Practical Insights for Business Owners
Client Q&A: I have to sue a foreign company, but don’t know where and how...
I have to sue a foreign company, but don’t know where and how...
Just like in any business dealings, a relationship with a foreign counterparty may invite litigation. But international proceedings can bring more uncertainty, because there are more variables. Where do you sue: here (where you are), there (where they are), or somewhere else? Which law applies to what? And what procedural rules do you follow?
Forum Selection Clauses
In contract cases, some of these questions may be answered by so-called forum selection clauses, which prescribe litigation in a particular jurisdiction and sometimes a particular court (see our prior post on this topic), and choice of law clauses prescribing which law should be applied. But these clauses are not always mandatory, and sometimes they turn out to be too vague or otherwise unenforceable. Moreover, a clause applicable to some part of a dispute may not apply to its other aspects involving other parties, other transactions, and other agreements. In a nutshell, if a potentially applicable forum selection or choice of law clause exists, it should be carefully analyzed – but that is not the end of the analysis, just the beginning.
What Are Your Choices?
In deciding where to sue, the first step is to assess your options. Are you limited in your choice of forum by a contractual clause? Otherwise, which courts would have jurisdiction over the dispute and over the defendant? Quite often in international matters, there is more than one forum where jurisdiction exists. For instance, you can usually sue the defendant in his own country – but you may also be able to sue in New York or in a third country (or state) if the dispute is based on dealings that took place there or has some other substantial connection to that jurisdiction. In such situations, where to sue becomes a strategic choice involving several considerations.
First, the choice of forum will likely affect the choice of law applicable to the merits of the dispute. That does not mean, however, that a New York court will automatically apply New York substantive law, or a foreign court its own substantive law. Rather, each court will likely apply its own "choice of law" rules – a specific set of guidelines determining what law to apply in each particular type of case. These rules are different for different kinds of claims. For instance, breach of contract claims, tort claims, real property claims, and estate claims are all governed by different choice of law principles. As a result, it is quite common that a New York court may apply New York law to one claim or issue and foreign law to another claim or issue in the same case before it. A foreign court may do the same. So before deciding where to sue, it is critical to consider: (a) what choice of law rules will apply in each forum, (b) what rules of substantive law will these choice of law rules implicate, and (c) how this substantive law will affect the merits of your claims.
Second, the choice of forum will definitely affect the litigation procedure. New York courts normally apply their own rules to procedural matters regardless of what substantive law they are applying; many courts elsewhere do the same. Thus, the available procedural devices (including discovery, motions, evidentiary hearings, jury or bench trials, and appeals) as well as countless minor technicalities and the timing involved in every step of the case will likely be governed by the local procedural rules. Therefore, the relative advantages and disadvantages of such rules for your particular situation should be carefully considered.
Third, convenience is another important consideration. How practicable will it be to conduct the proceedings in each potential forum? Where are the necessary witnesses and will they be able to travel to that forum to testify – or will you be able to compel their appearance? Where and in what language are most relevant documents? Even if the court has jurisdiction, it may consider such questions and dismiss the case on a forum non conveniens motion if it decides that there is a more appropriate forum elsewhere to hear the dispute. But even if the court keeps the case, you need to consider whether it is a convenient forum for you and your evidence.
Fourth, you have to look ahead and consider potential judgment enforcement proceedings. If you win the case in New York, does the defendant have any assets here on which you can execute the judgment? If not, will you be able to get your New York judgment recognized and enforced in the defendant’s country (or in a third country where assets are located)? And if the latter is problematic, would it perhaps be better to sue there to begin with?
What Do You Do Once You Have Chosen a Forum?
Once you have decided where to sue, the local procedural rules would provide guidance on how to proceed. In New York, a civil action normally begins with filing the complaint. The summons and complaint then need to be duly served upon each defendant; this is usually referred to as service of process. Valid and timely service of process is a critical step in launching any proceeding; without it the court will have no jurisdiction over the defendant. With regard to local defendants, the methods of service are prescribed by the rules of the forum. The same methods, however, may be ineffective with regard to foreign defendants. Instead, service of process upon them is often governed by international treaties.
The Hague Convention
The most notable of such treaties is the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. American courts have made it clear that application of the Hague Convention is mandatory where a U.S. plaintiff is serving process on a defendant in another country that is a member of the Convention. Such members include Canada, Mexico, most European countries, and many countries in other parts of the world.
The main method of service contemplated by the Hague Convention is service through the "Central Authority" established by each member country. First, the plaintiff’s representative or judicial officer in the country of origin delivers the documents to the Central Authority of the destination country (which is usually a government ministry) accompanied by the requisite translations, forms and fees. Then, the Central Authority, through local officers and applying the local rules, serves the defendant. While the timing and efficiency of this process largely depends on the specific country of destination, the process usually takes months and is fraught with difficulties and delays.
The Convention, however, permits other procedures as well. The most widely used, and also the most controversial, is to "send judicial documents, by postal channels, directly to persons abroad," as contemplated by Article 10(a) of the Convention. American courts, and even New York courts, are split on this provision: under one view, it provides for an alternative method of service of process; under another, it is only a supplementary method that does not obviate the need for going through the Central Authority to serve process at the beginning of the litigation. So which particular court you are in – even within New York – may affect the availability of this method of service. Another factor is the reservations and declarations filed by the specific member country in joining the Hague Convention: many countries have expressly renounced the use of Article 10(a) for service of process in their territory.
Sometimes service under the Hague Convention or another applicable treaty may prove to be an impossible endeavor due to the political situation or other complications in the foreign country. In such extreme situations, the court may have the power to order substitute service by other means, including mail, email or publication. These cases, however, remain an exception.
International litigation is complex, because the number of applicable laws and rules to be considered grows exponentially where numerous jurisdictions are involved. If you need to sue a foreign defendant – or if you find yourself to have become one, for that matter – be sure to consult competent counsel with international experience. Schlam Stone would be an excellent choice.