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Reproduced with permission of 8 Journal of Law and Commerce (1988) 145-186

Non-Convention Issues in the Preparation of
Transnational Sales Contracts

Ronald A. Brand [*] [**]

  1. Choice of Forum Concerns
    1. Considerations in Choosing a Forum for Dispute Settlement
      1. Convenience of the chosen forum
      2. Familiarity with the chosen forum
      3. Perceived bias or lack of bias of the chosen forum
      4. Influence of the choice of forum on substantive law determinations
      5. Predictability in contract performance
      6. Availability of advantageous procedural rules
      7. Availability of transnational procedural assistance
    2. The Law of Forum Selection
    3. Arbitration as the Chosen Forum
    4. Choice of Forum and Article 28
    5. Choice of Forum and Enforcement of Remedies
  2. Choice of Substantive Law Other Than the Convention
  3. Payment Concerns
    1. The currency of the contract
      1. Contracts payable in United States dollars
        1. Risk of currency fluctuation
        2. Approval of hard currency payments
        3. Place of payment concerns: force majeure and Act of State doctrine
        4. Avoidance of unenforceable "exchange contracts": (2)(b) or not (2)(b)
      2. Contracts payable in a foreign currency
        1. Hedging through separate currency contracts
        2. Gold clauses and currency cocktails
        3. Suing for the foreign currency due
  4. Conclusion

The other articles in this symposium focus specifically on issues raised by the United Nations Convention on Contracts for the International Sale of Goods.[1] This article will focus instead on issues outside the Sales Convention that are important to the orderly negotiation and execution of transnational [2] contracts.

The Sales Convention provides a set of rules dealing with contract formation, party obligations and remedies in the event of nonperformance. In these aspects it is much like the set of rules existing in a national legal system. However, it does not deal with all of the legal issues involved in a sales transaction that crosses national boundaries. Moreover, the Convention does not deal directly or indirectly with some important concerns of parties to transnational transactions in today's world.

This article will look at some of the subjects not addressed by the Sales Convention which must be considered in the preparation of a transnational sales contract. In a sense, it is a checklist of concerns which must be addressed along with issues arising under the Convention when a transnational sales contract is prepared. Although the material covered below is in many cases interrelated, it has been divided into issues dealing with choice of forum, choice of substantive law outside of the Convention, and payment upon completion of contract performance. [page 145]

I. CHOICE OF FORUM CONCERNS

The choice of the appropriate forum for dispute resolution is not a matter to be left until a dispute arises. Like other contract clauses, a choice of forum clause allocates certain risks between the parties to the contract.

A. Considerations in Choosing a Forum for Dispute Settlement

Each party to the contract will want the forum most favorable to it. Many of the reasons for preferring a particular forum are somewhat subjective. At base, the choice of forum clause provides predictability.[3] In drafting a choice of forum clause, it is useful to consider the specific reasons for selection of the forum prior to the occurrence of a dispute. Some of these reasons address the forum to be selected while others address the intrinsic value of the choice of forum clause itself.

1. Convenience of the Chosen Forum

Each party is likely to prefer that forum most convenient to its employees and counsel. Costs are reduced when witnesses do not have to travel great distances in order to participate in the dispute resolution process.

2. Familiarity with the Chosen Forum

Selecting a forum carries with it the selection of that forum's language, procedural rules and personnel. Most lawyers and their clients are more comfortable resolving disputes in familiar settings. The use of a familiar language, existence of a familiar set of procedural rules and presence of familiar personnel offer a distinct advantage, particularly if the opposing party is less likely to be familiar with the language, rules and personnel.

3. Perceived Bias or Lack of Bias of the Chosen Forum

There is often a perceived "home-court advantage" in the litigation process. For the party who can gain this advantage, bias may be [page 146] considered a positive factor. In other circumstances, the choice of forum may be made specifically to provide a neutral setting.

4. Influence of the Choice of Forum on Substantive Law Determinations

A judge faced with a problem not clearly dealt with by the law applicable to the contract may look to familiar local substantive law for resolution.[4] This may be the source of future inconsistent determinations under the Sales Convention, with each legal system relying on its own codes and case precedent for supplementation and gap-filling.[5] This aspect of the choice of forum process will be important in future interpretation of the Convention.

The Sales Convention itself provides for the influence of the forum on the substantive law to be applied. In Article 28, the Convention modifies its general rules favoring specific performance by stating that, "a court is not bound to enter a judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention." Through Article 28 then, choice of forum represents a choice of substantive law. It also provides some protection to the common law lawyer who is uncomfortable with the Convention's apparent preference for specific performance.[6] Through the choice of a common law forum that will traditionally prefer a damage remedy to specific performance, a party may increase the possibility of avoiding the substantive preference for specific performance contained in the remedy provisions of the Convention.[7] [page 147]

5. Predictability in Contract Performance

The reasons for including a choice of forum clause in a transnational sales contract go beyond the value of a particular forum once a dispute arises. The mere existence of the choice of forum clause provides certainty when the parties to the contract consider whether given conduct constitutes breach or, if a breach has occurred, the legal consequences of that breach. By knowing in advance which forum would be the arbiter of the dispute, the parties may consider the procedural rules, substantive codes and judicial precedents applicable in that forum in tailoring contract performance, in responding to breach by the other party and in negotiating settlement short of litigation or arbitration. Although the Sales Convention ideally will be construed uniformly regardless of the forum, there is no guarantee of this. Consequently, this element of predictability prior to submission to formal dispute resolution will be as important in a contract governed by the Convention as in other transnational contracts.

6. Availability of Advantageous Procedural Rules

Lawyers are aware that substantive issues may be determined by the influence of procedural rules. If a party considers certain procedural rules important to the determination of disputes which might arise in a given transaction, then the party should negotiate the contract with that interest in mind.

An excellent example of the type of procedural rule that can be important in the context of resolution of a dispute over a transnational contract is found in the availability of pre-judgment relief. In Britain and certain other Commonwealth forums, plaintiffs worried that a defendant might attempt to dissipate assets or remove them from the jurisdiction prior to resolution of the dispute are provided some protection through the Mareva injunction and the Anton Piller Order. A Mareva Injunction is an order, sometimes granted ex parte, temporarily freezing assets which may be required to satisfy a judgment or expected judgment in order to prevent the dissipation of assets or their removal from the jurisdiction during the pendency of the case.[8] This procedural mechanism allows a plaintiff to secure its claim against the assets of a defendant even before a writ is issued, [page 148] where there is an undertaking to issue it forthwith.[9] It is available to secure assets prior to arbitration as well as prior to or concurrent with litigation.[10]

The Anton Piller Order may also be issued ex parte. It is a form of discovery, amounting almost to a civil search warrant, whereby the plaintiff or intended plaintiff may search for articles which are subject to litigation or for evidence, and if such are found, inspect the articles and remove them to the safekeeping of a solicitor or the Court.[11] Although the order was first used in intellectual property actions, in the form of an injunction requiring the defendants to permit the plaintiffs to enter on the defendant's premises to inspect all documents relating to the plaintiff's designs for certain machines, it is now available for "the search for and seizure of evidential material which is relevant to any action or proposed action."[12]

In the United States, pre-judgment relief is generally less available in arbitration than in judicial resolution of disputes.[13] However, U.S. courts are moving toward the position that "a court can, and should, grant a preliminary injunction in an arbitrable dispute whenever an injunction is necessary to preserve the status quo pending arbitration."[14] If arbitration is the chosen forum additional terms addressing the issue of provisional relief may be worth including in the agreement.

7. A availability of Transnational Procedural Assistance

Many cases involving parties from different countries will require the exercise of judicial process outside of the country in which the [page 149] action is brought. Consequently, considerations in selecting a forum. should include (1) whether service of process will be difficult from the chosen forum, particularly if extraterritorial service will be required, (2) whether the taking of evidence will be convenient from the chosen forum given the likely location of the necessary information, and (3) whether a judgment rendered in the chosen forum will be enforceable in a jurisdiction in which appropriate assets may be reached.

Service of process is governed by the rules of the forum. The ideal arrangement is often to provide for the authorization of an agent within the forum for service of process should a dispute arise.[15] If such an arrangement has not been made, then service may be necessary outside the jurisdiction of the forum. The United States and 24 other countries are parties to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.[16] This Convention provides for cooperation in obtaining service abroad in a manner that will be recognized by all countries who are parties to it.

A problem may arise where service is sufficient in the forum in which the action is brought but the manner of service would not be recognized elsewhere. Many countries will not recognize and enforce a United States judgment unless service is through a method recognized in the enforcing country.[17] Recent cases in the United States have held that the Hague Convention on Service of Process may be avoided if service under local rules may be obtained on a common law agent of the defendant.[18] If assets are available in the United States when the time comes to execute on the judgment, this may be sufficient. However, if there is any possibility of need for enforcement in the foreign country, then the procedures under the Hague Service Convention should be followed if at all possible.

The availability of discovery in a jurisdiction other than the forum may be a more difficult issue. Many countries have enacted blocking legislation specifically directed at frustrating efforts at [page 150] discovery in U.S. legislation.[19] Sixteen countries are parties with the United States to the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters.[20] Like the Hague Service Convention, this treaty provides recognized procedures for obtaining evidence in the other countries which are parties. Also like the Service Convention, U.S. courts have tended to favor discovery through the methods provided by the Federal Rules, allowing parties to avoid the rules of the Convention.[21] This approach by the U.S. courts, while perhaps making litigation procedure more convenient for a U.S. party, once again raises concerns about the ability to enforce the resulting judgment outside the United States.

Although the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)[22] provides for the recognition of arbitral awards rendered in other countries, there exists no such multinational convention providing for the enforcement of judgments rendered elsewhere. Generally, a foreign judgment will be enforceable in the United States,

"where there has been opportunity for a full and fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular proceedings, after due citation or voluntary appearance of the defendant, and under a system of jurisprudence likely to secure an impartial administration of justice between the citizens of its own country and those of other countries, and there is nothing to show either prejudice in the court or in the system of laws under which it was sitting, or fraud in procuring the judgment, or any other special reason why the comity of this nation should not allow it full effect ..."[23]

Although courts have in the past required reciprocity as a prerequisite [page 151] to enforcement, this is generally no longer the case.[24] The matter of enforcement has generally been held to require the application of state law, thereby creating a need for uniformity recognized by the adoption in 17 states of the Uniform Enforcement of Foreign Judgments Act.[25]

Members of the European Economic Community are obligated by treaty to recognize and enforce the judgments of other member states unless recognition is contrary to public policy, of a default judgment rendered without proper notice, of a judgment which is irreconcilable with a judgment given in the enforcing state, of a judgment that decides certain issues of capacity, property rights or wills law contrary to the rules of the enforcing state, or of a judgment that is irreconcilable with an earlier judgment on the same cause of action that is also entitled to recognition.[26] The Final Act of the Sixth International Conference of American States (Bustamante Code)[27] and the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards [28] provide for the general recognition by their Latin American contracting states of civil and commercial judgments rendered in other contracting states. [page 152]

B. The Law of Forum Selection

Although the Sales Convention provides substantive law rules, thereby otherwise mitigating the importance of substantive choice of law,[29] it does not deal with the selection of the forum for application of that law. With the differing historical perspectives of common law and civil law jurisdictions, the choice of forum may be outcome-determinative in a dispute arising from a contract governed by the Convention because of (1) the influence of procedural rules, (2) the application of local substantive law rules to issues not governed by the Convention, or (3) the possibility of inconsistent application and interpretation of the Convention's own substantive law rules.

As a general rule, courts in most jurisdictions respect party autonomy in private commercial contracts and will uphold reasonable choice of forum clauses. In the United States, this position has prevailed since the 1972 Supreme Court decision in Bremen v. Zapata Off-Shore Co.[30] Prior to the Bremen decision, U.S. courts had been reluctant to enforce clauses which would "oust" them of jurisdiction.[31] In some ways, Bremen represented a compelling argument on policy grounds to continue this approach. A German firm had contracted to tow an American company's oil-drilling rig from Louisiana to a point in the Adriatic Sea off the coast of Italy. When the rig was [page 153] damaged in an accident in international waters, it was brought to Tampa, Florida, where the rig's owner brought an action in Federal District Court against the owner of the tug, claiming both in personam jurisdiction over the owner, and in rem jurisdiction over the tug.

