2004 International Law Update, Volume 10, Number 4 (April)

2004 International Law Update, Volume 10, Number 4 (April)

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

INSURANCE

In suit claiming that liability policy covered racial discrimination claims brought by journalist Carl Rowan against Chicago Sun Times, Ontario Court of Appeal reads policy in light of “fortuity principle” and concludes that it did not provide coverage for alleged intentional discrimination

Liberty Mutual Insurance Company (Liberty) is a Canadian company with its headquarters in Toronto. In that Province, it issued a comprehensive general liability insurance policy to Hollinger Inc. of Ontario applicable to the insured’s business activities worldwide.

Carl Rowan, a respected African-American journalist highly supportive of civil rights, was writing three columns per week for The Chicago Sun Times, a recently-acquired Hollinger subsidiary. Mr. Rowan later sued the Times and Hollinger (presumably in District of Columbia federal court), in major part alleging age and racial discrimination in violation of the District of Columbia and U.S. civil rights statutes. According to his complaint, after Hollinger had taken control of the Sun Times, the paper decided to increase its appeal to a “white” readership. The upshot was that it willfully sought to terminate Mr. Rowan’s employment contract.

Hollinger notified Liberty about Mr. Rowan’s claim, retained counsel and eventually settled the discrimination case. Hollinger then tendered the claim to Liberty, requesting a contribution to the cost of defense and indemnity with respect to the discrimination claims. Liberty declined and sought a declaratory judgment from an Ontario court that it owed no duty to defend Hollinger.

The relevant personal injury items the policy covered included: “False arrest, detention or imprisonment, malicious prosecution, libel, slander, defamation of character, invasion of privacy, wrongful eviction or wrongful entry sustained by any person or organization during the policy period.” The policy, however, expressly ruled out coverage for: “The wilful violation of a penal statute or ordinance committed by or with the knowledge or consent of any Insured.”

The trial judge held that the policy did require Liberty to furnish Hollinger with a defense and dismissed the application.

Noting that Mr. Rowan had cast his discrimination claims as wilful, the trial judge found that there was still coverage because the claims did not rest upon “a penal statute.” She conceded that both the D.C. Human Rights Act and the U.S. Civil Rights Act did contain enforcement provisions providing for fines and imprisonment. Nevertheless, Mr. Rowan had formulated his claims for compensatory and punitive damages under sections creating private rights of action against a wrongdoer.

The judge also cited both Canadian and American authority classifying human rights legislation as “remedial” rather than “penal.” Additionally, she relied on the principle of insurance law that if there is a “mere possibility” that the allegations as pleaded lie within the policy coverage, the insurer has to provide a defense because a court has to resolve any uncertainty on the issue of coverage in favor of the insured.

The insurer filed the present appeal. The Ontario Court of Appeal agrees with Liberty’s position and unanimously allows the appeal. The parties agree that the law of Ontario controls, since Hollinger resides in that province and the parties had executed the policy there.

Liberty made three arguments to show that the policy does not cover acts of intentional discrimination. First, the policy bars claims based on a “wilful violation of a penal statute.”

Second, a basic economic principle of insurance law makes policies applicable only to the insured’s “fortuitous” or nonintentional acts. Finally, it would be unsound public policy to extend insurance coverage to intentional acts of discrimination.

As to the first point, the Court of Appeal agrees with the trial judge that Mr. Rowan’s suit asked only for compensatory damages rather than the enforcement of a penalty. Of course, the statutes he invoked did have both civil and criminal aspects. Nevertheless, both Canadian and U.S. courts treat statutes as “remedial” when a plaintiff seeks only civil remedies. Mr. Rowan clearly based his action on the civil aspects of the D.C. and U.S. statutes.

Next, the Court considers Liberty’s argument that the Policy does not cover claims of intentional discrimination. “Apart from the exclusion clause, there are certain features of the Policy that would appear, on their face, to allow for coverage for claims of intentional discrimination. Claims of discrimination in Article 9 are but one aspect of a broader category of claims for ‘personal injury’ and several of the itemized categories falling within that general category involve intentional wrongdoing. For example, coverage is provided for claims for false arrest, detention or imprisonment, and malicious prosecution. These causes of action are intentional torts and ordinarily require a high level of intentional conduct.” [¶ 15]

“However, I agree with Liberty that this language must be read and interpreted in light of a general principle of insurance law that arises from the very nature and purpose of insurance, namely, that ordinarily only fortuitous or contingent losses are covered by a liability policy. Where an insured intends to cause the very harm that gives rise to the claim, the insured cannot look to a liability policy for indemnity. [Cite]”

“It is important to keep in mind the underlying economic rationale for insurance,”the Court stresses. “C. Brown and J. Menezes, Insurance Law in Canada (2nd ed. 1991), state this point well at pp. 125‑26: ‘Insurance is a mechanism for transferring fortuitous contingent risks. Losses that are neither fortuitous nor contingent cannot economically be transferred because the premium would have to be greater than the value of the subject matter in order to provide for marketing and adjusting costs and a profit for the insurer.”

“It follows, therefore, that even where the literal working of a policy might appear to cover certain losses, it does not, in fact, do so if (1) the loss is from the inherent nature of the subject matter being insured, or (2) it results from the intentional actions of the insured. In other words, insurance usually makes economic sense only where the losses covered are unforeseen or accidental: The assumptions on which insurance is based are undermined if successful claims arise out of loss which is not fortuitous.’” [¶ 16]

Liberty’s public policy contention is then taken up. “[The] economic rationale takes on a public policy flavour where, as here, the acts for which the insured is seeking coverage are socially harmful. It may be undesirable to encourage people to injure others intentionally by indemnifying them from the civil consequences. On the other hand, denying coverage has the undesirable effect of precluding recovery against a judgment‑proof defendant, thus perhaps discouraging ... victims from bringing claims.” [Id.] Clearly, the Court observes, these two policies may potentially conflict since the former looks to narrow the scope of coverage while the latter would broaden it.

