International Commercial Law and International Business Transactions
Bristan Keller
BUS 378 International Business Law
Ashford University
Instructor Jumper
May 5, 2014

International Commercial Law and International Business Transactions In recent years, various conflicts of law have been identified regarding commercial law and international business transactions. In most cases, there are procedures to follow when a conflict of law comes into play. In others, much is open to interpretation and can be argued in favor of all parties. Normally if this happens, mediation is sought after and all parties compromise upon agreeable terms. Though there are various issues, international commercial law affects international business transactions and strategies through combining common law, international policies, and international organizations. In 2001 the Brussels Convention of 1968 was replaced with the Brussels I Regulation. This has been the topic of many debates as it governs cross-border disputes in civil matter and commercial matters in the European Union (EU). The Brussels I Regulation establishes rules regarding international jurisdictions of courts in addition to enforcing foreign judgments. The regulation was revised in 2007 and publicized in the Heidelberg Report. “It became apparent that the question of possible inclusion of arbitration in the scope of the Regulation would be a controversial question during the revision process.” (Hauberg, 2014) Theoretically, if different proceedings meet for the purpose of validating the arbitration agreements, there may be different conclusions determining the validity because courts and the arbitral tribunal apply different laws to the question. This may “lead to parallel proceedings on the merits of the dispute. A court holding that no valid arbitration agreement exists will not refer the parties to arbitration, but rather continue the court proceedings on the merits.” (Hauberg, 2014) An arbitral tribunal will not stay proceedings without a court ruling on the merits if an arbitration agreement exists. Even still, both authorities may not arrive at the same conclusion even if they decide the validity of the arbitration agreement applies the same law. Due to legal traditions, applications may vary for each party as one application of the law may contradict the other’s application. A prerequisite for the jurisdiction of the arbitral tribunal is determining the agreement’s existence and validity and may rule on its own jurisdiction (also known as positive effects of the competence principle). While typically this principle does not give priority over other courts to rule in its jurisdiction, there are cases where jurisdictions have recognized the tribunal’s priority to rule on its own jurisdiction (also known as negative effects of the competence principle). This is considered as a lis pendens rule. Hauberg (2014) states
In international civil and commercial disputes in the EU, courts in different Member States may have jurisdiction to hear the same case. Such jurisdiction may be based on purely national rules or may be based on the Brussels I Regulation. Parallel Proceedings between courts on the existence and validity of an arbitration agreement may arise where a court in one Member State is seized of an action on the merits of the dispute and has to decide on the question of the validity of the arbitration agreement as an incidental question and another court is seized with an action to support arbitration. The provisions in the Brussels I Regulation on lis pendens and related actions do not apply in this case because the action to support the arbitration does not fall within the scope of the Regulation. Parallel proceedings between an arbitral tribunal and courts on the validity and existence of the arbitration agreement are often possible, because courts, other than the court at the seat of arbitration, will have jurisdiction to decide on the merits of the dispute, to entertain a declaratory action on the validity and existence of an arbitration agreement, or to support the arbitration.
Because national laws often govern relationships among arbitral tribunal and a court within their jurisdiction, parallel proceedings do not often conflict with each other. Articles II(3) and V(I)(a) of the New York Convention outlines the validity of an arbitration agreement. Article II however does not identify law applicable to validating the arbitration agreement. Article II(3) identifies reason for the court to deny referral of the parties to arbitration. V(I)(a) includes a conflict-of-law rule which states “the law applicable to the validity of the arbitration agreement at the enforcement stage of the proceedings is either the law chosen by the parties, or failing such a choice, the law of the country where the award was made.” (Hauberg, 2014) Unfortunately, the New York Convention does not contain a conflict-of-law at the pre-award level of proceedings. However, Article V(I)(a) of the New York Convention is applicable at the pre-award level of proceedings according to National case law. Nonetheless, V(I)(a) is not applicable “before a court seized with an application to set an arbitral award aside, as the New York Convention, according to Article I(1), only governs foreign arbitral awards and will not be applicable where the court seized of the case is in the same state as the seat of arbitration.” (Hauberg, 2014) Currently, the foundation for the judicial co-operation in civil matters relies upon Title V Area of Freedom, Security and Justice (Articles 67-89) of the Treaty on Functioning of the European Union (TFEU). Article 67 states the Union shall constitute an area of freedom, security, and justice. The union shall facilitate access to justice through principles of mutual recognition of judicial and extrajudicial decisions in civil matters. Under Article 81(2) of the TFEU, when necessary, measures shall be taken for the proper functioning of the Internal Market. This is all accomplished via the Brussels I Regulation. Originally the Brussels Convention secured proper recognition in addition to enforcing judgments in Contracting States. Proper functioning of the internal market was successfully achieved through legal protection. In order to reach and sustain the goal of proper functioning of the internal market, rules and jurisdictions were required to be set in place and adopted. Unfortunately, since the adoption of the Brussels Convention (according to Hauberg (2014)), the purpose and validity has been altered by elaborating on legal certainty when determining certain jurisdictions, autonomy, irreconcilable judgments, and trust in the administration of justice.