The Bremen contract had two important clauses for purposes of the litigation. In one, the owner of the rig waived any right to hold the towing company liable for damage to the rig while at sea, even if such damage resulted from the negligence of the towing company or its employees.[32] Such a clause was arguably void as against public policy in the United States,[33] but enforceable in England.[34]

The second pertinent provision of the Bremen contract was a clause providing that "[a]ny dispute arising must be treated before the London Court of Justice." If this clause were upheld, requiring the U.S. court to decline jurisdiction, then the waiver of liability clause was also likely to be effective. Cases prior to Bremen arguably required a holding that both clauses were contrary to the public policy of the forum in which suit was brought.[35]

In upholding the choice of forum clause, the Supreme Court recognized the need to facilitate transnational commerce and allow parties to determine the conditions of such transactions, when it stated that, "[t]he expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts."[36] Although the parties were American and German, and the transaction involved carriage from the United States to Italy, the Court upheld the choice of an English forum, recognizing that the parties to an international transaction often have good reason to provide for a neutral forum for the resolution of disputes.[37] In doing so, the Court stated that forum selection clauses "are prima [page 154] facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances."[38]

Even though the Bremen holding was specifically limited to cases of federal district courts sitting in admiralty jurisdiction,[39] lower federal courts generally,[40] and state courts [41] have extended its rationale to non-admiralty cases. The Bremen court qualified its position on enforcement of forum-selection clauses by specifically noting that the agreement enforced there was "unaffected by fraud, undue influence, or overweening bargaining power."[42] Subsequent courts, the Restatement [43] and the now-withdrawn Model Choice of Forum Act,[44] have interpreted Bremen to provide a presumption of validity for a choice of forum clause, with the party contesting the provision carrying the burden of proving grounds for an exception.[45]

The exceptions to enforceable choice of forum provisions can be categorized as those cases (1) where enforcement of the provision [page 155] would result in substantial inconvenience, or denial of an effective remedy,[46] (2) where there has been fraud, overreaching, or unconscionable conduct in contract relations,[47] or (3) where enforcement would result in a violation of public policy or the transaction is otherwise unfair, unjust or unreasonable.[48] For the most part, these exceptions are relatively rare.[49 [page 156]

The English rule respecting choice of an English forum emanates from Order 11 of the Rules of the Supreme Court.[50] Rule l(d)(iv) of Order 11 provides for jurisdiction and service outside England where the claim is based on a contract which "contains a term to the effect that the High Court shall have jurisdiction to hear and determine any action in respect of the contract."[51] Where the choice of law clause selects a foreign forum, English courts will generally hold the parties to this bargain,[52] unless the clause fails to designate the foreign forum as the "exclusive" forum.[53] Although some English cases have failed to give effect even to exclusive derogation clauses,[54] the trend appears otherwise,[55] and, with the adoption of the Civil Jurisdiction and Judgments Act 1982, England is now bound by the European Convention on Jurisdiction and Enforcement of Judgments in Civil and [page 157] Commercial Matters to respect choice of forum clauses selecting another European Economic Community member as the forum.[56]

The European Convention provides that a person domiciled in a Contracting State "shall ... be sued in the courts of that state,"[57] and "may ... be sued ... in the courts for the place of performance of the obligation in question."[58] However, Article 17 respects party autonomy in contractual choice of forum by providing for the enforcement of choice of forum clauses as follows:

"If the parties, one or more of whom is domiciled in a Contracting State, have agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction .... Where such an agreement is concluded by parties, none of whom is domiciled in a Contracting State, the courts of other Contracting States shall have no jurisdiction over their disputes unless the court or courts chosen have declined jurisdiction."

This provision is generally in accord with the national rules as they have developed in the member countries of the European Economic Community.[59]

In Latin American nations, the competence of a court to hear a case is generally considered a matter of public policy, and a choice of forum or choice of law clause will not be taken to oust the court of its competency over a matter.[60] Consequently, a Latin American defendant may be able to force a plaintiff to sue him in his home country unless he waives that right by appearing in the foreign forum.[61]

C. Arbitration as the Chosen Forum

"[A]n agreement to arbitrate before a specified tribunal is, in [page 158] effect, a specialized kind of forum-selection clause."[62] When the chosen forum is arbitration, there is significantly greater certainty that the chosen forum will be respected than when the forum is a court. This is the result of both domestic legislation and international convention.

The United States Arbitration Act,[63] adopted in 1947, "reversing centuries of judicial hostility to arbitration agreements, was designed to allow parties to avoid 'the costliness and delays of litigation,' and to place arbitration agreements 'upon the same footing as other contracts ....' "[64] Section 2 of the Act provides that a written agreement to arbitrate a commercial dispute, "shall be valid, irrevocable, and enforceable."[65] Section 3 of the Act provides for a stay of proceedings in a case where the issue before a court is arbitrable under the agreement, and section 4 directs the federal courts to order parties to arbitrate if there has been a "failure, neglect or refusal" of a party to honor an agreement to arbitrate.[66] The Act demonstrates a clear policy in favor of enforcing agreements to arbitrate.

The goals of the United States Arbitration Act were expanded to the international setting with the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which entered into force in the United States on December 29, 1970.[67] Article II of the Convention obligates the courts in each contracting state to "recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, [page 159] concerning a subject matter capable of settlement by arbitration."[68] Once an award is rendered, the Convention goes on to require that each contracting state recognize an award granted in another contracting state as binding and enforce the award just as if it had been rendered domestically.[69]

Neither the Arbitration Act nor the New York Convention subjects the requirement to enforce an arbitration clause to defenses such as those recognized in Bremen and its progeny in regard to judicial choice of forum clauses.[70] Although the Act has been construed to allow fraud or illegality in the inducement of the arbitration clause itself as a defense to enforcement of arbitration,[71] any question as to fraud or illegality in the inducement of the contract as a whole is an issue for the arbitrator and cannot be raised as a defense to enforcement of the arbitration clause.[72] No case has been found which refused to enforce an agreement to arbitrate on the grounds of inconvenience, unequal bargaining power of the parties, public policy or unreasonableness of any nature.[73]

Until relatively recent times, cases had held that certain matters [page 160] of important public policy, such as antitrust claims,[74] securities law claims,[75] and claims under the Racketeer Influenced and Corrupt Organizations Act (RICO),[76] could not be decided by arbitration and must be submitted to the courts. However, recent decisions, particularly in the international setting, have found that the need for consistency and predictability in policies toward international transactions justify the submission of even such "public" law concerns to arbitration.

In Scherk v. Alberto-Culver Co.,[77] the Supreme Court, relying heavily on the language of the Bremen opinion, construed a clause providing that "any controversy or claim [that] shall arise out of this agreement or breach thereof" would be submitted to arbitration before the International Chamber of Commerce in Paris, France, which would apply Illinois law.[78] In its earlier decision in Wilko v. Swan,[79] the Court had declined to order arbitration of issues arising under section 12(2) of the Securities Act of 1933. Despite such precedent, in Scherk the Court ordered arbitration of the dispute between the parties, including a claim of securities fraud under section 10(b) of the Securities Exchange Act of 1934 and Rule l0b-5. Even though the Scherk Court acknowledged that it could base its decision on the difference in policies between the 1933 and 1934 Acts, it refused to do so.[80] The important distinction was that the agreement in Scherk was "a truly international agreement."[81] The Court recognized that "[a] contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is ... an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction."[82]

Although uncertainty has existed in the past as to the extent to [page 161] which "public law" matters such as securities law violations and antitrust claims may be the subject of arbitration pursuant to general arbitration clauses,[83] this issue was largely put to rest by the Supreme Court in Mitsubishi Motors Corp. v. Soler Ghrysler-Plymouth.[84] Soler had entered into a distributorship agreement for the sale of Mitsubishi-manufactured vehicles within a designated area. The agreement contained the following clause:

"All disputes, controversies or differences which may arise between [Mitsubishi] and [Soler] out of or in relation to Articles I-B through V of this Agreement or for the breach thereof, shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association."[85]

When Mitsubishi brought an action in U.S. District Court in Puerto Rico to compel arbitration under the Arbitration Act and the New York Convention, Soler responded with a defense of antitrust violations on the part of Mitsubishi and claimed that such matters could not be submitted to arbitration.[86]

Despite the Court's recognition that U.S. Courts of Appeals "uniformly had held that the rights conferred by the antitrust laws were of a character inappropriate for enforcement by arbitration,' "[87] it concluded "that concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties' agreement, even assuming that a contrary result would be forthcoming in a domestic context."[88] The Court reiterated its position in Scherk that refusal to enforce an international arbitration agreement would "damage the fabric of international commerce and trade, and imperil the willingness and ability of businessmen to enter into international commercial agreements."[89] [page 162]

Although the Mitsubishi Court recognized the risks of submitting U.S. antitrust issues to Japanese arbitrators in Japan, it expressed confidence in the ability of foreign arbitrators to apply U.S. antitrust law.[90] The ultimate safeguard was found in the Convention's reservation to each contracting state of the right to refuse enforcement of an award where the "recognition or enforcement of the award would be contrary to the public policy of that country."[91]

After Mitsubishi, it is difficult to imagine a dispute arising under an international contract in which arbitration would not be compelled, given a valid arbitration clause, unless the arbitration clause specifically excepted such matters from arbitration or was so narrowly drafted as to include only certain issues as subject to arbitration. As with the Bremen decision on the general choice of forum issue, the logic of the Scherk and Mitsubishi cases has now been extended to the domestic context. In Shearson/American Express the Supreme Court ruled that Securities Exchange Act and RICO claims are arbitrable given a valid agreement to arbitrate, even if that agreement appears in a form brokerage contract that is seldom the subject of negotiation.[92]

On the one hand, this approach promotes efficient resolution of disputes arising in connection with international transactions where the contract contains an arbitration clause. On the other, it means that U.S. parties to such agreements will want broad arbitration clauses only if they are willing to submit to arbitration whatever protection might otherwise be available under laws such as the securities acts, antitrust laws and RICO.[93]

With choice of forum clauses selecting a court, it is common (although not mandatory) to coordinate the choice of forum with the [page 163] choice of substantive law.[94] The general turmoil in conflict of laws analysis is ample indication that most courts prefer to apply their own jurisdiction's law and there is greater certainty in outcome when the forum and substantive law are of the same jurisdiction. However, with arbitration, there is no inherent body of substantive law accompanying the arbitral tribunal. Most arbitrators are selected on an ad hoc basis depending on the specific dispute.

One of the greatest current concerns with the Sales Convention lies in the lack of any interpretive precedent and the related uncertainty of uniform. application of precedents once they arise. With arbitration, the parties to a dispute can, at the time the dispute arises, select arbitrators who have published commentary on the Sales Convention and thereby gain some predictability in the interpretation of its applicable provisions. If a party is concerned about applying the substantive rules of the Convention because no judicial precedent exists interpreting those rules, then resort to arbitration may provide an attractive alternative to complete avoidance of the Convention. The corollary is that, to the extent the substantive rules of the Convention do not govern every issue that can be the subject of a transnational contract dispute, an arbitration clause (as with any choice of forum clause) should be used only with a choice of law clause that provides clear selection of the substantive law to fill the gaps not covered by the Convention.[95]

D. Choice of Forum and Article 28

Although this article deals primarily with issues not arising directly from the Sales Convention, there is one issue under the Convention that must be considered in the choice of forum. The basic structure of the remedies provisions of the Convention provides for a preference for specific performance over damages.[96] This represents a compromise favoring the approach of civil law jurisdictions. It does not provide a requirement of specific performance, but rather offers the non-breaching party the option to force specific performance.[97]

However, even if the non-breaching party is otherwise entitled to [page 164] require specific performance under the remedies provisions of the Sales Convention, Article 28 provides that "a court is not bound to enter a judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by [the] Convention." As it relates to the specific performance remedy, this Article may make the choice of forum clause a choice of substantive law clause as well. If a U.S. party is adverse to having the specific performance rules apply, then, rather than opting out of the Convention, it may be preferable to have the Convention apply but include a choice of forum clause providing that all disputes will be litigated in a United States (or other common law) court likely to exercise its option under Article 28 to avoid the specific performance remedy. The risk is in the discretion allowed the court in Article 28 and the resultant possibility that even a common law court accustomed to allowing specific performance only in exceptional circumstances will determine that respect for the structure of the Convention's remedies provisions is a more important consideration.

Finally, if the partial shield against the specific performance remedy is desired, this would probably not be possible in conjunction with an arbitration clause. Article 28 provides that "a court is not bound to enter a judgment for specific performance unless the court would do so under its own law."[98] Even if an arbitral tribunal were considered to constitute "a court" for purposes of this provision, it does not have its "own law" to apply absent the agreement of the parties.

E. Choice of Forum and Enforcement of Remedies

As noted above,[99] the choice of forum is important in considering the ability to enforce a judgment or arbitration award. With the lack of any multilateral or bilateral conventions to which the U.S. is a party, enforcement of U.S. judgments overseas is a matter of local law in each jurisdiction. Consequently, the choice of a U.S. court for dispute resolution, although perhaps making the outcome more predictable, may not guarantee enforcement in a country in which the defendant's assets may be found. Arbitration, on the other hand, carries with it the support of the New York Convention which obligates each of the over 70 contracting states to enforce awards rendered in another contracting state absent some form of fraud or improper [page 165] arbitration procedure.[100]

The specific performance preference in the remedies provisions of the Sales Convention raises a further concern. With damage awards, enforcement is a matter of finding and attaching or executing upon a party's assets. Specific performance is often much more difficult to enforce. As a result, we would expect that those civil law jurisdictions that favor specific performance as a remedy would have developed a superior method of enforcement. This is not necessarily the case.

