2004 International Law Update, Volume 10, Number 1 (January)

2004 International Law Update, Volume 10, Number 1 (January)

Legal Analyses published by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com. 

CHILD ABDUCTION

English Family Court rules that Hague Child Abduction Convention and U.K.’s implementing statute authorize it to order interim arrangements, including possible electronic tagging, to ensure that Irish mother and child she abducted from California remain within English Court’s jurisdiction pending further proceedings

F(ather) and M(other) married in California in 1994 and soon became the parents of C(hild). F who was an American citizen and M, who was Irish, maintained their family home in California until December 1998. In that month, M kept C in Ireland after the end of an agreed holiday there. F filed proceedings against M in the Dublin courts under the Hague Convention on the Civil Aspects of International Child Abduction [T.I.A.S. 11670, eff. U.S., July 1988]. They resulted in a July 1999 consent order for C’s return to California.

M, however, failed to appear at a hearing before the California courts later that month and took no further part in the legal proceedings. Shortly after her arrival in the United States, M re-abducted C, this time to England, where they took assumed names to avoid detection. The California court made an interim custody order in the father’s favor in October 1999.

Four years later M and C were found. Pursuant to a police protection order, the government removed C (who is now nine) from M’s custody and placed C in foster care. Proceedings were instituted in the U. K. Family Court under the Child Abduction and Custody Act of 1985 (CACA). F asked the Court to direct that M and C remain within the Court’s jurisdiction throughout the proceedings.

The Court then addresses the issue of whether a legal foundation exists to permit some sort of arrangements for the interim care of a child in Hague Convention cases. Section 5 of the CACA regarding interim powers provides that: “Where an application has been made to a court in the United Kingdom under the Convention, the court may, at any time before the application is determined, give such interim directions as it thinks fit for the purpose of securing the welfare of the child concerned or of preventing changes in the circumstances relevant to the determination of the application.” [¶ 2]

The Court next perceived a potential clash between the power to give such directions under CACA Section 5 and certain provisions of the Children Act of 1989 (CA). The Court first examines the treaty obligations that Parliament undertook in ratifying the Hague Convention. “The Preamble ... recites that its States signatory desire ‘to establish procedures to ensure [the] prompt return to the State of their habitual residence’ of children wrongfully removed or retained elsewhere.”

Articles 1 and 2 read in these terms: “Article 1. The objects of the present Convention are - (a) to secure the prompt return of children wrongfully removed to or retained in any Contracting State; and (b) to ensure that rights of custody and of access under the law of one Contracting State are effectively respected in the other Contracting States. Article 2. Contracting States shall take all appropriate measures to secure within their territories the implementation of the objects of the Convention. For this purpose they shall use the most expeditious procedures available.”

The Hague Convention requires that each Contracting Party shall set up a government agency that specializes in its enforcement. These “Central Authorities” “are the building-blocks with which the Convention cements together the internationally protective wall of its member states, now totaling 74 in number. Their function is ‘to discharge the duties which are imposed by the Convention upon such authorities’: see Article 6. Article 7 requires (so far as is relevant for present purposes) that: ‘Central Authorities shall co-operate with each other and promote co-operation amongst the competent authorities in their respective State to secure the prompt return of children and to achieve the other objects of this Convention. In particular, either directly or through any intermediary, they shall take all appropriate measures - ... (b) to prevent further harm to the child or prejudice to interested parties by taking or causing to be taken provisional measures.” [¶¶ 9-10]

From its analysis of Convention obligations, the Family Court concludes that section 5 of the CACA reflects the aim of Convention Article 7(b) in that “[t]he powers are to be used in the interim pending the determination of the application, and the purpose of the power to give interim directions is to secure the welfare of the child concerned or to prevent changes in the circumstances relevant to the determination of the application.” [¶ 14]

Interpreting the broad language of section 5 as allowing a Local Authority (LA) to assist the Court in making interim arrangements for a child, the Court declares. “The scope of section 5, against this background, and in the light of its language, is very broad indeed. Unless therefore there are legitimate and well-founded restraints on its exercise which arise from the consideration of its interrelationship with other statutes and other sources of law, I see no reason in principle why it should not extend to an invitation (such as is in issue in this case) to a Local Authority to assist the court in making arrangements for the child in the interim, including arranging for people with whom, and for a place where, the child may live.”[¶ 15]

The Court also addresses the role of CACA section 9, noting that it does not trespass on section 5 powers. “The purpose of section 9 is thus directly related to the treaty obligations under Article 16, and fits neatly and necessarily with the philosophy of the Convention, that merits disputes should be decided in the court of the country of the child’s habitual residence [i.e. California] upon the child’s return there if and when an Article 12 order for return is made.” [¶ 17]

To aid in its understanding of how Convention obligations and aims can be incorporated into domestic laws and procedures, the Family Court examines the laws of several common law jurisdictions. While finding that laws in Ireland, New Zealand, and Hong Kong are similar to those in England, the Court notes distinct and important characteristics of pertinent U.S. laws. “In America (as I gather from a 1997 publication entitled ‘International Child Abduction: Guide to Handling Hague Convention Cases in US Courts’ written by The Hon. James Garbolino, who is the Hague Liaison Judge for the United States) ‘provisional remedies’ are dealt with on a federal basis by a provision of the International Child Abduction Remedies Act (ICARA), 42 U.S.C. Section 11601.”

[It provides]: “Subject to a reservation prohibiting an order for the removal of a child from the person having physical control of the child unless the applicable requirements of State law are satisfied, the court has power to ‘take or cause to be taken measures under Federal State [sic] law, as appropriate, to protect the well-being of the child involved or to prevent the further removal or concealment before the final disposition of the petition.’”

