracts, lead to a restrictive interpretation of that concept. Aside from the transactions of powerful businessmen and corporations engaged in international commerce, there is a
myriad of transactions of a less sophisticated character, which nevertheless deserve special attention.
This consideration probably explains why it is only on relatively rare
occasions that reference to the process of negotiations appears in
French judgments."4 In most cases, the courts are satisfied to note
either that the parties have a differentnationality and operate within the
context of differentlegal systems or that the contract involves a financial
or commercial transaction relating to international trade and business
operations.50This approach, it is submitted, is to be favoured since
the needs of international commerce are not necessarily commensurate
with the size of the transaction, its complexity, the use of experts or the
degree of sophistication of the parties.
Gaskin v. Stumm Handel Gmbh.51shows that there is reason to
believe that American courts may lean towards an approach similar to
that of the French courts and give to Zapata and Scherk their full
practical significance. In that case, an agreement between a German
corporation and a New York citizen, who was employed as manager in
charge of the corporation's New York operations, provided for the
submission of disputes to a German forum. The manager, the plaintiff,
argued that the clause was not binding since it was written in German, a
language of which he had no knowledge. It was shown, however, that
he had been orally informed of the content of the clause and it was held
that he was bound by it. The court pointed out that this was a contract
negotiated at arm's length and in a business-like fashion, and that the
plaintiff had voluntarily subscribedto it in the hope of " reaping a great
economic benefit " from it 52; the plaintiff had ample opportunity to
assess the content and meaning of the clause and the clause should be
enforced as a matter of contract law.
Other cases make practically no mention of the negotiating process
and either simply refer to Zapata to uphold forum selection clauses in
47 Zapata, 92 S.Ct. w. p. 1915; Scherk, 94 S.Ct. at pp. 2455-2456.

48

92 S.Ct., at p. 1915.

49 See n. 67 and associated text infra.


50 See nn. 32 to 42 and associated text supra, and nn. 65, 66, and 68 and associated
text infra.
52
51 390 F.Supp. 361 (S.D.N.Y. 1975).
Ibid., 363.

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internationalcontracts,53or lay emphasison the nationalityof the


parties,54or on the particularsubject-matterof the contract,55which
now deservesattention.
C. The Subject-matterof the Contract

Both Zapata and Scherk stress the fact that the contract involved
concernedinternationaltrade,56that it had contactwith manyjurisdictions 57 withdifferentlaws,58includingconflictsrules,whichwouldcast
considerableuncertaintyon the law applicableto the resolutionof
disputesarisingout of the contract.59
Dealingwith the specificfeatures
of eachcase,Zapatatakesinto accountthe factthat,in the courseof the
voyage,the vesselswereto " traversethe watersof manyjurisdictions"
and that if an accidentoccurred,there would be " countlessports of
Scherknotes
refuge" to whichthe vesselscould retreatfor repairs.60
that Alberto-Culver
was bent on expandingits overseasoperationsand
on penetratingnew marketsin Europe.61
On the basis of these and the
few cases decidedsince,62all that can be said is that, in regardto the
" test of the definition,legal and economicconsidera" subject-matter
tions seemto playa complementary
role. On the legalside,the contract
must have contacts with severalcountries,expose the partiesto the
vagariesof conflictslaw, enablethemto forumshop and " jockey" in
order to secure"tactical litigationadvantages."63 On the economic
side, the factorsto be consideredarethe particulartransnationalnature
of the servicesrenderedor the aggressiveeconomicpenetrationof new
fieldsof activitiesby one of the partners.
On the basis of this analysis,it would clearlybe presumptuousto
make an attemptat generalisation.So much the more, since Zapata
and Scherk are in a way one-sided. Both cases involve American
53 See e.g. Sanko S.S. Co. Ltd. v. Newfoundland Refining Co., 411 F.Supp. 285
(S.D.N.Y. 1976) aff'd 538 F. 2d 313 (2d Cir. 1976), cert. denied 429 U.S. 858, 97 S.Ct. 158
(1977), simply relying on Zapata to uphold an English forum selection clause in a charterparty.
54 See e.g. RepublicInternationalCorp. v. Amco Enterprises,Inc., 516 F. 2d 161 (9th
Cir. 1975); Tai-KienIndustry Co. Ltd. v. M/IVHamburg, 528 F. 2d 835 (9th Cir. 1976).
55 See the cases cited in the preceding note. See also Fuller Co. v. Compagnie des
Bauxites de Guinde,421 F.Supp. 938 (W.D.Pa. 1976).
56 Zapata, 92 S.Ct. 1915.
57 Ibid. 1915; Scherk, 94 S.Ct. 2455.
58 Loc. cit.

