What is a better jurisdiction for a Taiwan-based importer: Delaware or California? Or elsewhere?

My partners and I are close to signing an agreement with a European company to import their products into China and Taiwan. We are crossing I’s and dotting t’s now. I just noticed that the latest draft of the agreement still lists their country as jurisdiction for any contract disputes. I don’t expect any resistance to changing this to a neutral one and it will likely be the US.

We may license rights for Singapore and HK so they may wish to avoid those legal systems and agree on a neutral (equally costly/burdensome locale).

Delaware seems to be the default for many contracts. I realize there are other states (like Oklahoma?) that are just as business friendly, but I don’t want to further complicate what has already been a long (albeit positive) negotiation. I want to suggest California as the jurisdiction for the contract so I would like to ask you if there are any reasons we should avoid California over another US jurisdiction.

My interest in California is purely logistical. It’s easier and cheaper to reach than a Delaware or Oklahoma etc. Granted, it is probably more expensive to stay there if a prolonged arbitration occurs hut I hope this relationship doesn’t reach that point.

Can anyone share their experience?

After having been involved in negotiating three similar deals , I would say that at the start, everyone wishes to cover their behinds, which is correct.
I had to go with jurisdiction in the USA, EU, at the Manufacturers behest, because they were large companies and it was such a struggle to get their interest in the first place.
From my experience, if both parties are making money, Terms can be modified. As long as you have a certain period of protection at the start, make trading easy for them, increase sales , with efficient service…they will be happy.
One concern that I may have in using the USA, is the volatility of sanctions , which may affect both jurisdiction and trading rules. Any potential issues may be complicated by US involvement. I understand your concern , but from my own experience , things have to be pretty dire to resort to legal proceedings.
I established our suppliers were honourable, and their business models with other Distributors were satisfactory , just as they checked our financials/history …before contract stage. without a modicum of trust , it will be hard.
I would qualify that by adding that it is worth getting Legal advice from a large company like Baker Mackenzie in Taipei ( Murray Bowler contact ) or a similar company.

Good Luck, and I wish you a fruitful partnership.

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Planning for the worse is good, but it’s useless if you cannot get bank accounts opened and get paid.

If this is all part of a larger company this might not be a issue, but for a small “nobody” it can be tricky today to open accounts.

I have owned or own(in different %) companies in Sweden, Finland, Latvia, Germany, uk, China, hk and Taiwan and I can say with confidence that you should approach this by first considering where you can get back accounts opened and then consider if it’s a suitable jurisdiction to incorporate.

It is always based in the manufacturers country, always.

Can you elaborate more? I am genuinely curious.

This simply hasn’t been my experience. We have often suggested a “neutral” jurisdiction - like Singapore or the US - and the other side typically agrees. This has been my personal experience in both corporate and my own entrepreneurial situations.

I also usually ask for an Arbitration Clause if there isn’t already one in the agreement. Since I’ve learned that the Singapore Arbitration Center does not require in-person meetings, and we can select the jurisdiction (it does not have to be Singapore), my counter-parties usually agree to that addition as well.

Governing law, jurisdiction and venue are complex matters that should be addressed with competent counsel.

The idea of trying to be “neutral” sounds great and might be workable in some situations, but it could cause you a lot of grief and cost you a lot of money. Among other things: getting a judgment or winning an arbitration against someone/some company in a place where that person or company has no assets can be a pointless exercise. In many places, trying to enforce a foreign judgment is about as fun as a root canal and in some places it won’t even be realistic.

The fact that you previously mentioned the possibility of trying to make California the jurisdiction for an agreement because it was “easier and cheaper to reach” than other US states leads me to believe that you weren’t getting advice from an attorney experienced in these matters.

I actually had businesses in California for many years and I can’t imagine why two parties who aren’t doing business in California would try to make California the jurisdiction for their agreement. It makes no sense.

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Hi,
So I don’t see your point…after reading your experience. Do as you want. However, if you were the manufacturer/ supplier where would you have legal jurisdiction?\

My point is that not all manufacturers (or licensors) that I have dealt with required their home jurisdiction. I do not dispute that the manufacturers would prefer their home jurisdiction, just as I do not think they should be surprised when a potential licensing partner asks it to be elsewhere (for cost and convenience), especially if the licensee is in Taiwan and the manufacturers are in the N America or Europe.

In my limited experience, when asked to consider if they would consider a neutral jurisdiction, manufacturers/licensees usually have had either of two responses when asked if Singapore or HK would be acceptable (because the licensee is in Taiwan): (1) Yes - immediately, or (2) we prefer a jurisdiction closer ours.

Sometimes, they will say it must be our jurisdiction, and I have responded, OK, but can we make sure there is an arbitration clause and we use the SIAC (Singapore Arbitration Centre https://www.siac.org.sg/), which allows us to choose a jurisdiction. And that’s acceptable.

So, I am genuinely curious why you would state that jurisdiction is “the manufacturers country, always” when in my limited experience (5 to 10 agreements) they seem to be at least willing to consider alternative locations? I do not deny your perspective, but I am curious why this might be advantageous for the licensee, when it quite obviously isn’t always necessary?

Thank you for your comments. They certainly make sense to me.

Is this because it is ultimately very expensive for out-of-state or out-of-country litigants because the legal processes there are particularly long?

The main contexts where governing law or jurisdiction have come up for me were in agreements about licensing products from abroad for sale in Taiwan or confidential disclosure agreements. And the cases where we were small businesses doing the licensing, you are correct that legal counsel is not consulted. As mentioned above, our thinking is that things would “have to be pretty dire to resort to legal proceedings”, and such things are not the dominant issues when starting a business and launching in a new market.

No point in continuing with this. It is just going around and around, bye.

California is expensive and slow. But more importantly, as a general rule, it makes no sense to select a governing law/jurisdiction/venue where neither party is doing business or has assets, and that is totally unrelated to the transaction.

The reason manufacturers likely agree to your requests is that, if you’re paying them up front, they have almost nothing to lose. They know that you will face a long and costly road trying to enforce a foreign judgment against them.