CHAPTER 11

Settlement of International Business Disputes

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Introduction
• If a dispute arises in an international transaction, there are
three potential issues:
1. Which country’s laws will apply to the dispute?
2. Which country’s courts will hear the case, or will
differences be arbitrated?
3. Will the courts of one country recognize and enforce a
judgment or award obtained in another country?

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How Will the Dispute Be Settled:

Litigation or Alternate Dispute Resolution?
• Litigation is the process by which a plaintiff initiates a
lawsuit to enforce a right in court against a defendant.
• Alternative dispute resolution (or ADR) is an umbrella
term for methods of resolving disputes other than litigation.
• Types of ADR include:
• mediation,

• conciliation, and

• arbitration.

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Arbitration
• There are two types of arbitration: ad hoc (informal, for the
purpose of a particular dispute) and institutional.
• Examples of common institutional rules for arbitration:
UNCITRAL Arbitration rules, ICC.
• Arbitration vs. litigation:
• Binding decision,

• Speed,

• Costs.

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Do Courts Always Honour Arbitration Clauses?

• Courts will not act as appeal and substitute their
judgment for that of arbitrator.
• Will intervene only in case of:
• incapacity of party;
• invalidity of arbitration agreement;
denial of natural justice;
• arbitrator has exceeded his or her authority; or
• award is against public policy.
• Case: Quintette Coal Ltd. Vs. Nippon Steel Corp.
(1991)

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Actions in Domestic Courts: Suing and Being Sued

• Choice of Law
• Parties are free to specify the law of their choice in the contract,
provided that the selection is in good faith.
• Proof of Foreign Law
• In most common law jurisdictions, including Canada, any choice-of-
law clause specifying a foreign law must be raised in the case’s
pleadings.
• Need to prove what foreign law rules encompass.

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Actions in Domestic Courts: (cont’d)

• The Proper Law of the Contract
• If international parties have not explicitly chosen the law they wish to
apply, a court will have to determine the proper law of the contract.
• A list of factors determining proper law of contract:

• Choice of law clause in contract (express or implied),

• Where no choice of law clause, determine which law has closest

connection to contract:
• where contract was made,
• where contract was performed,
• place of business of parties,
• language, form, terminology used in contract,
• past dealings.

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Actions in Domestic Courts:(cont’d)

• Choice of Forum / Forum selection clause
• Parties may also stipulate in advance, in a contract,
where a court case relating to their transaction will be
heard.

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Who Can Sue and Be Sued in Canadian Courts?

• Usually, a defendant must be served in Province A for the
courts of Province A to assume jurisdiction.
• To be served outside of Province A, there must be some
connection to Province A for the courts of Province A to
hear the case:
1. the defendant is domiciled or resident in Province A;
2. the defendant carries on business in Province A;
3. the tort (non-contractual breach) was committed in Province A;
or
4. a contract connected with the dispute was made in Province A.

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Who Can Sue and Be Sued in Canadian Courts?

(cont’d)
• Forum Non Conveniens:
• Case: Canadian International Marketing Dist. Ltd. Vs.
Nitsuko Ltd. (1990).
• Case: Sterling Software International (CDN) Inc. vs.
Software Recording Corp. of America (1993).
• Case: Upper Lakes Shipping Ltd. Vs. Foster Yeoman
Ltd. (1993).

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Enforcement of Foreign Judgments

• Enforcement of foreign judgments is not automatic, however,
Canadian courts are increasingly prepared to enforce
judgments by US and other respected courts, provided the
following conditions are met:
• there was proper subject matter jurisdiction over the Canadian parties;

• the judgment is not fraudulent or contrary to public policy or natural

justice; and
• there is a real and substantial connection between the deciding court
and the action.
• Cases: Arrowmaster Inc. vs. Unique Forming Ltd. (1993),
USA vs. The Shield Development Co. (2005),
Oakwell Engineering Ltd. Vs. Enernorth Ind. Inc. (2005)

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Actions Involving Foreign States

• Sovereign or state immunity is the doctrine preventing
the institution of a lawsuit against a government without its
consent.
• Under Anglo-American Law, a country cannot be
prosecuted or sued for acts that are an integral part of its
government functions (executive and legislative).
• However, a government is not immune to being
prosecuted or sued for acts performed during ordinary
commercial activity where the government is acting as a
party to a commercial contract.

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Actions Involving Foreign States (cont’d)

• Foreign Illegality
• Our courts will not enforce a contract if performance is against the
law of the country where the contract is to be performed.
• Criminal acts committed abroad are not normally punishable in
Canada unless such an act falls under our Criminal Code or is
dealt with in special legislation (extra-territoriality).
• Extradition may be applied if the offence is an extraditable one
and if Canada has an extradition treaty with the country in which
the crime was allegedly committed.

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