Alberto-Culver Co., the respondent, is an American company incorporated in Delaware with its principal office in Illinois. It manufactures and distributes toiletries and hair products in this country and abroad. During the 1960's Alberto-Culver decided to expand its overseas operations, and as part of this program it approached the petitioner Fritz Scherk, a German citizen residing at the time of trial in Switzerland. Scherk was the owner of three interrelated business entities, organized under the laws of Germany and Liechtenstein, that were engaged in the manufacture of toiletries and the licensing of trademarks for such toiletries. An initial contact with Scherk was made by a representative of Alberto-Culver in Germany in June 1967, and negotiations followed at further meetings in both Europe and the United States during 1967 and 1968. In February 1969 a contract was signed in Vienna, Austria, which provided for the transfer of the ownership of Scherk's enterprises to Alberto-Culver, along with all rights held by these enterprises to trademarks in cosmetic goods. The contract contained a number of express warranties whereby Scherk guaranteed the sole and unencumbered ownership of these trademarks. In addition, the contract contained an arbitration clause providing that "any controversy or claim [that] shall arise out of this agreement or the breach thereof" would be referred to arbitration before the International Chamber of Commerce in Paris, France, and that "[t]he laws of the State of Illinois, U. S. A. shall apply to and govern this agreement, its interpretation and performance."
In response, Scherk filed a motion to dismiss the action for want of personal and subject-matter jurisdiction as well as on the basis of forum non conveniens, or, alternatively, to stay the action pending arbitration in Paris pursuant to the agreement of the parties. Alberto-Culver,
The United States Arbitration Act, now 9 U. S. C. § 1 et seq., reversing centuries of judicial hostility to arbitration agreements,
In Wilko v. Swan, supra, this Court acknowledged that the Act reflects a legislative recognition of the "desirability of arbitration as an alternative to the complications of litigation." 346 U. S., at 431, but nonetheless declined to apply the Act's provisions. That case involved an agreement between Anthony Wilko and Hayden, Stone & Co., a large brokerage firm, under which Wilko agreed to purchase on margin a number of shares of a corporation's common stock. Wilko alleged that his purchase of the stock was induced by false representations
The Court found that "[t]wo policies, not easily reconcilable, are involved in this case." 346 U. S., at 438. On the one hand, the Arbitration Act stressed "the need for avoiding the delay and expense of litigation," id., at 431, and directed that such agreements be "valid, irrevocable, and enforceable" in federal courts. On the other hand, the Securities Act of 1933 was "[d]esigned to protect investors" and to require "issuers, underwriters, and dealers to make full and fair disclosure of the character of securities sold in interstate and foreign commerce and to prevent fraud in their sale," by creating "a special right to recover for misrepresentation . . . ." 346 U. S., at 431 (footnote omitted). In particular, the Court noted that § 14 of the Securities Act, 15 U. S. C. § 77n, provides:
The Court ruled that an agreement to arbitrate "is a `stipulation,' and [that] the right to select the judicial forum is the kind of `provision' that cannot be waived under § 14 of the Securities Act."
Alberto-Culver, relying on this precedent, contends that the District Court and Court of Appeals were correct in holding that its agreement to arbitrate disputes arising under the contract with Scherk is similarly unenforceable in view of its contentions that Scherk's conduct constituted violations of the Securities Exchange Act of 1934 and rules promulgated thereunder. For the reasons that follow, we reject this contention and hold that the provisions of the Arbitration Act cannot be ignored in this case.
At the outset, a colorable argument could be made that even the semantic reasoning of the Wilko opinion does not control the case before us. Wilko concerned a suit brought under § 12 (2) of the Securities Act of 1933, which provides a defrauded purchaser with the "special right" of a private remedy for civil liability, 346 U. S., at 431. There is no statutory counterpart of § 12 (2) in the Securities Exchange Act of 1934, and neither § 10 (b) of that Act nor Rule 10b-5 speaks of a private remedy to redress violations of the kind alleged here. While federal case law has established that § 10 (b) and Rule 10b-5 create an implied private cause of action, see
Such a contract involves considerations and policies significantly different from those found controlling in Wilko. In Wilko, quite apart from the arbitration provision, there was no question but that the laws of the United States generally, and the federal securities laws in particular, would govern disputes arising out of the stock-purchase agreement. The parties, the negotiations, and the subject matter of the contract were all
Such uncertainty will almost inevitably exist with respect to any contract touching two or more countries, each with its own substantive laws and conflict-of-laws rules. 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 of the parties or unfamiliar with the problem area involved.
