What is International dispute resolution and Why Is It Important? Immanuel Kant Baltic Federal University Kaliningrad, Russia What is International dispute resolution and Why Is It Important? Session one John B. Tieder, Jr., Esq. McLean, Virginia USA jtieder@watttieder.com www.watttieder.com

Scope of Course Introduction to International Dispute Resolution and its Relationship to International Commercial Law Legal Framework Laws, Rules & Practices that Govern Treaties Uniform Laws

International Commercial Law The law which governs international commercial transactions Rules – generally accepted rules that are not law, but have been promulgated by International bodies Model Laws – laws that are recommended for enactment by all countries Accepted practices

International Commercial Transactions Any business transaction between citizens of different countries A business transaction between a citizen of one country and the Government of another country or a governmental entity in another country, e.g. province, state, city Examples Sale of commodities Sale of goods Sale of services Sale of securities, e.g. shares, bonds Licensing, e.g. patents, trademarks, copyrights Sale of property

International Commercial Transactions Includes everything connected with such sales Shipping Setting up franchising Hiring of employees and agents Distribution Agreements Methods of payment Insurance Resolution of disputes Anything to do with business

Public International Law Will Not Be Covered Relations Of Countries Border Disputes Peace and War Environmental, like Kyoto to reduce greenhouse gases Immunity of Diplomats

National Law And Its Limits Every country has its domestic laws related to commercial transactions Applies to citizens Applies to the state Applies to foreigners who work in the Country e.g. Civil code of Russian Federation Domestic law has no extra-territorial effect

International Law And Its Limits Public International Law is a matter for Governments Commercial International Law applies to those who engage in international business Where does International Commercial Law stop and where does Domestic Law start? e.g. if a Russian company sells to a U.S. company, what law governs?

The Extent Of International Trade Conflict between Free Trade and Protectionism Free Trade – Each country can import or export without taxes (tariffs) or with same level Protectionism – protect domestic industries or products by setting a level of taxes (tariffs) which make foreign goods more expensive than domestic

The Extent Of International Trade Examples U.S. Auto Industry Good for a segment of economy Bad for consumers World Trade Organization (WTO) All major commercial states Russian membership is near Basic purpose is to agree on fair tariffs and taxes to assure free trade Successor to General Agreement on Trade and Tariffs (GATT)

“The World Is Flat” Concept Goods and services are not produced by individual companies in a single country but use the best and least expensive resources of the world to produce products or services Do not look to your own country Who is part of this? U.S. Europe Russia China Japan India Pakistan Approximately 80% of the world

Reasons - Important To Understand You can decide as business-people or as lawyers how to employ them for your benefit Thomas Friedman, “World Is Flat” lists 10 reasons or “flatteners” November 9, 1989 – The Day the Wall Came Down August 9, 1995 – World Wide Web through Netscape becomes public Work Flow Software Uploading Outsourcing Offshoring Supply – Chaining Insourcing In-Forming New Technologies that enhance the above Digital Mobile Personal Virtual

Reasons Important To Understand My prediction that International Trade will expand more over next 10 years than over last 100 years

Trade Between Russia And United States

Major Legal Systems Three Major Legal Systems Civil Law Common Law Shariá (Islamic Law)

Kaliningrad London Moscow Paris Berlin New York Los Angeles Beijing Las Vegas Washington, D.C. Tokyo New Delhi Rio de Janeiro

Contracts The heart of a working commercial system is an enforceable contract What are the elements of an enforceable contract? Object – something contracted for Some type of exchange Binding Mutual Does it have to be in writing?

Civil law system of contract Background Codified Law Started with Roman law which codified relations between citizens Major update under napoleon Another re-codification in German in 1860’s and 1870’s Covers most of Europe, including Russian Federation Adopted in japan (German), Turkey (Swiss), Thailand (German), Korea and many other Asian countries Also in former colonies, e.g. Indonesia (Dutch)

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Concept of Contract [Art. 420(1)] A contract shall be considered to be an agreement of two or several persons concerning the establishment, change, or termination of civil rights and duties

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Freedom of Contract [Art. 421 (1)(2)] Citizens and juridical persons shall be free in concluding a contract Coercion to conclude a contract shall not be permitted except for instances when the duty to conclude a contract has been provided for by the present Code, by a law, or by an obligation voluntarily accepted The parties may conclude a contract which is either provided for or is not provided for by a law or other legal acts

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Basic Provisions on Conclusion of Contract [Art. 432] A Contract shall be considered to be concluded when agreement regarding all the material conditions of the contract has been reached in the form required in appropriate instances. Conditions concerning the subject of the contract, conditions which are named in a law or other legal acts as material or necessary for contracts of the particular type, and also all those conditions relative to which agreement must be reached according to the statement of one of the parties, shall be material.

