Thursday, June 28, 2007

Enforcement of US Court Judgments in China - Even a Single Example?

As noted in my last posting, we seldom recommend that clients specify US courts as the choice for dispute resolution in cross-border agreements that may need to be enforced in another country. Arbitral awards are simply a better enforcement bet among the many signatory countries to the New York Convention.

Don Clarke, the George Washington Law School professor who moderates an excellent China law discussion group, is reviving his search for even a single example of a US court judgment that has been enforced in China, and I will report back on specific examples. Don's criteria are as follows - a typical scenario wherein the local party challenges the enforceability of the judgment:

"1. I'm talking about judgments, not mediated settlements.

2. I'm not talking about cases where both parties wanted the judgment recognized (e.g., consensual divorce cases). I want cases where one side argued that the judgment should not be recognized and enforced, and lost the argument.

3. I'm talking about cases where the issue was whether or not to enforce the judgment without going into the merits, not where the merits of the matter were litigated (since in that case it wouldn't really be a case of enforcing a US judgment).

4. I really need a specific and independently verifiable reference, not something you heard about from somebody else. This is important because so far, every time I hear about a case that I'm told meets my criteria, when I am able to look at the specifics it turns out that it does not.

Our last discussion failed to uncover any cases meeting the above criteria; are there really none that anyone knows of?"

Friday, June 22, 2007

Online Terms and Conditions - Binding in the US and Internationally?

We have worked with clients to help ensure that online terms and conditions are enforceable, both in the US and in other countries. Apart from online agreements accepted by clicking "I accept," some agreements are signed by parties yet refer to materials posted online as part of the agreement terms. Will such online terms be enforceable?

Not always. In a US court case in Florida, the parties signed a written agreement yet tried to make various online terms binding through the following language:

“This contract is subject to all of X's terms, conditions, user and acceptable use policies located at"

These online terms included an agreement to arbitrate, and the Florida court found that the agreement to arbitrate was not binding. Why? In essence, the incorporation of the online terms needed to be more specific than a simple reference that it is "subject to" the online terms. There was no specific reference in the "offline" written document that is meant to include the online document that contains the arbitration provision, and the web address link apparently did not directly point to the terms containing the arbitration provision.

Such a defect can be devastating in a cross-border context. We often recommend arbitration for international agreements, in part to stay out of unfamiliar local courts and in part due to the greater chances of enforceability in many other countries of an arbitral award as opposed to a foreign court judgment. If a US court is reluctant to enforce online terms which are not clearly meant to be binding by the parties, courts in many other countries may be even less likely to enforce terms, especially if they disadvantage a local party.

The decision is Affinity Internet, Inc., d/b/a SkyNetWeb v. Consolidated Credit Counseling Services, Inc. No. 4D05-1193 (Fla. Dist. Ct. App. 4th Dist., March 1, 2006)

Saturday, June 09, 2007

We Don't Pay Foreign Officials - Why Are We At Risk?

As they expand internationally, our clients want to be good corporate citizens and understand that payments should not be made to foreign officials in order to get business. Yet, many mid-market companies would be surprised to learn that they are at risk for failing to recognize "red flags" and failing to follow even basic corporate compliance practices.

The reason is the Foreign Corrupt Practices Act and the heightened enforcement activity over the past 18 to 24 months - companies are facing the highest level of scrutiny since the Act's introduction in the 1970s.

Are employees on that trip to Beijing handing over fists of cash to ministry officials in order to land new business or obtain approval for a new venture? Perhaps not so likely. What about that recent distributor in New Delhi and its relationship with government officials - is "don't ask, don't tell" good enough? Are you confident that you are not dealing with government officials - have you really explored the ownership of that "private" company in Shanghai or that hospital system in Bahrain?

If a U.S. company is faced with a murky set of facts, it may have sufficient "knowledge" of a possible improper payment to open the door to an investigation and potential fines (or worse). "Red flags" can include the insertion of a local intermediary without a clear business purpose. Due diligence on relationships and transactions is an important part of the response. Contractual language piously prohibiting corrupt payments is advisable, but will not be sufficient without more, including evidence that the company took steps to implement a compliance program and educate employees (something more than "thou shall not hand over bags of cash").

Better a little up-front investment than a front-page Wall Street Journal or Crain's article and a cloud over the international team.