“ ... Judge Garbolino furthermore makes the point that the Article 7(b) requirement for Central Authorities ‘to prevent further harm to the child or prejudice to interested parties by taking or causing to be taken provisional measures’ is interpreted as allowing the Central Authority ‘to call upon the individual State child welfare authorities to provide whatever protection is deemed necessary.’ The placement of children in a foster home is cited as one protective measure to which recourse has been had.” [¶ 21]

After additional research into the laws of Australia and Germany, the Family Court concludes that section 5 of the CACA does fulfill the obligations of the Hague Convention. “In short, the primary submission of Mr. Nicholls [the Court Advocate] was that where domestic legislation is passed to give effect to an international convention, there is a presumption that Parliament intended to fulfil [sic] its international obligations; and that section 5 of CACA did precisely that in terms of the duties which arise pursuant to Article 7(b).” [¶ 25]

The Court next addresses the limits of section 5 and whether other legislation conflicts with it. “In essence, [a section 5 direction] cannot be an order in wardship or under the inherent jurisdiction, nor under either the private or the public law provisions of CA. And it cannot create a care or interim care status for the child, nor an order for care and control, residence, a specific issue or prohibited steps order or any other form of injunction designed to prevent the removal of the child (CA, section 9(5)).” [¶ 36]

“My conclusion is therefore unhesitatingly that section 5 of CACA does enable the court to give directions concerning the manner in which a child’s welfare and whereabouts are to be managed if circumstances require removal from the abducting parent or are otherwise such as to require temporary arrangements to be put in place. CACA (both in regard to Hague and to European [Human Rights] Convention applications) establishes a self-contained code, specific and specifically tailored to the sui generis nature of such applications in our domestic law.”[¶ 39] Finally, in view of M’s suggestion to this effect, this Court in principle can direct the use of “electronic tagging” to make sure that M and C would remain within the court’s jurisdiction.

Citation: Re S (a child) (abduction: interim directions), [2003] E.W.H.C. 3065 (FAM.), [2003], All E.R. (D) 238 (Dec. 12).

DISABILITIES

As matter of first impression, Fifth Circuit holds that anti-discrimination provisions of Americans with Disabilities Act (ADA) do not apply to passengers on foreign-flagged cruise ships

The plaintiffs in the present case are U.S. citizens who have been passengers aboard cruise ships of the Norwegian Cruise Line (NCL) sailing to foreign destinations. They brought an action alleging that NCL has discriminated against them in violation of Title III of the Americans with Disabilities Act (ADA) [42 U.S.C. Section 12182]. Their companies also claimed that they had been discriminated against based on their association with disabled guests.

In particular, the plaintiffs claimed that physical barriers on the ships denied them access (1) to the emergency evacuation equipment, (2) to certain facilities such as swimming pools and restaurants, and (3) to cabins with a balcony or a window.

Although the district court ruled that foreign-flagged cruise ships are subject to Title III of ADA, it dismissed plaintiffs’ claim about physical barriers for lack of federal regulation. On the other hand, the court found that the companies had stated a claim for “associational discrimination.” The U.S. Court of Appeals for the Fifth Circuit affirms in part and reverses in part.

Title III of ADA provides in 42 U.S.C. Section 12182(a) (2000) that “no individual shall be discriminated against on the basis of disability in the full and equal enjoyment of goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation.” In 42 U.S.C. Section 12184(a) (2000), the ADA also bans discrimination against disabled persons in public transportation. The question before this Court is whether these provisions apply to foreign-flagged ships.

According to the Restatement (Third) of the Foreign Relations Law of the United States, Section 502 cmt. a (1987), international law generally empowers the flag state alone to adopt and enforce laws to protect the welfare of crews and passengers while aboard its ships. Thus, the risk of breaching international law mandates that U.S. courts construe American statutes narrowly to avoid global discord. Further, the above ADA provisions probably clash with the standards of the International Convention for the Safety of Life at Sea (SOLAS) [32 U.S.T. 47; T.I.A.S. 9700, in force, May 25, 1980]. In fact, a recent report of the governmental Passenger Vessel Access Advisory Committee has identified certain conflicts between ADA Title III on barrier removal and SOLAS.

The Supreme Court has recognized these principles. “Together [Benz v. Hidalgo, S.A., 353 U.S. 138 (1957)] and [McCulloch v. Sociedad Nacional de Marineros de Honduras, 372 U.S. 10 (1963)] prohibit United States courts from applying domestic statutes to foreign-flagged ships without specific evidence of congressional intent. Under the Supreme Court’s framework, Congress may enact legislation that governs foreign-flagged cruise ships operating within United States waters, but it must clearly indicate its intention to do so. ...”

“There is no indication, either in the statutory text or in the ADA’s extensive legislative history, that Congress intended Title III to apply to foreign-flagged cruise ships. If Congress had so intended, ‘it would have addressed the subject of conflicts with foreign laws and procedures.’ ... Congress’s silence cannot be read to express an intent to legislate where issues touching on other nations’ sovereignty are involved.” [Slip op. 12]

Citation: Spector v. Norwegian Cruise Lines Ltd., 2004 WL 49707 (5th Cir. Jan. 12).

EVIDENTIARY PRIVILEGE

In securities action where plaintiffs sought documents from Dutch auditor, Second Circuit holds that foreign clients’ documents submitted to U.S. law firm lose any further protection once they have been disclosed to third party

The Dutch accounting firm of Ernst & Young Accountants (E&Y) represented the Baan Company in the 1990s as an outside auditor. E&Y ended its relationship with Baan in early 1998 when the Securities & Exchange Commission (SEC) began to investigate Baan. E&Y cooperated with the SEC through its New York counsel, Davis, Polk & Wardwell (Davis Polk), even though E&Y itself was not subject to U.S. jurisdiction. E&Y later settled with the SEC in 2002 and paid a penalty.

