UMGC University of Maryland Global Campus mba 630 International Legal Challenges Discussion

2/2/24, 5:15 PMInternational Dispute Resolution
International Dispute Resolution
by Robert C. Goodwin, Collegiate Professor, University of Maryland Global
Campus
Applicability of Foreign Law
It is important for those of us interested in international business to
understand the nature of legal responsibilities when conducting business in
foreign countries and the power of countries to impose rules that will
influence business activities in another country. It would be useful for you
to be familiar with a few basic concepts in this area. First, each country has
a sovereign right to define the legal rules for activities within its territory,
and the principles of international law are supposed to respect that
sovereignty.
There are several areas where this simple statement runs into
problems. One is where a country is undertaking actions that violate
international law, such as allowing genocide. Another is where one country
(state A) attempts to regulate activity that occurs in a foreign country (state
B) because the activity has a direct effect in state A. The best example of
this situation is US antitrust laws. If UK companies conspire in London to
fix prices on goods exported to the United States, the United States will
attempt to sue these UK companies in spite of the fact that their actions
might have been legal in the UK.
But, aside from these exceptions, the general rule that each country has
the right to set its own legal rules for activities within its borders still holds
pretty well. The corollary to this rule is that foreign companies are bound
to obey the laws of the country where they are doing business. For the
most part this rule does not create conflict between the laws of the home
country (e.g., the United States) and the host country because countries
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usually do not give their laws extraterritorial application. Thus, the United
States does not typically attempt to regulate the activities of US-owned
companies that are operating in foreign countries.
There are, however, a few instances where the United States does regulate
the activities of US entities operating abroad, and these types of situations
are increasing. But if there is no conflict with the local law then there might
not be a problem. For example, bribery, a common problem in international
business, is outlawed in all countries. Therefore, an American company has
no legal problem in complying with the US Foreign Corrupt Practices Act,
which prohibits bribery, even though it is a case of US law affecting
activities taking place inside a foreign country. Another tricky area is
employment discrimination; the US Congress has made prohibitions on
discrimination applicable not only to US corporations abroad but also to
subsidiaries controlled by US corporations, unless compliance with the US
antidiscrimination law would cause a violation of the law of the country
that the workplace is located in.
Where a conflict does exist between US law and local law, there often is an
ad hoc solution negotiated between the countries. Keep in mind that the
US company operating abroad is clearly subject to local law. A subsidiary
established in country B is a country B company, not a US company, even
though it may be 100 percent owned by a US company. A GM subsidiary in
China is a Chinese company and must follow Chinese rules regarding its
board of directors, etc. Fundamentally, though, there is no good
international system for solving conflicts involving the legal rules of
different countries. Suppose that you are a US company with subsidiaries
in Japan and China, and suppliers in China fail to honor some contract
commitments. If the goods were supposed to be delivered to Japan, does
Japanese law apply? If a Japanese court ruled on the dispute would a
Chinese court honor the decision? These are difficult questions and
arbitration can be useful in such situations.
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Choice of Law
Once we know what court will hear a case, we do not necessarily know
what law will be applied by that court. While courts in some countries
prefer only to apply their own law to any case which is heard in their court,
in the United States that is often not true. If a court in Maryland hears a
case about a contract entered into between a Maryland corporation and
a California corporation which was negotiated in California and performed
in California, then the Maryland court will apply California law to the case.
The short answer is that, absent a choice by the parties, a US court applies
the law of the state that has the most significant relationship to the
transaction and the parties.
Ability of Parties to Select the Forum
What if the parties themselves want to decide in advance that a particular
forum will be the location for any possible lawsuits? Can they do that? The
short answer is yes, in the United States, but maybe not so readily in other
jurisdictions. (Read the 1972 US Supreme Court case of M/S Bremen v.
Zapata Offshore Co., 407 U.S. 1 (https://advance-lexiscom.ezproxy.umgc.edu/api/permalink/1f6dabdc-553e-4c45-8f76a10d278fb150/?context=1516831) .)
Recognition and Enforcement of Foreign
Judgments
In the United States there is a provision in the US Constitution that
requires each state to give full faith and credit to the judicial decisions of
any of the other sister states. But internationally there is no similar
structure, and the extent to which each country will recognize the
judgments of other nations depends upon the law of the country that is
asked to enforce a foreign judgment. This type of enforcement is in stark
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contrast to arbitration, where there is an international agreement whereby
countries promise to enforce arbitral awards made in other countries. We
will discuss arbitration more in the section below
Many business people might be surprised to discover that if they were to
be sued in a foreign country they could be at serious risk of having any
judgment that might be rendered in that country brought here to
the United States and enforced against them. The United States, unlike
many countries, is willing to accept judgments issued by the courts of
other nations provided that certain standards have been met. Courts will
apply the following tests to determine whether the foreign judgment
should be accepted and enforced:
1. Did the foreign court have jurisdiction over the person and subject
matter? The question of whether the foreign court had jurisdiction is
evaluated using US standards of jurisdiction, not the standards as
expressed in the law of the foreign country. This takes us back to the
standard reflected in US court decisions that there be minimum
contacts between the defendant in the dispute and the jurisdiction or
that a company has purposefully availed itself of the privilege of doing
business in the jurisdiction. Also, a reasonableness overlay is part of
the analysis. That is, the assertion of jurisdiction must be reasonable
under the circumstances of the case.
2. Was the defendant given adequate notice? Here adequate can refer to
lead time as well as the language of the notice.
3. Was the judgment rendered under a system that provides impartial
tribunals or procedures compatible with the requirements of due
process of law?
4. Was there fraud in obtaining the judgment? If fraud existed, of course,
the US court will not enforce the judgment.
5. Is enforcement of the foreign judgment consistent with US public
policy?
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6. Does the judgment conflict with another final judgment or is it
contrary to an agreement between the parties providing for
arbitration or some other alternate dispute settlement mechanism?
The foregoing principles are contained both in court decisions and in a
uniform law that has been adopted by some states, called the ForeignCountry Money Judgements Recognition Act
Arbitration
Arbitration is a nonjudicial proceeding designed to settle disputes. Our
focus here is arbitration of disputes between two private parties to a
contract, not the arbitration of disputes between a private party and a
government. Many people confuse arbitration with mediation. They are
not the same at all. In mediation, a neutral third party tries to bring the two
disputing parties together. A mediator serves as a facilitator and the parties
themselves eventually reach an agreement. Arbitration, on the other hand,
involves the neutral third party (or parties) acting as a decision maker in the
same way that a judge does. Each party presents its point of view to the
arbitrator, who then makes a decision that the parties have agreed in
advance they will honor.
There is no requirement as to how an arbitration will proceed—it is
dictated by whatever is in the contract between the parties. There are
several organizations that provide arbitration services and that have rules
detailing how they conduct arbitrations, what procedures are applied, etc.
The International Chamber of Commerce (ICC) in Paris, for example, is a
popular center for arbitration, and many people draft contracts with an
arbitration clause providing that arbitration will be conducted in
accordance with the rules of the ICC. The American Arbitration Association
(AAA) also provides arbitration services pursuant to its rules. Generally, in
addition to specifying the rules that will apply, parties to the contract
should specify the location of the arbitration, the language of arbitration,
and the number of arbitrators. Sometimes one arbitrator will make more
sense than three. Keep in mind that arbitrators must be paid, so there may
be an advantage from a cost perspective for having a single arbitrator.