59 Scherk, 94 S.Ct. 2455 and n. 9; referringto Scherk's initial motion to stay on the
ground that the federal securities laws did not apply to this international transaction.
60 92 S.Ct. 1915. See also Tai-KienIndustryCo. Ltd. v. M/IVHamburg,528 F. 2d 835
(9th Cir. 1976).
61 94 S.Ct. 2451 at p. 2455. See also, RepublicInternationalCorp. v. Amco Enterprises
Inc., 516 F. 2d 161 (9th Cir. 1975), noting that the completion of the drafting and design
works regardingcivil works to be performed in Uruguay by a California corporation had
taken place in Los Angeles, where Uruguayan governmental engineers had been sent for
five to six months, and that, in order to performwork in Uruguay, the California Corporation had to set up a Uruguayan subsidiary.
62 See nn. 54, 55, 60 and 61 supra.
,63 Scherk, 94 S.Ct. 2456.

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nationals engaged in outward transactions, off-shore of the United


States. Assuming that the situations were reversed and that the same
sophisticated businessmen were engaged in a far from routine transaction, with the assistance of their experts and in full knowledge of the
legal and economic factors inherent to these transactions, and intended
to pursue an inward voyage or the penetration of the American market,
would the courts be so willing to diagnose an " international " contract
in a transaction whose American roots would be exposed to greater
light? As yet, there is no clear answer to the question. So far, only
Gaskin would seem to supply an affirmativeanswer."6
In France, the answer is unequivocal: the concept of international
contract applies regardless of whether the centre of gravity of the
contract is in France or abroad. However, it does not follow that the
French approach to " international " contracts solves all the problems.
Over the years, the criteria used to identify international contracts on
the basis of their subject-matterhas indeed shifted significantly.
Historically, the French theory was based on economic considerations.
The initial cases held that a contract would be considered as " international " in character if it implied a mutual transfer (flux et reflux) of
economic values whether in the form of a transfer of money or of goods,
across national borders, one of which was French.65When this was the
case, the courts have had no hesitation in holding that the contract
ought to be enforced even though enforcement was forbidden under the
proper law of the contract.66
In recent years, particularly in connection with the validity of
arbitration clauses, the courts have appeared to substitute for the
traditional notion a new definition. According to the new approach,
which is also based on economic considerations, a contract would be
considered as "international" if it were to affect "the interest of
international trade," such as the exportation by a Frenchman of goods
intended for delivery abroad. The Impex case illustratesthis reasoning.67
Pursuant to a series of contracts, the appellant, a French company, had
agreed to sell barley to the respondent, an Italian corporation. In order
to take advantage of subsidies given to exporters of goods sold to
countries outside the Common Market, the appellant informed the
respondent that it intended to ship the barley through Portuguese and
Swiss channels. The respondent simply acknowledged. The appellant,
without hiding the facts, sought an export licence from the French
authorities. The licence was denied on the ground that the proposed
64 See nn. 51 and 52 and associated text supra.

65 Cass. May 17, 1977, Pelissier du Besset v. Socidtd Algiers Land Warehouse[1928]
Clunet 419; [1921] Sirey 1.289.
66 See n. 41 supra.
67 Cass. May 18, 1971, SocidtdImpex v. Socie'ts P.A.Z., MalteriaAdriaticaand Malteria
Terrena [1972] Clunet 62; [1972] Rev.Crit.Dr.Int.Pr. 124.

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scheme was contrary to existing regulations. The appellant then


informed the respondent that it could not fulfil its obligations and that
the denial of a licence constituted impossibility of performance. The
respondent instituted arbitrationproceedings. Pending the proceedings,
the appellant brought action in the French courts to have the contract
annulled as contrary to public policy. The action was dismissed on the
ground that the subject-matter of the dispute, involving transactional
commerce, was truly international and should be dealt with by the
arbitrators who, under the arbitration clause, had jurisdiction, not
only in regardto contractual disputes, but also over disputes concerning
the existence and validity of the principal contract.
A similar approach was followed when the French Government
attempted to challenge the arbitrability of disputes with foreign shipowners and it was establishedthat, notwithstandingthe non-arbitrability
of governmental contracts under French domestic law, the arbitration
clause in the contract in question conformed to the "customs of
maritime trade." 68
According to the latest judicial pronouncements on the subject,
however, economic considerations may now be superseded or supplemented by factors of a juridical nature. Thus, in the Hecht case,69the
Court of Appeals of Paris, whose decision was affirmedby the Court of
Cassation, was confronted with a dispute involving an ICC arbitration
clause in a contract between a Dutch company and a French commercial
agent (which clause would have been void under French law). The court
upheld the validity of the clause on the ground that the contract:
... executedin Holland betweena commercialcompanyand a Frenchman,is
an internationalcontract, i.e. a contract connected with juridical norms in

