Stan is ecstatic. He just received a phone call from “Company” (hereinafter “Company”) in a small country in Asia experiencing an unexpected wave of appreciation for Country Music. The Company wanted to distribute 40,000 of Stan’s proprietary country music instruments Stan invented last year. Stan sits down with his long-time friend and family attorney, Jerry, to “hammer” out an acceptable International Distribution Agreement draft. Suddenly Stan asks the $1,000,000 question. “Jerry, my instruments are made in Mexico, my company is registered in Delaware, and we plan on distributing in Asia. If they breach this Agreement, where do I sue and what laws apply?”
In a domestic transaction, while it is good practice, it isn’t always necessary to specify the jurisdiction. However, in international transactions, the question of Jurisdiction and Governing Law is of utmost importance. Remember, not every court in every country is friendly to US-based parties!
A clear example of this are the recent Apple Inc. v. Samsung Electronics Co. cases (a series of lawsuits between the two largest handphone companies in the world). Apple Inc. prevailed in US courts, yet on the same issues, facts, and allegations, Samsung prevailed in their home country of South Korea, Japan, and the U.K.! Eventually, both companies would sue and countersue each other over 50 times in over ten countries with varying results, with billions of dollars of damages claimed between the two companies.
Considerations that must be had when drafting agreements for international transactions:
- The domicile, court system, and international reciprocity/treaties of each party,
- Countries where each party has substantial assets,
- Where the transaction Agreement will be signed or where the whole/part of the transaction is to be performed.
The agreement needs to be clear and state governing law, and method of adjudicating disputes. Partly to avoid problems in choosing governing law, arbitration is quite often chosen as an alternative dispute resolution. In Asia, arbitration/mediation centers at Hong Kong and Singapore have good reputations for fairness and being easily accessible and convenient. In Europe, established arbitration/mediation centers in Stockholm, London, Vienna, and Paris reign supreme.
It would be prudent for Jerry, Stan’s family attorney, to recognize the complexity of this collaboration and defer to an attorney with international experience. An experienced attorney could better plan defensive mechanisms that anticipate and prepare for the worst scenarios for Stan.
Clients must follow these three rules: specify your chosen system of law or jurisdiction carefully, don’t use a “Jerry” (experience is vital!), and consider having an arbitration clause.
At The Stanley Law Group, we boast years of experience with cross-border transactions involving major corporations in South Korea, Vietnam, China, Japan, Russia, and other jurisdictions including multiple fortune 500 companies. Don’t go with Jerry, call us at (540) 721-6028 to learn how to move forward, and how best to protect yourself.
The article above is not intended as legal advice. We recommend you come to our offices for a proper legal consultation with our excellent attorneys to formulate a strategy which is suitable for your specific case.