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Basic Provisions on Conclusion of Contract [Art. 432] A Contract shall be concluded by means of sending an offer (proposal to conclude a contract) by one party and its acceptance (acceptance of the proposal) by the other party

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Moment of Conclusion of Contract [Art. 433] A Contract shall be deemed to be concluded at the moment of receipt by the person who has sent an offer of its acceptance. If in accordance with a law the transfer of property also is necessary in order to conclude a contract, the contract shall be considered to be concluded from the moment of the transfer of the respective property (Art. 224). A contract subject to state registration shall be considered to be concluded from the moment of the registration thereof, unless established otherwise by a law.

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Offer [Art. 435] A proposal addressed to one or several specific persons which is sufficiently definite and expresses the intention of the person who has made the proposal to consider himself to have concluded a contract with the addressee who will accept the proposal shall be deemed to be an offer. An offer must contain the material conditions of the contract. An offer shall bind the person who sent it from the moment of its receipt by the addressee. If notice of the revocation of an offer has been received earlier than or simultaneously with the offer itself, the offer shall be considered to be not received.

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Offer [Art. 435] An offer received by the addressee may not be revoked within the period established for its acceptance unless otherwise stipulated in the offer itself or does not arise from the essence of the proposal or situation in which it was made.

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Interpretation of Contract [Art. 431] In the event of the interpretation of the conditions of a contract by a court the literal meaning of the words and expressions contained therein shall be taken into account. The literal meaning of the condition of a contract in the event of its ambiguity shall be established by means of comparing with the other conditions and with the sense of the contract as a whole.

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Interpretation of Contract [Art. 431] If the rules contained in paragraph one of the present Article do not enable the content of the contract to be determined, the true common will of the parties must be elicited by taking into account the purpose of the contract. In so doing all the respective circumstances, including negotiations preceding the contract and correspondence, practice being established in the mutual relations of the parties, the customs of business turnover, and the subsequent conduct of the parties, shall be taken into account.

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Grounds for Change and Dissolution of Contract [Art. 450] A change and dissolution of a contract shall be possible by agreement of the parties unless provided otherwise by the present Code, by other laws, or by contract. Upon the demand of one of the parties a contract may be changed or dissolved by decision of a court only” in the event of a material violation of the contract by the other party; in other instances provided for by the present code, by other laws, or by contract

Elements of Contract (Obligations) Under Civil Law (Civil Code of Russian Federation) Grounds for Change and Dissolution of Contract [Art. 450] A violation of a contract by one of the parties which entails for the other party such damage that it is deprived in significant degree of that which it had the right to count on when concluding the contract shall be deemed to be material In the event of a unilateral refusal to perform a contract wholly or partially when such refusal is permitted by a law or by agreement of the parties, the contract shall be considered to be dissolved or changed respectively.

Common Law Common Law is not codified but is based on customs and practices which become basis of decisions Decisions of Courts are relied upon to determine how a particular matter will be resolved Look for analogous situation, e.g. is a late delivery due to bad weather and excuse for non-performance or is it a breach of contract? Seasons of the year Severity of weather Precautions normally employed

Common Law Read prior cases and come up with closest analogy Cases develop as new factors are taken into account; e.g. automobiles, airplanes, computers, internet, etc.

Coverage Started in England and followed English colonization England, Wales, Ireland U.S. Canada Australia/New Zealand Hong Kong prior to re-incorporation into China India

United States There are 50 states and each state has its own common law Except for Louisiana which is a Civil Law state So have to look at law in each state

Elements of Contract Under Common Law Offer Acceptance that does not deviate from offer Consideration, something of value Promissory Estoppel Mutuality Legal Purpose

Freedom to Contract Some laws apply, e.g. U.S. Uniform Commercial Code, Article 2 for sale of goods Limits on amount of interest for late payment

Interpretation Totally Objective Look only at words Intent is not considered

Breach of Contract Material v. Immaterial Breach Damages Material excuses performance Immaterial – only damages Damages Compensatory Foreseeable Unforeseeable Punitive