“The fortuity principle does not [however] exclude coverage for all claims that arise from intentional acts. An intentional act may have unintended consequences. If the unintended consequence falls within the terms of the policy, it will be covered even if it was caused by the intentional act of the insured. This distinction is reflected by the terms of Section 118 of the Insurance Act, which provides that the ‘contravention of any criminal or other law ... does not, by that fact alone, render unenforceable a claim for indemnity under a contract of insurance except where the contravention is committed by the insured ... with intent to bring about loss or damage.’” [¶ 18]

“In my view, Rowan’s claims of discrimination cannot be described as claims for accidental or fortuitous loss nor can they be qualified as claims for the unintended consequence of an intentional act. They are, rather, claims of intentional wrongdoing and arise from allegations that Hollinger intended to inflict the very wrong of which Rowan complains. It follows that Rowan’s claims fall outside the terms of the Policy and that Liberty is not required to provide Hollinger with a defence.” [¶ 19]

The Canadian courts have seemingly not considered the issue of whether insurance coverage for discrimination claims is contrary to public policy. There is, however, an extensive body of American authority on this point. Most American courts which have addressed the question have barred insurance coverage for claims of intentional discrimination.

“On the other hand, the American courts have, for the most part, distinguished intentional or ‘disparate treatment’ discrimination from unintended or ‘disparate impact’ claims and allowed liability insurance coverage for the latter. For example, in Solo Cup Company v. Federal Insurance Company 619 F.2d 1178 (7th Cir. 1980), the ... Court of Appeals held that insurance coverage of disparate impact liability is not contrary to the public interest against employment discrimination as embodied in Title VII. The court held that allowing insurance coverage for disparate impact liability would not injure the public good, and indeed might promote the objects of the legislation as insurers would likely encourage and facilitate the evaluation of employment standards.” [¶¶ 23-24]

Finally, the Court of Appeal refers to a 1999 opinion of the Canadian Supreme Court that seems to undermine the applicability in Canada of a public policy analysis based upon indirect (disparate impact) discrimination. “However, ... for the purposes of insurance law, there is a well‑recognized distinction to be drawn between fortuitous or accidental harm and harm that is caused intentionally. I do not consider that distinction to be affected by the holding in [British Columbia (Public Service Employee Relations Commission) v. B.C.G.S.E.U., [1999] 3 S.C.R. 3], even in relation to discrimination claims. I would, therefore, decide this appeal on the basis of the fortuity principle and leave the broader public policy issue of insurance coverage for claims of discrimination for another day.” [¶ 25]

Citation: Liberty Mutual Insurance Co. v. Hollinger Inc., 2004 A.C.W.S.J. 2016; 128 A.C.W.S. (3d) 1182 (Ont. Ct. App. Feb. 13).

INTERNATIONAL COURT OF JUSTICE

International Court of Justice holds the U.S. violated rights of Mexicans on death row under Vienna Convention

On March 31, 2004, the International Court of Justice (ICJ) delivered its opinion in the case of Avena and Other Mexican Nationals (Mexico v. United States of America) concerning the violations of death row prisoners under the Vienna Convention on Consular Relations of 24 April 1963 (21 U.S.T. 77, 596 U.N.T.S. 261 (1969).

Mexico had brought that case before the ICJ on January 9, 2003, to seek review of the death sentences imposed on specific Mexican citizens. Mexico also asked the ICJ to impose provisional measures to prevent the executions of those prisoners. On February 5, 2003, the ICJ in fact issued an Order prohibiting the U.S. from executing the specified Mexican nationals pending a final decision.

Mexico asked the ICJ to adjudge and declare “that the United States, in arresting, detaining, trying, convicting, and sentencing the 54 Mexican nationals on death row described in this Application, violated its international legal obligations to Mexico, in its own right and in the exercise of its right of consular protection of its nationals, as provided by Articles 5 and 36, respectively of the Vienna Convention; ...”

Mexico requested as a remedy the restitutio in integrum, meaning the annulment of the convictions and sentences at issue. The ICJ disagrees, and notes that “reparation in an adequate form” is required. Such can be provided in the form of review and reconsideration of the conviction and sentences by U.S. courts. The exact procedure should be determined by the U.S.

The ICJ judgment states, in particular, that:

(1) The U.S. breached its obligations under Article 36, paragraph 1(b), of the Vienna Convention by not timely notifying the Mexican Consulate of the detention of the specified Mexican nationals (fourteen votes to one).

(2) The U.S. deprived Mexico of its right to communicate with its detained nationals, and thus violated Article 36, paragraphs 1(a) and ( c), of the Convention (fourteen votes to one).

(3) The U.S. breached its obligations under Article 36, paragraph 2, of the Convention by not permitting the review and reconsideration of the conviction and sentences of three specified Mexican nationals in light of the Vienna Convention rights (fourteen votes to one).

(4) Thus the U.S. should provide for review and reconsideration of the convictions and sentences of the specified Mexican nationals (fourteen votes to one).

The ICJ notes that this judgment applies not only to Mexican nationals whose rights under the Vienna Convention have been violated in the U.S., but to nationals of any country (see paragraph 151).

Citation: International Court of Justice (ICJ), Case Concerning Avena and Other Mexican Nationals (Mexico v. United States of America) 31 March 2004, General List No. 128; Press Release 2004/16 of the ICJ, available on the ICJ website at www.icj-cij.org; www.cnn.com article “U.S. rebuked on death row Mexicans,” of Wednesday, March 31, 2004, 10.55am EST.