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Arbitration has a number of advantages, including efficiency and
confidentiality. But the most important benefit is enforceability. Under the
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (usually referred to as the New York Convention), most of the
world’s trading nations have agreed to have their courts enforce arbitral
awards issued in foreign nations. There are limited circumstances where a
nation could refuse to enforce a foreign arbitral award. These are set forth
in Article V of the Convention.
Review the text of the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards
(https://treaties.un.org/doc/Publication/UNTS/Volume%20330/volume330-I-4739-English.pdf) . Search for Article V in the pdf using the “Ctrl F”
search function.
Important Takeaways for Your International
Contracts
In terms of the important issues to keep in mind related to dispute
resolution in contracts, with a particular focus on international contracts,
the following major issues are important:
1. US courts now have a strong bias for allowing the parties to determine
their own dispute resolution approach and are reluctant to allow a
party to bypass a contractual commitment to resolve disputes through
arbitration. This view is bolstered by the US Arbitration Act, which
contains limited bases for overturning an arbitral award in the United
States.
2. Internationally, those nations that have signed the Convention on the
Enforcement of Arbitral Awards (called the New York Convention)
have also agreed to enforce arbitral awards and to allow them to be
overturned by their courts in only very limited circumstances, similar
to the circumstances set forth in the US Arbitration Act.
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3. There is a major difference between enforcement of arbitral awards
and court judgments. In the United States, courts are liberal in
enforcing judicial awards made by the courts of other countries.
However, other countries do not follow the US practice. Thus, as a
businessperson, you might win a lawsuit but not be able to enforce
the award in another country. However, if you win an arbitration your
chances of enforcing it are far greater because of the New York
Convention, which obligates those countries that have signed it to
enforce arbitral awards. As a businessperson doing business
internationally, you will more likely than not want to include an
arbitration clause in your contracts.
4. Note that many US lawyers like to put into contracts that both parties
agree that the courts of New York or some other state will be used to
settle disputes. But if you are doing business with a foreign company
that doesn’t have any assets in the US, what good does it do you to
have a US judgment? Courts overseas won’t honor the judgment and
there are no assets in the United States to execute against. You would
be better off with an arbitral award that can be enforced overseas, so
long as the country has signed the New York Convention.
5. For sales contracts, use letters of credit to ensure that you receive
payment. The true advantage of a letter of credit is that it involves a
bank in the process so the seller is not relying on the buyer to pay the
invoice, but rather on the bank.
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International Law
International Law
by Robert C. Goodwin, Collegiate Professor, University of Maryland Global
Campus
Introduction to Law
There are many definitions of law, each of which focuses on a different
aspect of the subject. Black’s Law Dictionary (n.d), for example, defines law
in a way that emphasizes it as applicable to people as well as physical
phenomena: “That which is laid down, ordained, or established. A rule or
method according to which phenomena or actions coexist or follow one
another.”
Webster’s Third New International Dictionary (1961) is less broad, focuses
on people, adds the enforcement concept, and emphasizes the notion of
law as an expression of the customs of the people: “A binding custom or
practice of a community. A rule or mode of conduct or action that is
prescribed or formally recognized as binding by a supreme controlling
authority or is made obligatory by a sanction made, recognized, or
enforced by the controlling authority.”
An even more specific definition is, law consists of the entire body of
principles that govern conduct, the observance of which can be enforced
in courts.
Man-made law is necessary to provide not only rules of conduct but also
the machinery and procedures for enforcing right conduct, for punishing
wrongful acts, and for settling disputes that arise even when both parties
are motivated by good intentions. In its broadest sense, the purpose of law
is to provide order, stability, and justice. It is often said that procedure is
the heart of the law. There are many instances where the substantive
words of the law appear to give someone a right but they are unable to
exercise that right for procedural reasons. Something as simple as failing to
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file a lawsuit within the time limits set by the local court rules can prevent
someone from receiving the remedy they thought they had. We should
always keep this distinction between right and remedy in mind as we
review the various materials in this course.
The Legal System
Each nation has its own legal system. Thus, the institutions that create the
laws (such as bureaucracies, courts, legislatures, a king) can differ
significantly from country to country. So also will the scope of the
substantive rules enacted by these institutions, which define the rights and
responsibilities of the citizens of the nation. The rules relating to what
constitutes criminal conduct, when a contract is considered to be formed,
what activities of private parties are subject to government control, and
myriad other substantive regulations of human conduct all differ from
country to country. A final aspect of a nation’s legal system consists of the
procedural rules that govern enforcement of the substantive ones. As
noted, one doesn’t truly have a right without a remedy, and it is the
remedy that is defined by procedural law. These rules encompass
everything from the rules of evidence to the right to be represented by a
lawyer and are a critical component of a legal system.
While it is a fact that each nation has its own legal system, it is also true
that legal systems can be grouped into major categories, with the individual
nations within a category having similar structures to their legal systems.
The two major legal systems in the world are the common law legal system
and the civil law legal system.
Civil Law and Common Law
A civil law country is one whose legal system reflects, however remotely,
the principles of classical Roman law as codified by the emperor Justinian I
in the sixth century. While modern countries that are part of the civil law
system have substantive laws that differ greatly from the law at the time of
the Romans, the structure of the system and its approach to legal problem
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solving date from the sixth century. We may be more familiar with the
Napoleonic Code of 1804, which often is considered the father of civil law
codes, but it too was a direct descendant of Roman law.
Common law, on the other hand, owes its origins to the slow development
of royal courts after the Norman Conquest of England in 1066. Gradually,
the expansion of royal power at the expense of the local barons resulted in
the ascendancy of royal institutions and particularly the royal courts, where
citizens perceived the likelihood of justice at the hand of the King’s judges
as greater than that of the purely local tribunals, which had existed before
the conquest. The term common law owes its origins to the fact that it was
the law applied by royal or national courts and hence “common” to the
entire country as opposed to the customary law of the local courts.
More important for us than the origins of these two major legal systems
are the questions: which countries are influenced by which system, how do
the two systems differ, and what do the differences mean for international
business, if anything?
Common law is applied in Great Britain and almost all of the countries
where Great Britain had a significant influence. Thus, the United States,
Canada, Australia, India, and most other former British colonies use the
common law system. The civil law system is centered in continental Europe
and prevalent in South America and much of Asia, including Japan.
While in recent years the differences between the two major legal systems
have narrowed somewhat, with countries identified as common law or civil
law borrowing legal approaches from each other and being influenced by
the same social movements and cultural changes, there nevertheless are
significant differences that should be highlighted. The most fundamental
difference rests in the very nature of how law is made.
In the civil law tradition, law is conceived as a rule of conduct expressed in
written codes. Nothing is law unless it is written down in such a code. The
expression of the law is stated in broad general terms, and a judge, when
deciding a case, must find a basis for the decision in the principles
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expressed in the code. While the judge may refer readily to legal scholars
for assistance in doing so, reference to other similar cases handled by other
judges would ordinarily not be part of the process. Rather, the civil law
judge would apply deductive reasoning—solving the case by deduction
from a principle expressed in the code.