Several individuals filed a securities fraud action in the U.S. against Baan and three individuals that focused on a specific stock transaction between the parties. Based on the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters [23 U.S.T. 2555, T.I.A.S. 7444, 847 U.N.T.S. 231; in force October 7, 1972 ] (HEC), plaintiffs sought to compel Davis Polk to produce non-privileged E&Y documents it had obtained during the SEC investigation.

Davis Polk objected to the subpoena (1) because E&Y was not subject to the jurisdiction of the U.S. courts, and (2) because the subpoena was overly broad. Plaintiffs then offered to limit the document request to transcripts of testimony before the SEC, correspondence with the SEC, and documents provided to the SEC in connection with the investigation.

The district court denied plaintiffs’ motion to compel production from the non-party Davis Polk based on In re Sarrio, S.A., 119 F.3d 143 (2d Cir. 1997). In essence, the district court opined that E&Y was not subject to the court’s subpoena power because of its location in The Netherlands and that plaintiffs could not get hold of the documents by subpoenaing the law firm.

Upon plaintiffs appeal, the U.S. Court of Appeals for the Second Circuit reverses and remands. The Court finds, first, that the HEC does not apply to the documents sought from Davis Polk in the U.S. Secondly, E&Y had already made voluntary disclosure of these documents within the U.S. and, therefore, they do not enjoy any further protection.

The Sarrio court held that, if certain documents were unobtainable while in the hands of a client by reason of constitutional privilege or common law principle, the same holds true when the client hands the documents to its attorney to aid the latter in formulating legal advice. A similar analysis applies to documents that initially lie outside the reach of a subpoena but which the lawful custodian has delivered to its law firm within the subpoena’s reach.

In this case, Davis Polk conceded that it is not asserting the attorney-client privilege as to these documents. By this, the law firm presumably meant that the documents at issue do not contain privileged statements.

“[E]ven if Davis Polk is declining to assert only that the documents contain privileged statements and is claiming the protection discussed in Sarrio, that protection, even if it had been the holding of Sarrio, would not avail Davis Polk in this case. Even if we assume that, when the documents were sent by E&Y to Davis Polk to secure the firm’s legal advice, they were entitled to protection, such protection was lost when E&Y voluntarily authorized Davis Polk to send the documents to the SEC.”

“E&Y might be entitled to protection if it sends documents to its law firm to obtain legal advice. But any such protection does not continue when the client voluntarily discloses the documents to a third party, here a government agency. And nothing in the Sarrio or any other decision applying the attorney-client privilege provides protection for the transcripts of the SEC proceedings or correspondence with the SEC.” [Slip op. 10-11]

“Indeed, documents held by an attorney in the United States on behalf of a foreign client, absent privilege, are as susceptible to subpoena as those stored in a warehouse within the district court’s jurisdiction. Documents obtain no special protection because they are housed in a law firm; ‘any other rule would permit a person to prevent disclosure of any of his papers by the simple expedient of keeping them in the possession of his attorney.’” [Slip op. 12-13]

Citation: Ratliff v. Davis Polk & Wardwell, 2003 WL 23025548 (2d Cir. Dec. 30, 2003).

JUDGMENTS, ENFORCEMENT OF

Rejecting defenses of fraud, ordre public, and denial of justice, Supreme Court of Canada rules 6 to 3 that Canadian courts should enforce substantial default judgment against Canadian defendants in litigation over their Florida land

The defendants (below and in the Florida proceedings) are Geoffrey Saldanha, Leueen Saldanha and Dominic Thivy, residents of Ontario. They agreed to sell a vacant lot located in Sarasota County, Florida to Frederick H. Beals‑III and Patricia A. Beals, the plaintiffs (in both proceedings) for about $8,000. A controversy broke out, inter alia, as to which lot was involved and, in September 1986, the plaintiffs sued the defendants and two others in the Sarasota County courts. Defendants responded to the original complaint but decided not to defend the complaint as altered by the Second and Third Amendments. Under Florida rules of procedure, however, the failure to file defenses to the amendments amounted to a default as to the entire lawsuit.

In July 1990, the Florida court duly noted that defendants lay in default on liability and notified them that there would be a jury trial to determine damages. Defendants neither replied to the notice nor did they put in an appearance personally or through counsel at the damages hearing. In early December of 1991, the jury awarded the plaintiffs US$ 210,000 in compensatory damages and US$ 50,000 in punitive damages, plus 12 percent per annum post-judgment interest.

When the Ontario defendants got the notice of the adverse monetary judgment a few weeks later, they consulted an Ontario attorney. The lawyer advised them that the plaintiffs would not be able to enforce the foreign judgment in Ontario because the defendants had not “attorned to the Florida court’s jurisdiction.” Heeding this questionable advice, the defendants neither appealed nor moved to set aside the judgment within one year as allowed under Florida law.

When defendants failed to satisfy the damage awards, plaintiffs sued the them in the Ontario courts in 1993 to enforce the Florida judgment. By the time of the hearing in 1998, the Florida judgment with interest had increased to about C$ 800,000. The Canadian trial judge dismissed the action for enforcement mainly on the ground that there had been fraud in the award of damages. The Ontario appellate court allowed the plaintiffs’ appeal. Upon further review, the Supreme Court of Canada in a 6 to 3 ruling, dismisses the defendants’ appeal, ruling that the lower court should have enforced the Florida judgment.