because
forceinseveralStates[and]thatsucha contractpossessesthischaracter
of its executionin Holland, the nationalityof the partiesand its purpose,which
was to give authorityto Hecht, a Frenchnational,to performin Francejuridical
acts on behalf of a company, incorporatedunder Dutch law and having,
therefore,a Dutch legal status, in order to increase its exports to France of
goods producedby it ... .70

This approach is not far remote from that followed in Zapata and
Scherk. Unlike the normal conflicts situation, in which a court would
look to the "grouping" of contracts showing the most significant
relationship between the contract and the proper law, or, under
functional analysis, where the balancing of interests should give the
solution, the French and the American courts join forces in considering
68 Cass. April 14, 1964, Office National Interprofessioneldes Cdriales v. Capitainedu
San Carlo [1965] Clunet 646; [1966] Rev.Crit.Dr.Int.Pr. 68; Cass. May 2, 1966, Trdsor
Public v. Galakis [1966] Clunet 648; [1967] Rev.Crit.Dr.Int.Pr. 553. See also Delaume,

op. cit. supran. 6, ? 13.05,and nn. 8 to 18 andtext.

69 Cass. July 4, 1972, Hecht v. Socidtd Buismans [1972] Clunet 843; [1974] Rev.Crit.
Dr.Int.Pr. 82.
70 As translated from Paris, June 19, 1970, Hecht v. SociktdBuismans [1971] Rev.Crit.
Dr.lInt.692; [1971] Clunet 843.

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What is an InternationalContract?

271

that it is the multifarious contacts of the transaction with


several.legal
systems which gives it its " international " status.
II. CONSEQUENCESAND LIMITATIONSOF THE'" INTERNATIONAL
CONTRACT" CONCEPT

A. Consequencesof the Concept


Under French law, once a contract is considered as falling under the
" international " label, it becomes, and is to remain, binding upon the
parties notwithstanding the fact that the contract or some of its provisions, would be, or may become, invalid under the system of law
chosen by the parties or that with which the contract is most closely
connected. In the circumstances,it is not without significancethat when
the courts upheld the validity of monetary 71 or arbitration 72clauses
in international contracts, they refrained from either determining the
applicable law or, in the event that the parties had stipulated the law
applicable to the contract, from expressingany opinion as to the possible
effect of the stipulation.73
It is primarily because of this superb indifference towards conflicts
issues that the French theory has been criticised. In effect, it leads to the
extraordinaryresult that an international contract is removed from the
reach of French law and, to the extent that the proper law would be
that of a foreign country, from that of the foreign applicable law.74
The American approach differsfrom the French and follows orthodox
methods. Both Zapata and Scherk are limited to relaxing the " parochialism " of earlierAmerican rules, but do not exclude the applicability
of these rules to the extent necessary to determine whether effect can be
given to the stipulation of the parties. Far from ignoring conflicts
issues, both cases insist upon the complexities of such issues and the
obvious advantage for the parties of anticipating them at the outset and
arranging their relations in such a way as to obtain the minimum of
certainty which is an " indispensable element of international trade." 75
More specifically, Zapata notes that English law was the proper law of
the contract 76and that, following proceedings instituted in England by
Unterweser against Zapata, the English courts held that the forum
selection was binding upon the parties.77 Scherk is also characteristic
since the court, in upholding the validity of the arbitration clause, felt
compelled to state that its decisions had " no bearing on the scope of
the substantive provisions of the federal securities laws," 78 thus
clearly keeping alive the issue of consistency of the award with the
71
mC

See n. 41 supra.

" See nn. 69 and 70 supra.

72 See nn. 67 and 68 supra.

_.A

74 Delaume, op. cit. supra, n. 6, at para. 4.08.

75 See nn. 56 to 60 supra and associated text.


76 See n. 7 supra.
78 94 S.Ct. 2456, n. 12.

77 92 S.Ct. 1910, n. 4.

