Suing a Foreign Company
In an increasingly globalizing world, Americans are encountering both great opportunities and great obstacles; the legal dispute setting is not much different. Although technology is allowing us to make great advancements in resolving these difficulties (see our blog post on blockchain), there are still very Twentieth Century problems that persist.
A global market is much more lucrative than a national one. For one, a global market is larger. For another, a global market is more diverse which can in turn mean higher profits. There are challenges, however, that can be explained using a short example. Imagine you are an architect. You negotiate to draw up plans for a company located in Dubai, United Arab Emirates. You put together a boilerplate contract (tsk tsk) that requires payment at delivery of the blueprints. The building is intended to be built in Washington, DC. For reasons unknown, the building project is scrapped and you are left unpaid. You have spent a considerable amount of time on this project and want to get paid. In fact, you need to get paid. You know that the Dubai-company is well resourced, but they do not have any assets or any sort of physical presence in the United States. What do you do?
The issues are myriad and they need to be considered. First, can you sue in your jurisdiction? In our example, we have a written contract, but as is very often the case, the contract terms are vague. Second, who are you suing? Companies in foreign jurisdictions are not always cloaked with limited liability so are you suing principals instead? Both individuals and their business entities perhaps? Third, not every foreign jurisdiction is a member of the Hague Service Convention. The United Arab Emirates is not a signatory member. Generally, a lengthy and complex process must occur if there is not some other acceptable method of service (e.g., personal service or registered mail) authorized by domestic law. Fourth, even if you were to win in court, will you be able to enforce the judgment? In other words, will you be able to collect? Our example is a foreign company without any assets in the United States and is located in a country that is typically hostile to foreign money judgments against its own citizens.
These issues do not mean that you should abandon your goal to get paid, but that you should consider these and other more case-specific considerations carefully. Only a detailed consultation with a business attorney experienced in these disputes can help you determine whether full-fledged litigation is right for you.
Many of these issues can be preempted by having a contract that is well drafted and a dispute resolution mechanism that serves your unique needs. For instance, a well-crafted forum selection clause can ensure one court having jurisdiction over any dispute. If the parties agree, arbitration can be a process by which resolution of cross-border claims can be faster and more satisfying.
Also, due diligence of who your counterparty to the contract is can help gauge and mitigate risk. For instance, a less than reputable counterparty can counsel for requiring payment in advance. An investigation can sometimes reveal assets stateside that can perhaps serve as collateral. If no assets exist stateside, then escrowing disputed may be advisable. Knowing in advance what your counterparty has or does not have in the U.S. can help guide your contracting approach significantly.
A foreign company that is well resourced and wishes to engage other U.S. companies may still want to satisfy a U.S. judgment despite being beyond the local court’s subpoena power. A U.S. market is tantalizing for them too after all. Hire an attorney to advise you about your international sales or service agreement, to draft your agreement, and to consult with you about legal disputes that arise in this global marketplace.