In the majority’s view, international comity and the growth of international cross‑border transactions strongly suggest that the law of private international judgments needs updating. Unless the Canadian legislatures enact to the contrary, the Court believes that it should apply the “real and substantial connection” test (which it has thus far applied only to the enforcement of interprovincial judgments) equally to the recognition and enforcement of foreign country judgments.

The test generally requires that a meaningful link exist between the cause of action and the foreign court. “In light of Canadian rules of conflict of laws, Dominic Thivy [a former co-defendant] attorned to the jurisdiction of the Florida court when he entered a defence to the ... [original] action. His subsequent procedural failures under Florida law do not invalidate that attornment. As such, irrespective of the real and substantial connection analysis, the Florida court would have had jurisdiction over Mr. Thivy for the purposes of enforcement in Ontario.” [¶ 34]

“The presence of more of the traditional indicia of jurisdiction (attornment, agreement to submit, residence and presence in the foreign jurisdiction) will serve to bolster the real and substantial connection to the action or parties. Although such a connection is an important factor, parties to an action continue to be free to select or accept the jurisdiction in which their dispute is to be resolved by attorning or agreeing to the jurisdiction of a foreign court.” [¶ 37] Finally, the agreement of the parties on appeal that the Florida action met this test reinforces the Court’s decision.

The Court then turns to the defenses that may justify a refusal to enforce an otherwise valid foreign judgment. “The defenses of fraud, public policy and lack of natural justice ... still pertain. This Court has to consider whether those defenses, when applied internationally, are able to strike the balance required by comity, the balance between order and fairness as well as the real and substantial connection, in respect of enforcing default judgments obtained in foreign courts.” [¶ 40]

“Inherent to the defense of fraud is the concern that defendants may try to use this defense as a means of relitigating an action previously decided and so thwart the finality sought in litigation. The desire to avoid the relitigation of issues previously tried and decided has led the courts to treat the defense of fraud narrowly.” [¶ 44]

“Courts have drawn a distinction between ‘intrinsic fraud’ and ‘extrinsic fraud’ in an attempt to clarify the types of fraud that can vitiate the judgment of a foreign court. Extrinsic fraud is identified as fraud going to the jurisdiction of the issuing court or the kind of fraud that misleads the court, foreign or domestic, into believing that it has jurisdiction over the cause of action. Evidence of this kind of fraud, if accepted, will justify setting aside the judgment.”

“On the other hand, intrinsic fraud is fraud which goes to the merits of the case and to the existence of a [meritorious] cause of action. The extent to which evidence of intrinsic fraud can act as a defense to the recognition of a judgment has not been as clear as that of extrinsic fraud.” [¶ 45]

The Court then notes the historic complexity and confusion caused when courts try to apply the above distinction and recommends its abolition. “It is simpler to say that fraud going to jurisdiction can always be raised before a domestic court to challenge the judgment. On the other hand, the merits of a foreign judgment can be challenged for fraud only where the allegations are new and not the subject of prior adjudication. Where material facts not previously discoverable arise that potentially challenge the evidence that was before the foreign court, the domestic court can decline recognition of the judgment.” [¶ 51]

“No evidence was led to show that the jury was misled (deliberately or not) on the extent of the damages. The admitted facts presented to the jury included allegations of fraudulent misrepresentations and loss of profits. The claim by the [plaintiff] was for damages to recoup the purchase price of the land, loss of profits and punitive damages. ... [A]lthough the amount of damages awarded may seem disproportionate, it was a palpable and overriding error for the trial judge to conclude, on the dollar amount of the judgment alone, that the Florida jury must have been misled.” [¶ 57]

Another defense is the foreign court’s alleged denial of Canadian notions of natural justice. As with most defenses, the defendants have the civil burden of persuasion that the foreign proceedings had this fatal defect.

“In the present case, the Florida judgment is from a legal system similar, but not identical, to our own. If the foreign state’s principles of justice, court procedures and judicial protections are not similar to ours, the domestic enforcing court will need to ensure that the minimum Canadian standards of fairness were applied. If fair process was not provided to the defendant, recognition and enforcement of the judgment may be denied.”

“The defense of natural justice is restricted to the form of the foreign procedure, to due process, and does not relate to the merits of the case. The defense is limited to the procedure by which the foreign court arrived at its judgment. However, if that procedure, while valid there, is not in accordance with Canada’s concept of natural justice, the foreign judgment will be rejected. The defendant carries the burden of proof and, in this case, failed to raise any reasonable apprehension of unfairness.” [¶¶ 63-64]

Disagreeing with a dissenter, the majority holds that natural justice does not demand that plaintiffs in a foreign litigation expressly or impliedly notify Canadian defendants of each and every available procedural step that they might take when notified of a foreign claim against them. “To find otherwise would unduly complicate cross‑border transactions and hamper trade with Canadian parties. A defendant to a foreign action instituted in a jurisdiction with a real and substantial connection to the action or parties can reasonably be expected to research the law of the foreign jurisdiction. The Saldanhas and Thivys owned land in the State of Florida and entered into a real estate transaction in that state. When served with notice of an action against them in the State of Florida, the [defendants] were responsible for gaining knowledge of Florida procedure in order to discover the particularities of that legal system.” [¶ 68]

“Once they received notice of the amount of the judgment, the [defendants] obviously had precise notice of the extent of their financial exposure. Their failure to act when confronted with the size of the award of damages was not due to a lack of notice but due to relying on the mistaken advice of their lawyer.” [¶ 69]

Citation: Beals v. Saldanha, File No.: 28829, 2003 S.C.C. 72 (Sup. Ct. Can. Dec. 18, 2003).