Common law focuses heavily on cases. While common law countries have
codes (any statute enacted by a legislative body would fit this definition)
the law inferred by prior cases (i.e., judicial precedents) is equally as
important as the statute. Common law lawyers and judges reason by
analogy to prior cases, and if a prior case decided by a higher court is
essentially the same in its factual pattern then the case will control the
outcome under the principle of stare decisis (i.e., that past decisions are
generally binding for the resolution of factually similar cases). Thus, the role
of judges is critical, and the common law is often referred to as “judgemade law.” One of the facets of common law which often surprises those
familiar with the civil law tradition is that there are many areas of the
common law where there is no written statute at all—only prior cases. In
order to know the state of the law, one has to study the cases first. A good
summary of these fundamental differences might be, a common law lawyer
looks for a case, a civil law lawyer looks for the principle involved.
In addition to the fundamental difference noted above, there are a number
of less general but equally important practical differences. For example,
there are no juries in noncriminal cases in civil law countries. In a court case
in a civil law country, the judge assumes a far more activist role, and
attorneys for each side have an obligation to assist the judge in finding the
facts. In contrast, in litigation in a common law country, the judge is a
neutral referee, ruling on motions made by the advocates but not generally
initiating his own inquiries.
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The US Legal System
In order to understand the context of international law, it is important to
have a basic understanding of the US legal system. This system is
somewhat complex because each state within the United States has its
own legislative body, executive branch, and court system. And, of course,
the federal government has this structure as well. How these systems
overlap and interact with each other is an important issue.
One of the most important aspects of the US federal system is the
acceptance by courts in one state of the judicial decisions made in another
state. The Constitution itself requires that each state give “full faith and
credit” to the judicial determinations of its sister states. Thus, for example,
if I bring a successful lawsuit in Maryland against a party who moves to
California, I can take that Maryland judgment to the courts of California
and ask that the California court convert that judgment into a California
judgment, which can then be enforced in that state. Importantly, there is
no comparable situation among countries. If I obtain a favorable court
ruling from the courts of France against a person who then moves to Brazil
before the judgment can be enforced it will be doubtful that I could
convince a Brazilian court to adopt the French judgment. There is no
international “full faith and credit” clause, although negotiations on an
international agreement, which would do just that, are already underway.
One interesting aspect of the differences between federal laws and state
laws is that those laws that are of principal interest to us (i.e., those laws
that deal with commercial matters) are virtually all state laws. There is no
federal law of contracts and no federal law of sales. That does not mean,
however, that federal courts are never involved in hearing a case involving
a contract dispute. But if and when they do hear such a case they apply
state law. Assume, for example, that you have a contract dispute that arises
over a contract that was signed in New York and was to be performed in
New York. One party brings an action in the federal court sitting in the
state of Maryland (we’ll explain how this happens shortly). The federal court
in the state of Maryland would apply New York law to the case because (1)
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it has to apply state law since there is no federal law on contracts, and (2)
the jurisdiction with the closest connection with the case is New York and
hence, New York law should apply.
We all are familiar with the Supreme Court and its role as the final
decision-making body on matters of legal interpretation. The Supreme
Court is the highest court in the federal system. Immediately below the
Supreme Court are thirteen circuit courts of appeal, which hear appeals
from the district courts, the trial-level courts in the federal system. Twelve
of these circuit courts of appeal cover geographic areas—the sixth circuit,
for example, covers Michigan, Ohio, Kentucky, and Tennessee. The courts
have as many as twenty judges and they hear cases in panels of three. The
circuit courts do not conduct trials—they only hear appeals and, in the
common law system, appeals can only be made as to matters of law as
opposed to facts. The trial court and the jury have complete responsibility
for determining the facts, and the appellate courts can only hear appeals
relating to matters of law.
Federal courts at the trial level (the district courts) and at the appellate level
(the circuit courts of appeal) have their basic power, or jurisdiction, defined
by the Constitution. Under Article III of the Constitution, specific powers
are outlined for the federal courts. Federal courts have jurisdiction with
respect to the following:
1. constitutional issues
2. laws and treaties of the United States
3. admiralty
4. ambassadors
5. where the United States government is a party
6. controversies between a state and citizens of another state
7. controversies between citizens of different states (called “diversity
jurisdiction”)
8. controversies between a citizen of a state and a foreign citizen
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Plus, a $75,000 minimum applies to suits involving numbers 7 and 8 above.
Number 8 above is most significant for our purposes. The concept of
“diversity jurisdiction” was adopted by the framers of the Constitution in
order to provide an alternative to the home field advantage that might
otherwise apply if lawsuits involving parties from different states could be
heard only in the state courts of one of the parties. The federal courts were
seen as providing a more neutral forum for such situations. Thus, because
of this provision of the Constitution, a party can either bring a case in a
federal court (as a plaintiff) or ask to have it removed to a federal court (as
a defendant) so long as the diversity criteria are met. And, as already noted,
the federal court would apply state law in its consideration of the case,
unless it is a case involving federal law or one of the other categories set
forth above.
International Legal Issues
Before considering the issues related to the application of legal rules to
international businesses, we should understand the scope of the power of
nations to make such rules. In other words, what are the limits of a nation’s
law-making authority and where do such limits come from? Can the
Parliament in Great Britain issue edicts regulating businesses
in Switzerland? What are the principles involved?
We start with the consideration of public international law—that is, the
category of international law that defines the relationships between and
among nations. It differs from what is usually termed private international
law, which really is simply another way of describing the rules that apply to
private businesses in an international setting. But our concern now is to
analyze public international law and to understand the reach of a nation’s
power over its subjects and over the subjects of other nations. Hereafter
we’ll drop the word public and simply refer to public international law as
international law.
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The term international law is used to describe the rules that regulate the
conduct of nations. International law differs from the laws of the various
nations of the world in two major respects. First, many areas of
international law are not definitive—that is, nations (or states) differ as to
what the actual rule in question is (although there are many areas where
the rules are clear, either by virtue of an international agreement or long
usage). Second, for the most part there is no enforcement mechanism
associated with international law, so that a nation that ignores the rules,
while subject to possible ostracism, is not otherwise at risk of being
enjoined, fined, or arrested as would a private citizen or business that
violated the law of a nation.
International law is based on the principles of (1) sovereignty and (2) the
consent of states. The concept of sovereignty is that a nation is master in
its own territory. The International Court of Justice (ICJ) (1948) has defined
sovereignty as “the whole body of rights and attributes which a State
possesses in its territory, to the exclusion of all other States, and also in its
relations with other States. Sovereignty confers rights upon States and
imposes obligations on them.”
Thus, sovereignty is that concept which allows a state to make rules that
are applicable throughout its territory and that govern all people within the
state. The concept of sovereignty also conveys the notion that each state is
equal to all other states, and the sovereign rights of any particular state are
limited by the sovereign rights of other states.