“The increased risk of parallel proceedings and conflicting decisions imposed by the interface between the Brussels I Regulation and international commercial arbitration does not go hand in hand with these objectives of the EU judicial co-operation in civil matters. Parties are not afforded legal certainty or effective access to justice when several proceedings regarding the same subject-matter may be launched in different European jurisdictions leading to a conflicting decision. The mutual trust between Member States in the administration of justice is also hard to observe when there is an increased risk of courts and arbitral tribunals reaching different results on the substantive validity of the arbitration agreement, as they may apply different laws to the question.” (Hauberg, 2014)
In recent years, economists have conducted analysis concluding conflicts of laws are growing on a global level pertaining to regulations and policies from foreign countries. Choice of law and international civil law comprise of issues regarding conflicting and plurality of laws. Both establish incentives to parties for cooperating by providing legal certainty. Choice of law determines which laws regulate international transactions. For example, if Japanese company were to enter a contract with an American, choice of law would establish which laws govern the contract. International civil procedure regulates procedures only, which it is the national court’s responsibility to rule on international legal conflicts. In the same scenario, international civil procedure would determine if the case is heard in Japanese or American courts. In a case where a foreign law is applicable, “…international civil procedure conditions how that law is to be ascertained. In a case where the foreigners are involved, international civil procedure contains rules as to their position before the court, the production of documents and the adduction of evidence abroad, as well as co-operation with foreign authorities.” (Ruhl, 2010) Harmonization and unification of law are also crucially important strategies when solving international transaction dilemmas. “Harmonization of law refers to a process of legal integration, which aims to encourage legal cooperation between countries and reduce differences national laws or provide supranational legal instruments that can be used to govern specific areas of law.” () Both deal with the subjugation of international transactions similar to rules of substantive law.
The impact of unification of law on the one hand and harmonization of law on the other is different: unification of law aims at creating globally unified rules of substantive law in the form of “hard” or “soft” uniform law. “Hard” uniform law contains uniform substantive rules for international and national transactions. It is promulgated in Europe through regulations and on the international level through international legal orders, it attacks the problem of international transactions at its root. Something similar applies to “soft” uniform law. However, unlike “hard” unified law, it offers unified substantive rules only for international transactions and leaves the regulation of domestic transactions to national law. (Rhule, 2010)
This does not mean plurality of law is eliminated as a whole. It does mean however it mitigates the cause of constitutional uncertainty for transactions that may be subject to international transaction compatibilities. Unlike unification of law, substantive law’s objective is not creating global unified rules of substantive law. Instead of removing areas of legal systems completely, it causes convergence. “The corresponding laws do not substitute national rules, but make provisions for their calibration. This guarantees legal minimum standards, upon the validity of which traders in international transactions can rely.” (Rhule, 2010) However unlike unification, harmonization can only reduce the impacts of international transaction issues, not resolve them. Private ordering strategies take part in solving international transactions dilemmas. Private mechanisms eliminate plurality of law, unlike harmonization or unification of law, but instead bypass them. Specific trade strategies are created with specific international transactions in mind. This strategy promotes co-operation by providing incentives for co-operation, despite plurality of law. Aside from specific trade strategies, material legal standards also help aid in issues associated with international transactions. This is accomplished by “subjugating rules that distance themselves from national regulations.” (Rhule, 2010) Private dispute resolution is yet another tool in satisfying national transaction dilemmas. This method is used in conjunction with specific trade strategies and material legal standards in the event these strategies are not suffice.
There are two types of private dispute mechanisms; international arbitration and other conflict settlement options. International arbitration allows a party to forward the issue to a private tribunal for resolution, in which it is on a quasi-judicial basis the tribunal decides the outcome. However, it is important to note international arbitration replaces state jurisdiction only, not enforcement mechanisms. Most states support private arbitrations in addition to national legal orders. It is the state’s responsibility to enforce the arbitration. The second type of private dispute mechanisms is Alternative Dispute Resolution (ADR). The ADR strategy is to find a third party to come to a consensual solution between both parties. The third party serves as mediation and is not an entity that determines or rules a verdict on international transaction issues.
Canada v. Australia case AB-1998-5 is an example of international effectiveness of commercial law on international transactions. This case illustrates issues of legal interpretations from the Panel Report, Australia- Measures Affecting Importation of Salmon. According to August (2010), this panel’s goal was to evaluate the complaint made from Canada in regards to Australia’s iron curtain of imported salmon from Canada under Quarantine Proclamation 86A (“QP86A”).
