International Commercial Agreements

International Commercial Agreements A Primer on Drafting, Negotiating and Resolving Disputes SECOND EDITION William F. Fox, Jr. Professor of Law The Catholic University of America Washington, DC Kluwer Law and Taxation Publishers Deventer Boston

Contents Preface 7 I. Forming International Commercial Agreements 11 One: Introduction 1.1 INTERNATIONAL TRADE AND THIS BOOK 11 1.2 AN OVERVIEW OF INTERNATIONAL COMMERCIAL TRANSACTIONS 13 1.3 HOW TO USE THIS BOOK // Two: Sources of the Law of International Commercial Agreements 2.1 INTRODUCTION 21 2.2 PROMULGATION AND ENFORCEMENT OF PRINCIPLES OF COMMERCIAL LAW 22 2.3 THE WORLD'S MAJOR LEGAL SYSTEMS 24 2.4 THE CIVIL LAW SYSTEM 26 2.5 THE BRITISH COMMON LAW SYSTEM 30 2.6 COMMERCIAL LAW IN THE UNITED STATES OF AMERICA 33 2.7 SOCIALIST LEGAL SYSTEMS 34 2.7.1 The Law of Contract in the Commonwealth of Independent States 36 2.7.2 The Peoples Republic of China 37 2.8 ISLAMIC LEGAL SYSTEMS 37 2.9 THE IMPACT OF INTERNATIONAL PRINCIPLES OF COMMERCIAL LAW 39 2.9.1 International Law Generally 39 2.9.2 The 1980 Vienna Convention on Contracts for the International Sales of Goods 41 Three: Planning International Commercial Agreements 3.1 INTRODUCTION 47 3.2 SOME FUNDAMENTAL PRINCIPLES OF CONTRACT LAW 49 3.2.1 Formation and Subject Matter SO 3.2.2 Performance 57 3.2.3 Breach of Contract and Excused Performance 60 3.2.4 Remedy 64

International Commercial Agreements 5 3.2.5 Dispute Resolution 66 3.3 THE DIFFERENT FORMS OF INTERNATIONAL COMMERCIAL AGREEMENT 67 3.3.1 Sales of Goods or Services 67 3.3.2 Agency and Distributorship Agreements 72 3.3.3 Franchises 73 3.3.4 Licensing and Technology Transfer 76 3.3.5 joint Ventures 79 3.3.6 Other Forms of Agreement 81 3.4 PLANNING FOR DISPUTE RESOLUTION 81 3.4.1 Adaptation 83 3.4.2 Renegotiation 84 3.4.3 Mediation/Conciliation 84 3.4.4 Arbitration 85 3.4.5 Litigation 86 3.4.6 Other Forms of Dispute Resolution 87 3.5 FINANCING AND PAYING FOR INTERNATIONAL COMMERCIAL AGREEMENTS 89 3.5.1 Direct Payment 89 3.5.2 Payment Devices 90 3.5.3 Insuring Against Risks 94 3.6 OTHER CONSIDERATIONS IN PLANNING COMMERCIAL AGREEMENTS 95 3.6.1 Tax Matters 96 3.6.2 Antitrust Issues 97 3.6.3 Antidumping and Countervailing Duty Issues 99 3.6.4 Export and Import Controls 99 3.6.5 Ethical Considerations 100 3.7 SPECIAL REGIONAL CONSIDERATIONS IN PLANNING INTERNATIONAL COMMERCIAL AGREEMENTS 702 3.7.1 Trade with the European Community 103 3.7.2 The Canada-United States Free Trade Agreement 107 Four: Drafting International Commercial Agreements 4.1 INTRODUCTION 113 4.2 SOME THRESHOLD CONSIDERATIONS 114 4.2.1 Identifying Goals and Objectives 115 4.2.2 Research as a Planning and Drafting Tool 117 4.2.3 Beginning the Drafting Process 119 4.3 THE USE AND EFFECT OF A LETTER OF INTENT 127 4.4 CHOOSING THE LANGUAGE AND THE LAW OF THE AGREEMENT 129 4.4.1 Choosing the Contract's Language 129 4.4.2 Choosing the Contract's Applicable Law 130 4.5 USING STANDARDIZED CLAUSES AND FORMS 136 4.6 SAMPLE CLAUSES IN INTERNATIONAL COMMERCIAL AGREEMENTS FORMATION AND PERFORMANCE 138 4.6.1 The Quantity Term 139 4.6.2 The Price Term 139 4.6.3 The Payment Term 141 4.6.4 Provisions Allocating Risk of Loss During Shipment 142 4.6.5 Performance Clauses and Express and Implied Warranties 142