The acceptance of the concept of sovereignty dates from the middle of the
seventeenth century at the conclusion of the Thirty Years War, which
marked the separation of the powers of the church and the state. As time
has passed, nations have begun to recognize specific principles that further
define the concept of sovereignty and the notions of territorial integrity
and political independence as being inviolable. Since each state is sovereign
in its own territory, international law recognizes the basic principle that no
state has the right to impose its will on the territory of another state.
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Courts in the United States often use the term comity to refer to the
deference or respect that is due to the decisions and actions of another
country in order to minimize the conflicts that could arise through the
assertion of conflicting jurisdiction by different countries.
There are a number of sources of international law. First, there is
customary international law, which derives from the practice of nations
over a period of time; in other words,something that over time is
recognized by states as international law, whether from a sense of
obligation or other reason. Second, international conventions and treaties
establish rules, which are accepted by the nations that sign them, such as
the Law of the Sea Convention. Third, general principles of law recognized
by civilized nations can serve as a source for international law. Finally,
judicial decisions by international courts such as the ICJ in the Hague, as
well as the opinions of legal scholars, can assist in determining the rules of
international law.
While international law seems from one perspective to be academic and
theoretical, it actually has considerable practical impact in the real world.
Consider, for example, if a US citizen were involved in a dispute in Mexico
with citizens of Brazil and a Brazilian court ordered him or her to return to
Brazil for a trial. Instead, the US citizen heads to Houston, where a
representative of Brazil appears in a Houston court and asks the judge to
assist in enforcing the Brazilian court order. The first thing the US judge
will consider is international law and whether Brazilian courts have the
power to order a noncitizen outside their country to return to appear in
their courts.
The Permanent Court of International Justice, or the World Court, was
created as an international court long before the founding of the United
Nations after the Second World War. When the United Nations was
created, the court was named the International Court of Justice, and was
incorporated as one of the organs of the UN. Article 34 of the UN Statute
defining the jurisdiction of the court makes it clear that the court can only
hear disputes that arise between nations, not disputes that arise between
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private parties or between a nation and a private party. And, the court only
decides issues which are presented to it by the countries on a voluntary
basis. As a general rule, both nations involved in a dispute must agree to
have the ICJ hear the dispute in order for the court to have jurisdiction.
In general, international law recognizes, to one extent or another, five bases
for the exercise of a nation’s powers to cases involving foreign persons,
property, or events. (Voluntary agreement of the parties would be a sixth
basis.) The support for and legitimacy of these theories of jurisdiction
differ, and they are outlined here in the order of acceptance:
territorial principle—This concept is universally accepted and is the
fundamental attribute of sovereignty—that a nation can control events
and people within its territory. Each nation is responsible for the
conduct of law and the maintenance of good order within its borders,
and this principle is an expression of that right and responsibility.
nationality principle—The person committing the offense is a citizen
who can be presumed to know his country’s laws wherever he is. By
virtue of nationality, a citizen becomes entitled to certain rights and
protections from his country (such as a passport, right to vote, etc.)
and also has certain obligations. Under this theory of jurisdiction, a
nation can exercise its control over its nationals wherever they may
be.
protective principle—Jurisdiction can be exercised because of conduct
that was injurious to a fundamental national interest.
universality principle—Nations have jurisdiction to try cases where
the offense is one that is regarded as a crime by the entire
international community. The two most common situations are piracy
and war crimes.
passive personality principle—Crimes against citizens (i.e., a nation
claiming jurisdiction to try a person for offenses committed abroad
that affect nationals of the country), such as crimes against
ambassadors and diplomats.
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“effects” principle—The “effects” principle refers to the situation
where a state assumes jurisdiction on the grounds that the behavior of
a party is producing “effects” within its territory. This is the case even
though all the conduct complained of takes place in another state. The
use of the “effects” test has arisen most often in situations which are
described as the exercise of “extraterritorial” jurisdiction by a country.
The United States, for example, has been subject to considerable
criticism for purporting to control events and exercise jurisdiction
over activities that occur outside of its borders, particularly in the
antitrust area and in the area of export controls.
Determining the Applicable Law and Forum
We already discussed the jurisdiction of countries and their power to
prescribe rules, and we evaluated the various bases upon which such
power could be exercised. When we talk of jurisdiction, whether of courts
or nations, think of the word as synonymous with the concept of power.
What we have learned so far is that there are various standards under
international law for determining the reach of the power of nations to
assert their authority over people. We observed the territorial principle,
the nationality principle, and the effects test as being three of the
important ones.
Now we will consider a different aspect of jurisdiction—the jurisdiction of
courts— starting with an analysis of the situation in the United States. The
concept of jurisdiction is central to the legal system. If you are sued
in California, can a California court proceed with the case even though you
live in Maryland? The answer depends upon the limits on the jurisdiction
of US courts and how those limits are determined. In fact, in every lawsuit,
the first criterion that a plaintiff has to include in his pleadings is a
presentation of the legal basis as to why the court has jurisdiction over the
subject matter of the case and over the defendant.
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After considering the concept of jurisdiction we will touch upon what is
called “choice of law.” Once a court has decided that it has jurisdiction,
what law does it apply? The law of the state where the court is located, the
law of the state where the plaintiff or defendant resides, or some other
law? Like most areas of the law, the legal principles in this area are still
developing and, although it is easy enough to state the generally accepted
principles, we must always be aware that there are many gray areas in the
law.
Finally, we will address the ability of parties to choose their own law and
forum (i.e., in which court the matter will be decided).
The Jurisdiction of Courts
Subject Matter Jurisdiction
Before we can determine if a court can exercise power over an individual
or a corporation (i.e., exercise personal jurisdiction) we need to know that
the court is authorized to deal with the subject matter of the dispute. This
is generally not a significant issue because most state courts are courts of
general jurisdiction and are empowered by statute to hear all controversies
arising under the laws of a particular jurisdiction. The federal courts have
more limited subject matter jurisdiction, as we discussed previously, where
we reviewed the constitutional provision that delineated the power of
federal courts. And, there are a number of “specialized” courts where the
issue of subject matter jurisdiction is indeed significant. Take, for example,
the bankruptcy courts, which were created to deal exclusively with
bankruptcy. If you were to try to bring another type of case in a
bankruptcy court, you would not be able to do so, because the court would
determine that it did not have subject matter jurisdiction. But, for the most
part, determining whether a court has subject matter jurisdiction is not a
difficult issue. The same is not true with respect to the issue of personal
jurisdiction.
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Personal Jurisdiction
By far the more significant jurisdictional issue from our point of view is
that of personal jurisdiction—whether a court has the ability to exercise
power over a particular individual or corporation. Keep in mind that the
answer to this question could be quite important. If a Maryland resident is
sued in California and the court there determines that it has personal
jurisdiction over him then the defendant must undergo the trouble and
expense of defending himself in a court far from home. The principles that
we discuss now will be helpful when we evaluate the same problem in the
international context.
Statutory Basis
In order for a US court to have jurisdiction over a person, there must first
be a specific law that purports to set forth the power of the court over
persons. These laws are called long-arm statutes, and every state has its
own version of such a law. Generally, these laws grant the courts farreaching powers. For example, the statute may give the state jurisdiction
over persons who commit acts outside the state but which have an effect
within the state.