SERVICE OF PROCESS

Noting split in Circuits, Ninth Circuit holds that service of process may be accomplished under Hague Convention by regular mailing to Defendant’s English post office box because such can be considered “place of business” under foreign nation’s law

The following case considers the validity of service of process by an U.S. plaintiff on an English defendant through regular mail to a post office box under the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents (Hague Convention) (November 15, 1965, 20 U.S.T. 361, 658 U.N.T.S. 163).

Both the U.S. and United Kingdom are signatories to the Convention. Article 19 of the Convention provides that service of process from abroad may be made by any method permitted by the internal law of the receiving state. Also, Fed.R.Civ.P. 4(f)(2)(A) permits service of process in a manner prescribed by the law of the foreign country.

Ronald Brockmeyer distributes adult entertainment products under the trademark “O,” including a fetish magazine by the same name. In August 1998, Brockmeyer and his company Eromedia (jointly Brockmeyer) filed a trademark infringement action against several parties, including the British company, Marquis Publications. To accomplish service of process, Brockmeyer mailed a copy of the summons and complaint to Marquis at their post office box address listed in the 1997 edition of Marquis Magazine. Subsequently, Brockmeyer obtained a $424,000 default judgment against Marquis.

The district court denied Marquis’ claim that service had been improper under the Hague Convention. Marquis appealed.

The U.S. Court of Appeals for the Ninth Circuit affirms the district court order denying Appellant’s motion to set aside the default judgment. The service accomplished through regular mail is valid because, first, Article 10(a) of the Convention permits service by mail and, second, England’s domestic laws do not prohibit service by mail to a post office box.

Article 10(a) of the Convention provides: “[P]rovided the state of destination does not object, the present Convention shall not interfere with – (a) the freedom to send judicial documents, by postal channels, directly to persons abroad ...” The Court notes that the Second Circuit has held in Ackermann v. Levine, 788 F.2d 830 (2d Cir. 1986), that “send” means “service.” The Eighth Circuit, however, has held that “send” does not include the service of process but is a method for transmitting judicial documents after service has been accomplished. The Fifth Circuit disallowed service of process on an Italian defendant by Federal Express.

“Although we have yet to directly address this question, we have stated in dicta that Article 10(a) of the Hague Convention demonstrates that the Convention is not meant to prohibit sending judicial documents by mail. ...”

“Within this circuit, district courts are split. [One district court] ... concluded that service of process by mail is consistent with the overriding purpose of the Convention to develop of system for effecting service of process in other countries ...”

“Some district courts, on the other hand, ... conclude[d] that the word ‘send’ in Article 10(a) is not the equivalent of the word ‘service.’ ...”

“We agree, as does our colleague in dissent, with the Second Circuit’s decision in Ackermann. The very purpose of the Convention is to provide the means for service abroad. ... The structure of the Convention and the placement of subsection (a) within Article 10, which lists alternate methods of service to which contracting states must specifically object, suggests that the word ‘send’ was used as a synonym for the word ‘serve.’” [Slip op. 6-8]

The 1983 “Practical Handbook on the Operation of the Hague Convention of 15 November 1965 of the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters,” which was produced in cooperation with the signatory states representatives, states that unless a member country specifically objected to service by mail, it should be permitted. Neither the U.S. nor the United Kingdom objected to Article 10(a).

The Court then turns to the validity of service to a post office box. The United Kingdom’s Civil Procedure Rules allow for service of process on registered companies by alternative methods. Under Civil Procedure Rule 6.5(6), a document can be sent or transmitted to, or left at either the principal office of the company or “any place of business of the company within the jurisdiction which has a real connection with the claim.” [See Civil Procedure Rules 1998, U.K. SI 1998/3132 Pt 6(I) r 6.5 (6)]. Here, Marquis held out the post office box address to the public in its magazine. The Court thus finds that the post office box can be considered a “place of business ... which has a real connection to the claim.”

The Court therefore also rejects Marquis’ claim that service should have been made by registered or certified mail to ensure actual receipt.

“The Hague Convention discusses service by postal channels generally, and makes no reference to registered or certified mail. Moreover, service by regular mail is allowed under English domestic law, and the Hague Convention is intended not to interfere with a member country’s own methods for service. See Hague Convention, Article 19 ... Also, requiring service by registered or certified mail would nullify service to a post office box, which as discussed above, is not prohibited by English domestic law.” [Slip op. 11-12]

The Court notes in a footnote that Brockmeyer introduced, over Marquis’ objection, e-mails that indicated Marquis’ actual notice of the action. Marquis did not deny that it had received notice.

The dissenter considers the majority opinion a dramatic departure from existing law, noting that such kind of service of process would not be permissible under U.S. law.

“Today’s decision will cause mischief at home and unhappiness abroad. I agree with the majority’s conclusion that Article 10(a) of the Hague Convention does not ‘interfere’ with service by mail. But I strongly disagree with its conclusion that Rule 4(f)(2)(A) authorizes service of process by international mail. Not only is the existing case law uniform in holding that service by international mail is not authorized under Rule 4(f)(2)(A). There is also no need to depart from this consistent understanding of the rule, for a competent attorney already has ample means of serving process on a foreign defendant under Rule 4(f) without relying on the extraordinary expedient of ordinary international first class mail.” [Slip op. 59-60]

[Editors’ Note: A U.S. court had previously dismissed a trademark infringement action brought by Brockmeyer against the publisher of Oprah’s “O” Magazine because the actual confusion by the two magazines was de minimis. See Brockmeyer v. The Hearst Corp., 248 F.Supp. 2d 281 (S.D.N.Y. 2003).]

Citation: Brockmeyer v. May, 361 F.3d 1222 (9th Cir. 2004).