Before the promulgation of QP86A on 30 June 1975, Australia imposed no restrictions on the importation of salmonid products. QP86A “prohibit[s] the importation into Australia of dead fish of the sub-order Salmonidae, or any parts (other than semen or ova) of fish of that suborder, in any form unless . . . prior to importation into Australia the fish or parts of fish have been subject to such treatment as in the opinion of the Director of Quarantine is likely to prevent the introduction of any infectious or contagious disease, or disease or pest affecting persons, animals, or plants.” Pursuant to QP86A and in accordance with the authority delegated therein, the Director of Quarantine has permitted the entry of commercial imports of heat-treated salmon products for human consumption as well as non-commercial quantities of other salmon (primarily for scientific purposes) subject to prescribed conditions. Canada requested access to the Australian market for fresh, chilled or frozen, i.e., uncooked, salmon. Australia conducted an import risk analysis for uncooked, wild, adult, ocean-caught Pacific salmonid product (“ocean-caught Pacific salmon”). This category of salmon is to be distinguished from the other categories of salmon for which Canada seeks access to the Australian market (“other Canadian salmon”). The risk analysis on ocean-caught Pacific salmon was first set forth in the 1995 Draft Report, revised in May 1996 and finalized in December of 1996 (the “1996 Final Report”).160
The 1996 Final Report concluded uncooked, ocean caught Pacific salmonoid products are prohibited from importation under quarantine grounds. Australia acted inconsistently with Articles 5.1, 5.5, & 5.6 in addition to Articles 2.2 & 2.3 under the Agreement on the Applcation of Sanitary and Phytosanitary Measures (SPS Agreement). According to the panel, in order to act inconsistently with Article 5.5, a member has to be in violation of three categories:
“1 . the Member concerned adopts different appropriate levels of sanitary protection in several “different situations”.
2. Those levels of protection exhibit differences which are “arbitrary or unjustifiable”;
3. The measure of embodying those differences result in “discrimination or a disguised restriction on international trade.”” (August, 2010) According to Rosenberg (2013), another more recent case (also in Australia) is Rafferty v. Madgwicks. The Federal Court of Australia decided “Intellectual Property License was a franchise because despite the efforts of the “franchisor” to draft around it, the business arrangement included a “system or marketing plan substantially determined, controlled or suggested by the franchisor.” The court awarded the franchisee AUD $1.7 million in damages and failing to properly advise them regarding disclosure obligations.
In my opinion, I think there would be a lot less confusion and more cohesion if steps were made to progress all countries to adopt a sole legal system, that way there would not be any conflict of laws, and companies would save money on litigations. If all companies worldwide were to support this notion, there would not be a need for many international organizations. This money saved could be funded towards other global needs such as corporations’ logistics support required for multi-national operations.
In conclusion, though there are various issues, international commercial law affects international business transactions and strategies through combining common law, international policies, and international organizations. Economists have conducted analysis concluding conflicts of laws are growing on a global level pertaining to regulations and policies from foreign countries. Choice of law and international civil law comprise of issues regarding conflicting and plurality of laws. Harmonization is key in resolving conflicting and plurality of laws. When one country’s law changes, it potentially has a ripple effect on the market and other laws or policies are amended to fit every parties’ needs, or various strategies are initiated (i.e. private ordering strategies, private dispute mechanisms etc.) International law plays a role in international transactions such as Canada v. Australia case AB-1998-5, where parties’ required a court to determine a ruling on their dilemma.

References:
August, R., Mayer, D. & Bixby, M. (2009). International Business Law: text, cases, and readings (5th ed.). New Jersey: Pearson Prentice Hall.
Hauberg Wilhelmsen, L. (2014). European Perspectives on International Commercial Arbitration. Journal of Private International Law, 10(1), 113-128. Doi:10.5235/17441048.10.1.113. Retrieved from: http://eds.b.ebscohost.com.proxy-library.ashford.edu/eds/detail?vid=10&sid=84a383ac-7145-46e4-a881-981e2edf0637%40sessionmgr115&hid=104&bdata=JnNpdGU9ZWRzLWxpdmU%3d#db=a9h&AN=95589195
Rosenberg, A.S. Daigle, M.Zeidman, P. F. Brennan, M.E. Xu, T. & DUBE, A. (2013). International Commercial Transactions. Franchising and Distribution, International Lawyer, 47(1), 201-212. Retrieved from: http://eds.b.ebscohost.com.proxy-library.ashford.edu/eds/detail?vid=11&sid=84a383ac-7145-46e4-a881-981e2edf0637%40sessionmgr115&hid=104&bdata=JnNpdGU9ZWRzLWxpdmU%3d#db=a9h&AN=90234015
Ruhl, G. (2010). The Problem of International Transactions: Conflict of Laws Revisited. Journal of Private International Law, 6(1), 59-91. Retrieved from: http://eds.b.ebscohost.com.proxy-library.ashford.edu/eds/detail?vid=11&sid=84a383ac-7145-46e4-a881-981e2edf0637%40sessionmgr115&hid=104&bdata=JnNpdGU9ZWRzLWxpdmU%3d#db=a9h&AN=51695156
Whited. C. M. (2011). The Unidroit Principles of International Commercial Contracts: An Overview of Their Utility and The Role They Have Played in Reforming Domestic Contract Law Around The World. ILSA Journal of International & Comparative LawI, 18167. Retrieved from: http://eds.b.ebscohost.com.proxy-library.ashford.edu/eds/pdfviewer/pdfviewer?vid=11&sid=84a383ac-7145-46e4-a881-981e2edf0637%40sessionmgr115&hid=104