Constitutional Basis
The principal limitation on the exercise of personal jurisdiction by courts in
the United States comes not from the state long-arm statutes but rather
from the limitations of the Constitution as expressed by the Supreme
Court in a series of cases over the years. The Constitutional provision is the
due process clause, that is, the portion of the Fourteenth Amendment to
the Constitution, which says that no person shall be deprived of life,
freedom, or property without due process of law. In American
jurisprudence, this clause has come to serve many purposes. Another term
for due process might be fundamental fairness, and the essential notion
the the Supreme Court has been dealing with in these cases is that the
Constitution requires the application of this fundamental fairness.
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General Jurisdiction
The analysis of the legal sufficiency of personal jurisdiction is divided into
two general categories: general jurisdiction and specific jurisdiction.
General jurisdiction is jurisdiction over the person not related to the
particular cause of action. In other words, the person’s connection with the
particular venue is so significant that she is subject to being sued in that
place regardless of whether the particular lawsuit has anything to do with
the place of venue. For example, a corporation is always subject to general
jurisdiction in the state where it is incorporated. Thus, a Maryland
corporation is always subject to being sued in Maryland courts whether a
particular claim has anything to do with Maryland or not. Similarly, if a
person or a corporation has continuous and systematic activities within a
forum state, that state will be considered to have general jurisdiction over
that person or corporation. By conducting such continuous and systematic
activities in a particular state, the legal theory is that, by regularly doing
business in that place, a person has to accept the notion that they can be
sued there as well.
Specific Jurisdiction
Specific jurisdiction relates to situations where the particular action that is
the subject of the suit arose in the forum where the lawsuit is sought to be
brought. In other words, a defendant has caused some damage in a
particular place, and the question is whether the defendant can be held to
account in that location or whether one must go to the defendant’s home
state and sue there. In these situations, the courts have developed a twopart test:
1. Did the defendant purposefully avail itself of the protections and
benefits of the forum state’s laws?
2. Would the exercise of jurisdiction be reasonable?
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When a corporation purposefully avails itself of the privilege of conducting
activities within the forum state it has clear notice that it is subject to suit
there and can act to alleviate the risk of burdensome litigation by
procuring insurance, passing the expected costs on to customers, or, if the
risks are too great, severing its connection with the state.
The explosive growth of the internet and electronic commerce have raised
many issues related to the law of jurisdiction. If you create a web page that
slanders someone in California, are you subject to suit in that state even
though you have never been there, and your only connection with the
state is that your web page is available there as it is everywhere else?
Courts have addressed these questions by applying the traditional
principles, adjusted perhaps, but still largely intact.
The Ability of a Court to Refuse to Exercise
Jurisdiction
The fact that a particular court has the power under the constitution to
hear a case does not necessarily mean that the court is required to hear the
case. There is a judicial doctrine called forum non conveniens, which allows
a court to determine that, even though it has the power to hear the case, it
would be more appropriate for another court to hear it. A good example of
the application of this principle is the Bhopal case involving the explosion
of a chemical plant in India partially owned by Union Carbide. When the
case was brought in New York, that court clearly had jurisdiction over
Union Carbide (although not over the Indian joint venture entity) but
declined to exercise jurisdiction under the doctrine of forum
non conveniens. All the witnesses were in India, the accident
occurred there, the evidence was there, etc. Underlining the application of
this doctrine, in many cases such as Bhopal where foreign plaintiffs are
involved, is a policy view that US courts should avoid becoming the
location of choice for all international litigation simply because jury awards
are traditionally higher in the United States.
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References
Babock Gove, P. (1961). Webster’s third new international dictionary.
Cambridge, MA: Riverside Press.
International Court of Justice. (1948, May 28). Conditions of admission of a
state to membership in the United Nations. International Law
Quarterly, 2(3), 483–519.
Law. (n.d.). In Black’s law dictionary free online legal dictionary (2nd ed.).
Retrieved from https://thelawdictionary.org/law/
© 2024 University of Maryland Global Campus
All links to external sites were verified at the time of publication. UMGC is not responsible for the
validity or integrity of information located at external sites.
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International Law
by Robert C. Goodwin, Collegiate Professor, University of Maryland Global
Campus
Introduction to Law
There are many definitions of law, each of which focuses on a different
aspect of the subject. Black’s Law Dictionary (n.d), for example, defines law
in a way that emphasizes it as applicable to people as well as physical
phenomena: “That which is laid down, ordained, or established. A rule or
method according to which phenomena or actions coexist or follow one
another.”
Webster’s Third New International Dictionary (1961) is less broad, focuses
on people, adds the enforcement concept, and emphasizes the notion of
law as an expression of the customs of the people: “A binding custom or
practice of a community. A rule or mode of conduct or action that is
prescribed or formally recognized as binding by a supreme controlling
authority or is made obligatory by a sanction made, recognized, or
enforced by the controlling authority.”
An even more specific definition is, law consists of the entire body of
principles that govern conduct, the observance of which can be enforced
in courts.
Man-made law is necessary to provide not only rules of conduct but also
the machinery and procedures for enforcing right conduct, for punishing
wrongful acts, and for settling disputes that arise even when both parties
are motivated by good intentions. In its broadest sense, the purpose of law
is to provide order, stability, and justice. It is often said that procedure is
the heart of the law. There are many instances where the substantive
words of the law appear to give someone a right but they are unable to
exercise that right for procedural reasons. Something as simple as failing to
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file a lawsuit within the time limits set by the local court rules can prevent
someone from receiving the remedy they thought they had. We should
always keep this distinction between right and remedy in mind as we
review the various materials in this course.
The Legal System
Each nation has its own legal system. Thus, the institutions that create the
laws (such as bureaucracies, courts, legislatures, a king) can differ
significantly from country to country. So also will the scope of the
substantive rules enacted by these institutions, which define the rights and
responsibilities of the citizens of the nation. The rules relating to what
constitutes criminal conduct, when a contract is considered to be formed,
what activities of private parties are subject to government control, and
myriad other substantive regulations of human conduct all differ from
country to country. A final aspect of a nation’s legal system consists of the
procedural rules that govern enforcement of the substantive ones. As
noted, one doesn’t truly have a right without a remedy, and it is the
remedy that is defined by procedural law. These rules encompass
everything from the rules of evidence to the right to be represented by a
lawyer and are a critical component of a legal system.
While it is a fact that each nation has its own legal system, it is also true
that legal systems can be grouped into major categories, with the individual
nations within a category having similar structures to their legal systems.
The two major legal systems in the world are the common law legal system
and the civil law legal system.
Civil Law and Common Law
A civil law country is one whose legal system reflects, however remotely,
the principles of classical Roman law as codified by the emperor Justinian I
in the sixth century. While modern countries that are part of the civil law
system have substantive laws that differ greatly from the law at the time of
the Romans, the structure of the system and its approach to legal problem
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solving date from the sixth century. We may be more familiar with the
Napoleonic Code of 1804, which often is considered the father of civil law
codes, but it too was a direct descendant of Roman law.