In civil law systems such as France, even though the court may be more likely to order specific performance, it has no contempt of court powers to enforce the performance ordered. However, French courts do have two methods used for enforcement purposes. The first of these methods is the concept of "astreinte," which allows the court to fine a contract debtor for refusal to perform. This was originally a court-created remedy, and is now expressed in statute.[101] The fine, unlike those in U.S. courts, is paid to the creditor once collected, and can be satisfied by attachment and sale of the debtor's property. The result is that, whereas French courts will never arrest someone for failure to follow a civil court order, they will use large astreintes. French courts commonly reduce the astreinte to actual damages on liquidation when there is execution and payment to the creditor.

The second method for inducing performance in the French system is through recognition and enforcement of a penalty clause.[102] Penalty clauses are presumptively valid in most civil law jurisdictions. The French Civil Code was even amended in 1985 to allow the judge to increase or decrease the amount of the penalty.[103]

In the international setting, the use of a penalty clause raises concern with the policy of common law courts to refuse their enforcement.[104] However, it may be possible to anticipate this apparent dilemma through proper drafting. By structuring the clause as a liquidated damages clause, it may also be enforceable in common law [page 166] jurisdictions.[105]

II. CHOICE OF SUBSTANTIVE LAW OTHER THAN THE CONVENTION

As other articles in this symposium have indicated, the substantive law rules provided by the Sales Convention do not cover every issue that might arise in a transnational sales contract. The question then becomes what law applies if the Convention does not provide a determining rule. If the parties have not provided otherwise, but have included a choice of forum clause, courts are inclined to rule that the choice of forum indicates a choice of that jurisdiction's substantive law.[106] A well-drafted contract under the Convention will expressly select a gap-filler substantive law. The selection of this substantive law will then be subject to rules similar to those applied to determine whether a choice of forum clause will be recognized.

After the adoption of the Sales Convention in 1980, the Hague Conference on Private International Law and the United Nations Commission on International Trade Law (UNCITRAL) jointly undertook to prepare a convention which would complement the substantive rules of the Sales Convention by providing a uniform set of rules to be applied in determining choice of law issues in transnational contracts. The result is the Convention on the Law Applicable to Contracts for the International Sale of Goods (The Hague Convention).[107] Although 61 states were represented in the preparation of this convention, none has as yet ratified it, and it has not yet been submitted to the U.S. Senate for ratification. However, its rules are instructive in light of the consensus achieved in its negotiation.

The fundamental rule of the Hague Convention is that "[a] contract of sale is governed by the law chosen by the parties."[108] The [page 167] concept of party autonomy in this regard is so respected in the Convention that parties are specifically allowed to choose a law applicable to a limited part of the contract,[109] and agree to change the law governing the contract at any time without prejudice to the contract's formal validity or the rights of third parties.[110] Although the Hague Convention has not yet become effective as to any country , past experience with other such conventions tells us that arbitrators and even courts are likely to look to it as a model for choice of law decisions.[111]

The concept of party autonomy in choice of law is limited in the Uniform Commercial Code only by the "reasonable relationship" test of section 1-105:

"(1) Except as provided hereafter in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties."[112]

The 1986 Draft Revisions to the Restatement (Second) Conflict of Laws is even less restrictive. The general rule of section 187 of the Draft Restatement is that, [page 168]

"The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue."[113]

Even if the issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue,[114] that law will be applied unless either,

"(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or

"(b) application of the law of the chosen state would be contrary to the fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the [most significant relationship] rule of 188. would be the state of the applicable law in the absence of an effective choice of law by the parties."[115]

This statement of the exceptions to party autonomy incorporates both the reasonable relationship test of UCC section 1-105 [116] and the public policy concerns which present exceptions to the enforcement of choice of forum clauses.[117] Like the Hague and European Conventions,[118] the Restatement allows the parties to "choose to have different issues involving their contract governed by the local law of different states."[119]

The bottom line on the issue of choice of substantive law is that, [page 169] with the exception of the Latin American countries,[120] most courts will respect the law chosen by the parties absent an evasion of some important public policy or an impropriety or mistake on the part of one or both of the parties. Prior to the Sales Convention, a party may have been willing to forego having a choice of law clause in the contract, hoping it could prevail on the applicable law argument should a dispute arise. With the Convention, the absence of a choice of law clause has the effect of a clause choosing the Convention's rules if the requirements of Article 1 are met. Consequently, parties are well advised to exercise their rights to choose the substantive law applicable to the contract, and to choose a gap filler substantive law if the Sales Convention is chosen.

III. PAYMENT CONCERNS

For the seller in the transnational transaction, a principal concern is with the obligation of the buyer to tender payment at the appropriate time and place. The Convention does not expressly address all of the issues of time and place of payment, leaving their precise determination to the parties, usually through the choice of the contract terms such as c.i.f., f.o.b., etc. The contract should always provide for the source for the definition of such terms, whether it be the ICC Incoterms,[121] the Uniform Commercial Code of a specific state, or otherwise. Such a reference to definitional provisions outside the contract and the Convention facilitates the use of the shorthand designations common in transnational trade.

Neither the Convention nor sources such as the Incoterms covers issues dealing with the currency of the contract and the related issues which arise as a result of the contracting parties each thinking in terms of a different currency. If the transaction will not be complete (and payment not received) until sometime after the negotiation of the contract, then the contract terms dealing with the currency of payment will be significant.[122] [page 170]

A. The Currency of the Contract

Several important issues often are hidden in the contract clauses dealing with the currency of payment. It is not enough to be satisfied simply with a clause that provides for payment in your client's currency. With the recent history of wild exchange rate fluctuations, the imposition of exchange control regulations, and concerns with the application of the act of state doctrine by U.S. courts, proper attention must be given to the several risks addressed by the payment clause. In most cases, questions of time and place of payment, the currency of payment, and force majeure must be carefully considered in light of the parties and sovereigns who may influence the transaction.

The most obvious risks influencing the payment clause are the possibility for substantial depreciation of the currency of payment against the currency or currencies normally used by the contracting party and the threat of exchange control regulations which will prevent the payment of the contract price by the foreign party in accordance with the contract. Each of these raises its own set of concerns. The discussion of these concerns is best divided into the issues arising with contracts payable in U.S. dollars and those arising with contracts payable in a foreign currency.

1. Contracts Payable in United States Dollars

When two parties to a contract keep their books in different currencies, each wants to be able to predict income and costs consistent with its normal record-keeping methods. A United States contracting party (unless it is involved in currency speculation or has substantial need for other currencies) generally prefers to pay and receive payment in dollars. If a sale is made with the expectation of a profit based upon predictable costs, the expected profit can be quickly erased if the transaction is subjected to the vagaries of the international monetary markets. Manufacturers generally project profits on the manufacture and sale of the product, not on currency speculation.

The first step in providing contractual security for the United States seller is to provide that payment be made in United States dollars. The ultimate in security is provided by having the U.S. currency remitted through an irrevocable letter of credit, confirmed by a local bank. With this financing technique, the seller knows that upon presentation of proper documents after the goods have been delivered to the carrier, full payment in the seller's currency will be received at a [page 171] location familiar to the seller.[123]

If a letter of credit is not used, several issues must be considered. As noted above, the first is the currency of the contract. Assuming this is U.S. dollars, the risks have not yet been completely removed from the payment terms of the contract.

a. Risk of Currency Fluctuation

With the U.S. dollar as the currency of the contract, the risk of currency fluctuation may be of little concern to the U.S. seller. Payment is in the currency in which the books are kept and profit projections are predictable so long as costs of production and transportation are also predictable. Although there may be an opportunity cost should the dollar decline against other currencies during the term of the contract, this will generally not be of great concern to the dollar-oriented seller. The risk of decline in value of local currency is placed on the foreign obligor, who will have to come up with more units of its own currency than planned if its currency declines against the dollar during the term of the contract. The risk has been allocated by the choice of currency.

b. Approval of Hard Currency Payments

Many countries place restrictions on the payment outside of the country of obligations requiring hard currencies. In such cases, a contract calling for payment in dollars in the United States will require appropriate arrangements and perhaps governmental approval before the transaction may be completed. Here, it will be desirable to require the foreign party to take on the obligation of obtaining any approval necessary and otherwise arranging for the payment in accordance with local rules. Where such requirements exist, local counsel should be contacted in order to properly deal with the local foreign exchange regime and to determine whether such requirements are complied with in the negotiation and execution of the contract.

c. Place of Payment Concerns: Force Majeure and the Act of State Doctrine

Simply providing for payment in United States dollars and insuring compliance with foreign exchange control regulations existing on the contract date may not be enough to guarantee smooth performance [page 172] of the buyer's payment obligations under the contract. If exchange controls are instituted by the foreign government after the date of the contract, those regulations may prevent the foreign buyer either from making payment in U.S. dollars or from making payment at all.

If there is any concern about the possibility of the foreign contracting party's government imposing exchange controls, any force majeure clause (generally included to protect the seller from unforeseen circumstances) should be carefully drafted to prevent the reliance by a foreign buyer on those controls as a defense to incomplete payment. Further, the act of state doctrine may create a type of force majeure defense regardless of the specific clauses in the contract. As a general rule, a U.S. party should seek to require that payment under the contract is to be made in the United States. Failing to do so may provide the opening for the assertion of the act of state doctrine in response to any later claim for payment in litigation.

Courts in the United States have long followed the act of state doctrine, stating that, "[e]very sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory."[124] If the imposition of exchange control regulations results in the taking of property interests wholly accomplished within the foreign sovereign's territory, "it would be an affront to such foreign government for courts of the United States to hold that such act was a nullity."[125] In addressing exchange control regulations raised as acts of state, U.S. courts have focused on the situs of the property involved in the dispute, holding that the act of state doctrine is applicable to a dispute for payment of a debt only if the situs of the debt is in the foreign country whose government's action is in question.[126] So long as the situs of the debt is in the United States, the doctrine will not prevent addressing the substantive issues. For act of state purposes, a right to receive payment on a debt has been found to be located where the debt is to be paid.[127] [page 173]

Generally, the issues raised by exchange control regulations apply only within the borders of the country imposing those regulations. However, the act of state doctrine generates concern with whether those regulations will have an impact beyond the borders of the implementing state. Although the result is arbitrary, the courts have consistently hinged their act of state reasoning on the locus of the debt. Consequently, by requiring payment in the United States, the contract terms can avoid the act of state problem should exchange controls be implemented after the contract is entered. By making the place of payment outside the foreign buyer's country, the contract also removes a potential asset of the U.S. seller in the foreign country which could be subject to attachment and execution through local proceedings.

If the risk of exchange control regulations cannot be adequately dealt with in the contract, consideration should be given to the purchase of political risk insurance protecting against the possibility of loss through the imposition of exchange controls.

d. Avoidance of Unenforceable "Exchange Contracts": (2)(b) or not (2)(b)

Even though the act of state doctrine may be avoided through a U.S. place of payment, foreign exchange control regulations may have an impact on a transaction that is otherwise governed by U.S. law. Article VIII(2)(b) of the Articles of Agreement of the International Monetary Fund provides:

"Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this agreement shall be unenforceable in the territories of any member. In addition, members may, by mutual accord, cooperate in measures for the purpose of making the exchange control regulations of either member more effective provided that such measures and regulations are consistent with this Agreement."[128]

The International Monetary Fund, in its 1949 Annual Report, interpreted this provision as affecting national law in three significant ways.[129] First, as a result of Article VIII, 2(b), any "exchange [page 174] contract" contrary to foreign exchange control regulations is "unenforceable" in the United States. Second, "the tribunal of the member country before which the proceedings are brought will not, on the ground that they are contrary to the public policy (order public) of the forum, refuse recognition of the exchange control regulations of the other member which are maintained or imposed consistently with the Fund Agreement."[130] Finally, "such contracts will be treated as unenforceable notwithstanding that under the private international law of the forumt the law under which the foreign exchange control regulations are maintained or imposed is not the law which governs the exchange contract or its performance."[131] In other words, even if the forumts conflict of law rules would not point to the application of the law of the country imposing the exchange control regulations, those regulations must still be recognized as applicable to the contract.[132]

These rules of international law, which are a part of our domestic law,[133] require that two principal questions be addressed in considering transnational sales contracts calling for payment in U.S. dollars.[134] First, what is meant by the term "exchange contract" in [page 175] Article VIII(2)(b)? Second, if the transaction does involve an "exchange contract" within the Agreement's scope, what does it mean to say that the contract is "unenforceable?"