A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes, but would invite
The exception to the clear provisions of the Arbitration Act carved out by Wilko is simply inapposite to a case such as the one before us. In Wilko the Court reasoned
Two Terms ago in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, we rejected the doctrine that a forum-selection clause of a contract, although voluntarily adopted by the parties, will not be respected in a suit brought in the United States " `unless the selected state would provide a more convenient forum than the state in which suit is brought.' " Id., at 7. Rather, we concluded that a "forum clause should control absent a strong showing that it should be set aside." Id., at 15. We noted that "much uncertainty and possibly great inconvenience to both parties could arise if a suit could be maintained in any jurisdiction in which an accident might occur or if jurisdiction were left to any place [where personal or in rem jurisdiction might be established]. The elimination of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce, and contracting." Id., at 13-14.
For all these reasons we hold that the agreement of the parties in this case to arbitrate any dispute arising out of their international commercial transaction is to be
Accordingly, the judgment of the Court of Appeals is
It is so ordered.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BRENNAN, MR. JUSTICE WHITE, and MR. JUSTICE MARSHALL concur, dissenting.
Respondent (Alberto-Culver) is a publicly held corporation whose stock is traded on the New York Stock Exchange and is a Delaware corporation with its principal place of business in Illinois. Petitioner (Scherk) owned a business in Germany, Firma Ludwig Scherk, dealing with cosmetics and toiletries. Scherk owned various trademarks and all outstanding securities of a Liechtenstein corporation (SEV) and of a German corporation, Lodeva. Scherk also owned various trademarks which were licensed to manufacturers and distributors in Europe and in this country. SEV collected the royalties on those licenses.
Alberto-Culver undertook to purchase from Scherk the entire establishment—the trademarks and the stock of the two corporations; and later, alleging it had been defrauded, brought this suit in the United States District Court in Illinois to rescind the agreement and to obtain damages.
The basic dispute between the parties concerned allegations that the trademarks which were basic assets in the transaction were encumbered and that their purchase was induced through serious instances of fraudulent representations and omissions by Scherk and his agents within the jurisdiction of the United States. If a question of trademarks were the only one involved, the principle of The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, would be controlling.
We have here, however, questions under the Securities Exchange Act of 1934, which in § 3 (a) (10) defines "security" as including any "note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement . . . ." 15 U. S. C. § 78c (a) (10). We held in Tcherepnin v. Knight, 389 U.S. 332, as respects § 3 (a) (10):
Section 10 (b) of the 1934 Act makes it unlawful for any person by use of agencies of interstate commerce or the mails "[t]o use or employ, in connection with the purchase or sale of any security," whether or not registered on a national securities exchange, "any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe." 15 U. S. C. § 78j (b).
Alberto-Culver, as noted, is not a private person but a corporation with publicly held stock listed on the New York Stock Exchange. If it is to be believed, if in other words the allegations made are proved, the American company has been defrauded by the issuance of "securities" (promissory notes) for assets which are worthless or of a much lower value than represented. Rule 10b-5 of the Securities and Exchange Commission states:
And § 29 (b) adds that "[e]very contract" made in violation of the Act "shall be void."
The Securities Act of 1933, 48 Stat. 84, 15 U. S. C. § 77n, has a like provision in its § 14:
In Wilko v. Swan, 346 U.S. 427, a customer brought suit against a brokerage house alleging fraud in the sale of stock. A motion was made to stay the trial until arbitration occurred under the United States Arbitration Act, 9 U. S. C. § 3, as provided in the customer's contract. The
Wilko was held by the Court of Appeals to control this case—and properly so.
