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Many companies are discouraged from entering international contracts if they are not certain of their liability exposure in certain countries, and where they may be hauled into local court. Of 100 leading companies that took part in a survey recently conducted by International Chamber of Commerce, 40 respondents reported that significant business decisions had been determined by jurisdictional uncertainty. These findings are a clear signal of how important liability issues are for companies doing business in foreign countries and highlights how this concern affects economic growth in an increasingly globalized marketplace. ICC — the world’s largest business organization, with more than 8,000 member companies in more than 140 countries — contributes to international and national initiatives on jurisdiction and applicable law issues. Why are jurisdiction concerns so important for business? When entering into contracts, businesses choose the forum for resolving any disputes that may arise. In making this selection, their first priority is that a decision of the national court will be final and binding and respected by all relevant courts and parties. Another key issue is enforcement of decisions. Stable and predictable dispute management necessarily hinges on predictable enforcement; a judgment is worth little if it cannot be enforced in an easy and predictable way. For any business, these issues are far from academic. For example, if a Bethesda-based company acting as a seller has a clause in its international contracts designating the courts of Maryland as the forum for dispute resolution, it needs to be certain that an action brought before a national court in Italy, for instance, will be dismissed. Otherwise, the company risks unforeseeable and costly litigation abroad. Furthermore, the company also needs certainty that judgments of the courts of Maryland can be enforced all over the world. Otherwise, as ICC’s survey shows, the company might be dissuaded from going ahead with its international activities. Another situation arises when, for instance, a U.S. company and a Dutch company agree that in case of dispute, the courts of a third country will have jurisdiction. In this situation, the parties are seeking the greatest certainty that the chosen court will not dismiss the case. The problem with taking a dispute to a national court is that there is no international convention on the recognition of judgments by foreign courts — unlike arbitral awards, which are enforceable under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. As a consequence, whether the local courts of a foreign country would enforce a judgment issued by a court in the United States, for example, depends on the national laws of the foreign country and international comity. THE JUDGMENTS PROJECT Things might be about to change. The Hague Conference on International Private Law is an intergovernmental organization responsible for drafting a proposed Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters (also known as the Judgments Project). Countries that sign the proposed Convention agree to follow a set of rules regarding jurisdiction for cross-border litigation. The Judgments Project, which got under way in the mid-1990s, has been a long, hard process. Yet the project took a positive turn in 2002. The Hague Conference followed the advice of ICC and other business representatives and appointed an informal working group to redraft the scope of the proposed Convention to limit its focus to choice of local courts as forums in commercial contracts between businesses. The informal working group held the last of three meetings in the Netherlands just last month. Afterward, a relatively comprehensive and coherent draft Convention was made publicly available. The convention addresses only choice-of-court provisions between businesses (B2B), an approach strongly supported by ICC as a means of achieving more predictability and certainty in international contracts reasonably soon. The member states of the Hague Conference on International Private Law will make a decision on the future course of the project in June. WHAT BUSINESSES WANT The principal expectations of businesses continue to be that the Convention will respect choice of court and enforceability of court judgments, which are both critical to increased foreseeability and certainty in business contracts. In fact, businesses expect the same level of certainty from a choice-of-local-court clause in a contract as a choice-of-arbitration clause. While the objective is clear, a Convention limited to B2B necessarily raises issues regarding its precise scope, i.e. what does “business to business” really mean? ICC favors the broadest possible definition. In addition, ICC members believe that the meaning of “private and commercial matters” requires some clarification. To improve predictability of judgments, ICC supports limiting the right of the court of choice to dismiss proceedings on the basis of forum non conveniens.Weakening the proposed Convention would reduce the level of certainty that the Convention can bring to business and thereby jeopardize the Convention’s critical benefits. ARBITRATION PREFERRED ICC’s recent survey was designed to find out and report to the working group the business practices of 100 of the world’s leading companies in light of current jurisdictional issues. The survey was conducted in March 2003, and the results are available online from ICC’s Web site. The survey disclosed that an unexpectedly large proportion of the responding companies were dissuaded from going ahead with some international contracts because of doubts about which national courts would resolve any dispute. Besides finding that nearly half of the companies surveyed had based a significant business decision on jurisdictional uncertainty. The survey also found that among the available dispute resolution alternatives to the courts, arbitration is by far the most commonly used, when it comes to international contracts. Sixty percent of companies prefer arbitration to court proceedings in disputes over international agreements, while 15 percent prefer court proceedings. (Twenty-five percent expressed no preference.) The reasons for this preference for arbitration is that this process provides final, binding decisions, international recognition of arbitral awards, and neutrality. Furthermore, arbitrators often have specialized competence in certain types of business disputes. Arbitration is faster and less expensive than litigation, arbitration hearings are not public, and only the parties themselves receive copies of the awards. Accordingly, parties often insert into contracts clauses stating that arbitration will be the method for resolving any dispute. Of 103 member companies that responded to the survey, nearly two-thirds said that at least half of their international contracts contain arbitration clauses. For 37 percent, an arbitration clause is in all or virtually all of their international contracts. ICC survey provides a unique insight into how these legal issues affect business decisions. For example, one respondent explained that if its legal department cannot give a clear statement about a particular foreign law in less than four sentences, management is unwilling to take legal action in that jurisdiction. Another company had a policy that if its business partner is from a country that is not a signatory to a cross-border treaty for enforcement of judgments, the company will ask for advance payment and guarantees. This practice could be interpreted as an indicator that companies based in countries that will not sign and ratify the future Hague Convention might be at a competitive disadvantage. As businesses continue to expand their relationships and operations across borders, controlling the liability risks in international transactions is essential, in order to keep financial exposure manageable. To increase their security and certainty, businesses need to be confident that the choice of court they have agreed to with parties to their contracts is respected and enforced. The Hague Convention on Private International Law, through its current Judgments Project, could help achieve this objective. Jonas Astrup is policy manager of ICC’s Commission on Commercial Law and Practice and the Commission on E-Business, IT, and Telecoms. He may be contacted at [email protected]. Ayesha Hassan is senior policy manager of ICC’s Commission on E-Business, IT, and Telecoms. She may be reached at [email protected]. The ICC survey results are available at www.iccwbo.org/law/jurisdiction/. Information on the Hague Conference on International Private Law is available at www.hcch.net.

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