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securities laws in the event that the recognition and enforcement of the
award would be sought in the United States. This is the time to recall,
as the court did in Scherk,79that under the New York Convention on
the Recognition and Enforcement of Foreign Arbitral Awards,s80 a
country may refuse recognition and enforcement of an award if recognition or enforcement " would be contrary to the public policy of that
country." To the extent, therefore, that the proceedings instituted by
Scherk in Paris would result in an award, the substance of which would
be contrary to the Federal Securities Laws, and that these laws would
represent U.S. public policy, the courts in the United States would be
entitled to deny recognition or enforcement to the award.
Public policy, in other words, is an issue which may be raised at two
differenttimes. First, it may be considered at the time when the validity
of the forum-selection or arbitration clause is put in question, i.e. at a
time when the basic problem is that of arbitrability of the subjectmatter in issue or the consequences of submission to a foreign forum.
Assuming that the issue of validity is in the affirmative and that proceedings abroad result in a foreign judgment or award, the issue of
public policy may arise anew at the time of recognition and enforcement
of such judgment or award in the United States, i.e. when it becomes
necessary to determine whether the judgment or award is compatible
with the public policy of the United States.
Zapata and Scherk deal only with the first branch of this twofold
issue and, even then, only in regard to specific sectors of international
trade. The question thus arises whether the principle formulated in
these decisions can be extended to other sectors, such as COGSA or the
antitrust laws, or whether, in these sectors, the laws of the United
States should still be considered as " public policy " and invalidate any
attempt by the parties to withdraw the matter from the jurisdiction of
American courts and the laws of the United States. As yet there is no
clear answer to these questions.
In so far as COGSA is concerned, it should be recalled that in
Muller 81 the Court of Appeals of the Second Circuit upheld the
validity of a choice of a Swedish forum in a bill of lading relating to a
shipment of goods from Sweden to Philadelphia. This decision was
based on two considerations. The first consideration was that, notwithstanding the fact that litigation in a foreign forum might expose the
plaintiff to substantial expenses, such an expense, purely " incidental to
the process of litigation," could not be regarded as sufficient to lessen
the liability of the carrier and that, therefore, the choice of forum
79 94 S.Ct. 2457, n. 14.
June 10, 1958, 330 U.N.T.S. 38, Art. V (3) (b).

80

81 W. H. Miller & Co. v. Swedish AmericanLine Ltd., 224 F. 2d 806 (2d Cir. 1955),

Cert. denied 350 U.S. 903 (1955). See also, Amicale IndustriesInc. v. S. S. Rantum,295 F.
Supp. 534 (D.Sth.Car. 1966).

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clause was not within the scope of COGSA. The second consideration
is of general application, since the court went on to say that choice of
forum clauses should be enforced unless it was shown that the choice
was " unreasonable " under the circumstances.
Some years later, Muller was overruled by Indussa 82 in so far as it
held that the choice of forum clause was not consistent with the
" lessening of liability " provision of COGSA. This decision, whatever
the merits, is thus strictly a COGSA case, which leaves unimpaired the
second and more general holding in Muller and, of course, the principle
stated in Zapata. Zapata did not involve COGSA and the question
remains, therefore, whether the United States Supreme Court may one
day overrule Indussa or uphold its construction of the " lessening of
liability" concept in COGSA. There are arguments against Indussa's
interpretation of the COGSA concept and its extension to choice of
forum clauses, and these were clearly stated in the dissenting opinion
of Judge Moore.83 At the same time, the U.S. Supreme Court may not
remain indifferent to the lessons of comparative analysis, which would
reveal that in countries like Belgium or France, which are particularly
liberal in their treatment of foreign choice of forum clauses, such
clauses in bills of lading are held invalid to the extent that they would
lead to the application of a foreign law more lenient to the carrierthan
the Belgian or French COGSA.84 For the time being the issue remains
outstanding. Fireman Fund American Insurance Co. v. Puerto Rican
Forwarding Co. Inc.85 does not solve the problem. In that case, a
subrogation action had been brought by an insurer against a carrier in
the District Court of Puerto Rico contrary to a choice of a New York
forum in a bill of lading. Relying on Indussa the appellant argued that
the clause was invalid. This argument failed and the action was dismissed for lack of jurisdiction. The court distinguished Indussa on the
ground that Indussaapplied only to choice of forum clauses in favour of
foreign courts because of the possibility that the law applied by such
courts might lessen the liability of the carrier.That reasoning could not
apply in the instant case, where the choice of forum was made in favour
of an American, as opposed to a foreign, court. Referringto Zapata, the
82 Indussa Corporationv. S.S.
Ranborg, 377 F. 2d 200 (2d Cir. 1967).
83 Ibid. at p. 205. See also Delaume, op. cit. supra n. 6, at para. 6.11.
84 Delaume, ibid., para. 6.11 text and nn. 5 to 7. The Netherlands fits in a special
category. Dutch law does not permit private parties to " oust " the jurisdiction of Dutch
courts. However, as a matter of contract law, Dutch courts refuse to entertainjurisdiction
in the teeth of a foreign forum-selection clause, on the ground that to do otherwise would
permit a party to ignore its contractual commitments, and would, therefore, sanction a
breach of contract. Ibid., para. 6.03.
85 492 F. 2d 1294 (1st Cir. 1974). In Roach v. Hapag Lloyd, summarisedin n. 26 supra,
it was argued that a German choice of forum clause in a bill of lading between a German
carrier and a German shipper was invalid under Indussa. The argument was dismissed on
the ground that COGSA was not involved, since this was a suit by a long-shoreman for
damages and not an action involving damage to cargo covered by the bill of lading.