SOVEREIGN IMMUNITY

On interlocutory appeal, D.C. Circuit finds, pursuant to Supreme Court’s ruling in Republic of Argentina v. Weltover, that alleged breach of payment obligation within U.S. can be enough to support subject matter jurisdiction under FSIA based on its “direct effect” test

In 1995, I.T. Consultants, Inc. (ITC) and the Republic of Pakistan (Pakistan) entered into a contract for ITC to manufacture and install geo-synthetic linings for irrigation canals and watercourses in Pakistan. Pakistan terminated the contract in 1997 due to financial constraints. The parties agreed in 1998 that ITC would receive about 11% of the original contract price.

When ITC failed to receive any payment, it brought an action in March 2000 against Pakistan and its Ministry of Food, Agriculture, and Labor (MINFAL) in the federal district court in Washington, D.C. The parties soon agreed on a Memorandum of Understanding (MOU) to settle the dispute. According to the MOU, ITC was to receive $1,143,965 and 10,535,000 Rupees. ITC later sent a letter to Dr. Zafar Altaf, the Secretary of MINFAL, asking him to transfer the Dollar-denominated funds to a bank account in Virginia, and the Rupee-denominated amount to an account in Rawalpindi, Pakistan. Dr. Altaf allegedly sent that letter back to ITC bearing his signature and the word “Okay.”

A few weeks later, the newly appointed Secretary of MINFAL stopped the payment to ITC. Moreover, the federal court dismissed ITC’s action for improper service in Pakistan. ITC refiled its case, this time naming Pakistan and the new MINFAL Secretary (in his personal capacity) as defendants, and also claiming that Pakistan had breached the MOU.

After the district court denied the defendants’ motion to dismiss for lack of subject matter and personal jurisdiction, this interlocutory appeal followed. The U.S. Court of Appeals for the District of Columbia Circuit affirms in part and reverses in part.

The Court notes at the outset that under the Foreign Sovereign Immunities Act [28 U.S.C. Section 1602 ff] (FSIA), foreign states retain their traditional immunity from federal court jurisdiction in many instances. The FSIA, however, includes an exception for actions based on the foreign state’s commercial activity if that activity “causes a direct effect in the United States.” 28 U.S.C. Sections 1604, 1605(a)(2).

ITC alleged that, under the MOU, MINFAL was supposed to wire the larger portion of the payment into a Virginia bank account. Pakistan responded that, even if this were true, its failure to make the payment does not constitute a “direct effect” that would support FSIA jurisdiction.

The U.S. Supreme Court’s leading case on the FSIA’s “direct effect” doctrine is Republic of Argentina v. Weltover, 504 U.S. 607 (1992). There the Court found that Argentina’s failure to pay bondholders in New York created a “direct effect” in the United States.

The instant Court rejects Pakistan’s efforts to distinguish this case from Weltover. “First, Pakistan’s attempt to direct our attention to the presence or absence of a payment term in the ‘written contract between the parties’ is inconsistent with Pakistan’s recognition that we should accept the allegations of the complaint – including the allegation that payment was to be made in Virginia ‘pursuant to the MOU’ – as true. ... Having permitted that assumption, it is no use for Pakistan to quibble over how that payment obligation arose, or whether it arose by means different from those in Weltover, where the payee’s specification of place of payment was also not contemporaneous with the signing of the underlying agreement giving rise to the obligation to pay.”

“Second, we reject the suggestion that the degree of importance the parties attach to the place of payment is relevant to the question whether a failure to pay has a direct effect. Neither Weltover nor the subsequent case law of this circuit suggests that only ‘important’ contractual terms may give rise to a direct effect. Any attempt to rank the various terms of a contract in order of their importance to the parties would require the court to delve deeply into the facts before making a threshold finding of jurisdiction – an undesirable prospect – and would be ultimately standardless.”

“For example, under Pakistan’s reasoning, a contract that specified New York as the place of payment would not create a direct effect if the parties did not consider that term important, even if the amount to be paid was $100 billion. And conversely, if the parties to a different contract believed that payment in New York was extremely important, Pakistan’s reasoning would support a finding of a direct effect even if the amount due under the contract was merely $1000. And what are we to do if we determine that place of payment was important for one party, but not the other? Pakistan’s proposed analysis founders because it bears no relation to the statutory term it purports to illumine – ‘direct effect.’” [Slip op. 11-14]

In this case, the MOU did in fact provide for payment in Virginia, which had to involve a U.S. bank. Therefore, Pakistan’s failure to make the required payment qualifies as an act that caused “a direct effect in the United States” under Section 1605(a)(2). This finding of subject matter jurisdiction also establishes personal jurisdiction over a foreign state defendant. See 28 U.S.C. Section 1330(b).

To perfect personal jurisdiction over the MINFAL Secretary, on the other hand, he must have had “minimum contacts” with D. C. under statutory and Due Process standards. In this case, ITC tried to sue the Secretary in his personal capacity while treating him like a foreign state for purposes of personal jurisdiction. This misfires because the Secretary lacked the requisite contacts with Washington, D.C., under its long-arm statute.

Citation: I.T. Consultants, Inc. v. The Islamic Republic of Pakistan, 351 F.3d 1184 (D.C. Cir. 2003).

TERRORISM

Second Circuit holds that alleged al Qaeda operative who was seized in the U.S. is entitled as U.S. citizen to constitutional protections and cannot be held incommunicado in military custody despite Presidential designation as “enemy combatant”

Jose Padilla, a U.S. citizen, is allegedly an al Qaeda operative who planned to set off a so-called “dirty bomb” in the U.S. (This type of bomb uses conventional explosives to disperse radioactive material.) After arresting him in May 2002 at Chicago’s O’Hare airport on a flight from Pakistan, authorities initially held him as a “material witness” for the New York federal grand jury that was looking into the September 11, 2001, terrorist attacks. The government then moved Padilla to New York, where the court appointed an attorney to represent him.