JUDICIAL ASSISTANCE

In international offshoot of United States’ massive lawsuit in American court against tobacco companies, English Court of Appeals (Civil Division) dismisses appeal from lower court’s honoring of plaintiff’s Letter of Request for testimony from former attorney for British tobacco company so that issues of privilege could be decided on question-by-question basis

The plaintiff in this case is the government of the United States. Since 1999, it has been carrying on civil RICO litigation in the U.S. against a number of tobacco companies. The action is one of the most complex in American history. Discovery may involve upwards of 40 million documents and damages are claimed to be U.S.$ 289 billion. The plaintiff was claiming that, since 1953, those companies had taken part in an illegal campaign to deceive and defraud the American public about the health risks linked to smoking and about their knowledge and attitude towards them.

Among the defendants to that lawsuit are two companies in the British American Tobacco group. British American Tobacco (Investments) Ltd. (BAT), which became a corporation in 1997, owned both companies. Mr. Andrew Foyle was a partner in the firm of solicitors who acted for the BAT group, representing them from about 1985 to May 1994.

The plaintiff applied, inter alia, for an order to have Mr. Foyle deposed for the purposes of making his evidence available for use in the trial of proceedings now pending in the U.S. District Court for the District of Columbia which had issued a Letter of Request. The defendants opposed the application.

One of plaintiff’s allegations was that defendants or others had intentionally destroyed many relevant documents or had taken them out of U.S. jurisdiction. The plaintiff specifically wished to question Mr. Foyle as to the defendants’ document management policies and procedures. Mr. Foyle admitted that he could give relevant and admissible evidence, but opposed the order applied for on the grounds of legal professional privilege and oppression. The chief constraints on the judge in a matter such as this is the Evidence (Proceedings in other Jurisdictions) Act 1975.

The plaintiff conceded that Mr. Foyle might well be entitled to refuse to answer many questions put to him, but contended that the proper course would be to make objections or invoke privilege as to specific questions asked. The Commercial Court judge ruled for the plaintiff, ordering the deposition to be carried out by English counsel before a judge of that Court. The defendants and Mr. Foyle appealed.

The appellants argued that privilege covered all communications passing between Mr. Foyle and the BAT group companies. The Commercial Court could not, therefore, require Mr. Foyle to answer questions on any of the matters identified in the letter of request, unless BAT waived all its privileges. As BAT had no intention of doing so, defendants said it would waste time and money to make an order for Mr. Foyle’s examination. The English Court of Appeal (Civil Division), however, unanimously agrees to dismiss the appeal.

The Court of Appeal first found it clear that the judge below was not mistaken in his application of the “litigation privilege.” In general, this protection extends to confidential communications which must have been made for the dominant purpose of conducting or giving advice in relation to litigation, either pending or in contemplation. The trial judge did not err in applying this notoriously slippery doctrine. Thus, he had correctly considered that a “mere possibility” of litigation would not suffice to establish litigation privilege. He also properly decided that the fact that there was a distinct possibility that sooner or later someone might make a claim was not enough nor was a general fear of future litigation.

“In any event, I consider that it would be impossible to conclude that litigation against BATCo itself was reasonably in prospect when that company engaged Mr Foyle’s services to advise it. The last time anyone had sued that company had been as long ago as 1969, and there had been no letters before action or other precursors of contentious litigation when Mr Foyle was advising it between 1986 and 1994. In his third witness statement, the most that Mr Gilbey [BATCo’s current senior litigation counsel] could say was that ‘it would be reasonable for BATCo to have anticipated that it might be made a defendant to litigation in the United States or elsewhere’.”

“This tentative assessment accords well with the contemporary view, expressed in a minute dated 26th February 1986, to the effect that litigation experts in the UK had been briefed concerning ‘possible’ liability litigation against BATCo. Similarly, on 21st May 1986 there was a statement by a senior BATCo executive that he did not wish it to be seen that the company had only instituted a destruction policy when the possibility of their being involved in litigation became real.” [¶ 69]

On the legal advice privilege, the Court quotes Balabel v. Air‑India [1988] 2 All E.R. 246 as the leading modern English authority. “Although originally confined to advice regarding litigation, the privilege was extended to non‑litigious business. Nevertheless, despite that extension, the purpose and scope of the privilege is still to enable legal advice to be sought and given in confidence. In my judgment, therefore, the test is whether the communication or other document was made confidentially for the purposes of legal advice. ...”

“Where information is passed by the solicitor or client to the other as part of the continuum aimed at keeping both informed so that advice may be sought and given as required, privilege will attach. ...Moreover legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensible [sic] be done in the relevant legal context.” [¶ 75]

Appellants charged the lower court with “watering down” the legal-advice privilege as set forth in Balabel. The appellate court, however, is not convinced. “[The judge] was simply concerned to deny blanket approval to a claim for privilege in relation to all communications passing between Mr Foyle and anyone in the BATCo organisation (or outside it) over a nine‑year period, and in my judgment he was right to do so.”

“The judgment in Balabel pegs out the ground rules, and the procedure the judge selected will give him the chance of expressing a view on the proposed lines of questioning at the forthcoming directions hearing, and will then leave it to the examining judge to exercise further control over individual questions. It will also provide an opportunity to identify more precisely the person or people who should be treated as Mr Foyle’s clients to whom he was furnishing legal advice on their rights, liabilities and obligations.” [¶ 81]

The appellate court also stresses that the issue presented on the legal advice privilege is not an all-or-nothing proposition.

“There are likely to be areas which are quite plainly covered by legal advice privilege. There will be other areas which quite plainly are not. In the debatable areas the judge, at the restored directions hearing, and the judge‑examiner will both have to proceed with care. But this is no good reason why the whole enterprise should be called off now.”