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court held that, in the absence of proof, the choice of forum was
"unreasonable," and the clause should be enforced.
The question has been raised whether Scherk was capable of application in matters of antitrust. A negative answer has been suggested
becauseUnderantitrustlaws,an injuredcompetitoris suingon behalfof both itself
fromthatunderthe securitieslaws,where
andthe public,a situationdifferent
eachinjuredinvestormaysueon its ownbehalf.86
This view appears excessive in its rigidity because: (i) it ignores the
fact that securities laws are matters of public concern, if not public
policy; and (ii) it overlooks the basic distinction made in Scherk between
matters of contract law and the substantive provisions of the securities
laws (or for that matter of antitrust or similar laws) whose impact might
regain its full force at the time of recognition of a foreign arbitralaward.
This distinction between the arbitrability of contractual issues in
general and the non-arbitrability of matters falling within the scope of
mandatory legislation has now been acknowledged in the Sonatrach
case,87which involved a dispute between an Algerian national company
engaged in the production and marketing of natural gas and petroleum
resources of Algeria and American corporations. The dispute had
originally been submitted to ICC arbitration by Sonatrach on the
ground that Sonatrach had been fraudulently induced to enter into a
certain contract. During arbitration proceedings, Sonatrach brought
action in the United States courts against the American corporations
based essentially on the same factual assertions as those submitted to
the arbitrators with the additional contention, however, that the
American corporations' activities violated the Sherman Act. The defendants moved to stay arbitration and dismiss the action. They won on
the first branch of their motion and lost on the second branch. The
court noted thattribunalof a ShermanAct claim
... to permitarbitration
by an international
the publicinterestin private
wouldbe particularly
considering
inappropriate
enforcementof antitrustlaw.88

However, the court also noted that the issue of fraud in the inducement had already been submitted by the plaintiff to arbitration.
Inasmuch as this issue was the same as the one before the court, the
court felt that to refuse a stay of the action would defeat the purpose
of the arbitration clause. Consequently, a stay was granted. As to the
antitrust aspects of the action, however, the court denied the motion to
dismiss.
86 Nissen, " Antitrustand Arbitration
in InternationalCommerce" (1976)17 Harv.
Int.L.J.110at p. 117.

87 SocidtdNationale, Etc. v. GeneralTire& Rubber,430 F.Supp. 1332 (S.D.N.Y. 1977).

88 430 F.Supp.at p. 1334.

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This decision is consistent with both Scherk and non-American


cases decided in Germany 89 and in France 90 in connection with issues
arising at the time of enforcement of foreign arbitral awards. It would
thus appear that the arbitrability of antitrust disputes, as distinguished
from those arising out of related contractual disputes, is very much in
doubt. In the words of the court in Parsons and WhittemoreOverseasCo.
Inc. v. Socite' Generale de l'Industrie du Papier (Rakta),91concerned
with the enforcement of an award on an issue possibly non-arbitrable
under the New York Convention (Art. V (2) (a)):
Under this provision, a court sitting in the United States might, for example, be
expected to decline enforcement of an award involving arbitration of an antitrust claim in view of domestic cases which have held that antitrust matters are
entrusted to the exclusive competence of the judiciary [citation omitted]. On
the other hand, it may well be that the special considerations and policies
underlying a " truly international agreement " [referring to Scherk] call for a
narrower view of non-arbitrability in the international than the domestic
context [referring to Wilco].12