Shortly before a district court was to rule on counsel’s motion to vacate the material witness warrant, President Bush designated him an “enemy combatant.” Since that time, the government has been holding Padilla incommunicado on a naval vessel in South Carolina. Padilla’s counsel submitted a habeas corpus petition as his “next friend.”

The district court found that the Constitution and statutory law give the President the authority to detain U.S. citizens as enemy combatants, but that he should allow Padilla to consult with counsel and to present evidence to rebut this characterization. The following interlocutory appeal by the government ensued. The U.S. Court of Appeals for the Second Circuit affirms in part and reverses in part.

The Court remands the case to the district court to issue the writ of habeas corpus to release Padilla from military custody within 30 days. The Government may then take further action to the extent based on legislatively conferred authority. For example, the government may transfer him to the appropriate civilian authorities pending criminal charges, or it may continue to hold him as a material witness in connection with the 9/11 grand jury proceedings. In any case, Padilla will be entitled to constitutional protections like any other citizen. Congress has not authorized Padilla’s detention and, without such authorization, the President lacks the power under Article II of the Constitution to detain a U.S. citizen seized on U.S. soil as an “enemy combatant.”

Where, as here, the President’s power as Commander-in-Chief of the armed forces and the domestic rule of law intersect, the Court decides that congress must expressly authorize detentions of American citizens on American soil. Moreover, 18 U.S.C. Section 4001(a) (2000) (the Non-Detention Act) bars all such deprivations of a citizen’s liberty absent such empowerment. Admittedly, Congress did pass an Authorization for Use of Military Force Joint Resolution, Pub.L. No. 107-40, 115 Stat. 224 (2001) (Joint Resolution) shortly after the 9/11 attacks. This Resolution, however, does not permit such detentions and there is no other exception to Section 4001(a).

“In light of this express prohibition, the government must undertake to show that Padilla’s detention can nonetheless be grounded in the President’s inherent constitutional powers. See Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 637-38 (1952) (Jackson, J., concurring). We conclude that it has not made this showing. In reaching this conclusion, we do not address the detention of an American citizen seized within a zone of combat in Afghanistan, such as the court confronted in Hamdi v. Rumsfeld, 316 F.3d 450 (4th Cir. 2003) (“Hamdi III”). Nor do we express any opinion as to the hypothetical situation of a congressionally authorized detention of an American citizen.” [Slip op. 6-7]

In the Court’s view, Justice Jackson’s reasoning in his Youngstown concurrence provides the relevant conceptual framework for analyzing this issue. The President’s authority is at its zenith when he acts pursuant to an express or implied authorization from Congress. In the absence of such congressional authority, he can only rely on his own independent constitutional powers. There may, however, be twilight zones involving a concurrent authority of Congress and the President. Finally, the President’s authority is at its nadir when he acts contrary to Congress’ express or implied will. There, he exercises only his own constitutional powers minus any constitutional powers of Congress over the matter.

Based on the Constitution and case law interpreting it, the Court rejects the Government’s argument that the President has inherent constitutional powers to detain U.S. citizens under these circumstances. The question then becomes whether Congress has authorized such detentions.

Since the Non-Detention Act applies to military detentions such as Padilla’s, the President would need specific statutory authorization to detain him. The government contended that the Joint Resolution and 10 U.S.C. Section 956(5) [on funding for military detentions] authorize the detention of enemy combatants.

“We disagree with the assumption that the authority to use military force against [organizations like al Qaeda] includes the authority to detain American citizens seized on American soil and not actively engaged in combat. First, we note that the Joint Resolution contains no language authorizing detention. ...”

“Because the government seeks to read into the Joint Resolution authority to detain American citizens on American soil, we interpret its language in light of the principles enunciated in Ex parte Endo, 323 U.S. at 298-300. The Endo Court first recognized that ‘the Constitution when it committed to the Executive and Congress the exercise of the war power necessarily gave them wide scope for the exercise of judgment and discretion so that war might be waged effectively and successfully.’ Id. at 298-299. ... The Court added: ‘We must assume, when asked to find implied powers in a grant of legislative or executive authority, that the law makers intended to place no greater restraint on the citizen than was clearly and unmistakably indicated by the language they used.’ Id. (emphasis added).”

“The plain language of the Joint Resolution contains nothing authorizing the detention of American citizens captured on United States soil, much less the express authorization required by Section 4001(a) and the ‘clear,’ ‘unmistakable’ language required by Endo. While it may be possible to infer a power of detention from the Joint Resolution in the battlefield context where detentions are necessary to carry out the war, there is no reason to suspect from the language of the Joint Resolution that Congress believed it would be authorizing the detention of an American citizen already held in a federal correctional institution and not ‘arrayed against our troops’ in the field of battle. Hamdi III, 316 F.3d at 467.” [Slip op. 78-80]

Nor is this detention authorized by 10 U.S.C. Section 956(5). This Section authorizes nothing beyond the expenditure of money. Under Endo, any authorization for detaining U.S. citizens would have to be “clear” and “unmistakable.” As a result, the President’s inherent constitutional powers, in the domestic context, do not extend to the detention of U.S. citizens seized within the U.S. away from a combat zone simply by labeling them “enemy combatants.”

Citation: Padilla v. Rumsfeld, 352 F.3d 695 (2d Cir. 2003).

TERRORISM

Ninth Circuit finds that U.S. exercises territorial jurisdiction and sovereignty over Guantanamo Bay naval base located in Cuba, thus district courts have jurisdiction over habeas corpus petitions of foreign detainees held there

[The following case concerns the authority of the Executive Branch to hold uncharged foreign individuals indefinitely in territory under the “complete jurisdiction and control” of the U.S. The Ninth Circuit, immediately after publishing the opinion, put the mandate on hold until the U.S. Supreme Court decides Al Odah v. United States, 321 F.3d 1134 (D.C. Cir. 2003), cert. granted, 2003 WL 22070725 (Nov. 10, 2003). See 2003 International Law Update 56.

