Online Litigation and Foreign Jurisdiction

Posted on September 12, 2009 by Santiago Cueto

The internet brought the once rarefied world of  international commerce into our living rooms. While one can now order wine directly from a vineyard located in Tuscany, this convenience  has led to a precipitous rise in international litigation.  One of the primary risks in transacting business internationally is the uncertainty in dispute resolution. Both parties will claim that their law governs the dispute. Naturally, this almost always results in protracted litigation over jurisdictional issues. While there are many methods to avoid such a situation, a savvy international lawyer, will negotiate favorable terms into the governing contract. There are a number of approaches an attorney can consider to resolve problems across national frontiers.

Drafting the Contract

Preliminarily, an equitable dispute resolution begins with prevention. This entails drafting a solid and well thought out contract.  I touched on this topic in earlier posts here and here.  Before transacting with anyone online, it is essential that you are fully aware of their terms and conditions of service and ensure you clarify anything you'd like to see in the contract. If your proposals aren't accepted, you're far better to avoid transacting to avoid problems, particularly where substantial money is at stake.

Alternatively, if you are drafting an agreement from scratch it is imperative that you decide mutually on the terms, particularly what is known as the choice of law clause. Choice of law refers to a particular designation in the contractual terms which stipulates that in the event of a dispute, both parties submit to an exclusive jurisdiction. This is usually to the favour of the seller's knowledge, although may even be a neutral jurisdiction to avoid perceived bias. Provided that the choice of law is stipulated in advance, it is a particularly effective way of ensuring disputes are properly resolved to the satisfaction of both parties.

Online Adjudication

Another highly effective way to tackle online litigation is to submit to the exclusive jurisdiction of some online adjudication service in the terms and conditions. This involves a third party, usually a totally independent party, which is designed to regulate and prevent bias or unfavorable outcomes. This eventually leads to a definite ruling one way or the other, which is helpful in ensuring that justice is done. Again, this is all down to the agreement and the way in which it is drafted. By good drafting, many of the problems of litigation can be weeded out before they arise, leading to a more fluid and resolved business relationship in general.

In addition to contractual disputes, much of international litigation is taking shape online, as more and more parties find problems in dealing with others in foreign jurisdictions. Primarily, the issues of copyright and theft of intellectual property becoming commonplace, as issues that strike to the very core of business online. Through establishing more regulatory online framework, it is possible, and indeed encouraged, for more efforts to be injected in regulating the way in which most of our business is conducted. In the coming years, there will likely be much development in Internet law, particularly of a trans-national ilk, which will have a natural knock on effect on offline litigation to the benefit of business and trade.

Conclusion

Online litigation has risen to the forefront of legal thinking in recent years with the rise of the Internet. As business becomes naturally more global, it is important to consider how disputes can be resolved, and indeed how this will pan out in the future. There are suggestions of further developments of voluntary online courts, which will hear cases and establish a code of ethics, and this can only be good news for those parties feeling aggrieved by the system. With each transaction, the Internet is becoming a more stable environment in which to conduct business, and a more regulated forum for marketing and commerce.

Trend to Watch: Look for an increase in litigation arising out of online transactions and a contemporaenous increase in alternative dispute resolution regimes such as online courts.

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Arbitration Provisions in China-related Commercial Contracts: How to Implement Best Practices

Posted on August 15, 2009 by Santiago Cueto

On August 4, 2009, China's Supreme People's Court issued a new regulation to encourage parties involved in conflicts to consider arbitration as an alternative means of dispute resolution. The regulation is in response to a rapid increase in lawsuits during the past two years. Under the new regulation, agreements achieved in arbitration or mediation by administrative bodies, mercantile organizations and industrial groups will have the same force in law as those judged by Chinese courts.

This latest measure is yet another step in the direction towards the establishment of a more favorable dispute resolution environment in Asia. As recently reported in this Economist article, China's labour laws: Arbitration Needed, arbitration continues to gain traction in resolving disputes in China.  Just within the past year, the International Chamber of Commerce (ICC) opened a branch of the Secretariat in Hong Kong where it set up its International Court of Arbitration. The branch secretariat, the first in Asia, has a case management team to administer cases in the region under the ICC Rules of Arbitration.  

In light of these recent developments, it is imperative for contracting parties to implement best practices in drafting China-related commercial contracts. While significant inroads have been made in the development of a more Westernized approach to dispute resolution in China, corporate counsel would be keen to carefully structure China-related commercial contracts to best safeguard against unexpected setbacks often encountered in nascent dispute resolution regimes.

In drafting an effective dispute resolution provision in this context, the most significant point is to agree to arbitration outside of China maximize the benefit of neutrality. While this point may seem obvious, many parties unfamiliar with Sino dispute resolution practices will assume that matters will be resolved under similar guidelines and principles adopted in a more familiar milieu.

Hong Kong and Singapore are the best regional alternatives to arbitrating a dispute in mainland China, as they are more closely aligned with the standards of leading European arbitration centers. Because it is a common-law jurisdiction and a part of the People's Republic of China, Hong Kong is uniquely positioned in international arbitration. As an arbitration venue, Hong Kong has benefited from the growing number of Chinese-related disputes arising from the surge of foreign investment rushing into Asia, and in particular China. Because it has kept its English common law-based legal system, foreign parties view Hong Kong as a more familiar and neutral forum for arbitrating commercial disputes. At the same time, Chinese parties regard Hong Kong as a culture-friendly venue due to its close proximity to the mainland.

In addition to negotiating an ICC arbitration in Hong Kong or Singapore, the other favored arbitral bodies in the region are the HKIAC arbitration in Honk Kong and the SIAC arbitration in Singapore. If it can be negotiated, another viable option is to arbitrate in one of the major European arbitration centers such as Zurich, Geneva, London and Stockholm.

Some additional best practices to consider are to keep the language of any arbitral provision as straight forward as possible and to be clear on the language that will govern the arbitration. Due to the wide gulf in language and culture, doing so will minimize the likelihood for misunderstanding.

Trend to Watch: Look for Hong Kong to increase its profile as a favorable seat of arbitration in Asia for disputes involving China-related commercial contracts.

 

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