Supreme People’s Court, Beijing (Reuters)

The vast majority of cases I work on are a lot like the material we read in law school.  My Torts professor told us on more than one occasion that “there are real people behind every one of these cases.”  My cases are no different.

She also told us that they were in these casebooks because some lawyer goofed.”  Or words to that effect, anyway.  I took both thoughts to heart, and they have guided my immersion in the profession ever since.* 

Last year, when I posted “Five Essential Things All Business Owners (and Their Lawyers!) Should Know Before Signing Global Contracts,“ I had those real people– and preventing lawyerly goof-ups– in mind.  But lately, I’ve realized that some elaboration is necessary.  Why those five things matter ought to be apparent.  But some nuance is necessary, so I offer a five-part series that elaborates on each point, more for than benefit of lawyers than for the business owners who want to venture abroad.  

Those five things, in turn…

  1. Designate an agent for service in the United States.
  2. Include a choice of venue.
  3. Choose a governing law.
  4. Determine the operative language.
  5. Secure a guarantee of judgment debt.

If you choose not to decide, you still have made a choice.

— Neal Peart, 1979

To elaborate on Point Two…

Include a choice of venue.

Even if that venue is overseas (and in many cases, it’s actually smarter to choose a foreign venue than a U.S. venue), agreeing on the appropriate place for a suit prevents a number of headaches—and can even prevent a dispute from arising in the first place.  Globally, this is referred to as a “choice of court clause” but has similar binding effect in most industrialized countries.

If no venue is selected, then any venue might end up taking up a dispute, and you don’t want that.  Don’t simply assume that the locus of performance will be the proper venue for a dispute.  Why not the locus of execution?  Why not the plaintiff’s hometown?  Why not the defendant’s hometown?  Why not the locus of the widget’s manufacture or export or import?

This is a classic Conflict of Laws issue, and courts hate to wade into those questions if they don’t have to.  This might be the single most esoteric and arbitrary– yet wide-ranging and impactful–  field of law, SO TAKE IT OFF THE TABLE.  Make a decision about where the parties want disputes to be heard.  But think about a few things as you do…

  1. Don’t be too certain that your hometown is the best place to go.  A rural Kansas state court may not have sufficient expertise to adjudicate an international trade case.  Sure, you’re more likely to have a sympathetic ear in a local judge & jury, but how competent are those folks to determine wrongdoing if everything about the contract (execution, performance, payment, etc.) takes place in Spain?
  2. Don’t be too certain that the other fellow’s hometown isn’t the best place to go.  In some cases, particularly in China (as highlighted frequently by Dan Harris’ excellent China Law Blog), choosing the other guy’s home venue can be a nice hedge against his breaching the contract!  If you have the guts to challenge him in his own backyard, he’ll think twice about trying to welch on you.  Sure, you may not win there, but Sun Tzu would tell you that the greater victory is to not have to fight in the first place.
  3. Be certain the selected venue has sufficient connection to the facts & parties involved.  Sure, the Delaware Chancery Court might have the most expertise applicable to a particular set of facts & law, but if there’s no Delaware party involved in the contract, why would it even want to deal with it?  Courts don’t take up cases just because someone asks them to.  
  4. Don’t be so sure the venue that seems smartest actually is the smartest.  Again, I shamelessly extrapolate Dan Harris’ thoughts on choosing Hong Kong as a litigation venue.  Yes, you know the rules and you know the law in a particular court.  You know that it’s a nice, neutral setting, so neither party is going to get hometowned (sp?).  You know it has a reputation for fairness and expertise in the particular area of law.  You know both sides are familiar with its unwritten rules and you know that language isn’t a problematic issue.  But how are you going to enforce a judgment from that court unless the other party has assets under its control?  It could be a massive waste of everybody’s time to litigate– and res judicata could destroy your chances of ever collecting.
  5. Ponder an arbitration clause. It serves the same purpose as a choice of court clause, and often designates specific rules and the governing law.  Thanks to the New York Arbitration Convention, arbitral awards are far easier to enforce abroad than litigated judgments and, despite their political unpopularity, provide significant cost savings in dispute resolution.  (Dan would also tell you that Chinese courts aren’t keen on enforcing arbitral awards, so don’t do it unadvisedly. If you’re drafting a China contract, call Dan.  Just do it.)  Sure, they’re de rigeur in consumer contracts, but they may not be the best way to go in commercial contracts– especially across borders.  Still, if the circumstances are right, arbitration could be a bright idea.
  6. Recognize that the choice of venue clause can be an outstanding negotiating concession.  If you’ve concluded that litigating in the other fellow’s back yard wouldn’t be a tragedy, give that fellow what he wants in exchange for something you truly need.
  7. Don’t get cute.  See Dan Harris’ “… Too Clever by Half” post.
  8. Above all, for crying out loud, make the venue and governing law correspond to the language!  It’s awfully impractical to expect a Minnesota court to adjudicate a Spanish contract under German law.  Ponder that for just a moment– it insults Minnesota because you don’t believe in English or Minnesota law, in insults Spain (or Mexico or Argentina, etc.) because you don’t believe in its courts or law, and it insults Germany because you can’t be bothered to adjudicate there in its language.

Seriously.  This stuff is crucial, and there is no standard form to fill out– every contract is different, even if the same parties are signing the latest agreement in a decades-long relationship.

* I learned Torts from Nancy Levit.  It was my best grade that very first semester, which isn’t saying much, but I definitely learned a bunch from her.  The learning continued after I graduated, with two books she co-wrote with Doug Linder (my ConLaw professor, two semesters worth).  I highly recommend The Happy Lawyer and The Good Lawyer.