A newly drafted international treaty would, if ratified by the United States and other nations, largely benefit small businesses that do business overseas.
The Hague Convention on Choice of Courts Agreement would require nations participating in the treaty to enforce court judgments delivered in other nations. The treaty would also enforce agreements to litigate in a specific country.
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The treaty applies only to business-to-business law; consumer contracts are not included in the treaty.
Today, U.S. companies that win a legal dispute in a U.S. civil court against a foreign business have no way to collect the judgment if that business has no assets in the U.S. The only recourse then is international arbitration, which is costly and can take years to resolve. Many small and mid-sized businesses don’t have the staff or budget to pursue a settlement in arbitration.
U.S. businesses would benefit particularly if the treaty is adopted internationally, because by and large court judgments from other nations are enforced in the U.S. but not vice versa, said Marc Pearl, an attorney who represented the software and e-commerce industries in the U.S. delegation that helped draft the treaty at the Hague Conference of Private International Law.
“This convention would benefit a lot of small businesses in Rhode Island that have contracts with foreign businesses,” said Louise Ellen Teitz, a professor at Roger Williams University Law School. Teitz was also a member of the U.S. delegation that took part in drafting the treaty. “It offers businesses a chance to take their disagreements to court, which can be faster and cheaper than arbitration and allows for appeals.”
No nation has yet ratified the new treaty, which was signed by 64 nations at The Hague on June 30. The final draft of the treaty was formally published by The Hague late last month.
The treaty becomes effective when at least two nations ratify it.
In the U.S., the future of the treaty is in the hands of the Bush administration, which can recommend it to the U.S. Senate for ratification. The process is typically a lengthy one, Teitz said.
“The hope is that the U.S. would be able to ratify it within two years,” she said.
The treaty is strongly endorsed by the software and e-commerce industries, which currently face a highly unpredictable environment when trying to resolve international disputes regarding licensing, piracy and intellectual property, Pearl said.
The treaty is expected to give teeth to contractually binding electronic signatures in electronic business-to-business transactions, and help ensure that downloading a product would be subject to the same laws as a traditional overseas transfer of a product, he said.
“We had to educate the ministers who would be signing this treaty of the new nature of many business-to-business transactions in the world,” Pearl said. “U.S. companies have their products downloaded throughout the world without it being paid for.”
The treaty is also supported by the reinsurance industry, which currently has to post bond on many international transactions, Teitz said.
But critics of the treaty have expressed concern that it puts businesses involved in e-commerce at an unfair advantage in an overseas legal dispute. That is because the treaty allows companies that do business via a Web site to dictate to business partners the nation in which a potential legal dispute would be settled.
The concern is that many Web users conducting business-to-business transactions will simply click through the language of non-negotiated terms, unwittingly signing away their right to negotiate where a civil trial would be tried.
Libraries and Internet service providers such as Verizon have expressed concern that they would be liable for contractual agreements made via the Web by their clients. They are expected to lobby against ratification of the treaty.
Teitz, who was among a U.S. delegation of 12 people from the state department, justice department and experts from the private sector who spent years working on the treaty at The Hague, said their job is not over.
“We have to keep advocating, getting the word out,” Teitz said. “That’s the best way to get it moving from the White House to the Senate.”
