2005 International Law Update, Volume 11, Number 11 (November)

2005 International Law Update, Volume 11, Number 11 (November)

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

EU LAW(STATE AIDS)

In case involving French subsidiary of U.S. paper company, European Court of Justice rules that EC Commission’s letter of inquiry to French Republic about possibly unlawful state aid to subsidiary tolled ten-year limitation period though beneficiary of aid was not notified of letter

The Scott Paper Company, a U.S. corporation, acquired Bouton Brochard, a company governed by French law in 1969; it then set up a separate company, Bouton Brochard Scott S.A. (BBS) to take over the business of Bouton Brochard. Seventeen years later, BBS decided to build a factory in France, choosing a site in the Département of Le Loiret. On August 31,1987, the city of Orléans and Le Loiret granted BBS certain economic concessions. First, they sold it a plot of about 119 acres on La Saussaye industrial estate on preferential terms. Secondly, they agreed to calculate the water treatment levy at a similarly low rate.

BBS changed its name to “Scott, S.A.” in November 1987. About nine years later, the Kimberly-Clark Corporation (KCC) acquired the shares of Scott. In 1997, KCC announced that it was planning to shut down the factory in question; Procter & Gamble (P&G) then bought the site and the paper mill. Presumably following up a complaint, the EC Commission sent a letter on January 17, 1997, asking the French Republic for the details of the above-mentioned concessions.

On September 30, 1998, the Commission officially published its decision to launch the procedure for investigating state aids provided for in Article 93(2) of the EC Treaty [now Article 88(2) EC]. The Commission ruled in July of 2000 that the State aid which the French Republic had granted to Scott clashed with common market goals and ordered its recovery.

Article 15 of Council Regulation (EC) 659/1999 provides in part: “(1). The powers of the Commission to recover aid shall be subject to a limitation period of 10 years. (2). The limitation period shall begin on the day on which the unlawful aid is awarded to the beneficiary either as individual aid, or as aid under an aid scheme. Any action taken by the Commission or by a Member State, acting at the request of the Commission, with regard to the unlawful aid shall interrupt the limitation period. Each interruption shall start time running afresh. The limitation period shall be suspended for as long as the decision of the Commission is the subject of proceedings pending before the Court of Justice of the European Communities. ...”

On November 30, 2000, Scott filed an action in the Court of First Instance (CFI 1) (First Chamber) to annul part of that contested decision. The French Republic intervened. At Scott’s request, the CFI (1) decided to rule on the plea alleging infringement of Article 15 before reaching the other issues.

The court held that a measure, i.e., the January 1997 request for information, of which Scott (the beneficiary of the aid) had not been notified, could interrupt the limitation period. Accordingly, the CFI (1) dismissed the application in so far as it alleged infringement of Article 15 of Regulation No. 659/1999 and (2) stayed the remainder of the proceedings.

Appealing to the European Court of Justice (ECJ), Scott basically relied on a single point. It contended that the CFI (1) had misread Article 15 of Regulation No 659/1999 when it ruled that the January 1997 request letter which the Commission had not told Scott about could interrupt the limitation period.

After summarizing the limitation provisions of Article 15, the ECJ takes up the issue of what kind of Commission action may interrupt the ten-year period. “Under the second sentence of Article 15(2), the limitation period is interrupted by ‘[a]ny action taken by the Commission or by a Member State, acting at the request of the Commission, with regard to the unlawful aid’.”

“While that provision indeed contains a reference to both ‘action[s] taken by the Commission’ and ‘request[s] of the Commission’, that cannot mean, however, that a request for information addressed by that institution to the Member State concerned constitutes ‘action taken by the Commission’ only provided it has been notified to the beneficiary of the aid. [O]ne explanation for the dual reference might be an oversight on the part of the legislature, which appears to have copied, without paying attention to the procedural differences, the wording used in Article 2 of Council Regulation (EEC) No 2988/74 of November 26, 1974 concerning limitation periods in proceedings and the enforcement of sanctions under the rules of the European Economic Community relating to transport and competition (OJ 1974 L 319, p. 1).”

