Resolving business disputes through litigation or other alternatives: the effects of jurisdictional rules and recognition practice.

• Author: Posch, Willibald
• Position: Transatlantic Business Transactions: Choice of Law, Jurisdiction, and Judgments

1. INTRODUCTION

   The rules on jurisdiction and recognition practice in the various U.S. jurisdictions on the one hand and in the European States on the other hand differ in several aspects. Therefore, their impact on transatlantic business transactions and the litigation resulting from those transactions may be significant. There is no doubt that in a globalized economy differences between domestic rules governing jurisdictional issues and the recognition of foreign judgments may hamper the functioning of international trade and commerce. Unification of the rules on conflict of jurisdiction in civil and commercial matters, as provided within the European Union by the recent "Council Regulation Brussels Nr. 1" (1), appears to not only be necessary for an internal market within a trade union or within a large nation consisting of a plurality of jurisdictions such as the United States of America. A uniform set of rules on jurisdiction and the recognition and enforcement of foreign judgments would also be necessary for the resolution of conflicts in cross-border business relations between independent states adhering to different traditions and concepts of international civil procedure laws.

   It has been well-known for some rime to practitioners specializing in the field of international business transactions that a reduction of the differences in the domestic laws on civil procedure would face great or even insurmountable difficulties. In the course of the negotiations on a global Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters within the institutional framework of the Hague Conference on Private International Law, these difficulties became apparent. In particular, it was the conflict between the members of the U.S. delegation and the delegates of the Member States of the European Union that prevented any substantial approximation of the differing views on key issues of the envisaged Convention.

   Originally, the negotiations on a global "Convention on Jurisdiction and Recognition and Enforcement of Foreign Judgments" (Judgment Convention) had been initiated by the United States in the early 1990s, (2) and at the 18th session of the Hague Conference in October 1996, the delegations decided to put the Judgment Convention on the agenda for the 19th session in June 2001. However, the preliminary daft convention of 1999 (3) that formed the basis for deliberations during the 19th session had been rigorously rejected by the head of the U.S. delegation, Jeffrey Kovar. Kovar asserted that "the project ... stands no chance of being accepted in the United States" because of "fatal defects in the approach, structure, and details of the text." (4)

   From the U.S. perspective, an important aim of the Judgment Convention was the facilitation of the enforcement of decisions of U.S. courts abroad, particularly in Europe, since the enforcement of decisions rendered by European courts is easier in most U.S. jurisdictions and does not depend on the requirement of reciprocity as it does in the majority of the European States. (5) Contrary to that, several delegations of the European States argued in favor of the elimination of certain rules of U.S. federal and state civil procedure law which led to what Europeans believe to be an exorbitant exercise of jurisdiction by U.S. courts. In detail, the Europeans were particularly opposed to the ongoing U.S. practice of recognizing merely "doing business in an American State" as a sufficient basis for exercising U.S. jurisdiction.

   Obviously, the diverging expectations of the U.S. and European delegations could not coincide, since the position of the Europeans complies with the domestic laws in most European States, which deny jurisdiction based on "doing business" without any causal connection between the subject matter of a dispute and the place of the business activity. European judges and lawyers are simply not familiar with the practice of U.S. federal courts, which accept jurisdiction for actions concerning claims that have no other contact to the forum than defendant's doing business there. Such long-arm statutes are not only the law in New York, which is the most important forum state for transatlantic litigation, but also in several other states. (6) In contrast thereto, the relevant rules on jurisdiction in international cases of the European States favor the "transacting business approach," which requires a causal connection.

   From these divergent positions, it was of no surprise that the Second Commission of the Hague Conference in its 19th session in June 2001, could not reach a common position with regard to a number of questions, particularly on the issue of under what conditions to exercise jurisdiction. As a result, the deliberations of that session resulted in serious disagreement and an obvious impasse. (7) Exactly one year later, the Permanent Bureau of the Hague Conferences set up an informal working group to continue the efforts of preparing a text on jurisdiction and the recognition and enforcement of foreign judgments in civil and commercial matters. Quite recently, this informal working group on the judgments project presented a draft text on choice-of-forum agreements for civil or commercial matters (8) that met nearly unanimous approval at a session of the Special Commission on General Affairs and Policy of the Conference in early April 2003.

