Under the Act, a “foreign country” is a government other than “the United States; a state, district, commonwealth, territory or insular to the United States, or; any other government with regard to which the decision in this state as to whether to recognize a judgment of the government’s courts is initially subject to determination under the full faith and credit clause of the Unites States Constitution.” Generally, the Act applies “to a foreign-country judgment that grants or denies the recovery of a sum of money,” and is rendered “final, conclusive and enforceable” under the foreign country’s law.² The Act includes exceptions for circumstances that do not merit recognizing a foreign-country money judgment, such as lack of personal jurisdiction.³

Unlike many foreign-country money judgment laws, Arizona’s Act includes a reciprocity requirement. Specifically, the Act does not apply to foreign-country money judgments from countries that have not “adopted or enacted a reciprocal law” that is similar to the Act.⁴ Until recently, the scope of the “reciprocal law” requirement was unclear.

The Arizona Supreme Court clarified this issue recently involving a Dutch judgment against a private company.⁵ The Court affirmed the lower court’s decision, holding that the Netherlands’ caselaw, not statutory framework, satisfied the reciprocity requirement because it was sufficiently similar to the Act.⁶ Notably, the Court rejected the company’s argument that only legislative enactments—not caselaw—can be considered “reciprocal laws.”⁷

In the wake of this decision, foreign countries and companies can expect a greater likelihood of success enforcing a foreign-country money judgment in Arizona—particularly if the caselaw in the country where they obtained the judgment shows established principles that would recognize U.S. money judgments. On the other hand, parties seeking to preclude enforcement of a foreign-country money judgment may need to rely on the Act’s exceptions and other process-based arguments. In seeking to enforce or defend against a foreign judgment, countries and companies (and their counsel) should carefully review all the Act’s requirements and exceptions.

While the Arizona Supreme Court has provided more clarification on Arizona’s parameters for recognizing foreign-country money judgments, effective dispute resolution with foreign entities still remains an unpredictable, time-consuming, and expensive process. Given the complications of resolving international commercial disputes, companies should consider stipulated arbitration or litigation clauses in their contracts. In addition, companies should potentially reconsider the utilization of expensive arbitration when an evaluation of the applicable laws reveals a more expedited and less expensive alternative.

Parties may agree to a clause in which a dispute is litigated in the court of a particular city, state, or country to help ensure impartial adjudication. However, even stipulated litigation clauses have limitations. For example, some courts may not have jurisdiction to hear the dispute, or a foreign country may not recognize or enforce a judgment by an American court. In addition, judges in some jurisdictions may lack the expertise to effectively and appropriately resolve international disputes.

Therefore, in some cases, arbitration clauses may be a more effective dispute resolution method. In contrast with litigation clauses, the United States is a party to a number of treaties—the New York, Washington, and Panama Conventions—in which member countries have agreed to enforce arbitration awards. Another benefit of arbitration is that the parties can select an arbitrator with relevant expertise. Accordingly, arbitration clauses may offer more predictability, neutrality, enforceability, confidentiality, finality, and expertise in the dispute resolution process. On the other hand, the arbitrator costs and lack of expediency under current models often lend towards a litigation clause that mandates a bench trial.

For these reasons, companies should evaluate dispute resolution clauses in their contracts with foreign entities and ensure that the appropriate mechanism fits the transaction. For Arizona companies, the Act and recent Supreme Court interpretation will lead to an increased exercise of foreign judgments in Arizona.