Common law, on the other hand, owes its origins to the slow development
of royal courts after the Norman Conquest of England in 1066. Gradually,
the expansion of royal power at the expense of the local barons resulted in
the ascendancy of royal institutions and particularly the royal courts, where
citizens perceived the likelihood of justice at the hand of the King’s judges
as greater than that of the purely local tribunals, which had existed before
the conquest. The term common law owes its origins to the fact that it was
the law applied by royal or national courts and hence “common” to the
entire country as opposed to the customary law of the local courts.
More important for us than the origins of these two major legal systems
are the questions: which countries are influenced by which system, how do
the two systems differ, and what do the differences mean for international
business, if anything?
Common law is applied in Great Britain and almost all of the countries
where Great Britain had a significant influence. Thus, the United States,
Canada, Australia, India, and most other former British colonies use the
common law system. The civil law system is centered in continental Europe
and prevalent in South America and much of Asia, including Japan.
While in recent years the differences between the two major legal systems
have narrowed somewhat, with countries identified as common law or civil
law borrowing legal approaches from each other and being influenced by
the same social movements and cultural changes, there nevertheless are
significant differences that should be highlighted. The most fundamental
difference rests in the very nature of how law is made.
In the civil law tradition, law is conceived as a rule of conduct expressed in
written codes. Nothing is law unless it is written down in such a code. The
expression of the law is stated in broad general terms, and a judge, when
deciding a case, must find a basis for the decision in the principles
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expressed in the code. While the judge may refer readily to legal scholars
for assistance in doing so, reference to other similar cases handled by other
judges would ordinarily not be part of the process. Rather, the civil law
judge would apply deductive reasoning—solving the case by deduction
from a principle expressed in the code.
Common law focuses heavily on cases. While common law countries have
codes (any statute enacted by a legislative body would fit this definition)
the law inferred by prior cases (i.e., judicial precedents) is equally as
important as the statute. Common law lawyers and judges reason by
analogy to prior cases, and if a prior case decided by a higher court is
essentially the same in its factual pattern then the case will control the
outcome under the principle of stare decisis (i.e., that past decisions are
generally binding for the resolution of factually similar cases). Thus, the role
of judges is critical, and the common law is often referred to as “judgemade law.” One of the facets of common law which often surprises those
familiar with the civil law tradition is that there are many areas of the
common law where there is no written statute at all—only prior cases. In
order to know the state of the law, one has to study the cases first. A good
summary of these fundamental differences might be, a common law lawyer
looks for a case, a civil law lawyer looks for the principle involved.
In addition to the fundamental difference noted above, there are a number
of less general but equally important practical differences. For example,
there are no juries in noncriminal cases in civil law countries. In a court case
in a civil law country, the judge assumes a far more activist role, and
attorneys for each side have an obligation to assist the judge in finding the
facts. In contrast, in litigation in a common law country, the judge is a
neutral referee, ruling on motions made by the advocates but not generally
initiating his own inquiries.
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The US Legal System
In order to understand the context of international law, it is important to
have a basic understanding of the US legal system. This system is
somewhat complex because each state within the United States has its
own legislative body, executive branch, and court system. And, of course,
the federal government has this structure as well. How these systems
overlap and interact with each other is an important issue.
One of the most important aspects of the US federal system is the
acceptance by courts in one state of the judicial decisions made in another
state. The Constitution itself requires that each state give “full faith and
credit” to the judicial determinations of its sister states. Thus, for example,
if I bring a successful lawsuit in Maryland against a party who moves to
California, I can take that Maryland judgment to the courts of California
and ask that the California court convert that judgment into a California
judgment, which can then be enforced in that state. Importantly, there is
no comparable situation among countries. If I obtain a favorable court
ruling from the courts of France against a person who then moves to Brazil
before the judgment can be enforced it will be doubtful that I could
convince a Brazilian court to adopt the French judgment. There is no
international “full faith and credit” clause, although negotiations on an
international agreement, which would do just that, are already underway.
One interesting aspect of the differences between federal laws and state
laws is that those laws that are of principal interest to us (i.e., those laws
that deal with commercial matters) are virtually all state laws. There is no
federal law of contracts and no federal law of sales. That does not mean,
however, that federal courts are never involved in hearing a case involving
a contract dispute. But if and when they do hear such a case they apply
state law. Assume, for example, that you have a contract dispute that arises
over a contract that was signed in New York and was to be performed in
New York. One party brings an action in the federal court sitting in the
state of Maryland (we’ll explain how this happens shortly). The federal court
in the state of Maryland would apply New York law to the case because (1)
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it has to apply state law since there is no federal law on contracts, and (2)
the jurisdiction with the closest connection with the case is New York and
hence, New York law should apply.
We all are familiar with the Supreme Court and its role as the final
decision-making body on matters of legal interpretation. The Supreme
Court is the highest court in the federal system. Immediately below the
Supreme Court are thirteen circuit courts of appeal, which hear appeals
from the district courts, the trial-level courts in the federal system. Twelve
of these circuit courts of appeal cover geographic areas—the sixth circuit,
for example, covers Michigan, Ohio, Kentucky, and Tennessee. The courts
have as many as twenty judges and they hear cases in panels of three. The
circuit courts do not conduct trials—they only hear appeals and, in the
common law system, appeals can only be made as to matters of law as
opposed to facts. The trial court and the jury have complete responsibility
for determining the facts, and the appellate courts can only hear appeals
relating to matters of law.
Federal courts at the trial level (the district courts) and at the appellate level
(the circuit courts of appeal) have their basic power, or jurisdiction, defined
by the Constitution. Under Article III of the Constitution, specific powers
are outlined for the federal courts. Federal courts have jurisdiction with
respect to the following:
1. constitutional issues
2. laws and treaties of the United States
3. admiralty
4. ambassadors
5. where the United States government is a party
6. controversies between a state and citizens of another state
7. controversies between citizens of different states (called “diversity
jurisdiction”)
8. controversies between a citizen of a state and a foreign citizen
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Plus, a $75,000 minimum applies to suits involving numbers 7 and 8 above.
Number 8 above is most significant for our purposes. The concept of
“diversity jurisdiction” was adopted by the framers of the Constitution in
order to provide an alternative to the home field advantage that might
otherwise apply if lawsuits involving parties from different states could be
heard only in the state courts of one of the parties. The federal courts were
seen as providing a more neutral forum for such situations. Thus, because
of this provision of the Constitution, a party can either bring a case in a
federal court (as a plaintiff) or ask to have it removed to a federal court (as
a defendant) so long as the diversity criteria are met. And, as already noted,
the federal court would apply state law in its consideration of the case,
unless it is a case involving federal law or one of the other categories set
forth above.
International Legal Issues
Before considering the issues related to the application of legal rules to
international businesses, we should understand the scope of the power of
nations to make such rules. In other words, what are the limits of a nation’s
law-making authority and where do such limits come from? Can the
Parliament in Great Britain issue edicts regulating businesses
in Switzerland? What are the principles involved?
We start with the consideration of public international law—that is, the
category of international law that defines the relationships between and
among nations. It differs from what is usually termed private international
law, which really is simply another way of describing the rules that apply to
private businesses in an international setting. But our concern now is to
analyze public international law and to understand the reach of a nation’s
power over its subjects and over the subjects of other nations. Hereafter
we’ll drop the word public and simply refer to public international law as
international law.