Neither Article VIII nor Article XXX (the principal definitional provision of the Articles of Agreement) provides a definition of the term "exchange contract." Courts of continental Europe have interpreted the term broadly to hold that an "exchange contract" includes a contract for the sale of merchandise,[135] a commission contract relating to the refining of maize,[136] a contract between a Dutch and a German for the transfer of shares in a French company,[137] and a contract between a Japanese motion picture company and its French representative.[138] German courts have consistently held that an "exchange contract" comprises any contractual obligation, including those arising from trade in goods and services, which is calculated to have effect upon the member State's balance of payments.[139]

British cases have clearly rejected the broad view that an "exchange contract" is "any contract which in any way affects the country's exchange resources."[140] They have instead opted for the position that an "exchange contract" for the purposes of Article VIlI(2)(b) is limited to "a contract to exchange the currency of one country for [page 176] another."[141] The British approach is perhaps best illustrated by the case of Wilson, Smithett & Cope Ltd. v. Terruzzi.[142] London metals dealers sued the Italian defendant for amounts due as the result of the defendant's failure to cover the margin on metals futures contracts. The Italian speculator (Terruzzi) had sold short in a rising market and suffered substantial losses as a result. Such speculation in accounts of a foreign currency, without the approval of ministerial authority, were in breach of Italian exchange control regulations. The Court of Appeals rejected Terruzzi's argument that Article VIII(2)(b) of the IMP Articles of Agreement made the futures contracts unenforceable against him. In so holding, Lord Denning, stated:

"[t]he Bretton Woods Agreement should not do anything to hinder legitimate contracts for the sale or purchase of merchandise or commodities. The words "exchange contracts" in article VIII, section 2(b), refer only to contracts to exchange the currency of one country for the currency of another."[143]

The fact that the contracts involved happened to "affect" Italy's exchange resources was deemed an insufficient reason not to enforce the contract.[144] Lord Denning added important dicta to this statement as follows:

"It is no doubt possible for men of business to seek to avoid article VIII, section 2(b) by various artifices. But I hope that the courts will be able to look at the substance of the contracts and not at the form. If the contracts are not legitimate contracts for the sale or purchase of merchandise or commodities, but are instead what Professor Nussbaum calls 'monetary transactions in disguise ...' as a means of manipulating currencies, they would be caught by section 2(b)."[145]

This dicta became particularly important several years later when the House of Lords considered the case of United City Merchants (Investments) Ltd. v. Royal Bank of Canada. [146] A British company contracted to sell plant equipment for the manufacture of fiberglass to a Peruvian company at a price in U.S. dollars which was exactly twice the original quoted price of the goods and freight. The [page 177] sale was to be financed through an irrevocable letter of credit issued by a Peruvian bank and confirmed by the Royal Bank of Canada. The Peruvian buyer persuaded the British sellers to double the original quoted price and place one-half of each payment received in an American account for the buyer. This part of the transaction was in contravention of the existing Peruvian exchange control regulations.

When the buyer discovered that the shipping agent had fraudulently altered the shipping documents, payment on the letter of credit was refused by the bank on the buyer's direction, and suit was commenced on the part of the seller's assignee to obtain payment. As a defense, the buyer raised Article VIII(2)(b), claiming the contract was unenforceable.[147] Accepting the narrow interpretation of the term, "exchange contracts" which had been been found controlling in the Terruzzi case,[148] Lord Diplock expanded on the dicta of that case:

"If the matter were to be determined simply as a question of construction, the contract between the sellers and the confirming bank constituted by the documentary credit fell altogether outside the Bretton Woods Agreement; it was not a contract to exchange one currency for another currency but a contract to pay currency for documents which included documents of title to goods. On the contrary, the task on which the court is engaged is to penetrate any disguise presented by the actual words the parties have used, to identify any monetary transaction ... which those words were intended to conceal and to refuse to enforce the contract to the extent that to do so would give effect to the monetary transaction."[149]

That portion of the letter of credit in excess of the actual contract price for the goods was held unenforceable because the prohibited currency transaction was an "essential part" of the payment transaction.[150] However, finding that an "unenforceable" exchange contract was not the same as an "illegal" contract under English law, the House of Lords enforced the portion which would not have violated the Peruvian exchange control regulations on its own.[151] [page 178]

Courts in the United States have allowed the use or Article VIII(2)(b) both offensively, in order to provide damages to a party injured by illegal exchange contracts,[152] and defensively, in allowing the pleading or Article VIII(2)(b) to avoid contract performance.l53 However, like the English courts, the tendency toward a narrow interpretation or the term "exchange contract" has made the provision or diminished importance in U.S. litigation.

U.S. cases have rejected attempts to designate as "exchange contracts" a dollar denominated international loan agreement calling for repayment in New York in U.S. currency,[154] a letter of credit [155] and a life insurance contract payable in U.S. currency in the United States.[156] This approach is summarized in the language or the New York Court or Appeals, which stated:

"We are inclined to view an interpretation of subdivision (b) of section 2 that sweeps in all contracts affecting any members' exchange resources as doing considerable violence to the text of the section. It says 'involve the currency' of the country whose exchange controls are violated; not 'involve the exchange resources'."[157]

Other cases have found various transnational transactions to constitute exchange contracts subject to the concerns or Article VIII(2)(b). In Banco Frances e Brasileiro v. Doe,[158] the court allowed an action by a Brazilian bank against defendants who had used fraudulent applications for travelers checks in order to pay Brazilian cruzeiros to get U.S. dollar checks which were then deposited in New [page 179] York banks. The conversion and removal of dollars from Brazil was in violation of Brazil's currency control regulations, which were provided recognition in accordance with Article VIII(2)(b).[159]

The Banco Frances case can be considered as a case which would have found an exchange contract under either a broad or narrow interpretation of that term. Other cases have avoided the definitional problem altogether by finding either that the exchange controls could not be applied retroactively to a contract which violated no controls when executed,[160] or that the party asserting the validity of exchange controls either had not proved their application to the transaction,[161] or had not proved that the controls were consistent with the Fund Agreement.[162]

Other cases have upheld the defense to contract performance provided by Article VIII(2)(b) in circumstances that can only be described as applying a broad interpretation to the term "exchange contract." In Perutz v. Bohemian Discount Bank in Liquidation,[163] the New York Court of Appeals prevented enforcement of a pension contract where Czechoslovakian exchange control regulations prohibited any payment in currency or in foreign exchange to a nonresident of Czechoslovakia, unless such payment was licensed by the Czechoslovakian currency control authority.[164] Three Florida state court decisions allowed use of Article VIII(2)(b) to prevent enforcement of insurance contracts which had been entered when the insured persons had resided in Cuba, even though the contracts had originally been denominated in dollars, were not originally in violation of Cuban exchange control regulations, and were ultimately payable to a U.S. [page 180] resident at the offices of the insurance companies in the U.S.[165]

Even in the New York courts, where a narrow interpretation has become the rule,[166] a transaction involving the use of a complex sales transaction in order to get U.S. dollars out of Italy in violation of local exchange control regulations has been refused enforcement.[167] Consequently, for the U.S. lawyer negotiating a contract for a transnational sale, Article VIII(2)(b) of the IMF Articles of Agreement deserves consideration.[168]

One of the problems in providing predictability from a review of the case law dealing with the application of Article VIII(2)(b) in the United States is that few cases have been reported outside of New York, Florida and Louisiana. With New York now appearing to lean toward a narrow interpretation of "exchange contract" by finding few contracts to be subject to Article VIII(2)(b),[169] and Florida favoring a broad interpretation that would draw in most contracts affecting [page 181] exchange relationships,[170] the importance of choice of forum clauses is obvious. However, given the polar differences in these two states, and the lack of any clear guidance in other states -- which then combines with a federal rule not bound by Erie [171] -- the ability to destroy a contract through reference to Article VIII(2)(b) of the Articles of Agreement of the International Monetary Fund provides significant uncertainty. Perhaps the only certain planning tip is that efforts to avoid exchange control regulations of a foreign country through complex sales transactions[172] or bloated letter of credit arrangements[173] may be likely to be met with courts unwilling to enforce such arrangements.

2. Contracts Payable in a Foreign Currency

If negotiation leads to a contract calling for payment in a foreign currency, then other issues arise. Such a contract allocates the risk of loss or gain from currency fluctuation to the U.S. party.

a. Hedging Through Separate Currency Contracts

The U.S. party to the contract calling for payment in a foreign currency may take one of several approaches to its assumption of the risk of currency fluctuation. The options available include

  1. doing nothing, in which case the contracting party simply accepts the risk of a real loss if exchange rates move against it (and the corresponding benefit which would arise if the exchange rates move in its favor);

  2. completely hedging any exposure under all contracts calling for payment in foreign currency, thereby protecting against the loss resulting if rates move against it (but risking the opportunity cost or losing the money it could have made by doing nothing if the exchange rates move in its favor); or

  3. hedging selectively, thereby attempting to predict future exchange rates.

These options may be further divided by considering the manner in which a party may hedge its risk of currency fluctuation. A party may hedge by covering forward 100% of the contract value. In other [page 182] words, a Pittsburgh seller, in a contract calling for payment in Deutsche marks upon delivery in one year, could cover its exposure to the fluctuations in value of the mark by selling marks for delivery on the appropriate date. "Where full cover wins over not hedging is that it fixes an exporter's price list in his own currency for some time into the future and so lets him determine the required production costs and the achievable profits."[174] By fully covering through selling the currency in the forward market, the party exchanges the risk of real loss it can suffer for the opportunity cost of giving up the potential benefit of not hedging at all.[175]

A second form of hedge, used primarily by the selective hedger, is the currency option. The option allows the contracting party to purchase the right to exchange a known amount in its own currency for the necessary amount in another, or vice versa. In essence, all efforts are betting propositions. By doing nothing, the party is betting that the foreign currency will not depreciate, thereby providing it with at least as many dollars as it would at the time the contract is made. By hedging through cover forward, the party is betting that the dollar will not depreciate, thereby providing it with exactly the number of dollars it can get through selling the foreign currency to be received at a future date at its current dollar value on the market (less the cost of the futures contract). By purchasing an option contract, the party can, for the cost of the contract, provide itself with a put option by which it will exchange the foreign currency for dollars at current rates, thereby protecting itself against depreciation of the foreign currency, but not taking on the risk of depreciation of the dollar.[176]

Any method of hedging has its costs. A three-month currency option costs about 2-4% of the exposure hedged.[177] According to a [page 183] recent survey, only 13% of British and American firms have used options.[178] Although cover through futures contracts may be somewhat more common, it too has risks.

Ultimately, no method of hedging will protect against the risk of nonperformance by the buyer. Hedge transaction contracts, whether futures or options, are purchased for specific dates. If the purchaser (or seller) does not have the currency required on that date because the foreign purchaser in the underlying sales transaction has failed to make payment, then that party has problems not only on the sales contract but also on the currency contract which was originally purchased to facilitate the sales transaction.

Hedging through separate currency contracts may be adequate (although at some additional cost) if the contract is carried out as planned by both parties. However, if the foreign party breaches by non-performance (i.e., non-payment), then the U.S. party is faced not only with the problem of obtaining relief under the sales contract, but also with the obligation to cover (perhaps at a loss) on the currency contract.

b. Gold Clauses and Currency Cocktails

Using gold clauses and currency cocktails in the contract in order to protect against the devaluation of the chosen foreign currency places the U.S. party in the position of a currency speculator, tying the value of the consideration to be received to a commodity or basket of currencies. By a Joint Resolution of June 5, 1933,[179] Congress made the use of such clauses illegal until the repeal of that resolution in 1977.[180] Although it is unlikely that a similar resolution will be enacted in the future, Congress appears to have the power to again make such clauses illegal (even on a retroactive basis).[181]

c. Suing for the Foreign Currency Due

In any sales contract, the ultimate risk for the seller is nonpayment by the buyer. As noted above,[182] the most secure method of providing for this risk in a transnational transaction is through a confirmed irrevocable letter of credit calling for payment in U.S. dollars [page 184] through the local confirming bank. If, however, the seller did not or was unable to get a letter of credit, and sold on terms calling for payment in a foreign currency, a buyers breach requires consideration of the available procedures for relief.

Courts and commentators have considered it "well settled that a money judgment by an American court must be in American currency."[183] In federal courts, the analysis has been similar to that applied in act of state cases focusing on the location of the obligation.[184] Where the breach occurs in a foreign country (particularly by the non-payment of money due there), the damages are measured in the currency of that country and conversion to U.S. dollars is accomplished at the judgment date exchange rate.[185] On the other hand, where the breach occurs in the United States, the damages are measured in dollars by converting the foreign currency at the exchange rate prevailing on the date of breach.[186] Many state courts have opted for a singular breach date rule.[187] "[T]his rule is substantive rather than procedural ... and [the bifurcated federal approach] therefore cannot be followed by federal courts sitting in diversity in states which apply the breach-date rule."[188] The Restatement takes the correct position that U.S. courts "are not precluded from giving judgment in the currency in which the obligation is denominated or the loss was incurred."[189] U.S. courts have in fact rendered judgments in foreign currency when enforcing foreign arbitral awards,[190] enforcing foreign judgments,[191] considering an award of pre-judgment interest,[192] and entering a consent judgment.[193] Given these factors, the [page 185] questions to be addressed at this point are litigation questions:

  1. Where to sue. Is there a choice of forum clause in the contract? If so, does the other party have assets available for attachment or execution in that jurisdiction? If not, will the judgment or award be enforceable in a jurisdiction in which the defendant does have assets subject to execution?

  2. If suit is brought in the United States. Should it be brought in state or federal court? Do personal and subject matter jurisdiction exist? Will service of process and taking of evidence be possible in the jurisdiction?

However, the approach to each of these questions at the litigation stage will hinge on the extent to which they were foreseen and prepared for during the contract negotiation process.

IV. CONCLUSION

The transnational sales contract is a much more complex arrangement than its domestic counterpart. Issues of choice of forum, choice of substantive law, place of payment and currency of payment must be given careful consideration regardless of whether the Sales Convention applies or is specifically avoided by the terms of the contract.