Similar uncertainties are not foreign to French law. An example


concerns the treatment of foreign-forum-selection clauses in employment contracts involving French expatriates. The validity of these
clauses has sometimes been upheld 93 and sometimes been held contrary
89 BGH Feb.
27, 1969, S.P.A. Massolombardav. FruchtruckGmbH (1971) Revue de
l'Arbitrage25. In that case, an agreement between an Italian manufacturerand a German
distributorcontained provisions contrary to the prohibition set forth in Art. 85, para. 1 of
the EEC Treaty, regarding restrictive trade practices. The agreement provided for the
settlement of disputes by arbitrationand an award for damages was renderedin favour of
the Italian firm. Enforcementwas denied, however, not on the ground that the arbitration
clause was invalid since it was severable from the main contract, but on the ground that to
give effect to the award, indirectly, by allowing damages to be paid to one party, would
sanction the terms of a contract contrary to the EEC Treaty, which constituted public
policy in Germany, as well as throughout the Common Market.
90 Paris July 12, 1974, Krebsv. Milton Stern (1975) Revue de l'Arbitrage, 196, reversed
on other grounds, Cass. June 16, 1976 (1977) Revue de l'Arbitrage, 269. In that case, a
contract between Krebs, a French manufacturer of perfumes, and Stein, an American
distributor, contained price fixing arrangementspreventing Stein from passing along price
increases to consumers in the United States without Krebs' consent, which, in arbitration
proceedings in Paris, was held to have been abusively refused. In judicial proceedings,
Krebs argued, inter alia, that the award should not be enforced since the price fixing
arrangementsviolated both French law and the ShermanAct. This argument was rejected
on both counts. As to French law, the court held that the illegality of price-fixingarrangements concerned only domestic contracts wholly performed in France. In the present case,
performancetook place in the United States and the arrangementswere outside the scope
of French law. As to the alleged violation of the Sherman Act, the court acknowledged,
in an interesting dictum, that if the arbitratorshad attempted to order Stern to take some
action contraryto U.S. public policy, the award could have been set aside. However, this
was not the case, since the only determination made by the arbitrators was that Krebs,
by arbitrarily refusing to consent to price increases, had destroyed the economy of the
contract and should, as a matter of French contract law, be held responsible for the prejudice caused to Stern. This decision is interesting, not only because it reveals a clear
segregation of the various issues involved, but also because it is " conflict " oriented in the
sense that it confined French rules within their territorial sphere of application while
expressing a willingness to take into account American rules to the extent that they would
be relevant to the determination of the issues involved.
" 508 F. 2d 969 (2 Cir. 1974).
92 Ibid. at p. 974.
93 Cass. Jan. 9, 1931, Reboulv. Socidtd Tekkah [1931] Clunet 1039; Cass. Jan. 9, 1968,
Viala v. Soc. Bank of Liberia [1968] Rev.Crit.Dr.Int.Pr.490; Cass. June 28, 1974 (there

