The Complete Lawyer

Fallacy #2: My [U.S. state] law is best.

I would agree with this statement only after verifying:

• My client is the most likely party to breach the contract.
• The application of U.S. law would result in the fewest damages to my client.

However, most of our clients who are engaged in developing business in Latin America will not perceive themselves under this scenario; instead, the foreign distributor or sales representative or the company being acquired will most likely be the breaching party. Accordingly, you do not want to be delayed with issues of jurisdiction over a foreign defendant in a U.S. court. Neither do you want to deal with the delays of enforcing a U.S. judgment abroad, nor deal with the uncertainty of a potentially incorrect interpretation of U.S. law by a foreign court or arbitrator. Furthermore, many remedies which are available under U.S. law are different under foreign law. (What is a security interest and where to record it in Brazil? How can I enforce my non-competition agreement in Ecuador?)

Thus, if the foreign distributor fails to pay on account for goods it purchased from your client, you want to have a local (foreign) judge order a local (foreign) sheriff to seize and return your goods under their (foreign) law rather than try to explain the concept of a security interest to a local judge and how it should be applied under local law. The examples are endless and range from distribution agreements to acquisition agreements.

Finally, consideration may be given to the U.N. Convention on the International Sale of Goods if the country in question is a signatory.

Fallacy #3: Litigation in Latin America is similar to that in the U.S.

Stare decisis exists in most countries in Latin America. Lower courts are bound by precedent. Judges have to follow rulings of higher courts. The foregoing three statements are not necessarily true. Need I say more?

Just when you thought the application of local law would make things more predictable, enforcement seems to throw everything in doubt. Who do the working lawyers and judges rely upon for the interpretation of their laws if not prior case law? The answer: Professors of law and/or well-known scholars who have written definitive books on the subject.

Depositions are not done by the lawyers as much as by the judge, which means that the courts are backlogged. Judges’ salaries are frequently lower than their counterparts in the U.S.

Commercial arbitration is becoming more accepted, but the interpretation of consent to same and unequivocal provisions in contracts have been interpreted differently by foreign courts than U.S. courts, so care must be taken in confirming that a country is indeed a signatory to the New York Convention and that its court has honored the proposed arbitration provision you have selected. (See text of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).

Keep These Four Points In Mind

1. Latin American laws are not the same and while many legal principals may be, don’t assume U.S. form agreements and governing law will function well. U.S. governing law provisions may be unenforceable as against public policy and you may find yourself with an exclusive permanent distributor or sales agent whose contract can be terminated only if you pay large “indemnifications.”

2. The Latin American legal system is not the same. Theirs is based upon a civil law, not a common law system. You should base your initial assumptions upon the understanding that equitable remedies do not exist unless they have been codified; that is to say, there is no injunctive relief! For a good overview, read The Civil Law Tradition by John Merryman.

3. Latin American law firms are not as big and many locals don’t use the lawyers the way that we do. A full service law firm may not be your best choice.

4. The local laws frequently do not contemplate theories of legal malpractice, and legal malpractice insurance may not exist or be purchased by foreign counsel. You must have a higher level of oversight and diligence with your foreign colleagues than, for example, those partners within your own firm, not because they need the supervision, but to assure good communication and no faulty assumptions. There are odd cases where U.S. courts have found liability against U.S. lawyers for recommending and working with foreign lawyers who commit malpractice. The ramification: disclaimers are a must for the U.S. lawyer and the blind following of opinions or loose overview is not desired.

RESOURCES

Karst, Kenneth and Rosenn, Keith; Law and Development in Latin America: A Casebook; University of California Press, 1975, p. 62.

Merryman, John Henry; The Civil Law Tradition, 3rd Edition: An Introduction to the Legal Systems of Europe and Latin America; Stanford University Press, 2007.