“Alternatively, there may be situations in which a ‘request of the Commission’ does not automatically and simultaneously constitute ‘action taken by the Commission’. Finally, ... Regulation No 659/1999 allows for the possibility that there are several (successive) interrupting actions since it provides in Article 15 that each interruption is to start time running afresh.” [¶ 27]

“Accordingly, the wording of Article 15 of Regulation No 659/1999 does not give any guidance as to whether there is any requirement to notify the action to the beneficiary of the aid if the limitation period is to be interrupted. It must none the less be determined whether such a requirement does not follow from the objective pursued by Article 15 of the Regulation.” [¶¶ 28-29]

“In that respect, according to recital 14 in the preamble to Regulation No 659/1999, for reasons of legal certainty, the limitation period is designed to prevent the recovery of unlawful aid which can no longer be ordered. The limitation period is therefore intended, in particular, to protect some of the interested parties, including the Member State concerned and the beneficiary of the aid.”

“Those interested parties therefore in fact have a practical interest in being informed of action taken by the Commission which is capable of interrupting the limitation period. That practical interest cannot, however, have the effect of making the application of the second sentence of Article 15(2) of Regulation No 659/1999 subject to the requirement that that action be notified to the beneficiary of the aid.”

“The procedure provided for in Article 93(2) of the Treaty takes place primarily between the Commission and the Member State concerned. It is initiated against that State and not against the beneficiaries. [Cites].”

“It is true that case-law has granted the beneficiary of aid certain procedural rights. However, those rights are designed to enable the beneficiary to provide information to the Commission and to put forward its arguments, but do not confer on it the status of a party to the procedure. Therefore, even if the status of party could justify a notification requirement, it suffices to state that the beneficiary of aid does not have that status. Having regard to the foregoing, the [CFI (1)] did not interpret Article 15 of Regulation No 659/1999 incorrectly in holding that the limitation period could be interrupted by an action which has not been notified to the beneficiary of the aid, in this case the request for information of 17 January 1997.”

“It is true that both the fact that the beneficiary could not have a legitimate expectation that the aid was properly granted and the fact that, 10 years after the aid in question was granted, Regulation No 659/1999 was not yet in force are not necessary steps in the reasoning by which that interpretation is reached. However, those findings do not undermine the validity of the interpretation. Consequently, the plea must be rejected as unfounded. The appeal must therefore be dismissed.” [¶¶ 29-38]

Citation: Scott S.A. v. European Commission, Case C-276/03 P, [2005] All E.R. (D) 55 (E.C.J. [First Chamber] Oct. 6) (Approved judgment).

FAMILY LAW

British Columbia Court of Appeal rules that, since separated mother and children have become habitual residents of Province, chambers judge erred in declining to exercise its jurisdiction in favor of father’s prior suit in state court of Washington which had already addressed several issues of custody and parentage while family were living there

A judge of the Superior Court of the State of Washington entered an order in December 2003 entitled: “Varying the Order Determining Parentage; the Order of Child Support; and the Parenting Plan Order” with respect to the twin sons of Ms. DPC and Mr. RBL. The boys are now almost five years old. They were born in Spokane, Washington and had been living there with DPC in southeastern Washington. Their father was residing in Spokane and carrying out his rights of access to them from there.

In May 2002, however, shortly after RBL had served her with additional Superior Court documents, DPC took the twins back to Victoria, British Columbia to live where she had grown up. RBL claims that the move took place without his knowledge or consent.

The following month, DPC moved unsuccessfully to have the Washington court decline jurisdiction. Instead, that Court issued a temporary Parenting Plan Order in August. Later that year, a so-called guardian ad litem or “GAL” Report was prepared. In December 2003, the Washington Court issued its final Parenting Plan Order (PPO), detailing the dates and times of RBL’s access. According to DPC’s affidavit, the parties generally complied with this Plan for the six months ending in July 2004.