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The term international law is used to describe the rules that regulate the
conduct of nations. International law differs from the laws of the various
nations of the world in two major respects. First, many areas of
international law are not definitive—that is, nations (or states) differ as to
what the actual rule in question is (although there are many areas where
the rules are clear, either by virtue of an international agreement or long
usage). Second, for the most part there is no enforcement mechanism
associated with international law, so that a nation that ignores the rules,
while subject to possible ostracism, is not otherwise at risk of being
enjoined, fined, or arrested as would a private citizen or business that
violated the law of a nation.
International law is based on the principles of (1) sovereignty and (2) the
consent of states. The concept of sovereignty is that a nation is master in
its own territory. The International Court of Justice (ICJ) (1948) has defined
sovereignty as “the whole body of rights and attributes which a State
possesses in its territory, to the exclusion of all other States, and also in its
relations with other States. Sovereignty confers rights upon States and
imposes obligations on them.”
Thus, sovereignty is that concept which allows a state to make rules that
are applicable throughout its territory and that govern all people within the
state. The concept of sovereignty also conveys the notion that each state is
equal to all other states, and the sovereign rights of any particular state are
limited by the sovereign rights of other states.
The acceptance of the concept of sovereignty dates from the middle of the
seventeenth century at the conclusion of the Thirty Years War, which
marked the separation of the powers of the church and the state. As time
has passed, nations have begun to recognize specific principles that further
define the concept of sovereignty and the notions of territorial integrity
and political independence as being inviolable. Since each state is sovereign
in its own territory, international law recognizes the basic principle that no
state has the right to impose its will on the territory of another state.
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Courts in the United States often use the term comity to refer to the
deference or respect that is due to the decisions and actions of another
country in order to minimize the conflicts that could arise through the
assertion of conflicting jurisdiction by different countries.
There are a number of sources of international law. First, there is
customary international law, which derives from the practice of nations
over a period of time; in other words,something that over time is
recognized by states as international law, whether from a sense of
obligation or other reason. Second, international conventions and treaties
establish rules, which are accepted by the nations that sign them, such as
the Law of the Sea Convention. Third, general principles of law recognized
by civilized nations can serve as a source for international law. Finally,
judicial decisions by international courts such as the ICJ in the Hague, as
well as the opinions of legal scholars, can assist in determining the rules of
international law.
While international law seems from one perspective to be academic and
theoretical, it actually has considerable practical impact in the real world.
Consider, for example, if a US citizen were involved in a dispute in Mexico
with citizens of Brazil and a Brazilian court ordered him or her to return to
Brazil for a trial. Instead, the US citizen heads to Houston, where a
representative of Brazil appears in a Houston court and asks the judge to
assist in enforcing the Brazilian court order. The first thing the US judge
will consider is international law and whether Brazilian courts have the
power to order a noncitizen outside their country to return to appear in
their courts.
The Permanent Court of International Justice, or the World Court, was
created as an international court long before the founding of the United
Nations after the Second World War. When the United Nations was
created, the court was named the International Court of Justice, and was
incorporated as one of the organs of the UN. Article 34 of the UN Statute
defining the jurisdiction of the court makes it clear that the court can only
hear disputes that arise between nations, not disputes that arise between
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private parties or between a nation and a private party. And, the court only
decides issues which are presented to it by the countries on a voluntary
basis. As a general rule, both nations involved in a dispute must agree to
have the ICJ hear the dispute in order for the court to have jurisdiction.
In general, international law recognizes, to one extent or another, five bases
for the exercise of a nation’s powers to cases involving foreign persons,
property, or events. (Voluntary agreement of the parties would be a sixth
basis.) The support for and legitimacy of these theories of jurisdiction
differ, and they are outlined here in the order of acceptance:
territorial principle—This concept is universally accepted and is the
fundamental attribute of sovereignty—that a nation can control events
and people within its territory. Each nation is responsible for the
conduct of law and the maintenance of good order within its borders,
and this principle is an expression of that right and responsibility.
nationality principle—The person committing the offense is a citizen
who can be presumed to know his country’s laws wherever he is. By
virtue of nationality, a citizen becomes entitled to certain rights and
protections from his country (such as a passport, right to vote, etc.)
and also has certain obligations. Under this theory of jurisdiction, a
nation can exercise its control over its nationals wherever they may
be.
protective principle—Jurisdiction can be exercised because of conduct
that was injurious to a fundamental national interest.
universality principle—Nations have jurisdiction to try cases where
the offense is one that is regarded as a crime by the entire
international community. The two most common situations are piracy
and war crimes.
passive personality principle—Crimes against citizens (i.e., a nation
claiming jurisdiction to try a person for offenses committed abroad
that affect nationals of the country), such as crimes against
ambassadors and diplomats.
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“effects” principle—The “effects” principle refers to the situation
where a state assumes jurisdiction on the grounds that the behavior of
a party is producing “effects” within its territory. This is the case even
though all the conduct complained of takes place in another state. The
use of the “effects” test has arisen most often in situations which are
described as the exercise of “extraterritorial” jurisdiction by a country.
The United States, for example, has been subject to considerable
criticism for purporting to control events and exercise jurisdiction
over activities that occur outside of its borders, particularly in the
antitrust area and in the area of export controls.
Determining the Applicable Law and Forum
We already discussed the jurisdiction of countries and their power to
prescribe rules, and we evaluated the various bases upon which such
power could be exercised. When we talk of jurisdiction, whether of courts
or nations, think of the word as synonymous with the concept of power.
What we have learned so far is that there are various standards under
international law for determining the reach of the power of nations to
assert their authority over people. We observed the territorial principle,
the nationality principle, and the effects test as being three of the
important ones.
Now we will consider a different aspect of jurisdiction—the jurisdiction of
courts— starting with an analysis of the situation in the United States. The
concept of jurisdiction is central to the legal system. If you are sued
in California, can a California court proceed with the case even though you
live in Maryland? The answer depends upon the limits on the jurisdiction
of US courts and how those limits are determined. In fact, in every lawsuit,
the first criterion that a plaintiff has to include in his pleadings is a
presentation of the legal basis as to why the court has jurisdiction over the
subject matter of the case and over the defendant.
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After considering the concept of jurisdiction we will touch upon what is
called “choice of law.” Once a court has decided that it has jurisdiction,
what law does it apply? The law of the state where the court is located, the
law of the state where the plaintiff or defendant resides, or some other
law? Like most areas of the law, the legal principles in this area are still
developing and, although it is easy enough to state the generally accepted
principles, we must always be aware that there are many gray areas in the
law.
Finally, we will address the ability of parties to choose their own law and
forum (i.e., in which court the matter will be decided).