The Court does not consider the question whether a "security" is involved in this case, saying it was not raised by petitioner. A respondent, however, has the right to urge any argument to support the judgment in his favor (save possibly questions of venue, see Peoria R. Co. v. United States, 263 U.S. 528, 536; United States v. American Railway Express Co., 265 U.S. 425, 435-436, and n. 11), even those not passed upon by the court below and also contentions rejected below. Langnes v. Green, 282 U.S. 531, 535-539; Walling v. General Industries Co., 330 U.S. 545, 547 n. 5. The Court of Appeals held that "securities" within the meaning of the 1934 Act were involved here, 484 F.2d 611, 615. The brief of the respondent is based on the premise that "securities" are involved here; and petitioner has not questioned that ruling of the Court of Appeals.
It could perhaps be argued that Wilko does not govern because it involved a little customer pitted against a big brokerage house, while we deal here with sophisticated buyers and sellers: Scherk, a powerful German operator,
If there are victims here, they are not Alberto-Culver the corporation, but the thousands of investors who are the security holders in Alberto-Culver. If there is fraud and the promissory notes are excessive, the impact is on the equity in Alberto-Culver.
Moreover, the securities market these days is not made up of a host of small people scrambling to get in and out of stocks or other securities. The markets are overshadowed by huge institutional traders.
There has been much support for arbitration of disputes; and it may be the superior way of settling some disagreements. If A and B were quarreling over a trademark and there was an arbitration clause in the contract, the policy of Congress in implementing the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as it did in 9 U. S. C. § 201 et seq., would prevail. But the Act does not substitute an arbiter for the settlement of disputes under
But § 29 (a) of the 1934 Act makes agreements to arbitrate liabilities under § 10 of the Act "void" and "inoperative." Congress has specified a precise way whereby big and small investors will be protected and the rules under which the Alberto-Culvers of this Nation shall operate. They or their lawyers cannot waive those statutory conditions, for our corporate giants are not principalities of power but guardians of a host of wards unable to care for themselves. It is these wards that the 1934 Act tries to protect.
The Court finds it unnecessary to consider Scherk's argument that this case is distinguishable from Wilko in that Wilko involved parties of unequal bargaining strength. Ante, at 512-513, n. 6. Instead, the Court rests its conclusion on the fact that this was an "international" agreement, with an American corporation investing in the stock and property of foreign businesses, and speaks favorably of the certainty which inheres when parties
This invocation of the "international contract" talisman might be applied to a situation where, for example, an interest in a foreign company or mutual fund was sold to an utterly unsophisticated American citizen, with material fraudulent misrepresentations made in this country. The arbitration clause could appear in the fine print of a form contract, and still be sufficient to preclude recourse to our courts, forcing the defrauded citizen to arbitration in Paris to vindicate his rights.
It has been recognized that the 1934 Act, including the protections of Rule 10b-5, applies when foreign defendants have defrauded American investors, particularly when, as alleged here,
Section 29 (a) of the 1934 Act provides that a stipulation binding one to waive compliance with "any provision" of the Act shall be void, and the Act expressly provides that the federal district courts shall have "exclusive jurisdiction" over suits brought under the Act. 15 U. S. C.
Moreover, the international aura which the Court gives this case is ominous. We now have many multinational corporations in vast operations around the world—Europe, Latin America, the Middle East, and Asia.
"The parties agree that if any controversy or claim shall arise out of this agreement or the breach thereof and either party shall request that the matter shall be settled by arbitration, the matter shall be settled exclusively by arbitration in accordance with the rules then obtaining of the International Chamber of Commerce, Paris, France, by a single arbitrator, if the parties shall agree upon one, or by one arbitrator appointed by each party and a third arbitrator appointed by the other arbitrators. In case of any failure of a party to make an appointment referred to above within four weeks after notice of the controversy, such appointment shall be made by said Chamber. All arbitration proceedings shall be held in Paris, France, and each party agrees to comply in all respects with any award made in any such proceeding and to the entry of a judgment in any jurisdiction upon any award rendered in such proceeding. The laws of the State of Illinois, U. S. A. shall apply to and govern this agreement, its interpretation and performance."
"Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void."
Section 29 (a) of the Securities Exchange Act of 1934, 15 U. S. C. § 78cc (a), provides:
"Any condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void."
While the two sections are not identical, the variations in their wording seem irrelevant to the issue presented in this case.
Although we do not decide the question, presumably the type of fraud alleged here could be raised, under Art. V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, see n. 15, infra, in challenging the enforcement of whatever arbitral award is produced through arbitration. Article V (2) (b) of the Convention provides that a country may refuse recognition and enforcement of an award if "recognition or enforcement of the award would be contrary to the public policy of that country."
The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, S. Exec. Doc. E, 90th Cong., 2d Sess. (1968); Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L. J. 1049 (1961). Article II (1) of the Convention provides:
"Each Contracting State shall 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, concerning a subject matter capable of settlement by arbitration."
In their discussion of this Article, the delegates to the Convention voiced frequent concern that courts of signatory countries in which an agreement to arbitrate is sought to be enforced should not be permitted to decline enforcement of such agreements on the basis of parochial views of their desirability or in a manner that would diminish the mutually binding nature of the agreements. See G. Haight, Convention on the Recognition and Enforcement of Foreign Arbitral Awards: Summary Analysis of Record of United Nations Conference, May/June 1958, pp. 24-28 (1958).
Without reaching the issue of whether the Convention, apart from the considerations expressed in this opinion, would require of its own force that the agreement to arbitrate be enforced in the present case, we think that this country's adoption and ratification of the Convention and the passage of Chapter 2 of the United States Arbitration Act provide strongly persuasive evidence of congressional policy consistent with the decision we reach today.
The Commission, recognizing that the Form 10-K reports filed annually with it might be excessively abstruse for security holders, see 39 Fed. Reg. 3835, has proposed that the annual reports distributed to security holders in connection with annual meetings and solicitation of proxies provide substantially greater amounts of meaningful information than required presently. These annual reports would include a description of the business of the issuer, a summary of operations, explanation of changes in revenues and expenses, information on the liquidity position and the working capital requirements of the issuer, and identification of management and performance on the market of the issuer's securities. See id., at 3834-3838.
When Art. II (3) was being discussed, the Israeli delegate pointed out that while a court could, under the draft Convention as it then stood, refuse enforcement of an award which was incompatible with public policy, " `the court had to refer parties to arbitration whether or not such reference was lawful or incompatible with public policy.' " Id., at 27. The German delegate observed that this difficulty arose from the omission in Art. II (3) " `of any words which would relate the arbitral agreement to an arbitral award capable of enforcement under the convention.' " Ibid.
"When the German proposal was put to a vote, it failed to obtain a two-thirds majority (13 to 9) and the Article was thus adopted without any words linking agreements to the awards enforceable under the Convention. Nor was this omission corrected in the Report of the Drafting Committee (L.61), although the obligation to refer parties to arbitration was (and still is) qualified by the clause `unless it finds that the agreement is null and void, inoperative or incapable of being performed.'
"As the applicable law is not indicated, courts may under this wording be allowed some latitude; they may find an agreement incapable of performance if it offends the law or the public policy of the forum. Apart from this limited opening, the Conference appeared unwilling to qualify the broad undertaking not only to recognize but also to give effect to arbitral agreements." Id., at 28 (emphasis added).
Whatever "concern" the delegates had that signatories to the Convention "not be permitted to decline enforcement of such agreements on the basis of parochial views of their desirability," ante, at 520 n. 15, it would seem that they contemplated that a court may decline to enforce an agreement which offends its law or public policy.
The Court also attempts to treat this case as only a minor variation of The Bremen v. Zapata Off-Shore Co., 407 U.S. 1. In that case, however, the Court, per MR. CHIEF JUSTICE BURGER, explicitly stated:
"A contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision." Id., at 15.
That is inescapably the case here, as § 29 of the Securities Exchange Act and Wilko v. Swan make clear. Neither § 29, nor the Convention on international arbitration, nor The Bremen justifies abandonment of a national public policy that securities claims be heard by a judicial forum simply because some international elements are involved in a contract.