Contents 4.7 SAMPLE CLAUSES BREACH, REMEDIES AND MISCELLANEOUS 143 4.7.1 Force Majeure Clauses 144 4.7.2 Penalty and Liquidated Damages Clauses 145 4.8 DRAFTING THE DISPUTE RESOLUTION AND CHOICE OF FORUM CLAUSES 146 4.9 SOME CONCLUDING COMMENTS 152 Five: Negotiating International Commercial Agreements 5.1 INTRODUCTION 753 5.2 ESTABLISHING A BASIC FRAMEWORK FOR NEGOTIATION 754 5.2.1 Diagramming a Negotiation 155 5.2.2 Separating the People from the Problem 161 5.2.3 Focus on Interests, not Positions 162 5.2.4 Create Options for Mutual Gain 162 5.2.5 Insist on Objective Criteria 163 5.2.6 Know Your "Best Alternative to a Negotiated Agreement" 164 5.3 THE STAGES OF COMMERCIAL NEGOTIATION 765 5.3.1 Orientation and Positioning 165 5.3.2 Argumentation 167 5.3.3 Emergence and Crisis 167 5.3.4 Agreement or Breakdown 168 5.4 NEGOTIATING STYLES, STRATEGY, AND TACTICS 768 5.5 CROSS-CULTURAL NEGOTIATION 173 5.6 NEGOTIATION WHEN DISPUTES ARISE UNDER AN EXISTING TRANSACTION 177 5.7 THE ETHICS OF NEGOTIATION 777 5.7.1 Ethics Generally 177 5.7.2 Ethical Constraints on U.S. Lawyer-Negotiators 181 5.7.3 Statutory Controls on Negotiator Conduct 182 II. Resolving International Commercial Disputes 183 Six: The Less-Drastic Forms of Commercial Dispute Resolution 6.1 INTRODUCTION 183 6.2 CONTRACT ADAPTATION 184 6.2.1 Gap Filling Mechanisms in the Underlying Law 187 6.2.2 Coping with Uncertainty Through Express Contractual Provisions Some Typical Adaptation Clauses 190 6.3 RENEGOTIATION 792 6.4 MEDIATION AND CONCILIATION 193 6.4.1 Mediation and Conciliation Generally 193 6.4.2 A General Theory of Mediation 193 6.4.3 Procedures for International Commercial Mediation 196 6.4.4 Mediation in the Future 198 6.5 THEMINITRIAL 798 6.5.1 The Minitrial Generally 198 6.5.2 Specific Minitrial Rules 200 6.5.3 Minitrials in the Future 207