“It must be remembered that it is the duty and pleasure of the English court to respond positively to a letter of request if it can. It is also in the public interest that a court (on either side of the Atlantic) should have all relevant material available to it when it decides a case, let alone a case as important as this one, unless it is clear even at this early stage that the overwhelming majority of relevant questions will be successfully resisted on the grounds of legal advice privilege. This, in my judgment, cannot be said in this case.” [¶ 88]

Citation: United States v. Philip Morris, Inc., [2004] E.W.C.A. CIV. 330, [2004] All E.R. (D) 448 (Mar.), (Approved judgment)(March 23); “BAT under pressure on memorandum” by Neil Buckley, The Financial Times (London), April 27, 2004, page 27.

JUDICIAL ASSISTANCE

Noting split in Circuits and pending Supreme Court consideration of 28 U.S.C. Section 1782, Seventh Circuit reverses order to produce documents by stockholder of subsidiary companies abroad for use in foreign court action based on distinction between investor and entity itself

Kestrel Coal, an Australian company, brought an action in the Supreme Court of Queensland against Longwall Roof Supports, a British company, for allegedly defective roof supports under a 1991 contract. Among the co-defendants is Joy Global, a Delaware company with its principal place of business in Milwaukee, which indirectly controls all of Longwall’s stock.

Kestrel sought to discover certain documents from Joy Global’s Australian and British subsidiaries. The Australian court considered the documents unnecessary. Kestrel then brought an action in district court in Wisconsin under 28 U.S.C. Section 1782, seeking production of those documents abroad for use in the Australian proceeding.

The district court in fact ordered the production of the documents. This appeal ensued

The U.S. Court of Appeals for the Seventh Circuit reverses. Section 1782(a) provides that “[t]he district court of the district in which a person resides or is found may order him to give testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal ... To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken, and the document or thing produced, in accordance with the Federal Rules of Civil Procedure.”

Here, Joy Global resides in Wisconsin and the intended use is for a pending foreign proceeding. However, to obtain documents under Rule 26 and other discovery rules, one must seek them from the person or company who actually possesses them, and not from an investor.

Furthermore, even though Section 1782(a) does not specify that the evidence must be present in the U.S., there is an implied requirement that such discovery not interfere with court processes in other countries.

“Joy Global leads with the argument that courts of this nation should not order disclosure of information that the court handling the underlying suit has held not discoverable. Five Circuits have adopted that rule. Two have held otherwise. They observe that, if the foreign court denies the request because it believes that disclosure of evidence in the United States should be governed by U.S. law, it would be perverse for the U.S. court to take the foreign decision as blocking use of Section 1782. The Supreme Court may decide this Term which view is correct, and whether foreign decisions that leave discovery to U.S. tribunals should be distinguished from those that ... deny discovery because the evidence is not important to the underlying suit. See Advanced Micro Devices, Inc., v. Intel Corp., 292 F.3d 664 (9th Cir. 2002), cert. granted,... 124 S.Ct. 531 (to be argued April 20, 2004). We need not try to anticipate the outcome of Intel, because there are other grounds on which to resolve this dispute. Nor need we determine whether Section 1782 ever permits a district judge to require evidence to be imported from a foreign nation so that it may be handed over here and then exported. ... ”

[Slip op. 7-9]

[Editors’ Note: In Intel, the Ninth Circuit held that an investigation before the Directorate-General Competition of the European Commission is a qualifying “tribunal” for purposes of Section 1782, and rejected the argument that material normally producible under Section 1782 in U.S. for use in that EU antitrust proceeding must also be discoverable under EC procedures. See 2002 International Law Update 82.]

The Court then turns to the question of whether a district court can order a stockholder to produce company documents. “Legal distinctions between corporations and their investors (even owners of 100% of the stock are just investors ....) are embedded in both statute and common law. Section 1782(a) itself neither instructs, nor permits, courts to disregard the distinction between the corporation that owns a set of documents, and a different corporation that owns stock in the first entity. Kestrel does not contend, and the district court did not find, that the requirements for piercing the corporate veil under Delaware law have been met. Kestrel does not deny that Joy Global has adhered fully to the forms of separation between investment and management; it does not contend that Joy Global has broken a unitary enterprise into slivers in order to hide assets or bamboozle creditors. ...”

“Kestrel asks us to apply a federal common law that supersedes state-law rules distinguishing investors from the entities whose shares they own. But why? Nothing in Section 1782 so much as hints at such a revolutionary approach. ... One uses Fed.R.Civ.P. 34 to get documents from firms that possess them, not from their corporate affiliates. Even when federal law supplies the rule of decision, it routinely absorbs from state law the legal distinctness of corporations and their investors. ... Prior decisions have assumed this when managing international discovery ...” [Slip op. 9-11]

If these documents are not important to the Australian action at this point, as the Australian court determined, then there is no reason to even seek discovery under Section 1782. If these documents do become important, discovery should be requested before the Australian court.

Citation: Kestrel Coal Pty. Ltd. v. Joy Global Inc., No. 03-3604 (7th Cir. March 25, 2004).

WORLD TRADE ORGANIZATION

WTO rules against U.S. in matter of investigation by U.S. International Trade Commission regarding Canadian Softwood Lumber

The World Trade Organization (WTO) has issued a Panel Report on the U.S. Investigation of the International Trade Commission (USITC) in Softwood Lumber from Canada. Canada commenced that case on December 20, 2002, by requesting consultations and alleging violations by the U.S. of GATT 1994, Article VI of the Anti-Dumping Agreement (AD Agreement), and Article 30 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

The dispute concerns the USITC investigation and final determination regarding Canadian softwood lumber, as well as the final definitive anti-dumping and countervailing duties subsequently applied. In May 2001, the USITC determined preliminarily that there was a reasonable indication that the U.S. softwood lumber industry was threatened with material injury because of the allegedly subsidized Canadian imports. In May 2002, the U.S. Department of Commerce issued anti-dumping and countervailing duty orders on Canadian softwood lumber (see 67 Federal Register 36068, May 22, 2002). Canada asked the WTO establish a Dispute Settlement Panel to review the matter.