After September 11, 2001, Congress authorized the President to “use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks on September 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States ...” Authorization for Use of Military Force, Pub.L. No. 107-40, 115 Stat. 224 (2001). Pursuant to this congressional authorization, U.S. forces entered Afghanistan to pursue the Taliban government and the terrorist al Qaeda network.

Beginning in early 2002, U.S. forces began transferring individuals captured in Afghanistan to the Guantanamo Bay naval base, located on the island of Cuba. The government has labeled these individuals “enemy combatants” and so far has not afforded them a chance to challenge the legality of their detention.

Belaid Gherebi filed a habeas corpus petition on behalf of his brother Faren, alleging that his detention at Guantanamo Bay violated the U.S. Constitution and the Geneva Convention Relative to the Treatment of Prisoners of War, August 12, 1949, 6 U.S.T. 3316, 75 U.N.T.S. 135. The district court eventually dismissed Gherebi’s case for lack of jurisdiction on the theory that Guantanamo Bay naval base does not lie within sovereign U.S. territory. Gherebi appealed. The U.S. Court of Appeals for the Ninth Circuit reverses and remands.

The government relies on Johnson v. Eisentrager, 339 U.S. 763 (1950), holding that no U.S. district court has jurisdiction over the Guantanamo detainees. Johnson declined jurisdiction over a habeas petition by a German prisoner in Landsberg prison, Germany, after a trial and sentence received by a U.S. Military Commission in Nanking, China, for offenses committed in China after the end of World War II. The Johnson court noted that the petitioners were “alien enemies” and detained outside the territory over which the U.S. has control.

Here, the government takes the view that whatever the 1903 Lease and continuing 1934 Treaty with Cuba say about U.S. “territorial jurisdiction” over Guantanamo, it falls outside U.S. “sovereign territory.” The Court disagrees.

“It is evident that the United States exercises sole territorial jurisdiction over Guantanamo. ‘Territorial jurisdiction’ exists as to ‘territory over which a government or a subdivision thereof, or court, has jurisdiction.’ ... The U.S. government exercises the ‘power to proscribe, prescribe, adjudicate, and enforce the law’ in Guantanamo ..., and further, the government’s jurisdiction is both ‘complete,’ see 1903 Lease, art. III, ... and exclusive, see 1903 Supplemental Agreement, art. IV ... (providing that U.S. courts exercise exclusive criminal jurisdiction over citizens and aliens, alike, for offenses committed on the Base). ... Where a nation exercises ‘exclusive jurisdiction’ over a territory, territorial jurisdiction lies. ...”

“Here, the relationship between territorial jurisdiction and the right to file habeas petitions is particularly clear. The United States exercises exclusive criminal jurisdiction over all persons, citizens and aliens alike, who commit criminal offenses at the Base, pursuant to Article IV of the Supplemental Agreement. ... We subject persons who commit crimes at Guantanamo to trial in United States courts. Surely, such persons enjoy the right to habeas corpus in at least some respects.”

“Under these circumstances, for purposes of our jurisdictional inquiry, it is apparent that the United States exercises exclusive territorial jurisdiction over Guantanamo and that by virtue of its exercise of such jurisdiction, habeas rights exist for persons located at the Base. We reiterate that the essence of our inquiry involves the legal status of the situs of petitioner’s detention - not the question whether ‘enemy combatants’ in general are precluded from filing habeas petitions, or the question whether any particular constitutional issues may be raised.” [Slip op. 23-25]

The Court alternatively considers whether the U.S. exercises “sovereignty” over the base at Guantanamo. The government argued that, under the plain terms of the 1903 Lease, the “continuance” of Cuba’s “ultimate” sovereignty means that Cuba retains “maximum” or “definitive” sovereignty over the Base during the indefinite period of the U.S. presence.

The Court is not convinced. “That the Lease uses the word ‘continuance’ to describe Cuba’s ‘ultimate sovereignty’ does nothing to undercut the temporal construction of ‘ultimate.’ As we have explained, during the period the United States exercises dominion and control, i.e. sovereignty, over Guantanamo, Cuba retains a contingent sovereign interest - a reversionary right that springs into being upon the lawful termination of the U.S. reign. It is this reversionary interest that is ‘continued’ even as substantive (or qualitative) sovereignty is ceded to the United States. In effect, the lease functions not unlike a standard land disposition contract familiar in the area of property law, in which the partitioning of a bundle of rights into present and future interests is commonplace.”

“By the plain terms of the agreement, the U.S. acquires full dominion and control over Guantanamo, as well as the right to purchase land and the power of eminent domain. Until such time as the United States determines to surrender its rights, it exercises full and exclusive executive, legislative and judicial control over the territory, and Cuba retains no rights of any kind to do anything with respect to the Base.” [Slip op. 34-36]

Citation: Gherebi v. Bush, 352 F.3d 1278 (9th Cir. 2003).

U.S. and four Central American countries conclude Free Trade Act. On December 17, 2003, the U.S. and four Central American countries (El Salvador, Guatemala, Honduras and Nicaragua) concluded a Comprehensive Free Trade Act (CAFTA) to liberalize trade, tariffs and investment. First, the Act contains provisions for the reduction of tariffs. More than 80 percent of U.S. exports of consumer and industrial products will immediately become duty-free in those four Central American countries. The remainder will be phased out over 10 years. Secondly, textiles will be duty-free and quota-free immediately if they meet the Act’s rules of origin. Third, with respect to government procurement, the Act contains anti-corruption requirements designed to enable U.S. companies to have a fair chance to take part in public procurement in competition with local companies. Citation: U.S. Trade Representative Press Release of December 17, 2003; The Washington Post, December 18, 2003, page A1. [Fact Sheet and Outline of CAFTA is available on website “www.ustr.gov.”]