Seven: Litigation International Commercial Agreements 7.1 INTRODUCTION 203 7.2 LITIGATION GENERALLY 204 7.3 SUBJECT MATTER JURISDICTION 206 7.4 FOREIGN SOVEREIGN IMMUNITY AND THE ACT OF STATE DOCTRINE 207 7.4.1 Sovereign Immunity 207 7.4.2 The Act of State Doctrine 209 7.5 PERSONAL JURISDICTION OVER PRIVATE PARTIES 277 7.6 SERVICE OF PROCESS 276 7.7 CHOICE OF FORUM, VENUE AND FORUM NON CONVENIENS 278 7.8 CHOICE OF LAW 223 7.9 DISCOVERY AND GATHERING INFORMATION AND EVIDENCE ABROAD 225 7.10 TRIAL PROCEDURE 230 7.11 ENFORCEMENT OF JUDGMENTS AT HOME AND ABROAD 237 7.12 CONCLUSION 236 Eight: International Commercial Arbitration: Commencing Arbitration and the Arbitration Hearing 8.1 INTRODUCTION 237 8.2 A BRIEF HISTORY OF COMMERCIAL ARBITRATION 243 8.3 THE STATUTORY BASIS FOR ARBITRATION 246 8.3.1 The Federal Arbitration Act 246 8.3.2 The English Arbitration Acts 247 8.3.3 The UNCITRAL Model Law on International Commercial Arbitration 249 8.4 THE LEX LOCI ARBITRI AND "AD HOC" VERSUS "INSTITUTIONAL" ARBITRATION 249 8.5 A DESCRIPTION OF THE MAJOR INTERNATIONAL ARBITRAL INSTITUTIONS INCLUDING A BRIEF SUMMARY OF THEIR RULES 252 8.5.1 The International Chamber of Commerce 253 8.5.2 American Arbitration Association Procedures 256 8.5.3 The UNCITRAL Procedures 258 8.6 COMMENCING THE ARBITRATION 260 8.6.1 Determining the Issues to be Arbitrated 262 8.6.2 Drafting the Demand for Arbitration 263 8.6.3 Selecting the Arbitrator 265 8.7 PREPARING FOR AND CONDUCTING THE HEARING 267 8.7.1 Discovery 268 8.7.2 The Pre-Hearing Conference 269 8.7.3 The Hearing 270 8.8 DRAFTING THE ARBITRAL AWARD 272 Nine: International Commercial Arbitration: Arbitration in the Courts 9.1 INTRODUCTION 277 9.2 ACTIONS TO COMPEL OR STAY ARBITRATION 287 9.3 RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS 284

Contents 9.4 INTERNATIONAL RECOGNITION AND ENFORCEMENT OF AR BITRAL AWAR DS 289 9.4.1 The New York Convention 290 9.4.2 Enforcing Awards not Subject to the New York Convention 294 Ten: International Commercial Arbitration: Special Regional Considerations 10.1 INTRODUCTION 295 10.2 THE INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT DISPUTES 296 10.3 THE EUROPEAN COMMUNITY 299 10.4 THE IRAN-UNITED STATES CLAIMS TRIBUNAL 302 10.5 LATIN AMERICA 304 10.6 THE MIDDLE EAST AND AFRICA 307 10.7 THE PACIFIC RIM 370 10.8 THE PEOPLES REPUBLIC OF CHINA 372 10.9 THE FORMER SOVIET UNION 375 Eleven: Future Trends in International Commercial Agreements and Dispute Resolution 11.1 INTRODUCTION 379 11.2 TRENDS IN INTERNATIONAL COMMERCIAL AGREEMENTS 379 11.3 TRENDS IN INTERNATIONAL COMMERCIAL DISPUTE RESOLUTION 327 11.4 CONCLUSION 326 Appendices 327 Appendix A: UN Convention on Contracts for the International Sale of Goods (1980) 327 Appendix B: United States Uniform Commercial Code 347 Appendix C: Rules of the ICC Court of Arbitration 380 Appendix D: Arbitration Rules of the American Arbitration Association 406 INTERNATIONAL ARBITRATION RULES 406 COMMERCIAL ARBITRATION RULES 478 Appendix E: Arbitration Rules of the UN Commission for International Trade Law (UNCITRAL) 432

International Commercial Agreements Appendix F: Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, June 10, 1958 446 Appendix G: UNCITRAL Model Law on International Commercial Arbitration 457 Bibliography 463 Index 481