In a related matter, the WTO Appellate Body issued a report regarding “United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada” (WT/DS257/AB/R) on Jan. 19, 2004. See 2004 International Law Update 28.

The Panel finds that the USITC determination is inconsistent with Articles 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement in that the conclusion that imports would increase substantially could not have been reached by an unbiased investigating authority based on an objective examination of the evidence. The USITC analysis as to causation rests upon the likely effect of substantially increased imports in the near future. The “non-attribution” requirement in anti-dumping cases mandates that other causal factors be distinguished and separated from the dumped imports at issue. The USITC should have considered other factors potentially causing injury in the future, and it thus is inconsistent with Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement requiring that “injuries caused by these other factors must not be attributed” to the subject imports. Thus, a fundamental element of the causal analysis is inconsistent with the AD and SCM Agreements.

The Panel holds, in particular:

(1) The USITC determination is not consistent with Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement in that the finding of a likely, imminent substantial increase in imports is not one which could have been reached by an objective and unbiased investigating authority in light of the totality of the factors considered and the reasoning in the USITC determination.

(2) The USITC determination is not consistent with Article 3.5 of the AD Agreement and Article 15.5 of the SCM Agreement in that the casual analysis is based on a finding which is, itself, not consistent with Article 3.7 of the AD Agreement and Article 15.7 of the SCM Agreement.

(3) Under Article 3.8 of the Dispute Settlement Understanding (DSU), in cases where there is infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment of benefits under that agreement. To the extent that the U.S. has acted inconsistently with the provisions of the AD and SCM Agreements, it has nullified or impaired benefits accruing to Canada under that Agreement.

The Panel therefore recommends that the U.S. bring its measures into conformity with its obligations under the AD and SCM Agreements.

In a related matter, on April 13, 2004, a WTO Panel issued its report in the case United States - Final dumping determination on softwood lumber from Canada (DS/264/R). There, the Panel found that:

(1) The U.S. acted inconsistently with Article 2.4.2 of the AD Agreement in determining the existence of margins of dumping on the basis of a methodology incorporating the practice of “zeroing” (to adjust to zero value the negative margins in the investigation).

(2) The U.S., however, did not act inconsistently with its obligations under the AD Agreement in conducting its investigation.

The Panel rejects Canada’s request to recommend that the U.S. revoke its anti-dumping order, and instead only recommends that the U.S. bring its antidumping measure in conformity with its obligations under the AD Agreement.

One Panel Member dissents on the issue of “zeroing.” In the Member’s View, Canada failed to establish that zeroing is inconsistent either with the specific provisions of Article 2.4.2 or with the general “fair comparison” requirement of Article 2.4. At the very least, the U.S. should be permitted to interpret Articles 2.4.2 and 2.4 as not prohibiting zeroing.

Citation: United States – Investigation of the International Trade Commission in Softwood Lumber from Canada (WT/DS277/R) (22 March 2004); United States - Final dumping determination on softwood lumber from Canada (DS/264/R) (13 April 2004). The Panel Reports are available on the website “www.wto.org.”

WORLD TRADE ORGANIZATION

U.S. prevails in WTO telecommunications dispute with Mexico over interconnection charges

The U.S. has prevailed before the WTO in the dispute with Mexico over telecommunications services.

In 1997, Mexico ended the monopoly of the company Telmex for Mexican telecommunications services. Mexico’s telecommunications rules require U.S. carriers to connect with Mexican telecommunications providers to complete calls from the U.S. to Mexico (“interconnection”). Under the Mexican Federal Telecommunications Law, however, the largest carrier for a particular international market has the exclusive right to negotiate the rates. Telmex is still the largest carrier for all markets in Mexico and thus has the exclusive authority to negotiate the rates for such connecting calls to Mexico.

The U.S. argued that Mexico has thus maintained the interconnection charges artificially high in violation of the General Agreement on Trade in Services (GATS), costing U.S. carriers and consumers approximate $1 billion unnecessarily since the year 2000.

The Panel finds, in particular, that Mexico failed to meet its GATS commitments under:

(1) Section 2.2(b) of its Reference Paper by not ensuring that a major supplier provides interconnection at cost-oriented rates to U.S. suppliers for the cross-border supply, on a facilities basis in Mexico, of the basic telecommunications services at issue;

(2) Section 1.1 of its Reference Paper to maintain “appropriate measures” to prevent anti-competitive practices, because its measures in fact require anti-competitive practices among competing suppliers.

(3) Section 5(a) of the GATS Annex on Telecommunications by not ensuring access to and use of public telecommunication transport networks and services on reasonable terms to U.S. suppliers.

(4) Section 5(b) of the GATS Annex on Telecommunications by not ensuring that U.S. commercial agencies, whose presence is allowed by Mexico, have access to and use of private leased circuits within or across the border of Mexico and are permitted to interconnect these circuits to public telecommunications transport networks and services or with circuits of other suppliers.

The Panel therefore recommends that Mexico bring its measures into conformity with its GATS obligations.

Citation: Mexico - Measures affecting telecommunications services (WT/DS204/R) (April 2, 2004); U.S. Trade Representative press release 04-17 (March 12, 2004).