At that point, DPC had RBL served with a petition out of the Supreme Court of British Columbia. DPC’s attached affidavit brought up various new and unresolved issues. These included allegations of sexual activity between the twins and a slightly older boy, who is the son of a woman with whom RBL is now living. The affidavit also averred that, since early 2004, the twins were manifesting severe stress reactions. Finally, the petition called for a thorough investigation of the children’s statements and physical symptoms. RBL vigorously contested these claims.

The threshold questions for the B.C. judge was whether his Court had jurisdiction and, if so, whether he should exercise it. He found first that the children were now habitually residing in British Columbia and that this accorded jurisdiction to the B.C. court. Neither side challenged this ruling . Nor did either party object to the court’s statement that, under Canadian law, the governing principle is the children’s best interest.

The Chambers judge then considered whether the Court should exercise, or decline to exercise, its jurisdiction. He took into account the history of the parties; the connection of the parties with the jurisdiction in question; the availability of witnesses who may be of assistance to either party, where they are located and if they have to travel, whether it is a matter of great significance, along with the factors of time and expense. In a case of this kind, one element is which jurisdiction has the greater number of concerned family members. Finally, the court should weigh the general links of the parties to the present forum.

The Chambers judge decided that, since the Washington GAL Report was relatively recent and had resulted from an “extensive investigation”, and since the newer report did “not create a problem in terms of access to the respondent”, the Washington court should retain jurisdiction. DPC appealed.

Before the B.C. Court of Appeal, DPC argued, citing B.C.’s Family Relations Act Section 44 (FRA), that, if a child habitually resides in the Province, the court must take jurisdiction. The Court unanimously allows the appeal.

“The fact remains that even where the court has jurisdiction, it may, as [FRA] Section 46 provides, decline to exercise it where ‘it is more appropriate for jurisdiction to be exercised outside B.C.’. The question for us is whether the Chambers judge erred in concluding that it was more appropriate in this case.” [¶ 7]

“..., I am of the view that he did err in proceeding on the basis that an extensive investigation had been held in Washington when in fact the ‘new matters’ were not even hinted at, at that time; and in concluding that the question of access would more appropriately be dealt with in future by the Washington court. In doing so he appears, with respect, to have considered some of the merits of the case when the only question was jurisdiction.”

“Greater weight should have been given to the fact that the children, their mother and her extended family are in British Columbia, the children’s health care professionals are here, and the new matters were not resolved by the psychologist’s report that was prepared at the mother’s behest. Any custody and access report must, ... be based on interviews with both parents (and of course the children) and provide the Court with a complete picture of how the children’s emotional health has, or has not, been affected by the existing custody and access arrangements and, more importantly, what custody and access arrangements are in their best interests here and now.” [¶ 8]

“If the arrangements ordered by the Washington court turn out to be suitable after the changes in circumstances have been fully considered, then I am sure a British Columbia court will so rule. However, the matters that have been raised do require investigation, ... for the purpose of ensuring that the children’s best interests are being met. The children now reside here, and, subject to the ultimate court order, will continue to reside here.”

“In my view, it is not appropriate that the Washington Court retain jurisdiction and, conversely, it is appropriate that British Columbia exercise its jurisdiction and responsibility to the children. For these reasons, I would set aside the order of the Chambers judge, allow the appeal, and order that the petition be heard in the Supreme Court of British Columbia.” [¶ 9-10]

Citation: D.P.C. v. R.B.L., [2005] B.C.J. No. 2250; 2005 B.C.C.A. 497 (Sept. 27).

INSURANCE CONTRACTS

In light of Massachusetts law applicable to one insurance contract, Supreme Court of Ireland rules that clauses in both contracts that excluded coverage for faulty workmanship and environmental pollution did not exempt insurers from liability for accidental damage by insured’s employee to internal circuits during maintenance period

At Raheen Industrial Estate in County Limerick, Analog Devices B.V. and a related company (plaintiffs) were at all material times in the business of researching, designing and manufacturing, high performance linear-mix integrated circuits. The Zurich Insurance Company and another (defendants) insured the plaintiffs under two “all risk policies”. Each policy barred insurers’ liability for loss or damage caused, inter alia, by faulty workmanship, errors in processing or manufacturing, or by the actual or threatened release, discharge, escape or dispersal of contaminants or pollutants.