The principal factor distinguishing transnational transactions from purely domestic ones is the increase in sources of legal rules applicable to the transaction. Increased sources of rules bring with them increased risk. It is this risk that must be addressed by the careful lawyer at the contract negotiation stage. In this context, it would be easy to conclude that the Sales Convention simply provides one more source of rules, ergo one more set of risks, and is therefore to be avoided as allowed by its own terms in Article 6. Such a response to the Convention would be both misleading and dangerous. Increased sources of legal rules do create increased risks; but they also create increased opportunity to tailor contract terms by selecting the best of each set of legal rules if proper attention is given to those rules at the contract negotiation stage. Good lawyers should not view the Sales Convention as an intrusion on well-established form contracts based on established domestic legal rules. They should view it as an opportunity to better represent their clients by taking advantage of all the opportunities available in the international legal system. [page 186]


FOOTNOTES

* Associate Professor of Law, University of Pittsburgh School of Law 1987.

** The author thanks Jeff Horwitz, John Kropf and Max Laun for research assistance and comments in the preparation of this article.

1. U.N. Conference on Contracts for the International Sale of Goods, Final Act (April 10, 1980), U.N. Doc. A/Conf.97/18, reprinted in S. Treaty Doc. No. 98-9, 98th Cong., 1st Sess. and 19 INT'L LEGAL MAT. 668 (1980) [hereinafter cited as the "Sales Convention"].

2. The term "transnational" is used here rather than "international" as more accurately describing the transactions across national boundaries between private parties. Transactions between states are governed by "international 1aw," in the pure sense of the term, whereas "transnational law" has been defined by the late Philip C. Jessup, Judge of the International Court of Justice as, "all the law which regulates actions or events that transcend National frontiers." Dedication Note, 25 COLUM. J. TRANSNAT. L. ii (1986).

3. A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction. Furthermore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one or the parties or unfamiliar with the problem area involved. Scherk v. Alberto-Culver Co., 417 U.S. 506, 516 (1974).

4. Article 7(2) provides that,

(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

Sales Convention, supra note 1, art. 7(2). How courts will interpret this provision remains to be seen.

5. This concern illustrates the importance of selecting a gap-filling substantive law in addition to the Sales Convention. See infra notes 102-19 and accompanying text.

6. See Sales Convention, supra note 1, art. 46(1), 62.

7. Article 28 provides only that the court "is not bound to enter a judgment for specific performance," thus preserving the possibility that even a common law court accustomed to damage remedies will follow the Sales Convention list of remedies and thus frustrate the choice of forum method of avoiding specific performance. See Sales Convention. supra note 1, art. 28.

8. Mareva Compania Naviera S.A. v. International Bulk Carriers S.A., [1975] 1 W.L.R. 1093 (C.A.). The authority for the Mareva injunction is now found in statute in the Supreme Court Act, 37(1) (1981). See generally R. OUGH, THE MAREVA INJUNCTION AND ANTON PILLER ORDER app. A (1987).

9. P.S. Refson & Co. Ltd. v. Saggers, (1984] 3 W.L.R. 1025 (Ch.).

10. See Arbitration Act, 14 & 15, 1950 Geo. 7, ch. 27, 12(6)(f) and (h); The Rena K, [1979] 1 All E.R. 397 (Q.B.).

11. Anton Piller K.G. v. Manufacturing Processes Ltd., [1976) Ch. 55. The Anton Piller case found authority for the order in the Rules of the Supreme Court, 1965, Order 29, rule 2. The authority for such an order is now reproduced in the Supreme Court Act, ch. 54, 37(1) (1981).

12. R. OUGH, THE MAREVA INJUNCTION AND ANTON PILLER ORDER: PRACTICE AND PRECEDENTS 33 (1987).

13. See McDonell, The Availability of Provisional Relief in International Commercial Arbitration, 22 COLUM. I. TRANSNAT. L. 273 (1984); Note, An Argument for Pre-Award Attachment in International Arbitration Under the New York Convention, 18 CORNELL INT'L L.J. 99 (1985).

14. Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 51 (1st Cir. 1986). Accord Roso-Lino Beverage Dist. v. Coca.Co1a Bottling Co. or N.Y., 749 F.2d 124 (2d Cir. 1984); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bradley, 756 F.2d 1048 (4th Cir. 1985); Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348 (7th Cir. 1983), cert. denied, 464 U.S. 1070 (1984). But see Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Hovey, 726 F.2d 1286 (8th Cir. 1984); Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Scott, No. 83-1480 (10th Cir., May 12, 1983).

15. This is specifically allowed according to FED. R. CIV. P.4(d)(I).

16. Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, Nov. 15. 1965, 20 U.S.T. 361, T.I.A.S. No. 6638, 658 U.N.T.S. 163.

17. See. e.g., 328 I of the Code of Civil Procedure ("ZPO") of the Federal Republic of Germany. See also Brenscheidt. The Recognition and Enforcement of Foreign Money Judgments in the Federal Republic of Germany, 11 INT'L LAW. 261, 274 (1977).

18. See, e.g., Schlunk v. Volkswagenwerk Aktiengesellschaft. 145 Ill. App. 3d 594.503 N.E.2d 1045 (1986) cert. granted (U.S. Oct. 13, 1987) (No. 86-1052); Lamb v. Volkswagenwerk Aktiengesellschaft, 104 F.R.D. 95 (S.D. Fla. 1985).

19. See, e.g., Act of Dec. 20, 1984, ch. 49, 1984 Can. Stat. 1863 (Canada); Protection of Trading Interests Act, 1980 ch. 11 1-4 (Great Britain); Law No. 80-538 or July 16, 1980. Relating to the communication of Economic, Commercial, Industrial, Financial or Technical Documents or Information to Foreign Natural or Legal Persons, [1980] J.O. 1799, (France) translated and reprinted at The 1980 French Law on Documents & Information, 75 AM. J. INT'L L. 382 (1981); Foreign Proceedings (Excess of Jurisdiction) Act, 1984, Austl. Acts No. 3 (Australia).

20. Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, Mar. 18, 1970, 23 U.S.T. 2555, 847 U.N.T.S. 231.

21. See, e.g., Société Nationale Industrielle Aerospatiale v. U.S. District Court, 107 S. Ct. 2542 (1987) (The Hague Evidence Convention, even where applicable, is not an exclusive and mandatory procedure for obtaining documents and information abroad, and district court may operate under Federal Rules of Civil Procedure inconsistent therewith),.

22. United Nations Convention on the Recognition of Foreign Arbitral Awards, done June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 2.

23. Hilton v. Guyot, 159 U.S. 113, 202 (1895).

24. Somportex Limited v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 440 n. 8 (3d Cir. 1971), cert. denied, 405 U.S. 1017 (1972).

25. Uniform Enforcement of Foreign Judgments Act, 13 U.L.A. 417 (1986).

26. Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, art. 25, 27, 2 Bull. Eur. Comm. (1969 Supp. Bull. 2) as amended by Convention of Accession of the Kingdom of Denmark, Ireland. and the United Kingdom of Great Britain and Northern Ireland, 21 O.J. Eur. Comm. (No. L304/1) (1978),3 COMMON MKT. REP. (CCH) 6003 et seq. (1978). However, Article 3 of the Convention does not require recognition or enforcement of judgments where the source of jurisdiction was pursuant to certain "exorbitant" bases of jurisdiction existing in some of the member states where a defendant is domiciled in one of the EEC countries. This provision of Article 3 does not prevent the enforcement of judgments founded on extraordinary jurisdiction rendered against defendants who are not domiciled in a member state. Consequently, a judgment against a U.S. party based on any of the following jurisdictional provisions is enforceable in any member state:

  1. French Civil Code Art. 14, which allows jurisdiction predicated on the basis of the plaintiff's nationality,
  2. Federal Republic of Germany ZPO (Code of Civil Procedure) Art. 23, which allows courts to exercise jurisdiction on the presence of assets within Germany, without the judgment being limited to the value of those assets (don't leave your umbrella in Germany!).
  3. Netherlands Code of Civil Procedure, art. 120.3, which allows suit against a nondomiciliary on the sole basis of the plaintiff's Netherlands domicile.

27. The Final Act of the Sixth International Conference of American States, Feb. 20, 1928, arts. 423-437, T.I.A.S. No. 1950, 86 L.N.T.S. 246.

28. Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, May 8, 1979.

29. The Sales Convention does not provide a complete set of substantive law rules, and the need for attention to choice of substantive law other than the Convention is not eliminated. See supra notes 102-19 and accompanying text.

30. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). For a discussion of the pre-Bremen case law which often found choice of forum provisions void as against public policy, see Gruson, Forum-Selection Clauses in International and Interstate Commercial Agreements, 1982 U. ILL. L. REV. 133, 138-47.

31. See, e.g., Carbon Black Export, Inc. v. The 5.5. Monrosa, 254 F.2d 297, 300-301 (5th Cir. 1958), cert. dismissed, 359 U.S. 180 (1959) ("agreements in advance of controversy whose object is to oust the jurisdiction of the courts are contrary to public policy and will not be enforced."). It has been said that this position rested on the rationale that "(1) the parties cannot by agreement in the contract alter the jurisdiction of the courts, and (2) such contractual stipulations are violative of public policy." V. NANDA, THE LAW OF TRANSNATIONAL BUSINESS TRANSACTIONS 8.02[1][a] (1987). Some commentators consider significant the distinction between conferring and ousting jurisdiction ("prorogation" versus "derogation" in civil law terms). However, it has also been suggested that "[t]he real issue ... is not whether the parties can by agreement 'confer' or 'oust' jurisdiction, but whether the selected or ousted court will exercise its own jurisdiction in such a way as to give effect to the intention of the parties." G. DELAUME, TRANSNATIONAL CONTRACTS 6.01 (1986). Compare The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12 (1972) ("No one seriously contends in this case that the forum-selection clause "ousted" the District Court of jurisdiction over [the plaintiff's] action. The threshold question is whether that court should have exercised its jurisdiction to do more than give effect to the legitimate expectations of the parties, manifested in their freely negotiated agreement. by specifically enforcing the: forum clause.").

32. 407 U.S. I, 3 n. 2 (1972).

33. Id. at 9 n. 10. See, e.g., Dixilyn Drilling Corp. v. Crescent Towing & Salvage Co., 372 U.S. 697 (1963); Bisso v. Inland Waterways Corp., 349 U.S. 85 (1955).

34. 407 U.S. at 8 n. 8.

35. See supra note 31.

36. 407 U.S. at 9.

37. 407 U.S. at 13. When the same dispute was litigated concurrently in the English courts, the English Court of Appeal sustained jurisdiction there under the choice of forum clause despite the fact that the transaction had no connection with England, noting that, "in the absence of strong reason to the contrary," the discretion of the English court "will be exercised in favour of holding parties to their bargain." Unterweser Reederei GmbH v. Zapata Off-Shore Co., [1968] 2 Lloyd's L.R. 158, 163 (C.A.).

38. 407 U.S. at 10.

39. 407 U.S. at 10.

40. See, e.g., Coastal Steel Corp. v. Tilgham Wheelabrator Ltd., 709 F.2d 190 (3d Cir. 1983), cert. denied, 464 U.S. 938 (1983); Crown Beverage Co. v. Cerveceria Moctezuma, S.A., 663 F.2d 886, 888 (9th Cir. 1981); Staco Energy Prod. Co. v. Driver-Haris Co., 509 F. Supp. 1226, 1227 (S.D. Ohio 1981) (dictum); Republic Int'l Corp. v. Amco Eng'rs, Inc., 516 F.2d 161, 168 (9th Cir. 1975); Shepard Niles Crane & Hoist Corp. v. Fiat, S.p.A., 84 F.R.D. 299, 305 (W.D.N.Y.1979) (dictum); Hoes of Am., Inc. v. Hoes, 493 F. Supp. 1205, 1209 (C.D. Ill. 1979); Cruise v. Castleton, Inc., 449 F. Supp. 564 (S.D.N.Y. 1978); Gaskin v. Stumm Handel GmbH, 390 F. Supp. 361 (S.D.N.Y. 1975).

41. See, e.g., Abadou v. Trad, 624 P.2d 287 (Alaska 1981); Volkswagenwerk, A.G. v. Klippan, GmbH, 611 P.2d 498 (Alaska 1980), cert. denied, 449 U.S. 974 (1980); Societe Jean Nicolas et Fils, I.B. v. Mousseux, 123 Ariz. 59, 597 P.2d 541 (1979); Smith, Valentino & L. Smith, Inc. v. Superior Court, 17 Cal. 3d 491, 551 P.2d 1206, 131 Cal. Rptr. 374 (1976); Ella Corp. v. Paul N. Howard Co., 391 A.2d 214 (Del. Super. Ct. 1978); Green v. Clinic Mawsters, Inc., 272 N. W.2d 813 (S.D. 1978); Hi Fashion Wigs Profit Sharing Trust v. Hamilton Inv. Trust, 579 S.W.2d 300 (Tex. Civ. App. 1979).

42. 407 U.S. at 12.