EU Court upholds parallel trading of discount drugs among Member States. On April 1, the European Court of Justice (ECJ) held that German regulations that barred imports of certain lower cost medicines from the southern Member States conflicted with EU law on the free movement of goods within the Union. The case began in 1994 when Kohlpharma GmbH unsuccessfully sought permission from Germany’s medical agency to import from Italy a medication called Jumex at discount prices. The agency had declared that Jumex – used to treat Parkinson’s Disease -- failed to qualify under German safety criteria. Kohlpharma went to court, contending that the agency had already cleared essentially the same drug from Finland. The big pharmaceutical companies claim the loss of about $5 billion from what is called the “parallel trading” of drugs from Members whose governments set lower prices. The exact ruling of the ECJ is: “In the case where an application for a marketing authorisation for a medicinal product is submitted with reference to a medicinal product that has already been authorised, the medicinal product which is the subject of the application is imported from a Member State in which it has obtained a marketing authorisation, the assessment of safety and efficacy carried out for the medicinal product which is already authorised can be used in the application for a marketing authorisation for the second medicinal product without any risk to public health ...” – A similar dispute is warming up in North America, where the U.S. government claims that safety factors justify the restriction on the importation of cheaper drugs from Canada and other countries. Citation: Judgment of the Court (Sixth Chamber) ... In Case C-112/02 ... between Kohlpharma GmbH and Bundesrepublik Deutschland [Federal Republic of Germany]; The Associated Press (online), Brussels, Thursday, April 1, 2004, at 14:25:05 GMT.

Britain conditionally approves genetically modified maize. On March 9, the U.K. announced its conditional permission for the commercial planting of genetically modified (GM) maize. The Environment Secretary reported to Parliament that the government would consent “in principle” to this herbicide-tolerant maize but did not expect any to be grown for at least twelve months. In her view, there was no scientific case either for approving all the uses of GM or for a blanket ban on it. The Secretary also noted that three years of U.K. trials of gene-altered, herbicide-resistant crops showed that Bayer of Germany’s T25/Chardon LL maize, a form of cattle feed, turned out better than sugar beets and rapeseed. The U.S. is the world’s major producer of gene crops and has been intensively lobbying the EU to terminate its five-year ban on GM imports. It has also been trying to persuade the World Trade Organization to outlaw the deferral. Activists such as Greenpeace are angry at the government’s action and promise to make it a major issue in next year’s elections. Whatever the environmental concerns, the British Medical Association assured the public that GM foods were unlikely to be a threat to human health. It appears, however, that Bayer decided not to proceed with the commercial planting for the moment. Citation: “Farmers get Go-Ahead to plant GM maize in UK,” Financial Times (London), March 10, 2004, page 5; Reuters News Group, London, Tuesday, March 9, 2004 (byline of Mike Peacock with additional reporting by David Cullen)(from FindLaw); “GM Giant Abandons Bid to Grow Crops in Britain,” The Independent (London), March 31, 2004, p. 2.

EU and U.S. agree on auditor oversight measures. On March 25, the United States and the EU reported their entry into a framework agreement to upgrade the supervision of audit firms in both economies. The EU agreed that its auditors who work in the United States will have to register with the newly created U.S. Public Company Accounting Oversight Board (PCAOB) (established by the Sarbanes-Oxley Act, below). The EC Commission proposed last week to improve the oversight of its auditors in response to the U.S. Sarbanes‑Oxley Act of 2002 [Pub. L. No. 107-204, 116 Stat. 745 (enacted in scattered sections of 15 & 18 U.S.C) (codified as amended in scattered sections of 11, 18, 28, & 29 U.S.C.) (enacted provisions set out as notes in scattered sections of 15, 18, & 28 U.S.C.) (amended provisions in notes at 28 U.S.C. 994)] against corporate fraud. The U.S. enacted it two years ago in response to the Enron scandal. Increased cooperation between supervisors is seen as essential to prevent future international corporate scandals such as those that involved Parmalat and Ahold among others. The EU proposal, based on the 8th Company Law Directive (84/253/EEC, 1984 O.J. (L 126) 20, 12 May 1984), will set up PCAOB‑style oversight bodies to supervise accountants in each EU state to make sure they meet U.S. standards. One Commission official expects the Member States and the Parliament to approve the EU proposal by mid‑2005. The PCAOB has set a deadline of June 19, 2004 for non‑U.S. companies to register with it. So far, 801 audit firms have registered with the Board. Only 2.5% of these are non‑U.S. companies. Citation: “EU, US reach agreement on auditor oversight,” Agence France Press report of March 25, 2004; Reuters News Service, Brussels, Thursday, March 25, 2004 (byline of Lisa Jucca)(from Findlaw); See also Commission Recommendation of 16 May 2002 - Statutory Auditors’ Independence in the EU ... C(2002) 1873, published in 2002 O.J. (L 191) 22, 19 July 2002.

European Commission approves Hewlett-Packard acquisition. On March 26, the Commission announced its agreement that Hewlett-Packard Co. (HP) could go ahead with its plan to buy Triaton, an IT business, from ThyssenKrupp AG, a large German steel and engineering firm, for about $414 million. The price also entailed a framework agreement that Triaton will serve as a preferred supplier to Thyssen for seven years. HP is the world's leading manufacturer of computer printers and its second‑largest computer maker. According to the Commission’s findings, the deal will not make major changes in HP’s share of the IT services market. In addition, consumers will continue to enjoy an adequate range of choices in that area. Triaton has 2,200 employees and operates large computer systems for corporate customers. Thyssen is the world’s largest manufacturer of stainless steel. It is undergoing a major restructuring that will involve the sale of over thirty non-core units. Citation: Prior Notification of a concentration (Case COMP/M.3398 - Hewlett-Packard/Triaton), 2004 O.J. of the European Union (C60) 2, March 9, 2004; Reuters News Service, Brussels, Friday, March 26, 2004 (from FindLaw).