EU rescinds retaliatory customs measures against U.S. on steel. After the WTO Appellate Body decided the U.S.-EU steel dispute (DS 248, AB-2003-3) in November 2003, and the U.S. rescinded its restrictions, the EU acted on December 12, 2003, to repeal its special customs duties imposed in light of U.S. steel measures. See also 2003 International Law Update 189. The EU had imposed additional customs duties on certain U.S. products with Regulation 1031/2002 (2002 O.J. (L 157) 8), which it has rescinded with Regulation 2168/2003. Citation: 2003 O.J. of European Union (L 326) 1, December 13, 2003.

Peru regains funds misappropriated during Fujimori regime. At the recent Special Summit of the Americas, the U.S. Secretary of State signed an agreement with the Peruvian Foreign Minister which authorizes the transfer of $20,275,911.88 to the Government of Peru. This sum was the fruit of corrupt acts allegedly committed by presidential advisor Vladimir Montesinos and his associates under the Fujimori Government. The U.S. Department of Justice had seized these funds in civil forfeiture proceedings based on violations of U.S. criminal law such as by illegal transportation across a federal or state boundary of property stolen, taken or converted by fraud, wire fraud, and related money laundering. The specific transferee is to be Peru’s Fondo Especial de Administracion del Dinero Obtenido Ilicitamente en Perjuicio del Estado [Special Fund to Administer the Illegally Obtained Government Money] set up in 2001 to administer returned assets that had been misappropriated during the Fujimori years. Under the pact, Peru further agrees (1) to ensure public notice and a public comment period on the proposed use of the funds; (2) to give priority to using the funds for requiting victims of the underlying crimes and (3) to support anticorruption initiatives and institutions in Peru. Citation: Fact Sheet #2004/27, Office of Spokesman, U.S. Department of State, Monday, January 12, 2004.

EU imposes countermeasures against U.S. imports in dispute over “foreign sales corporations.” On December 8, 2003, the EU Council agreed on Regulation 2193/2003 establishing additional customs duties on imports of certain U.S. products such as meat, vegetables, cereals and steel . The preamble to the Regulation notes that the WTO has found that the tax treatment of foreign sales corporations (FSCs) by the U.S. constituted a prohibited export subsidy. See 2003 International Law Update 77 and 2002 International Law Update 29 (WTO Dispute DS108). It purportedly provides a tax exemption that results in substantial tax savings to U.S. companies. The EU has successfully challenged the U.S.’s effort to comply with WTO objections in the Foreign Sales Corporation Repeal and Extraterritorial Income Exclusion Act of 2000. In May 2003, the WTO authorized the EU to increase customs duties for a total of $4 billion worth of U.S. trade. Citation: (L 328) 3, December 17, 2003 [foreign sales corporations countermeasures]; European Commission Press Release 15719/03 (Presse 360) (12 December 2003), available at “http://ue.eu.int.”

French court awards substantial damages against Morgan Stanley. On January 12, 2004, a Paris commercial court ordered Morgan Stanley to pay EUR30 million ($38.5 million) to Moet Hennessy Louis Vuitton (LVMH). In the court’s view, Morgan Stanley’s stock evaluations had “considerably prejudiced” LVMH. Presumably looking toward future compensation, the court also ordered an independent expert to estimate how much it’s going to cost LVMH to refute the bad publicity. Calling the ruling “terrifying and absurd,” a Morgan Stanley spokesman declared that the company would appeal. One LVMH adviser remarked, however, that “[f]or the first time in France, a court has upheld the principle of the necessary independence of financial analysts from investment banking services.” LVMH contended that investment advice published over a three-year period by Morgan Stanley “contained systematically erroneous and biased information”about it. While concealing its business relationship with Gucci (an LVMH rival), Morgan Stanley allegedly intended its advice to impugn the French company and thereby to raise the price of Gucci’s shares. In similar cases, Wall Street’s largest brokerage houses (including Morgan Stanley) have already forked over $1.4 billion in settling with U.S. state and federal regulators. Citation: The Associated Press (online), Paris, Monday, January 12, 2004, filed at 1:48 p.m.

E.U. reports on U.S. barriers to trade and investment. The European Commission has published its 2003 Report on United States Barriers to Trade and Investment. In includes trade developments through December 9, 2003. The different chapters of the report cover U.S. extraterritorial and unilateral acts, tariff barriers, non-tariff barriers, investment-related U.S. measures, intellectual property rights, services, and U.S. compliance with WTO dispute settlement recommendations. The Market Access Unit of the EU Commission’s Directorate-General for Trade prepared the Report in cooperation with the Delegation of the European Commission in Washington, D.C. The Report concludes that several impediments to free trade remain between the U.S. and the EU, including the U.S failure to fully comply with WTO dispute settlement decisions, and the Farm Security and Rural Investment Act of 2002. As for extraterritoriality, the EU continues to object to extraterritorial provisions of certain U.S. laws, such as the Helms-Burton Act and the Iran Libya Sanctions Act. Also, the EU objects to the potentially extraterritorial record-keeping provisions of the Bioterrorism Act of 2002. As for unilateralism, the EU has initiated WTO proceedings against Section 407 of the Trade and Development Act of 2000 (“carousel” legislation). Citation: Report on United States Barriers to Trade and Investment 2003, available on website of European Commission in U.S. at “www.eurunion.org.”