The Jurisdiction of Courts
Subject Matter Jurisdiction
Before we can determine if a court can exercise power over an individual
or a corporation (i.e., exercise personal jurisdiction) we need to know that
the court is authorized to deal with the subject matter of the dispute. This
is generally not a significant issue because most state courts are courts of
general jurisdiction and are empowered by statute to hear all controversies
arising under the laws of a particular jurisdiction. The federal courts have
more limited subject matter jurisdiction, as we discussed previously, where
we reviewed the constitutional provision that delineated the power of
federal courts. And, there are a number of “specialized” courts where the
issue of subject matter jurisdiction is indeed significant. Take, for example,
the bankruptcy courts, which were created to deal exclusively with
bankruptcy. If you were to try to bring another type of case in a
bankruptcy court, you would not be able to do so, because the court would
determine that it did not have subject matter jurisdiction. But, for the most
part, determining whether a court has subject matter jurisdiction is not a
difficult issue. The same is not true with respect to the issue of personal
jurisdiction.
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Personal Jurisdiction
By far the more significant jurisdictional issue from our point of view is
that of personal jurisdiction—whether a court has the ability to exercise
power over a particular individual or corporation. Keep in mind that the
answer to this question could be quite important. If a Maryland resident is
sued in California and the court there determines that it has personal
jurisdiction over him then the defendant must undergo the trouble and
expense of defending himself in a court far from home. The principles that
we discuss now will be helpful when we evaluate the same problem in the
international context.
Statutory Basis
In order for a US court to have jurisdiction over a person, there must first
be a specific law that purports to set forth the power of the court over
persons. These laws are called long-arm statutes, and every state has its
own version of such a law. Generally, these laws grant the courts farreaching powers. For example, the statute may give the state jurisdiction
over persons who commit acts outside the state but which have an effect
within the state.
Constitutional Basis
The principal limitation on the exercise of personal jurisdiction by courts in
the United States comes not from the state long-arm statutes but rather
from the limitations of the Constitution as expressed by the Supreme
Court in a series of cases over the years. The Constitutional provision is the
due process clause, that is, the portion of the Fourteenth Amendment to
the Constitution, which says that no person shall be deprived of life,
freedom, or property without due process of law. In American
jurisprudence, this clause has come to serve many purposes. Another term
for due process might be fundamental fairness, and the essential notion
the the Supreme Court has been dealing with in these cases is that the
Constitution requires the application of this fundamental fairness.
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General Jurisdiction
The analysis of the legal sufficiency of personal jurisdiction is divided into
two general categories: general jurisdiction and specific jurisdiction.
General jurisdiction is jurisdiction over the person not related to the
particular cause of action. In other words, the person’s connection with the
particular venue is so significant that she is subject to being sued in that
place regardless of whether the particular lawsuit has anything to do with
the place of venue. For example, a corporation is always subject to general
jurisdiction in the state where it is incorporated. Thus, a Maryland
corporation is always subject to being sued in Maryland courts whether a
particular claim has anything to do with Maryland or not. Similarly, if a
person or a corporation has continuous and systematic activities within a
forum state, that state will be considered to have general jurisdiction over
that person or corporation. By conducting such continuous and systematic
activities in a particular state, the legal theory is that, by regularly doing
business in that place, a person has to accept the notion that they can be
sued there as well.
Specific Jurisdiction
Specific jurisdiction relates to situations where the particular action that is
the subject of the suit arose in the forum where the lawsuit is sought to be
brought. In other words, a defendant has caused some damage in a
particular place, and the question is whether the defendant can be held to
account in that location or whether one must go to the defendant’s home
state and sue there. In these situations, the courts have developed a twopart test:
1. Did the defendant purposefully avail itself of the protections and
benefits of the forum state’s laws?
2. Would the exercise of jurisdiction be reasonable?
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When a corporation purposefully avails itself of the privilege of conducting
activities within the forum state it has clear notice that it is subject to suit
there and can act to alleviate the risk of burdensome litigation by
procuring insurance, passing the expected costs on to customers, or, if the
risks are too great, severing its connection with the state.
The explosive growth of the internet and electronic commerce have raised
many issues related to the law of jurisdiction. If you create a web page that
slanders someone in California, are you subject to suit in that state even
though you have never been there, and your only connection with the
state is that your web page is available there as it is everywhere else?
Courts have addressed these questions by applying the traditional
principles, adjusted perhaps, but still largely intact.
The Ability of a Court to Refuse to Exercise
Jurisdiction
The fact that a particular court has the power under the constitution to
hear a case does not necessarily mean that the court is required to hear the
case. There is a judicial doctrine called forum non conveniens, which allows
a court to determine that, even though it has the power to hear the case, it
would be more appropriate for another court to hear it. A good example of
the application of this principle is the Bhopal case involving the explosion
of a chemical plant in India partially owned by Union Carbide. When the
case was brought in New York, that court clearly had jurisdiction over
Union Carbide (although not over the Indian joint venture entity) but
declined to exercise jurisdiction under the doctrine of forum
non conveniens. All the witnesses were in India, the accident
occurred there, the evidence was there, etc. Underlining the application of
this doctrine, in many cases such as Bhopal where foreign plaintiffs are
involved, is a policy view that US courts should avoid becoming the
location of choice for all international litigation simply because jury awards
are traditionally higher in the United States.
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References
Babock Gove, P. (1961). Webster’s third new international dictionary.
Cambridge, MA: Riverside Press.
International Court of Justice. (1948, May 28). Conditions of admission of a
state to membership in the United Nations. International Law
Quarterly, 2(3), 483–519.
Law. (n.d.). In Black’s law dictionary free online legal dictionary (2nd ed.).
Retrieved from https://thelawdictionary.org/law/
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All links to external sites were verified at the time of publication. UMGC is not responsible for the
validity or integrity of information located at external sites.
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International Legal Challenges File
Course Resource
International Legal Challenges File
Notice: Contains Confidential Information
The vice president is concerned that the company is undertaking a number
of international projects without a complete understanding of the risks
that such activities entail. Specifically, the VP would like further thoughts
on the following issues:
1. In one case, a subsidiary of Colossal Corporation has negotiated a
contract that calls for any disputes to be settled in the courts of Zintar,
a relatively small African country that supplies raw materials for some
of Colossal’s European operations. The VP would like a discussion on
the wisdom of this contract provision and thoughts on possible
alternative approaches if the contract were to be renegotiated.
2. In a second case, a Colossal subsidiary in Bartan, an Asian country,
wants the company to enter into a sales contract with a subsidiary
there, using the UN Convention on Contracts for the International
Sale of Goods (CISG) as the controlling law. The VP needs to know the
ramifications of this option and decide whether it is a good idea.
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3. Colossal management also needs to know whether arbitration is a
good idea for a dispute resolution provision for both domestic and
international contracts and why.
4. The parent company, Colossal Corporation, has been sued in the
country of Notso in South America. The lawsuit claims millions of
dollars in damages due to supposed pollution at a mine that Colossal
owned there. Since Colossal has already decided to exit that country
and sold the mine there, the company’s regional VP believes there is
no risk if the company is taken to court in Notso. He says that even if
Colossal loses there and a court judgment is rendered against it, there
is no danger because the company will have left the country. The VP
needs to know if he is right.
5. Finally, one of Colossal’s suppliers in the country of Edfin no longer
wants to supply needed raw materials for Colossal’s factories in the
United States, unless Colossal agrees to pay them by opening a letter
of credit. Up to now, the company has paid them after delivery to the
United States, which has allowed Colossal to inspect the quality of the
shipments before sending payment. What are the ramifications of
granting Edfin’s request?
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