Transatlantic business transactions: some questions for the lawyers.

• Author: Lowenfeld, Andreas F.
• Position: Transatlantic Business Transactions: Choice of Law, Jurisdiction, and Judgments

1. INTRODUCTION

   In this introduction to the symposium, I want to try to relate the respective topics--choice of law, jurisdiction of courts or arbitral tribunals, and recognition of foreign judgments--to a common type of transaction in international commerce. My choice of such a transaction is a distribution contract--a producer in one country or region and an importer in another country or region. Over the years I have sat as arbitrator in eight or ten disputes arising from such contracts, involving European manufacturers, growers, or investors and North American importers, and North American producers and European or Latin American importers, licensees, or franchisees. The products have ranged from machine tools to contraceptives, from wines to cell phones. In some instances the contracts have included patent or trademark licenses; some contracts have included minimum quotas; some have contained non-compete provisions; many have contained termination clauses with several types of ambiguities. By definition, the contracts that I have seen have contained arbitration clauses, but that is itself a topic for discussion.

   The typical controversy involves a producer that concludes some years after the arrangement is commenced that it could market the product more profitably without sharing the revenue with the importer/middleman, or a distributor that sees what it thought was an exclusive franchise being undercut by rivals encouraged by the originator of the product. Other controversies turn on the producer falling behind in deliveries, or the importer failing to meet its purchase quota--with a variety of causes that may or may not justify termination or extension of deadlines. In some instances one breach of contract--for instance failure to meet a deadline or a quota--is a pretext or rationalization for the action the other party really wants to take--for instance terminating a relationship that has several years to run or renegotiating the price or royalty to be paid.

   Most distribution contracts work out--if that were not true, the volume of international commerce would be much lower than it actually is. But the persons who draft or negotiate the arrangements governing such transactions must know that controversies can be expected. Whether they proceed under form contracts, from a prior contract, or in an ad hoc exercise, the parties or their advisers need to consider the contingencies--what one might call the "what if ... ?" provisions. That does not mean that the parties must provide for every contingency. A good lawyer knows when to insist on a clause even if it might kill the deal, and when to have the client take the deal and take his chances. For example, a choice-of-law clause, while it may be desirable, is rarely worth fighting hard for in a commercial context; a contract with a state or parastatal enterprise without a forum clause and waiver of sovereign immunity is risky. In all events, the more the lawyer is familiar with the questions addressed in this symposium and with the differing answers to be expected from different legal systems, the more smoothly the transaction is likely to proceed, and the more soundly the controversies that do arise will be resolved.

2. PARTY AUTONOMY

   Not so long ago, except in England, party autonomy was a real problem. (1) Could parties by contract oust the jurisdiction of a court by agreeing on adjudication in another court? Could parties agree before a dispute had arisen to oust the jurisdiction of all courts by agreeing to arbitration? Could parties agree on the law to be applied to their contract or their dispute, or is it only law made by sovereign states that can give effect to the expressed intent of parties?

   Half a century ago, the answer to these questions could not be given comfortably and uniformly--at least in the United States, and I believe, in a number of countries represented in the symposium. (2) Today, in the early years of the Twenty-first Century, I think everyone here, if given 30 seconds to reply, would answer "yes" to each of the three questions. If given ten minutes to reply, the answers might change to "Yes, but ... " or "Yes, unless ... " or some similar qualification. The following variations eight in all--are designed to illustrate the continuing puzzles, all built around a prototype case of a controversy between an American manufacturer and a Spanish importer/distributor.

   (1) Could the American manufacturer grant an exclusive distributorship to the Spanish importer, with a condition that the right to resale shall apply in Spain and Portugal, but not to exports to Italy or France? As I understand it, such a restriction would be contrary to the competition law of the European Union. (3) But suppose the contract provides that it shall be governed in all respects by the law of California? I believe a Spanish court, subject to the oversight of the European Court of Justice, would hold the territorial restraint unlawful, notwithstanding the choice-of-law clause. (4) I don't know enough to answer with confidence the follow-up question, whether the whole contract would be declared void, or only the restraint on resale.

   (2) Is the answer the same if the contract contains a clause choosing the U.S. District Court in New York as the exclusive forum? In my capacity as a professor of international law--public and private I would say yes, the answer should be the...