Shariá Law Traditional Islamic law based on the Koran and teachings of legal scholars Four Schools Hanafi Maliki Shafi’i Hanbali Applied in its pure form in only limited places, like Saudi Arabia, Pakistan More important for non-commercial matters like marriage or other family relations

Shariá Law Covers or has effect throughout Muslim world Many predominately Muslim countries have adopted Civil Codes Egypt Iraq Syria Lebanon United Arab Emirates Civil codes conform to basic principles of Shariá

Elements of a Contract Under Shariá Legal Purpose Competent Person Oral contracts are as binding as a written contract Offer and acceptance Only enforce provisions which are essential to principal purpose Unanticipated Difficulties Allow recessions, not adjustments Interest (Riba/Usury) not permitted under Shariá Usury is a high rate of interest Civil codes allow interest at lower rates – 5% - 6%

Legal System That Will Enforce Contracts In addition to a legal system that recognizes contracts, also need a legal system that will enforce contracts Court system that will enforce agreements as written, subject only to mandatory rules that may not have been observed Not corruptible Difficult to understand Many foreigners are afraid of system they do not understand U.S. legal system is particularly frightening to foreigners Very complex and expensive Favors locals in some places

Alternatives to Trial Negotiation Mediation Arbitration Parties meet and try to resolve Mediation Similar to negotiation but with someone to guide and explain Arbitration Less formal trial

International Organizations United Nations (UN) UN Educational, Scientific & Cultural Organisation Council of the Baltic Sea States Organisation for Security & Co-Operation in Europe Council of Europe Energy Charter Treaty European Bank for Reconstruction & Development European Conference of Ministers of Transport European Committee for Standardisation Hague Conference on Private International Law Organisation for the Prohibition of Chemical Weapons World Bank Food & Agriculture Organisation Interparliamentary Union World Trade Organisation World Health Organisation International Civil Aviation Organisation International Labour Organisation World Organisation for Animal Health International Finance Corporation International Maritime Organisation International Criminal Police Organisation International Military Sports Council International Organisation on Migration International Council of Museums International Committee of the Red Cross International Organisation of Standardisation International Telecommunication Union Universal Postal Union World Meteorological Organisation

Hague Convention Hague Convention signed into effect on July 15, 1955 to, “work for the progressive unification of the Rules of Private International Law” Russia is a member Prepare treaties that once accepted would govern the particular matter addressed

Hague Convention – Private International Law Statute of the Hague Conference on Private International Law Convention of 1 March 1954 on civil procedure Convention of 15 June 1955 on the laws applicable to international sales of goods Convention of 15 April 1958 on the law governing transfer of title in international sales of goods Convention of 15 April 1958 on the jurisdiction of the selected forum in the case of international sales of goods Convention of 15 June 1955 relating to the settlement of the conflicts between the law of nationality & the law of domicile Convention of 1 June 1956 concerning the recognition of the legal personality of foreign companies, associations & institutions Convention of 24 October 1956 on the law applicable to maintenance obligations towards children Convention of 15 April 1958 concerning the recognition & enforcement of decisions relating to maintenance obligations towards children Convention of 5 October 1961 concerning the powers of authorities & the law applicable in respect of the protection of minors Convention of 5 October 1961 on the Conflicts of Law relating to the Form of Testamentary Dispositions Convention of 5 October 1961 Abolishing the Requirement of Legalisation for Foreign Public Documents (4/29/01)

Hague Convention – Private International Law Convention of 15 November 1965 on Jurisdiction, Applicable Law & Recognition of Decrees Relating to Adoptions Convention of 15 November 1965 on the Service Abroad of Judicial & Extrajudicial Documents in Civil or Commercial Matters (8/1/00) Convention of 25 November 1965 on the Choice of Court Convention of 1 February 1971 on the Recognition & Enforcement of Foreign Judgments in Civil & Commercial Matters Supplementary Protocol of 1 February 1971 to the Convention on the Recognition & Enforcement of Divorces & Legal Separations Convention of 4 May 1971 on the Law Applicable to Traffic Accidents Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters (1/22/00) Convention of 2 October 1973 Concerning the International Administration of the Estates of Deceased Persons Convention of 2 October 1973 on the Law Applicable to Products Liability Convention of 2 October 1973 on the Recognition & Enforcement of Decisions relating to Maintenance Obligations Convention of 2 October 1973 on the law applicable to Maintenance Obligations