The plaintiff's integrated circuits plant routinely interrupted production at Christmas time and during the summer for biannual maintenance. During the summer 1999 maintenance break, a technician employed by the plaintiffs installed the wrong filter in a cleaning device. The effect was to befoul with carbon particles the hydrochloric acid (HCL) regularly used to clean the silicone circuit wafers. This gaff forced plaintiffs to substitute a large number of new wafers, delaying production for an extra ten days. The plaintiffs filed a claim with defendants but they denied liability based on the exclusion clauses.

The plaintiffs then sued in the High Court for a declaration that the defendants were liable under the policies. The Judge ruled that the exemption for “faulty workmanship” applied only to the manufacturing process and not to maintenance work. He also found that the “pollution” exclusion clause applied only where a toxic substance had injured the surrounding environment by leaking from its container. The trial judge, therefore, ruled that the defendants were liable under the policies and they appealed. The Supreme Court of Ireland, however, dismisses their appeal.

Applying settled principles, the Court unanimously decides that the High Court judge had been entitled to conclude that neither of the exclusion clauses invoked by defendants applied to the present case. The Court first points out that, under the contracts, Irish law governs the local policy whereas the law of Massachusetts applies to the similar, but broader, global policy.

A fundamental principle of contract interpretation under the legal regimes of both Ireland and Massachusetts is the rule of contra proferentem. This holds generally that, if exempting provision is ambiguous and capable of more than one interpretation, then the courts will construe the clause against the party seeking to rely on it. Courts often apply this rule of interpretation against an insurance company that drafted the equivocal language. The second important general principle in relation to exclusions is that the insurer has the ultimate burden of persuading the court that the exclusion or exemption applies to the facts at hand.

The Court first determines that the casualty did not take place within the exemption applying to the manufacturing process. The Court clarifies this issue by asking and answering a few simple questions. First, was there manufacturing going on in the August Bank Holiday of 1999? Answer: No, the machines were closed down for maintenance. Secondly, did something go wrong during the maintenance operation? Answer: Yes. Was that the sole cause of everything that went wrong afterwards? Answer: Yes.

Though maintenance may be crucial to the manufacturing process, this does not allow the Court, as a matter of plain English, to equate maintenance with manufacture. The man who made the unfortunate error when replacing the filters was a “facilities technician” working for the plaintiffs. He had nothing to do with, and no role to play in, the day to day processing and manufacturing. There was nothing out of the ordinary about the need for maintenance twice a year to support this manufacturing process -- but maintenance it remained.

The Court also rejects the defendants’ second complaint that the trial judge should not have taken into account evidence that insurance companies have ready access to standard exclusion clauses relating to maintenance. The trial judge was, the Court holds, entitled to draw adverse inferences from their failure to include such a clause in their policies.

Finally, the Court addresses and rejects defendants’ invocation of the contamination or pollution exclusion. In light of the case law of Massachusetts in relation to the global policy, the pollution clauses in both policies, on their natural interpretation, only intended to exclude coverage for leaks that damaged the environment, and thus did not apply to the present case.

Citation: Analog Devices B.V. v. Zurich Insurance Company, [2005] I.E.S.C. 12 (Sup. Ct. Ire. 2005).

JURISDICTION (PERSONAL)

In contract action between French and Utah companies, Tenth Circuit finds that Utah law provides for personal jurisdiction over French company based on minimum contacts and reasonableness factors

Sporoptic Pouilloux, S.A. (a French company) (defendant) sells sunglasses, and launched a line of low-cost sunglasses in the U.S. in the mid-1990s. Through a local distributor, defendant contracted with Pro Axess, Inc. a Utah corporation (plaintiff), to have 28,000 sunglass frames manufactured in Asia. Defendant later cancelled that order. Plaintiff brought a breach of contract action in Utah state court against defendant and its U.S. distributor, which the defendants removed to federal court based on diversity of citizenship.