43. RESTATEMENT (SECOND) OF THE CONFLICT OF LAWS 80 (1971).

44. Model Choice of Forum Act (National Conference of the Commissioners on Uniform State Laws, 1968) (act withdrawn 1975). For the text, see Reese, The Model Choice of Forum Act, 17 AM. J. COMP. L. 292 (1969). The Model Act was approved by the National Conference of Commissioners on Uniform State Laws in 1968 and withdrawn in 1975. See NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS, HANDBOOK 142 (1975).

45. See, e.g., Santamauro v. Taito do Brasil Industria E Comercia, 587 F. Supp. 1312, 1314 (E.D. La. 1984) ("The burden is on the party resisting enforcement of the clause to prove that the choice was unreasonable, unfair or unjust, or to show that the clause is invalid by reason or fraud or overreaching or that enforcement would contravene a strong public policy of this forum."); City of New York v. Pullman, Inc., 477 F. Supp. 438, 441 n. 10 (S.D.N.Y. 1979), aff'd, 662 F.2d 919 (2d Cir. 1981), cert. denied, 454 U.S. 1038 (1982) (" Agreements entered into by knowledgeable parties in an arm's-length transaction that contain a forum selection provision are enforceable absent a showing of fraud, overreaching, unreasonableness or unfairness.").

46. 407 U.S. at 18. However,

[W]here it can be said with reasonable assurance that at the time they entered the contract, the parties to a freely negotiated private international commercial agreement contemplated the claimed inconvenience, it is difficult to see why any such claim of inconvenience should be heard to render the forum clause unenforceable.

Id. at 16. This is basically the incorporation of the doctrine of forum non conveniens. However, it is important to note that courts have found that the existence of a valid forum selection clause does not prevent a transfer for forum non conveniens purposes under 28 U.S.C. 1404(a):

Congress set down in l404(a) the factors it thought should be decisive on a motion for transfer. Only one of these -- the convenience of the parties -- is properly within the power of the parties themselves to affect by a forum-selection clause. The other factors -- the convenience of witnesses and the interest of justice -- are third party or public interests that must be weighed by the district court; they cannot be automatically outweighed by the existence of a purely private agreement between the parties. Such an agreement does not obviate the need for analysis of the factors set forth in 1404(a) and does not necessarily preclude the granting of the motion to transfer.

Plum Tree, Inc. v. Stockment, 488 F.2d 754,757-58 (3d Cir. 1973).

47. 407 U.S. at 15. The Supreme Court further developed the fraud exception in Scherk v. Alberto-Culver, 417 U.S. 506 (1974), when it stated:

This qualification does not mean. that any time a dispute arising out of a transaction is based upon an allegation of fraud ... the clause is unenforceable. Rather, it means that [a] ... forum-selection clause in a contract is not enforceable if the inclusion of that clause ill the contract was the product of fraud or coercion.

417 U.S. 506, 519 n. 14 (emphasis in original).

48. 407 U.S. at 15. The Court rejected Zapata's argument that the exculpatory clause contained in the agreement violated U.S. public policy. Id. at 15-16.

49. Commentators have divided these exceptions in different ways. See, e.g., Covey & Morris, 71Ie Enforceability of Agreements Providing for Forum and Choice of Law Selection, 61 DENVER L.J. 837, 842 (1984) ("The primary limitations ... are fraud, public policy, adhesion, statutory restrictions and inconvenience of the contractual forum."); Gruson, Forum-Selection Clauses in Imitational and Interstate Commercial Agreements, 1982 U. ILL. L. REV. 133, 163-85 (dividing the exceptions into the categories of (I) fraud, (2) bargaining relationship between the parties, (3) nature of the selected forum, (4) public policy of the forum, (5) statutory restrictions on forum-se1ection clauses, (6) inconvenience of the contractual forum and (7) other instances of unreasonableness). See also The Model Choice of Forum Act, 3 (1968) (act withdrawn 1975), which lists the following exceptions to enforcement of choice of forum clauses:

  1. the court is required by statute to entertain the action;
  2. the plaintiff cannot secure effective relief in the other state, for reasons other than delay in bringing the action;
  3. the other state would be a substantially less convenient place for the trial of the action than this state;
  4. the agreement as to the place of the action was obtained by misrepresentation. duress. the abuse of economic power, or other unconscionable means, or;
  5. it would for some other reason be unfair or unreasonable to enforce the agreement. Reese, The Model Choice of Forum Act, 17 AM. J. COMP. L. 292, 294 (1969).

50. Sup. Ct. R 11, amended by the Civil Jurisdiction and Judgments Act (1982).

51. Id., Rule 1(d)(iv).

52. See, e.g., The Kislovodsk, 129 NEW L.J. 929 (1979); The Makefjell, [1976] 2 Lloyd's L.R 29 (C.A.); The Sindh, [1975] 1 Lloyd's L.R 372; The Eleftheria, [1969] 2 All E.R 641 (P.). See also Unterweser Rederei, GmbH v. Zapata Off-Shore Co., [1968] 2 Lloyd's L.R 158 (C.A.) ("It is the policy of the Court to hold the parties to the bargain into which they have entered."); Mackender v. Feldia A.G., [1966] 3 All E.R 847, 853 [1967] 2 W.L.R. 119 (C.A.) ("Where the parties have agreed to submit all their disputes under a contract to the exclusive jurisdiction of a foreign court, I myself should require very strong reasons to induce me to permit one of them to go back on his word.") (Diplock, L.J.).

53. See Hoerter v. Hanover Caoutchouc, Gutta Percha & Telegraph Works, [1893] 10 T.L.R 103 (C.A.) (English court disregarded provision calling for determination of disputes by a court in Hanover, Germany, because that court was not given exclusive jurisdiction).

U.S. courts have also considered whether a choice of forum clause is exclusive as important to the outcome in particular cases. Compare Engle v. Shubert Theatrical Co., 166 A.D. 394, 395-96, 151 N.Y.S. 593, 594 (N.Y. App. Div. 1915); Reavis v. Exxon Corp., 90 Misc. 2d 980, 983-94, 396 N.Y.S.2d 774, 777 (N.Y. Sup. Ct. 1977); Keaty v. Freeport Indonesia, Inc., 503 F.2d 955,956-57 (5th Cir. 1974); Int'l Ass'n of Bridge, Structural & Ornamental Iron Workers v. Koski Constr. Co., 474 F. Supp. 370, 371-72 (W.D. Pa. 1979); Coface v. Optique Du Monde, Ltd., 521 F. Supp. 500, 506 (S.D.N.Y. 1980); First Nat'l City Bank v. Nanz, Inc., 437 F. Supp. 184, 187 (S.D.N.Y. 1975); New York v. Pullman, Inc., 477 F. Supp. 438, 442 (S.D.N.Y.1979). Each of these cases found the relevant choice of forum provisions to be non exclusive, as in Elkin v. Austral Am. Trading Corp., 10 Misc. 2d 879, 170 N.Y.S.2d 131, 132 (N.Y. Sup. Ct. 1957); Spatz v. Nascone, 364 F. Supp. 967, 969 (W.D. Pa.), motion to vacate denied, 368 F. Supp. 352 (W.D. Pa. 1973); and Taylor v. Titan Midwest Constr. Corp., 474 F. Supp. 145, 146, 148 (N.D. Tex. 1979); Shepard Niles Crane & Hoist Corp. v. Fiat, S.P.A., 84 F.RD. 299, 301 (W.D. N.Y. 1979); Bremer v. Zapata Off-Shore Co., 407 U.S. I, 2 (1972); Anastasiadis v. S.S. Little John, 346 F., 2d 281, 284 (5th Cir. 1964). Each of these cases found the choice of forum provision to be exclusive. For a choice of forum clause exclusive as to one party but not as to the other, see Aamco Auto. Trans., Inc. v. Bosemer, 374 F. Supp. 754, 756 (E.D. Pa. 1974); The Plum Tree, Inc. v. Stockment, 488 F.2d 754, 758 n. 7 (3d Cir. 1973).

54. See, e.g., Evans Marshall & Co. Ltd. v. Bertola S.A., [1973] 1 All E.R 992, [1973] 1 W.L.R 349 (C.A.); The Fehmarn, [1958] 1 All E.R 333, [1958] 1 W.L.R. 159 (C.A.).

55. See supra note 52.

56. European Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, Sept. 27, 1968, art. 17, 2 BULL. EUR. COMM. (1969 Supp. Bull. 2) as amended by Convention of Accession of the Kingdom of Denmark, Ireland, and the United Kingdom of Great Britain and Northern Ireland, Oct. 9, 1978, 21 O.J. EUR. COMM. (No. L304) 1 (1978), reprinted in 3 COMMON MKT. REP. (CCH) 6003 et seq.

57. Id., art. 2.

58. Id., art. 5(1).

59. See G. DELAUME, TRANSNATIONAL CONTRACTS 6.02-6.05 (1986).

60. See, e.g., King, Checklist on Agency Agreements in Latin America, 13 CASE W. RES. J. INT'L L. 153 (1981).

61. This appears to be the case despite provisions such as that in FED. R. CIV. P. tit. 2, 23, of the country of Mexico, which states that, "[c]ompetence by reason of territorial location may be conferred by mutual consent of the parties, express or tacit."

62. Scherk v. Alberto-Cu1ver Co., 417 U.S. 506, 519 (1974).

63. The United States Arbitration Act, ch. 392, 61 Stat. 670 (1947) (codified at 9 U.S.C. 1 et seq. (1982)).

64. Sherk v. Alberto Culver Co., 417 U.S. at 510-11 (1974) (citing H.R. REP. No. 96, 68th Cong. 1st Sess., 1, 2 (1924),

65. United States Arbitration Act 2, codified at 9 U.S.C. 2 (Supp. 1987). The entire section reads:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

66. Id. at 3, 4.

67. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, convention done, June 10, 1958, 21 U.S.T. 2517, T.I.A.S No. 6997, 330 U.N.T.S. 38, done at New York [hereinafter cited as "New York Convention"]. The Convention was implemented in the United States through Pub. L. No. 91-368, 84 Stat. 692, codified at 9 U.S.C. 201 (1982). The text of the Convention appears in 9 U.S.C.A. (West 1987 Supp.) immediately following 201.

68. New York Convention art. II(I). Article II(2) defines the term "agreement to arbitrate" to include "an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams."

69. Id., art. III.

The Inter-American Convention on International Commercial Arbitration, OAS/Ser.A/20 (SEPF); 14 INT'L LEG. MAT. 336 (1975), was ratified by Congress on October 9, 1986, in the same vote that ratified the Sales Convention. Article 1 of the Inter-American Convention provides that an agreement to submit a dispute to arbitration is valid, thereby reversing (as applied to arbitration) the usual Latin American approach which finds a choice of forum clause to be invalid. Enabling legislation for this convention has not yet been enacted.

70. See supra notes 46-49 and accompanying text.

71. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 105 S. Ct. 3346, 3354 (1985); Southland Corp. v. Keating, 465 U.S. 1, 16 n. 11 (1984); Hamilton Life Ins. Co. of New York v. Republic National Life Ins. Co., 408 F.2d 606 (2d Cir. 1969).

72. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 105 S. Ct. at 3354; Mashemi v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 642 F. Supp. 376 (N.D. Ga. 1985); Todd v. Oppenheimer & Co., 78 F.R.D. 415 (S.D.N.Y. 1978); Joseph Muller Corp. v. Commonwealth Petrochemicals, Inc., 334 F. Supp. 1013 (S.D.N.Y. 1971); Allison v. Medicab Int'l, Inc., 92 Wash. 2d 199, 597 P.2d 380 (1979).

73. But see Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 105 S. Ct. at 3354 ("Of course, courts should remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract.' 9 U.S.C. 2.").

The Convention does provide that recognition and enforcement of an arbitral award may be refused if the party against whom it is invoked can prove that (a) the parties were either under a legal incapacity when the agreement was made or the agreement itself was invalid, (b) proper notice was not given in the arbitration proceedings, (c) the award deals with matters not within the terms of the submission to arbitration or beyond its scope, (d) the composition of the arbitral tribunal was not in accordance with the agreement to arbitrate, or (e) the award is not yet binding on the parties in the country in which it was rendered. New York Convention, supra note 68, art. V.

74. See, e.g., American Safety Equip. Corp. v. J. P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968). See also Johnson, International Antitrust Litigation and Arbitration Clauses, 3 J.L. & COM. 91 (1983); Higgins, Brown & Roach, Pitfalls in International Commercial Arbitration, 35 BUS. LAW. 1035 (1980).

75. See, e.g., Wilko v. Swan, 346 U.S. 427 (1953).

76. See, e.g., Page v. Moseley, Hallgarten, Estabrook & Weeden, Inc., 806 F.2d 291, 299 (1st Cir. 1986).

77. 417 U.S. 506 (1974).

78. Id. at 508.

79. 346 U.S. 427 (1953).

80. 417 U.S. at 513-14.

81. Id. at 515.

82. Id. at 516.

83. See, e.g., Johnson, International Antitrust Litigation and Arbitration Clauses, 3 J.L. & COM. 91 (1983); Higgins, Brown & Roach, Pitfalls in International Commercial Arbitration, 35 BUS. LAW. 1035 (1980).