Hague Convention – Private International Law Convention of 14 March 1978 on the law Applicable to Matrimonial Property Regimes Convention of 14 March 1978 on the Celebration & Recognition of the Validity of Marriages Convention of 14 March 1978 on the Law Applicable to Agency Convention of 25 October 1980 on the Civil Aspects of International Child Abduction (8/1/03) Convention of 25 October 1980 on International Access to Justice (2/1/00) Convention of 1 July 1985 on the Law Applicable to Trusts & on their Recognition Convention of 22 December 1986 on the Law Applicable to Contracts for the International Sale of Goods Convention of 1 August 1989 on the Law Applicable to Succession to the Estates of Deceased Persons Convention of 29 May 1993 on the Protection of Children and Co-operation in respect of Intercountry Adoption (9/1/02) Convention of 19 October 1996 on Jurisdiction, Applicable law, Recognition, Enforcement & Co-operation in respect of Parental Responsibility & Measures for the Protection of Children (2/1/07) Convention of 13 January 2000 on the International Protection of Adults Convention of 30 June 2005 on the Choice of Court Agreements Convention of 5 July 2006 on the Law Applicable to Certain Rights in respect of Securities held with an Intermediary

Civil Procedure Legalisation (Apostille) Service Abroad Taking of Evidence Protection of Children

United Nations (UN) & United Nations Commission on International Trade Law (UNCITRAL) UN is an international organization created after WWII to promote cooperation among nations Serves a variety of functions: Peace-keeping efforts Border disputes Protection of individual rights Famine relief Environmental protection

United Nations (UN) & United Nations Commission on International Trade Law (UNCITRAL) In Field of Trade Law: Various treaties UN commission on International Trade Law (UNCITRAL) World Intellectual Property Organization (WIPO) Protection of patents, trademark, copyrights and other intellectual property

UNCITRAL To further the progressive harmonization and unification of the law of international trade Multilateral treaties Some widely adopted Some new Model Laws Laws recommended as models for all countries Not effective unless adopted by a county Benefit of all countries having same law on a subject Guides and Recommendations No binding effect Helpful to those involved

Overall Status of the U. N Overall Status of the U.N. Commission on International Trade Laws (UNCITRAL) Texts http://www.uncitral.org/unicitral/en/uncitral_texts.html International Commercial Arbitration and Conciliation 2002 – UNCITRAL Model Law on International Commercial Conciliation 1996 – UNCITRAL Notes on Organizing Arbitral Proceedings 1985 – UNCITRAL Model Law on International Commercial Arbitration 1982 – Recommendations to assist arbitral institutions and other interested bodies with regard to arbitrations under the UNCITRAL Arbitration Rules – Recommendations to assist arbitral institutions and other interested 1980 – UNCITRAL Conciliation Rules 1976 – UNCITRAL Conciliation Rules 1958 – Convention on the Recognition & Enforcement of Foreign Arbitral Awards – the “New York” Convention

Overall Status of the U. N Overall Status of the U.N. Commission on International Trade Laws (UNCITRAL) Texts http://www.uncitral.org/unicitral/en/uncitral_texts.html International Sale of Goods (CISG) & Related Transactions 1992 – UNCITRAL Legal Guide on International Countertrade Transactions 1983 – Uniform Rules on Contract Clauses for Agreed Sum Due Upon Failure of Performance 1980 – United Nations Convention on Contracts for the International Sale of Goods (CISG) 1974 – Convention on the Limitation Period in the International Sale of Goods

Overall Status of the U. N Overall Status of the U.N. Commission on International Trade Laws (UNCITRAL) Texts http://www.uncitral.org/unicitral/en/uncitral_texts.html Insolvency 2004 – UNCITRAL Legislative Guide on Insolvency Law 1997 – UNCITRAL Model Law on Cross-Border Insolvency International Payments 2001 – United Nations Convention on the Assignment of receivables in International Trade 1995 – United Nations Convention on Independent Credit transfers 1988 – United Nations Convention on International Bills of Exchange & International Promissory Notes

Overall Status of the U. N Overall Status of the U.N. Commission on International Trade Laws (UNCITRAL) Texts http://www.uncitral.org/unicitral/en/uncitral_texts.html Security Interests 2008 – Annex to the UNCITRAL Guide on dealing with security interests in intellectual property 2008 – UNCITRAL Legislative Guide on Secured Transactions 2001 – United Nations Convention on the Assignment with Receivables in International Trade