Rejecting defendant’s challenge to the personal jurisdiction of the trial court over it, the court found it liable for breach of contract and awarded plaintiff $156,264 in damages. Defendant appealed, challenging the district court’s personal jurisdiction. The U.S. Court of Appeals for the Tenth Circuit affirms.

“‘To obtain personal jurisdiction over a nonresident defendant in a diversity action, a plaintiff must show that jurisdiction is legitimate under the laws of the forum state and that the exercise of jurisdiction does not offend the due process clause of the Fourteenth Amendment.’ ... Because we agree with the parties that ‘general’ personal jurisdiction is not applicable in this case, we turn directly to the issue of ‘specific’ personal jurisdiction.”

“‘[T]he evaluation of specific jurisdiction in Utah mandates a three-part inquiry: (1) the defendant’s acts or contacts must implicate Utah under the Utah long-arm statute; (2) a ‘nexus’ must exist between the plaintiff’s claims and the defendant’s acts or contacts; and (3) application of the Utah long-arm statute must satisfy the requirements of federal due process.’ ...” [Slip op. 3]

As to the first two parts of the inquiry, a plaintiff satisfies the Utah long-arm statute if it meets due process. To satisfy federal due process, a court may exercise jurisdiction over a nonresident defendant only so long as there exist minimum contacts between the defendant and the forum State. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980). Plaintiff can show the needed contacts with evidence (1) that the defendant had purposefully directed his activities at residents of the forum, and (2) that the litigation resulted from alleged injuries arising out of, or relating to, those activities.

A mere contract with a Utah company without more would not have been enough. Defendant, however, was purposefully directing its activities at forum residents. Though it was to obtain frames from Asia, some of the activities, such as prototype production and coordination of Asian manufacturing, would have taken place within Utah. In addition, defendant and its U.S. distributor regularly communicated with plaintiff, thus suggesting a continuing business relationship.

Likewise, defendant’s voluntary contacts with Utah and plaintiff are such that plaintiff’s injuries “arose out of” defendant’s activities. Defendant solicited business from plaintiff. Based on the business relationship, it should have anticipated the possibility of being haled into a Utah court to have contract disputes adjudicated. Therefore, defendant had sufficient minimum contacts with Utah to support personal jurisdiction.

The question then is whether the exercise of personal jurisdiction here comports with traditional notions of fair play and substantial justice. Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 113 (1987). The relevant factors here include (1) the burden of local litigation on the foreign defendant, (2) the forum state’s interest in resolving the dispute, (3) the plaintiff’s interest in receiving convenient and effective relief, (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several states in furthering fundamental social policies.

The analyses of minimum contacts and reasonableness are complementary and on a sliding scale. The weaker the plaintiff’s showing on minimum contacts, the less a defendant need show in term of unreasonableness to defeat jurisdiction. Likewise, an especially strong showing of reasonableness may strengthen a borderline showing of minimum contacts.

The reasonableness factors here favor jurisdiction. Defendant’s past conduct shows that the company is used to carrying on international business; its employees and agents have often made business trips to the U.S. Because plaintiff is a Utah company, that state has a strong interest in providing a forum. The fact that common law governs the contract at issue, would make litigating in a civil law country such as France more difficult. Finally, litigating in Utah is more convenient than in France because most of the witnesses, including defendant’s U.S. distributor, are located in the U.S. France’s interests are not much affected because French law does not govern the dispute. Finally, defendant had voluntarily chosen to do business with the Utah plaintiff.

Citation: Pro Axess, Inc. v. Orlux Distribution, Inc., 2005 WL 2982276, Nos. 03-4179, 03-4189 (10th Cir. Nov. 8, 2005).

POLITICAL QUESTION DOCTRINE

In action for compensation by Austrian victims of Nazi confiscations, Second Circuit dismisses based on Political Question doctrine giving decisive importance to Executive Branch views on whether judicial decision would conflict with foreign policy interests of U.S.

A group of Holocaust victims and their representatives brought a putative class action against Austria, certain government agencies, and other Austrian entities arising out of property seizures by Nazi forces in Austria during the years 1938 to 1945. Among the defendants is an auction house allegedly owned by Austria which allegedly sold property seized from Austrian Jews.