84. 105 S. Ct. 3346 (1985).

85. Id. at 3349.

86. Id. at 3350.

87. Id. at 3351 (quoting App. to Pet. for Cert.. in No. 83-1569, p. B9, which quoted Wilko v. Swan, 201 F.2d 439, 444 (2d Cir. 1953)), rev'd, 346 U.S. 427 (1953)). See American Safety Equipment Corp. v. J. P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968).

88. 105 S. Ct. at 3355.

89. Id. at 3356 (quoting Scherk v. Alberto-Culver, 417 U.S. 506, 516-17 (1974)).

90. 105 S. Ct. at 3358 n. 18.

91. Id. at 3360 (quoting the New York Convention, supra note 68, art. V(2)(b).

92. Shearson/American Express, Inc. v. McMahon, 107 S. Ct. 2332 (1987). Although Wilko still exists as arguable precedent that issues arising under the Securities Act of 1933 (as opposed to the Securities Exchange Act of 1934 which was addressed in both Scherk and Shearson/American Express), it appears likely that a case arising on the Wilko facts would be decided differently today. See supra note 56. See also Southland Corp. v. Keating, 465 U.S. 1 (1984), which held that the U.S. Arbitration Act preempts any state statute requiring judicial consideration of specific claims.

93. Even with the deference provided arbitrators in recent U.S. Supreme Court decisions, it is necessary to distinguish between the court's decision to defer to arbitration when an arbitration clause is included in the contract, and the arbitrator's decisions as to whether the arbitration clause covers the matter or whether the arbitrator has an interest in deciding such public law matters. The argument can still be made that the arbitrator may, in appropriate cases, decide that such matters are either outside the scope of the agreement to arbitrate or more properly submitted to judicial determination. In other words, Mitsibushi and its progeny can be read to hold that the determination of the scope of the arbitration agreement and the competence of the arbitrator are matters for the determination of the arbitrator.

94. At least in Britain, it has become well-settled that choice of forum without clear choice of substantive law results in an implied choice of the substantive law of the chosen forum. Tzortzis v. Monark Line A/B, (1968) 1 W.L.R. 406, 411-12 (C.A.). This position was cited favorably by the U.S. Supreme Court in Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 13 n. l5 (1972).

95. See jnfra notes 102-19 and accompanying text.

96. See Sales Convention, supra note 1, arts. 46(1), 47(1), 62, and 63(1).

97. Id. at arts. 49, 64.

98. Id. at art. 28 (emphasis added).

99. See supra notes 22-28 and accompanying text.

100. See supra notes 67-69 and accompanying text.

101. French Code of Civil Procedure, art. 11, and Law No. 72-626 of July S, 1972, arts. 5-8.

102. French Civil Code, art. 1226 et seq.

103. Id:, art. 1152. The French Civil Code also allows a party to choose specific performance over enforcement of the penalty clause (art. 1228) and to provide a penalty clause for delay, with the opportunity to obtain both specific performance and the penalty for the delay if the clause is properly drafted (art. 1229). Of course, enforcement of specific performance through the enforcement of a penalty clause is the equivalent of a damages remedy.

104. See, e.g., J. CALAMARI & J. PERILLO, THE LAW OF CONTRACTS 14-31 (2d ed. 1977).

105. Id.

106. See, e.g., Tzotrzis v. Monark Line A/B, [1968] 1 W.L.R. 406, 411-12 (C.A.) ("When Swedish sellers and Greek buyers agree on arbitration in London, it may fairly be presumed that they mean that English law is to be applied."). This position was cited favorably by the U.S. Supreme Court in Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 14 n. 15 (1972).

107. Final Act of the Hague conference on Private International Law, Extraordinary Session, Diplomatic Conference on the Law Applicable to Contracts for the International Sale of Goods (Hague Convention), the Hague, October 30, 1985, reprinted in 24 INT'T LEGAL MAT. 1573 (1985) [hereinafter cited as the "Hague Convention"].

108. Hague Convention, art. 7(1). This provision appears to have been taken from Article 3(1) of the European Colnmunities Convention on the Law Applicable to Contractual Obligations, found at 23 O.J. EUR. COMM. (No. L266) 1 (1980), which provides that "[a] contract shall be governed by the law chosen by the parties." When the Hague Convention comes into force, it will supersede, in sales matter, the E.E.C. Convention for those countries party to both. See Gaillard, Introductory Note to Hague Conference on Private International Law Draft Convention on the Law Applicable to Contracts for the International Sale of Goods, 24 INT'L LEGAL MAT. 1573, 1574 (1985).

In both the Hague Convention and the E.E.C. Convention, the supremacy of party autonomy appears subject to "mandatory rules" of the contracting states. The Hague Convention states in pertinent part:

The Convention does not prevent the application of those provisions of the law of the forum that must be applied irrespective of the law that otherwise governs the contract.

Convention on the Law Applicable to Contracts for the International Sale of Goods, Art. 17, 24 INT'L LEGAL MAT. 1573, 1575, 1577. Compare Gaillard, supra, at 1574. Likewise, the E.E.C. Convention provides:

The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, hereinafter called 'mandatory rules.'

E.E.C. Convention, supra, art. 3. The importance of the mandatory rules referred to in this provision are somewhat limited in that the provision subjects a choice of law clause to such mandatory rules where all contracts are with a single state, but the parties' choice will govern despite mandatory rules of any state where the contacts are divided at all.

109. Hague Convention, art. 7(1).

110. Hague Convention, art. 7(2).

111. See Gaillard, supra note 108. Such an application would be similar to the favorable reference by the U.S. Supreme Court to the Model Choice of Forum Act in Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 11 n. 13 (1972).

112. U.C.C. 1-105(1) (1977), 1 U.L.A. 33-34 (1976).

113. RESTATEMENT (SECOND) CONFLICT OF LAWS 187(1) (rev. 1986). This rule "is a rule providing for incorporation by reference and is not a rule of choice of law." Id. comment c. "The parties' power is unlimited in the case of issues lying within their contractual capacity, i.e., issues that the parties could have resolved by an explicit provision in their agreement directed to that issue." Id. comment i.

114. One of the problems in the Restatement rules is that some law must first be used to detennine whether the matter in issue is within the contractual capacity of the parties, i.e., if the matter is within their contractual capacity, 187 requires respect of the parties' choice of law, but the parties may not choose the law which applies in determining whether a matter is or is not within their contractual capacity. The Restatement approach does not prevent conflicts problems in that it provides that "[w]hether the parties could have determined a particular issue by explicit agreement directed to that issue is a question to be detennined by the local law of the state selected by application of the [most significant relationship] rule of 188." RESTATEMENT (SECOND) CONFLICT OF LAWS 187 comment c (1971).

115. Id. at 187(2). A "substantial relationship" exists when one of the parties is domiciled or has his principal place of business in the chosen state, or the chosen state is the place of contracting or the state where performance of one of the parties is to take place. Id. comment f.

116. See supra note 112.

117. See supra note 48.

118. See supra notes 107-109.

119. RESTATEMENT (SECOND) CONFLICT OF LAWS 187 comment i (rev. ed. 1986).

120. See supra note 60.

121. International Chamber of Commerce Brochure # 350 (1980).

122. Of course, a seller in a transnational contract obtains the greatest protection by obtaining a commitment by a local bank in the form or a confirmed irrevocable letter of credit. Letters or credit are separate from the sales contract and are not covered in this article. See H. BERMAN, THE LAW OF INTERNATIONAL COMMERCIAL TRANSACTIONS: III A LAWYER'S GUIDE TO INTERNATIONAL BUSINESS TRANSACTIONS 27-42 Folio 3 (2d ed. 1983).

123. Id. at 25-32.

124. Underbill v. Hernandez, 168 U.S. 250, 252 (1897).

125. Tabacalera Severiano Jorge, S.A. v. Standard Cigar Co., 392 F.2d 706, 715 (5th Cir.), cert. denied, 393 U.S. 924 (1968).

126. Allied Bank Int'l v. Banco Credito Agricola, 757 F.2d 516,521 (1985). See also Republic of Iraq v. First Nat'l City Bank, 353 F.2d 47, 51 (2d Cir. 1965), cert. denied, 382 U.S. 1027 (1966).

127. Allied Bank, 757 F.2d 516. It is interesting to note that, to the extent that "property" is an important concept in the act of state analysis, Article 4 of the Sales Convention explicitly states that the Convention "is not concerned with ... the effect wbich the contract may have on the property in the goods sold."

128. Bretton Woods Agreement, Dec. 27, 1945, art. VIII, section 2(b), 60 Stat. 1401, T.I.A.S. No. 1502, 2 U.N.T.S. 39, amended by 20 U.S.T. 2775, T.I.A.S. No. 6748, 726 U.N.T.S. 266 (May 31, 1968), amended by 29 U.S.T. 2203, T.I.A.S. No. 8937, U.N.T.S. (April 30, 1976).

129. International Monetary Fund, 1949 Annual Report, Appendix XIV , at 82-83. The interpretation was published in the United States, by the National Advisory Council on International Monetary and Financial Problems, in the Federal Register of August 19, 1949, pp. 5208-09. See also 1 J. GOLD, THE FUND AGREEMENT IN THE COURTS 12-13 (1962).

130. Annual Report, supra note 129, at 82.83. See Banco Frances e Brasileiro S.A. v. Doe No. 1, 36 N.Y.2d 592, 331 N.E.2d 502, 370 N.Y.S.2d 534 (1975) ("United States membership of the IMF makes it impossible to conclude that the currency control laws of other member States are offensive to this State's policy so as to preclude suit in tort by a private party."); Perutz v. Bohemian Discount Bank, 304 N.Y. 533 (1953).

131. Annual Report, supra note 129, at 82-83.

132. To the extent that the act of state doctrine is a rule of conflict of laws, this portion of the International Monetary Fund's interpretation of Article VIII(2)(b) leaves open an argument that the exchange control regulations should govern regardless of the act of state doctrine. See Alfred Dunhill v. Republic of Cuba, 425 U.S. 682,725 (1976) (Marshall, J., dissenting; "the act of state doctrine merely tells a court what law to apply to a case"). See also H. STEINER & D. V AGTS, TRANSNATIONAL LEGAL PROBLEMS 723-26 (3d ed. 1986). Perhaps the response to this argument in the act of state setting is that the exchange control regulations having been imposed subsequent to the date of the contract, the obligation to recognize those regulations extraterritorially is diminished. Compare F. MANN, THE LEGAL ASPECTS OF MONEY 377-78 (4th ed. 1982) ("Art. VIII(2)(b) is concerned with the effectiveness of contracts, that is to say, with their initial 'validity' rather than the legality or possibility of their performance. Accordingly, a contract which at the time of its conclusion is fully effective, for instance because a licence was given or not required, does not become unenforceable in the event of a licence necessary for its performance being withdrawn or withheld."), with R. EDWARDS, INTERNATIONAL MONETARY COLLABORATION 479 (1986) ("[A] contract enforceable when made may subsequently become unenforceable if contrary to regulations adopted later.").

133. 22 U.S.C. 286h (1982).

134. The list of questions raised by Article VIII(2)(b) is actually much more extensive and is well-treated elsewhere. See, e.g., EDWARDS, supra note 132, at 477-90 (addressing primarily, the scope of the term "exchange control regulations," the meaning to be given to "maintained or imposed consistently with this agreement," the scope of the term "exchange contracts" and the meaning to be given to "involve the currency."); see MANN, supra note 1321 at 372-400 (breaking down Article VIII(2)(b) into all of its phrases and discussing each separately as interpreted primarily by English courts).

135. Societe "Filature et Tissage X. Jourdain" c. Epoux. Heynen-Bintner, 22 I.L.R. 727 (Lux. Dist. Ct. 1958); discussed in GOLD, supra note 129, at 94-96.

136. Decision of April 9, 1962 (not officially reported). Noted with excerpts in Aussenwirtschaftsdienst des Betriebs-Beraters, at 146 (1962); translated in LOWENFELD, THE INTERNATIONAL MONETARY SYSTEM 334-45 (2d ed. 1984); discussed in GOLD1 supra note 129, at 18-21.

137. Moojen v. Von Reichert, Decision of June 20, 1961, Cour d'Appel, Paris (lst Chamber); 89 J. DU DROIT INT'L 718 (1962), 51 REVUE CRITIQUE DE DROIT INT'L PRIVÉ 67 (1962); discussed in GOLD, supra note 129, at 143-53.

138. Daiei Motion Picture Co. v. Zavicha, decision of 14 May 1970, 1974 Rev. Crit. 486 (Court of Appeal, Paris), affirmed by the Cour de Cassation, 7 March 1972, Rev. Grit. 19741486, 491 with note by Eck; discussed in Edwards, Extraterritoria/ Application of the u:.s: Iranian Assets Control Regulations, 75 AM. J. INT'L L. 870, 888-89 (1981) and GOLD, supra note 129, at 393-95. For further European cases taking the broad definitional approach of "exchange contract," see Williams, Foreign Exchange Control Regulation and the New York Court of Appeals.. .1: Zeevi & Sons, Ltd. v. Grind/ays Bank (Uganda), Ltd., 9 CORNELL INT'L L.J. 239, 245, n. 35 (1916).