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to public policy in accordance with domestic law concepts.94The arbitrability of transnational disputes relating to patents is also a matter
of doubt, although the French courts appear to make a distinction
between issues of validity and ownership, which would not be arbitrable,
and issues of contractual interpretation, which could be settled by
arbitration."
B. Limitations of the Concept
Zapata and Scherk set forth the perimeterswithin which a foreign forum
selection or arbitration clause can be expected to be enforced and the
limits beyond which it might be defeated.
Defeat may result from various considerations, the first of which may
be a successful attempt at establishing that the clause involved does not
truly relate to an international set of affairs, but rather to a domestic
transaction. As already seen, this line of argument has sometimes
succeeded and sometimes failed in France.96In America, the effectiveness
of this remedy will depend upon as yet unknown or not clearly perceptible factors, including whether the concept of " international"
contract will receive an extensive or restrictive interpretation.97
Assuming that the transaction is truly international in character, a
party wishing to challenge its validity or effectiveness might attempt to
prove that the transaction is contrary to public policy,98 or is " unreasonable and unjust " or invalid for such reasons as " fraud undue
decisions), Socidtd Anonyme Industrielle de Boulangerie v. I'Abbd SocidtdeAnonyme de
Anonyme SIFRA et Socitde'Anonyme
Boulangerie v. Alcover; and Perrault v. Socidtde'
COFIMEX [1964] Dalloz Sommaires 103 (the last two decisions appear in full in [1975]
CentreAfricaine
Rev.Crit.Dr.Int.Pr.110 and [1975] Clunet82; Cass. Jan. 29, 1975, Socidtde'
v. Jinsa [1976] Clunet 145.
94 Cass. Oct. 18, 1967, Cie des Phosphateset du Cherminde Fer de Gafsa v. Bommelaer,
and Cass. Oct. 19, 1967, Bdcue v. Soc. des Mines de Fer de Mauritainie,both reported in
[1968] Rev.Crit.Dr.Int.Pr. 490; Cass. Nov. 8, 1973, Soc. Wilhelm Wolff v. Dumoulin
[1974] Rev.Crit.Dr.Int.Pr.359. A recent enactment (Decree No. 74-783 of Sept. 12, 1974,
[1974] Dalloz 206) would seem to imply that any such clause is invalid. See Delaume,
op. cit. supra n. 6, para. 6.15, n. 1.
95 Franqon, " l'Arbitrage en Matiere de Brevets et la Jurisprudence" (1975) Review de
l'Arbitrage 143; Cass. Ayrault v. Ste' Costamaguaet Cie (1976) Revue de l'Arbitrage 110.
96 See nn. 34 to 38 and associated text infra.
97 See the Fuller case, discussed at n. 32 and associated text supra.
98 See nn. 82 to 95 and associated text supra. See also, Antco Shipping Co. Ltd. v.
SidermarSpA, 417 F.Supp. 207 (S.D.N.Y. 1976) in which an Italian shipowner sought an
order directingthe defendant, a Bahamianchartererto proceed to arbitrationin accordance
with an arbitrationclause providing for arbitrationin New York or London. The charterer
objected that the clause was illegal and unforceable because the contract excluded Israel
as a loading port, thus allegedly contravening the public policy of the United States. The
court found, however, that this stipulation was unobjectionable because the contract of
affreightmentdid not involve, in any meaningful sense, the United States or exports from
the United States. Noting that the United States favour arbitration clauses in contracts
bordering upon international commerce and that the " public policy " defence under the
New York Convention should be narrowly construed, the court held that such narrow
construction, applicable to the recognition of foreign arbitralawards, should apply " with
equal force to considerations, within the context of enforcement of the arbitration agreement itself " (at p. 216). Consequently,the court held that the arbitrationagreementshould
be enforced.

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APR. 1979]

Whatis an InternationalContract?

277

influence, or overweening bargaining power," 99in contrast with such


decisions as Fuller.'00This could be the case of an agreement between
two Americans " to resolve their essentially local disputes in a remote
foreign forum" since this " might suggest that the agreement was an
adhesive one, or that the parties did not have the particular controversy
in mind when they made the agreement." 101 Another example might be
a situation in which the claimant would establish that he had no
knowledge of the " fine print " in which the objectionable clause was
cast.102 The burden of proof is, however, on the claimant and the
Supreme Court indicated that this should be a "heavy burden." o03
Contending that the selected forum is inconvenient would not do,104
nor could a party ignore its freely undertaken obligations by alleging
lack of familiarity with the language of the contract, if that party had
the opportunity to request and obtain proper translation of the relevant
stipulation during the course of the negotiations.'05
Furthermore, the challenge, if made, should be specifically related
to the stipulation in question. It would not suffice to argue that the
contract as a whole was affected by fraud or such other defect. This
point is clearly stated in Scherk according to which... any time a dispute arising out of a transaction is based upon an allegation
of fraud [does not mean that] the clause is unenforceable. Rather it means that
an arbitration or forum-selection clause in a contract is not enforceable if
the inclusion of that clause in the contract was the product of fraud or coercion.106

In other words, the issue of validity or effectiveness of such a clause


is severable from that of the main contract, in accordance with well
established principles prevailing in the United States,'07 and other
countries.108
99 92 S.Ct. 1914, 1916.

101 92 S.Ct. 1914,1916.

100 See n. 32 and associated text


supra.