The plaintiffs argued that the U.S. courts had jurisdiction based on exceptions to the Foreign Sovereign Immunities Act of 1976 (FSIA), Section 1330, 1602-11. Austria moved to dismiss based on sovereign immunity arguing that the court should not apply the FSIA retroactively to alleged events that took place before 1976. The U.S. Supreme Court, however, rejected this contention.

In remanding to the Second Circuit in June 2004, the Supreme Court left open the degree of deference a federal court should accord to views of the Executive Branch in asserting judicial jurisdiction over a foreign sovereign. See Republic of Austria v. Altmann, 541 U.S. 677 (2004); Republic of Austria v. Whiteman, 124 S.Ct. 2835 (2004).

The Second Circuit now takes up those issues. They include (1) Austria’s interlocutory appeal challenging the discovery order of the district court relating to subject-matter jurisdiction; and (2) Austria’s mandamus petition to compel the district court to rule on the defendants’ motion to dismiss. An executive agreement between the U.S. and Austria had created a compensation fund in 2001. The amici curiae, the U.S. government and the American Council for Equal Compensation of Nazi Victims from Austria, are asking the Court to dismiss this case. They stress that this case constitutes the only remaining bar to disbursing the Fund to Austrian Jewish victims of the Nazi regime. In a 2 to 1 split, the U.S. Court of Appeals for the Second Circuit vacates in part, dismisses in part, and remands in part.

The U.S. government claimed that it has been pursuing a consistent policy of resolving Holocaust victims’ claims through international agreements rather than by litigation. One of the results is the U.S.-Austria Executive Agreement of 2001 to set up the Fund in question. The Agreement makes distributions contingent on the dismissal of the present case.

The U.S. argued that negotiation and cooperation is the best way to resolve matters of Holocaust-era compensation. For example, unlike time-consuming litigation, the Fund process can more quickly and uniformly get compensation into the hands of elderly victims who are dying at an accelerating rate. Further, it helps the U.S. to keep up good relations with Israel and other countries with an interest in these matters.

“In light of the Supreme Court’s political question jurisprudence, as well as its recent rulings directing ‘case-specific deference’ to the expressed foreign policy interests of the United States, ... we hold that deference to a statement of foreign policy interests of the United States urging dismissal of claims against a foreign sovereign is appropriate where, as here, (1) the Executive Branch has exercised its authority to enter into executive agreements respecting the resolution of those claims; (2) the United States Government (a) has established, through an executive agreement, an alternative international forum for considering the claims in question, and (b) has indicated that, as a matter of foreign policy, the alternative forum is superior to litigation; and (3) the United States foreign policy advanced by the Executive Agreement is substantially undermined by the continuing pendency of the claims.” [Slip op. 4]

“We therefore hold that plaintiffs’ claims against Austria and its instrumentalities must be dismissed as non-justiciable under the political question doctrine. In so holding, we defer to a United States statement of foreign policy interests in this particular litigation, which is the one remaining ... obstacle to the implementation of the Agreement. ...”

“We conclude that we cannot ‘undertak[e] independent resolution without expressing lack of the respect due’ the Executive Branch ... Due to the ‘case-specific’ nature of our ‘deference to the political branches,’ Sosa, 124 S.Ct. at 2766 ..., we need not determine whether any of these factors is necessary or sufficient for dismissal, and we merely conclude that the dismissal of a claim against a foreign sovereign is appropriate in the circumstances presented to us here.” [Slip op. 16]

Citation: Whiteman v. Dorotheum GmbH & Co. KG, 2005 WL 3117196, Nos. 02-9361(L), 02-3087 (CON) (2d Cir. November 23, 2005).

SELF-INCRIMINATION

Ontario Court of Appeal rules that officers of Canadian corporation called before court-appointed fact-finding inspector charged with gathering information about officers’ receipt of generous payments from company cannot refuse to answer by invoking protection against self-incrimination under Canadian Charter of Rights and Freedoms even though U.S. Securities and Exchange Commission is also looking into similar payments to same officers from counterpart company in U.S.