Overall Status of the U. N Overall Status of the U.N. Commission on International Trade Laws (UNCITRAL) Texts http://www.uncitral.org/unicitral/en/uncitral_texts.html International Transport of Goods 1991 – United Nations Convention on the Liability of Operators of Transport Terminals in International Trade 1982 – Unit of Account Provision and Provisions for the Adjustment of the Limit of Liability in International Transport and Liability Conventions 1978 – United nations Convention on the Carriage of Goods by Sea – the “Hamburg Rules”

Overall Status of the U. N Overall Status of the U.N. Commission on International Trade Laws (UNCITRAL) Texts http://www.uncitral.org/unicitral/en/uncitral_texts.html Electronic Commerce 2005 – United Nations Convention on the Use of Electronic Communications in International Contracts 2001 – UNCITRAL Model Law on Electronic Signatures 1996 – UNCITRAL Model Law on Electronic Commerce 1985 – Recommendation on the Legal Value of Computer Records

Overall Status of the U. N Overall Status of the U.N. Commission on International Trade Laws (UNCITRAL) Texts http://www.uncitral.org/unicitral/en/uncitral_texts.html Procurement & Infrastructure Development 2003 – Model Legislative Provisions on Privately Financed Infrastructure Projects 2000 – UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects 1994 – UNCITRAL Model Law on Procurement of Goods, Construction and Services 1993 – UNCITRAL Model Law on Procurement of Goods and Construction 1987 – UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works

UNCITRAL UNCITRAL accepted International Chamber of Commerce (ICC) – Private Body 2000 – Incoterms 1998 – International Standby Practices (ISP98) 1993 – Uniform Rules for Contract Bonds (URCB) 1993 – Uniform Customs and Practices for Documentary Credits (UCP500) 1990 – Incoterms 1983 – Uniform Customs and Practices for Documentary Credits 1974 – Uniform Customs and Practices for Documentary Credits 1962 – Uniform Customs and Practices for Documentary Credits

UNIDROIT International Restatement of Contract Law International Institute for the Unification of Private Law International Institution located in Rome UNIDROIT purpose: Study and implement methods of harmonizing Commercial Law between States Contracts are center of International Trade Legally binding promise Unlike other areas of law, more similarities than differences UNIDROIT is true International Law – set of rules that would be of worldwide application

UNIDROIT International Restatement of Contract Law

UNIDROIT International Restatement of Contract Law

UNIDROIT International Restatement of Contract Law

UNIDROIT International Restatement of Contract Law

UNIDROIT International Restatement of Contract Law

UNIDROIT International Restatement of Contract Law

UNIDROIT International Restatement of Contract Law

UNIDROIT International Restatement of Contract Law

UNIDROIT International Restatement of Contract Law

Standard Forms of Contract Various areas of business have developed standard forms of Contract Those involved in the industry understand the terms and practices of that industry Contract forms which are understood by that industry Examples Insurance Construction and Engineering Session VIII

Need For Uniform Laws What as lawyers and business-people can we do to facilitate this trade or to make it more difficult? What can Governments do to facilitate it or make it more difficult? If the laws are the same in each country or the laws for international business are the same, then we can predict how our transactions will turn out Need uniform laws

Need For Uniform Laws Then, having uniform laws, those laws must be uniformly enforced The courts in Russia and the courts in the U.S. or China, or India must reach the same conclusion when faced with the same situation Legal system must function without corruption

Assignment One-half the class will be attorneys for a Russian company located in Kaliningrad It has agreed to sell 1000 trees (logs) to a New York company that builds wooden sailing yachts The other half of the class will be attorneys for the U.S. company For reasons set forth in the problem, the Russian company is unable to fulfill completely its contract

Assignment You will be required to develop the best arguments for your client and then present that argument in 3 ways Mock negotiation Mock mediation Request for Arbitration suitable for filing with the ICC Goal is to learn how the different methods of dispute resolution work

Glossary In your materials is a glossary – English on left, Russian on right Someone will give me the Russian terms I need, and expect, to learn something from these two weeks, so I can go home and tell everyone that I am an expert in Russian legal matters

What is International dispute resolution and Why Is It Important? Session one