102 Fricke v. IsbrandtsenCo., 151 F.Supp. 465


(A.D.N.Y. 1957).
103 92 S.Ct. 1917.
104 Sanko S.S. Co. Ltd. v. NewfoundlandRefining Co., 411
F.Supp. 285 (S.D.N.Y.
1976) upholding an English choice of law and forum clause in a charter party after the
plaintiff conceded that it could not show that the clause was " unreasonable and unjust "
(ibid. at p. 286, n. 3). However, in More Electro Products Corp. v. S. S. GreatPeace, 437
F.Supp. 474 (D.N.J. 1977), the court found that a choice of a (Nationalist) Chinese forum
in a bill of lading governed by (Nationalist) Chinese law would have led to " impractical
.and unreasonable " results when the action was one in admiralty and the court had
precedent jurisdiction over State law tort and contract claims as well as ancillaryjurisdiction over the parties. The significanceof this decision is lessened by the fact that the parties
*seemedto have waived the benefit of the choice of forum clauses during the proceedings.
105 See the Gaskin case, discussed at n. 51 and associated text supra.
106 94 S.Ct. 2457, n. 14.
107 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S.
395, 87 S.Ct. 1801, 18L.
Ed. 2d 1270 (1967), followed in A/S LudwigMowinkelsR. v. Dow ChemicalCo., 25 N.Y.
2d 576, 307 N.Y.S. 2d 660, 225 N.E. 2d 774 (1970), cert. denied 398 U.S. 939. But see
Interocean Shipping Co. v. National Shipping & Trading Co., 462 F. 2d 673 (1972) and
Alco Standard Corporationv. Benalal, 345 F.Supp. 14 (E.D.Pa. 1972) and Delaume op.
cit. supra n. 6, at para. 13.06, text and nn. 3 to 9.
108 Arbitration clauses are held severable in several European countries (Delaume,
ibid., para. 13.06, text and nn. 11 to 24) even though a more restrictive view still prevails
?inrespect of foreign-forum-selectionclauses (ibid., para. 6.15 nn. 12 to 17).

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Internationaland ComparativeLaw Quarterly

278

[VOL. 28

CONCLUSION

Perhaps the most significant contribution that the notion of international contract, as developed and applied by the courts in France
and in the United States, has made to the development of rules applicable to transnational contracts is the recognition that the doctrine of
public policy, as formulated in a domestic context, should, in a transnational environment, be relaxed to the point of answeringthe needs of
international commerce. This is a feast in itself, although it should
immediately be noted that the extent of the relaxation remains, so far,
limited to specific issues involving primarily the enforceability in both
countries of choice of forum and arbitrationclauses and, in France, the
validity of monetary clauses. Uncertainty continues to obtain in
respect of matters falling within the scope of the securities laws,109
antitrust legislation,110labour laws,111patents,112and COGSA,113to
mention those issues which come readily to mind but do not necessarily
exhaust the field.
In building up a concept of "international contracts," both the
French and the American courts have been influenced by economic and
legal considerations.
Economic considerations are particularly apparent in France.114
They are not, however, foreign to the decisions which, in the United
States, lay emphasis on the particular needs of international trade,115
the intimate relationship between a particular stipulation, such as a
choice of a judicial or arbitral forum, and the economy of the contract
as a whole,1" or the intent of one of the parties to expand its activities
in new economic zones.117
Legal considerations, noticeable in some French cases,118are given
particular importance in the United States. These include, although
perhaps to a certain extent only, the nationality of the parties,119and,
with possible greater weight, the climate of the negotiations and their
juridical surroundings,'20 and the fact that the transaction may bear
connection with a number of jurisdictions,121 and legal systems.122
Worth mentioning also in this connection, is the possible severability
of certain clauses, deemed appropriate to the needs of international
109 See nn. 78 and 79 and associated text supra.
110

See nn. 86 to 92 and associated text supra.


See nn. 93 and 94 and associated text supra.
See n. 95 and associated text supra.
See nn. 81 to 85 and associated text supra.
See nn. 65 and 66 and associated text supra.
See n. 56 and associated text supra.
See nn. 48 and 52 and associated text supra.
See nn. 61 and associated text supra.
See nn. 69 and 70 and associated text supra.
119 See nn. 26 to 44 and associated text supra.
120 See nn. 45 to 47 and associated text supra.
121 See nn. 57 to 77 and associated text supra.
122 See nn. 58, 59 and 76 and associated text supra.

111
112
113
114
115
116
117
118

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279

trade, from the principal contract, which may remain subjectto different
and more stringent rules.123
Under the circumstances, it cannot be said that existing judicial
pronouncements provide a precise definition of the concept of " international contract." These pronouncements reveal more an awareness
of the nature of the problem than a systematic effort to supply a general
answer to the question of definition. Awareness of the problem is
particularly illustrated by references to economic considerations and
the subject-matter of the transactions involved. The ultimate solution
may, thus, depend primarily on the weight to be given to legal factors
considered in their proper (i.e. transnational as opposed to domestic)
environment.

123 See nn. 78, 106 to 108 and


associated text supra.

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