EU Parliament approves anti-piracy Directive. On March 9, 2004, 63% of the 520 members of the European Parliament present approved a compromise piracy Directive. It aims to standardize and toughen national laws against the unauthorized copying of copyrighted or patented products on a commercial scale. The Directive covers a wide range of items, e.g., soccer shirts, video games, music downloaded from the Internet, illegally copied DVDs or CDs along with worthwhile medicinal products such as Viagra. Though the Parliament had dropped criminal penalties from an earlier draft, Member State courts will still be able to impose major civil remedies on adjudged counterfeiters such as seizure of property. Between 1998 and 2001, piracy may have leached the EU’s lawful economy of as much as US$9.9 billion each year. Some Member States also report having lost billions of dollars in sales taxes and thousands of jobs. According to the EU Consumer Affairs Commissioner, organized crime and possibly terrorist groups are seemingly the main exploiters of pirated products. The Member States will have two years within which to transpose the Directive into binding national law. Citation: The Associated Press (online), Brussels, Tuesday, March 9, 2004 at 15:11:41 GMT (byline of Constant Brand, AP Writer); The International Herald Tribune, March 11, 2004, page 13.

Human rights provisions added to Chinese Constitution. On March 14, 2004, China’s 2,900-member Parliament approved 13 amendments to the Constitution. Drafted by the governing Communist party last fall, they address private property and human rights in general terms but would not limit the government’s power to crack down on protests. For example, one change says that “the state respects and preserves human rights.” Another proclaims that “citizens’ lawful private property is inviolable,” and that the State will compensate property owners when it confiscates their property. According to Chinese legal experts, the courts seldom test the validity of statutes and government decisions for compliance with the Constitution. Professor He Weifang of the Beijing University law school explains that, “[t]he new constitutional provisions are very vague, and won’t mean much unless laws are revised to conform with them; they’re more important symbolically rather than legally.” Rather than laying down an effective legal right, he noted, the private property amendment mainly signals the increasing influence of private business in China. Citation: The New York Times (online), Beijing, Monday, March 15, 2004 (byline of Chris Buckley); China Daily, March 31, 2004; BBC Worldwide Monitoring, March 30, 2004, Text of white paper on China’s human rights record in 2003 (through Xinhua news agency).

U.N. Security Council bolsters anti-terrorism committees. On March 26, the United States and other members of the U.N. Security Council unanimously passed Resolution 1535. It permits the restructuring of the U. N. Counter-Terrorism Committee’s staff. For example, the Resolution consolidates the Committee’s support personnel under a new Counter‑Terrorism Executive Directorate. The recent resolution does not affect Resolution 1373 which originally set up the Committee soon after 9/11. The Committee’s purpose is to monitor the programs of member states to put into effect a wide-range of counter-terrorism measures. It has also acted as the central clearinghouse for the exchange of information and planning among over 60 international and regional organizations. The new measure follows the adoption, in January 2004, of Resolution 1526. It enhanced the ability of the 1267 (Al‑Qaida/Taliban) Sanctions Committee to carry out its more specialized work. Another key element in global counter‑terrorism efforts, the 1267 Committee, supported by a new monitoring team, can now induce better reporting and use of sanctions by states. Citation: Press Statement #2004/340, Richard Boucher, U. S. State Department Spokesman, released in Washington, D.C., on Monday, March 29, 2004; M2 Presswire, March 26, 2004.

U.N. consent procedure for dangerous chemicals in force. On February 24, the United Nations (UN) Food and Agriculture Organization (FAO) and the U.N. Environment Program (UNEP) announced that there were enough ratifications to bring into force the Prior Informed Consent (PIC) Procedure for Certain Hazardous Chemicals and Pesticides in International Trade, or the “Rotterdam Convention.” Jacques Diouf, the FAO’s Director‑General, explained the purpose of the PIC. “In many developing countries conditions do not allow small farmers to use highly toxic pesticides safely, the result is continued damage to the health of farmers and poisoning of the environment.... The Rotterdam Convention provides countries with a major tool to reduce the risks associated with pesticide use. ... The treaty promotes sustainable agriculture in a safer environment thereby contributing to an increase in agricultural production and supporting the battle against hunger, disease and poverty.” The United States has signed the Convention but the Senate has not yet acted on it. Citation: Europe Environment, “Dangerous Substances: Rotterdam Convention Enters Into Force,” March 11, 2004; FAO Press Release, Rome/Geneva, Tuesday, February 24, 2004 as quoted in U.S. State Department Press Release of Wednesday, February 25, 2004 (Copyright 2004 Federal Information & News Dispatch, Inc).

Japanese court sentences cult leader of 1995 gas attack on Tokyo subway. On February 27, 2004, a judge of the Tokyo District Court sentenced Shoko Asahara (aka Chizuo Matsumoto), 48, the leader of the doomsday cult, Aum Shinrikyo (ASK), to hang. The court had convicted Asahara for directing the release of Sarin nerve gas into the Tokyo subway system during the rush hour of May 20, 1995. The eight-year trial brought out that the use of the Nazi-invented gas had killed 12 and injured 5,500 others, many permanently. The attack had sent a frisson throughout Japan and the rest of the world because of the apparent ease with which ASK had gotten hold of, and made use of, the deadly gas. Asahara had pleaded not guilty but never took the witness stand. There also was evidence that defendant had conspired to kill seven in a Sarin attack in central Japan in 1994. Moreover, the proof also showed that, in 1989, the defendant had ordered the murder of an anti-ASK attorney and his family. Defendant’s attorneys immediately filed an appeal and then resigned. The appeal process could take up to another ten years. Citation: The Japan Times, February 28, 2004; Reuters, Inc. (online via Findlaw), Tokyo, Japan, Friday, February 27, 2004 (principal byline of George Nishiyama with additional reporting by Masayuki Kitano and Elaine Lies).