139. See, e.g., Decision of July 5, 1978, 1978 IPRspr. No. 127 (Court of Appeal at Bamberg). This approach is discussed approvingly by F. A. Mann at MANN, supra note 132, at 383-91.

140. Wilson, Smithett & Cope, Ltd. v. Terruzi, [1976] Q.B. 683, 696, [1975] 2 W.L.R. 1019, 1021 (C.A.). This language is taken originally from the principal proponent of a broad interpretation, Dr. F. A. Mann. See MANN, supra note 132, at 441.

141. Wilson, Smithett & Cope. Ltd. v. Terruzi, [1976] Q.B. 683, 696, [1975] 2 W.L.R. 1009, 1020-21 (C.A.).

142. [1976] Q.B. 683, [1975] 2 W.L.R. 1009 (C.A.).

143. [1976] Q.B. at 713-14, [1975] 2 W.L.R. 418 (per Lord Denning).

144. [1916] Q.B. at 691, (1915] 2 W.L.R. at 1015.

145. [1976] Q.B. at 714.

146. [1983] 3 A.C. 168, [1982] W.L.R. 1039.

147. The bank's defense of fraud in the transaction was rejected by the House of Lords on the grounds that the fraud was perpetrated by a party other than the seller. Id. at 1044-49.

148. See supra note 143.

149. Id. at 1051.

150. Id. One commentator has argued that the United City Merchants case failed to take proper account of the separate nature of the letter of credit transaction and that the "exchange contract," if one existed, was contained in the underlying sales transaction. See MANN, supra note 132, at 397-98 (4th ed. 1982). This position is rebutted in Note, The International Monetary Fund Agreement and Letters of Credit: A Balancing of Purposes, 44 U. PnT. L. REV. 1061, 1074 (1983).

151. Id. at 1050-51.

152. See, e.g., Banco Frances e Brasileiro S.A. v. Doe, 36 N.Y.2d 592, 331 N.E.2d 502 (1975), cert. denied, 423 U.S. 867 (1975). But see Banco do Brasil v. Israel Commodity Co., 12 N.Y.2d 371, 190 N.E.2d 235, cert. denied, 376 U.S. 906 (1964).

153. See, e.g., Perutz v. Bohemian Discount Bank in Liquidation, 304 N.Y. 533, 110 N.E.2d 6, 7 (1953) (IMF and Bretton Woods Agreements Act prevent argument that Czechoslovakian currency control Jaws are offensive to U.S. pubic policy). But see J. Zeevi and Sons, Ltd. v. Grindlays Bank (Uganda) Ltd., 37 N.Y.2d 220, 333 N.E.2d 168, cert. denied, 423 U.S. 866 (1975) (Ugandan revenue laws intended to punish Israel during Presidency of Idi Amin. which were passed after establishment of the letter of credit, held not within the scope of Article VIII(2)(b)).

154. Libra Bank Ltd. v. Banco Nacional De Costa Rica, 570 F. Supp. 870 (S.D.N.Y. 1983).

155. J. Zeevi & Sons, Ltd. v. Grindlays Bank (Uganda), Ltd., 37 N.Y.2d 220, 333 N.E.2d 168, 371 N.Y.S.2d 892, cert. denied. 423 U.S. 866 (1975).

156. Theye y Ajuria v. Pan American Life Insurance Co., 245 Lao 755, 161 So. 2d 70 (La. 1964), cert. denied, 377 U.S. 997 (1964); Pan American Life Ins. Co. v. Raij, 156 So. 2d 785 (Fla. Dist. Ct. App. 1964), cert. denied, 379 U.S. 920 (1964); Blanco v. Pan American Life Insurance Co., 221 F. Supp. 219, 229 (S.D. Fla. 1963), aff'd on other grounds, 362 F.2d 167, 171 (5th Cir. 1966).

157. Banco do Brasil, S.A. v. A.C. Israel Commodity Co. Inc., 12 N.Y.2d 311, 375-76, 190 N.E.2d 235, 236, 239 N.Y.S.2d 872, 873-74 (1963), cert. denied, 376 U.S. 906 (1964).

158. Banco Frances E Brasileiro S.A. v. Doe, 36 N.Y.2d 592, 331 N. W.2d 502, 370 N.Y.S.2d 534, cert. denied, 423 U.S. 867 (1975).

159. See also Brill v. Chase Manhattan Bank, 14 A.D.2d 852, 220 N. V.S.2d 903 (N. V. App. Div. 1961) (Botien, J. dissenting: which would have applied Article VIII(2)(b) to deposits in Cuban bank, made in pesos and payable in U.S. dollars, where majority found failure on motion for summary judgment to prove there was no issue as to whether the transaction was in contravention of the relevant Cuban exchange control regulations).

160. Blanco v. Pan American Life Insurance Co., 221 F. Supp. 219,229 (S.D. Fla. 1963), aff'd on other grounds, 362 F.2d 167, 171 (5th Cir. 1966); Theye y Ajuria v. Pan American Life Insurance Co., 245 Lao 755, 161 So. 2d 70 (La. 1964), cert. denied, 377 U.S. 997 (1964). See also Libra Bank Ltd. v. Banco Nacional De Costa Rica S.A., 570 F. Supp. 870, 900 (S.D.N.Y. 1983).

161. Weston Banking Corp. v. Turkiye Baranti Bankasi, 57 N.Y.2d 315, 442 N.E.2d 1195, 456 N.Y.S.2d 684 (N.Y. Ct. App. 1982); Brill v. Chase Manhattan Bank, 14 A.D.2d 852, 220 N.Y.S.2d 903 (N.V. App. Div. 1961).

162. See Libra Bank Ltd. v. Banco Nacioinal De Costa Rica, 570 F. Supp. 870, 902 (S.D.N.Y. 1983).

163. Perutz v. Bohemian Discount Bank in Liquidation, 304 N.Y. 533, 110 N.E.2d 6 (1953).

164. This case is probably of little value in light of subsequent decisions of the New York Court of Appeals applying a narrow interpretation. See supra note 157 and accompanying text.

165. Sun Life Assurance Co. v. Klawans, 165 So. 2d 166 (Fla. 1964); Crown Life Insurance Co. v. Calvo, 163 So. 2d 345 (F1a. Cir. Ct. 1964), aff'd per curiam, 164 So. 2d 813 (Fla. 1964); Confederation Life Association v. Ugalde, 164 So. 2d 1 (Fla. 1964), cert. denied, 379 U.S. 915 (1964). But see Blanco v. Pan American Life Insurance Co., 221 F. Supp. 219, 229 (S.D. Fla. 1963), aff'd on other grounds, 362 F.2d 167, 171 (5th Cir. 1966), where a Federal District Court. sitting in Florida, determined that the matter of the application of Article VIII(2)(b) is a federal question upon which a Federal Court need not follow state court decisions.

166. See supra note 157 and accompanying text.

167. Southwestern Shipping Corp. v. National City Bank, 11 Misc. 2d 397, 410, 173 N.Y.S.2d 509, 523 (N.Y. Sup. Ct. 1958), aff'd, 6 A.D.2d 1036, 178 N.Y.S.2d 1019 (1958), rev'd on other grounds. 6 N.Y.2d 454, 160 N.E.2d 836, 190 N.Y.S.2d 352, cert. denied, 361 U.S. 895 (1959).

168. Like the courts, the commentators have been split on the interpretation of Article VIII(2)(b). Some commentators have sided with the apparent majority of the courts in preferring a narrow interpretation of the term "exchange contract." A. NUSSBAUM, MONEY IN THE LAW NATIONAL AND INTERNATIONAL 542-43 (1950); Cabot, Exchange Control and the Conflict of Laws: An Unsolved Puzzle, 99 U. PA. L. REV. 476, 495 (1951); Nussbaum, Exchange Control and the International Monetary Fund, 59 YALE L.J. 421 (1950). However, the majority of commentators have argued for a broad interpretation. Baker, Enforcement of Contracts Violating Foreign Exchange Control Laws, 3 INT'L TRADE L.J. 247, 273 (1977); GOLD, I THE FUND AGREEMENT IN THE COURT passim (1962); GOLD, II THE FUND AGREEMENT IN THE COURTS 91-92 (1982); MANN, supra note 132, at 389, 391; Meyer, Recognition of Exchange Controls After the International Monetary Fund Agreement, 62 YALE L.J. 867, 886 (1953); Paradise, Cuban Refugee Insureds and the Articles of Agreement of the International Monetary Fund, 18 U. FL. L. REV. 29, 55 (1965); Pohn, International Law Court Refuses to Put Export-Import Contract Within Bretton Woods Agreement, 15 SYRACUSE L. REV. 100, 102 (1963); Williams, Extraterritorial Enforcement of Exchange Control Regulations Under the International Monetary Fund Agreement, 15 VA. J. INT'L L. 319, 338, 344 (1975); Williams, Enforcement of Foreign Exchange Control Regulations in Domestic Courts, 70 AM. J. INT'L L. 101, 106, n. 31 (1976); Williams, Foreign Exchange Control Regulation and the New York Court of Appeals: J. Zeevi & Sons, Ltd. v. Grindlays Bank (Uganda), Ltd., 9 CORNELL INT'L L.J. 239, 243 (1976). Unlike the courts, some commentators have argued that Article VIII(2)(b) requires the recognition of retroactive application of exchange control regulations. See GOLD, supra, at 92.

169. See supra notes 155-57.

170. See supra notes 160, 165.

171. B1anco v. Pan American Life Insurance Co., 221 F. Supp. 219,226 (S.D. Fla. 1963), rev'd in part and aff'd in part, 362 F.2d 167, 171 (5th Cir. 1966).

172. See supra note 167.

173. See, e.g., United City Merchants (Investments) Ltd. v. Royal Bank of Canada. [1983] 3 A.C. 168, [1982] W.L.R. 1039.

174. Companies and Currencies: Payment by Lottery, THE ECONOMIST 81, 82 (April 4, 1987).

175. Id.

176. Take the case of Mr. Heinz Ruhnau, chairman of Lufthansa German Airlines, who in 1985 approved a deal to buy aeroplanes costing $500m from Boeing, for payment a year later. By buying half the dollars 12 months forward, he obliged Lufthansa to pay the equivalent of $98m more than it might have, because the dollar fell -- from 3.2 to 2.3 DM/$. Mr. Ruhnau had to explain his decisions to the German transport ministry. For a lot less than his $98m loss, Mr. Ruhnau could have bought a twelve month call option to buy $500m, at a price of 3.2 DM/$. This would have given him the right, but not the obligation, to buy $500m dollars at 3.2 DM/$. If the dollar had risen above DM3.2, he would have exercised his option, fixing the price at DM3.2. Since the dollar fell, he would have let his option lapse, making the same gain, minus the cost of the option, as if his position had been unhedged. Id.

177. Id.

178. Id.

179. Previously codified at 31 U.S.C. 463(a) (1982).

180. Act of October 28, 1977, Pub. L. No. 95-147, 4(c), 91 Stat. 1229.

181. See Guaranty Trust Co. v. Henwood, 307 U.S. 247,249-50 (1939).

182. See supra note 123 and accompanying text.

183. Shaw, Savill, Albion & Co. v. The Fredericksburg, 189 F.2d 952, 954 (2d Cir. 1951).

184. See supra notes 124-128 and accompanying text.

185. Deutsche Bank Filiale Nurnberg v. Humphrey, 272 U.S. 517 (1926).

186. Hicks v. Guinness, 269 U.S. 71 (1925).

187. See, e.g., De Sayve v. De La Valdene, 124 N.Y.S.2d 143 (Sup. Ct. 1953), aff'd, De Sayue v. De Gaillard De La Valdene. 263 A.D. 918, 130 N.Y.S.2d 865 (1954), app. dism'd, De Sayve v. De La Valdene, 307 N.Y. 861 (1954).

188. Vishipco Line v. Chase Manhattan Bank. N.A., 660 F.2d 854, 865 (2d Cir. 1981), cert. denied, 459 U.S. 976 (1982).

189. RESTATEMENT (REVISED) OF FOREIGN RELATIONS LAW 823(1) (Tent. Draft No. 6, 1985).

190. Island Territory of Curacao v. Solitron Devices. Inc., 356 F. Supp. 1 (S.D.N.Y. 1973), aff'd, 489 F.2d 1313 (2d Cir. 1973), cert. denied. 416 U.S. 986 (1974); Waterside Ocean Navigation Co. v. Int'1 Navigation Ltd., 737 F.2d 150 (2d Cir. 1984).

191. Competex, S.A. v. LaBow. 783 F.2d 333 (2d Cir. 1986).

192. See, e.g., Rose Hall, Ltd. v. Chase Manhattan Overseas Banking Corp., 566 F. Supp. 1558 (D. Del. 1983). For further analysis of the foreign currency judgments issue, see Brand. Restructuring the U.S. Approach to Judgments on Foreign Currency Liabilities: Building on the English Experience, 11 YALE J. INT'L L. 139 (1985).

193. Baumlin & Ernst, Ltd. v. Gemini, Ltd, 637 F.2d 238 (4th Cir. 1980).


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