   Somehow, this paper may serve as an illustration of the limited chance that transatlantic negotiations may be successful in creating a common position in key questions of jurisdiction and recognition.

   The fundamental transatlantic disagreement is not just a recent development, however: Already about two decades ago, the so-called "jurisdiction conflict with the United States of America" formed the topic of a conference held in Munich (9) which centered on the "doing business in the U.S." issue. In his key contribution, Rolf Sturner referred to cases like In re Anschuetz, (10) Laker Airways Ltd. v. Sabena, Belgian World Airlines, (11) Matter of Marc Rich & Co., (12) In Re Grand Jury 81-2 (Deutsche Bank), (13) and numerous other cases to support his conclusion that "U.S. law extensively dominates the transatlantic legal relationship." (14)

   Therefore, the problem with which we are dealing today is not an entirely new one. Because of the globalization process in trade and commerce, the global liberalization of cross-border sales of goods and supply of services under GATT and GATS, and the increasing use of electronic means of communication in international transactions, a just and predictable solution of the various problems emerging from transatlantic litigation has become even more urgent.

2. JURISDICTION

   A possible explanation for the difficult relationship between European and U.S. rules of jurisdiction, recognition, and enforcement of foreign court decisions whether on the federal or state level--may be found in the significant differences between the two legal traditions with regard to the exercise of jurisdiction. Many European observers have the impression that the U.S. federal and state courts examine the jurisdiction issue from a perspective that centers on the question of whether the defendant's factual connections to the forum state, viz. either an activity of the defendant or the effects of the defendant's activities in the forum state, may be sufficient for exercising jurisdiction over him. Sometimes this feature of modern U.S. jurisdictional law is explained by referring to the historical fact that originally, the mere physical presence of persons and things was considered to be the basis for exercising judicial power. (15)

   Due to changing circumstances and a practice that is altogether favorable to the plaintiff, defendants who happen to have a "minimum contact" with a U.S. jurisdiction may be sued in its courts provided that the due process requirements of the 5th and 14th Amendments to the U.S. Constitution are not violated. Thus, the criteria of "fairness" and "reasonableness" have become crucial to the jurisdiction issue and may result in the denial of jurisdiction, as would the finding that a more convenient forum exists elsewhere. Nevertheless, in the eyes of European practitioners, the U.S. rules on jurisdiction, and particularly their "transient jurisdiction," appear to be exorbitant.

   In contrast to the U.S. approach to jurisdiction, European national civil procedure laws and the Council Regulation Brussels Nr. 1, (16) which provides the respective rules for lawsuits between parties from different E.U. Member States, (17) focus rather on the normative contacts which the legal relationship on which the lawsuit is based may actually have to a national jurisdiction. Notwithstanding their inapplicability to transatlantic cases, (18) the rules of the Council Regulation Brussels Nr. 1 may serve as an example for the way in which the courts in Europe approach the jurisdictional issue. The general rule on jurisdiction of the Council Regulation Brussels Nr. 1 is that persons domiciled in a Member State shall be sued, irrespective of their nationality, in the courts of that Member State. (19) The rule "actor sequitur forum rei" is a vested principle of the European national civil procedure laws and complies with the rules of general jurisdiction in U.S. state laws insofar as the requirement of the defendant's domicile in a state is concerned. However, the isolated aspect of a defendant's "doing business," even if intensive and sustained, cannot qualify as sufficient to justify the exercise of general jurisdiction by the courts of a E.U. Member State. In some domestic laws, however, the mere fact that a person owns property there may qualify for jurisdiction. (20)

   In addition to the general rule of Article 2, which focuses on the domicile of the defendant, Council Regulation Brussels Nr. 1 provides rules on...