On a petition by Catalyst Fund General Partner I Inc., a share holder, the Ontario Superior Court of Justice in September 2004 appointed Ernst & Young, Inc. as an Inspector under Section 229 of the Canadian Business Corporations Act (CBCA). The Inspector could inquire under oath into certain questionable corporate payments to former senior officers and directors of Hollinger, Inc., a Canadian public corporation. The individuals under inquiry include Lord Conrad Black, John A. Boultbee, and F. David Radler (appellants).

The targets of the enquiry complained that the order would require them to incriminate themselves in violation of Section 7 and 13 of the Canadian Charter of Rights and Freedoms. They further noted that the U.S. Securities and Exchange Commission is also looking into various dubious activities related to International Hollinger, Inc. an American corporation; the parties, therefore, additionally argued that the inquiry would impair their Fifth Amendment rights under the U.S. Constitution in those proceedings.

When the first instance judge upheld the Section 229 order, the individual and corporate parties sought appellate review. For one thing, the appellants are asking the Ontario Court of Appeal for a declaration that the lower court’s order compelling them to submit to questioning is premature because the Inspector has not exhausted other sources of information. They also request the Court to set aside and dismiss the order to compel them to answer questions or, in the alternative, to stay the order pending the outcome of any U.S. criminal proceedings. In a unanimous opinion, however, the Court dismisses the appeal.

The Court first outlines the differences between Canadian and U.S. law on the right against self-incrimination. “In both Canada and the United States, the right to protection from self-incrimination is an important right that is safeguarded. The difference between how that right is protected in Canada and in the United States lies at the heart of this appeal.”

“In Canada, a person has the right not to have any incriminating evidence that the person was compelled to give in one proceeding used against him or her in another proceeding except in a prosecution for perjury or for the giving of contradictory evidence. Thus, in Canada, a witness cannot refuse to answer a question on the grounds of self-incrimination, but receives full evidentiary immunity in return. In the United States, a witness can claim the protection of the Fifth Amendment and refuse to answer an incriminating question. Once the answer is given, however, there is no protection.” [¶ 4]

The Court then turns to the prematurity contention. “The appellants’ first submission is that the order of the lower court permitting a notice of examination to be served on them is premature in light of its initial order authorizing an examination of documentary evidence and evidence from other sources. The appellants submit that they can be examined only after the inspector has exhausted all other sources of information. This submission can be dealt with summarily.”

“The step-by-step approach of [the lower court’s] earlier order recognized that the appellants were contemplating the motion now under appeal but enabled the Inspector to go forward in the interim. Properly construed, the order did not require the Inspector to exhaust all other sources before having recourse to the best source of evidence, namely, the appellants, who were the directing minds of Hollinger Inc.”

“In addition, the Inspector has now indicated that the records of Hollinger Inc. are in disarray, that current management lacks knowledge about a number of matters, and that the only way in which the Inspector can do a thorough report is to examine the appellants.” [¶ 6]

The Court then rejects appellants’ chief claim that they are entitled to a constitutional exemption from answering any of the Inspector’s questions. “They are only entitled to a constitutional exemption if their evidence would be used against them in a criminal prosecution here. A constitutional exemption is not appropriate in the circumstances of this case as the purpose of the inquiry being conducted under the Canada Business Corporations Act is fact-finding only and not prosecutorial.” [¶ 7]

“Further, ... counsel for Lord Black candidly acknowledged that at least some of the questions the Inspector wished to ask would not be a violation of the appellants’ rights against self-incrimination in the United States. We therefore decline to set aside the order [below].” [¶ 8]

The Court next addresses whether it should stay the order until the scope of the U.S. investigations becomes clear. “There are at present no outstanding criminal charges against Lord Black or Mr. Boultbee. Subsequent to the hearing of this appeal, Mr. Radler has pled guilty to the charges that were outstanding against him. The appellants seek protection in a factual vacuum and boldly assert that no measures imposed by any judge or taken by the Minister of Justice could protect them once they have been compelled to answer questions in Canada.” [¶ 9]

“[The lower court] set up a procedure specifically to deal with the anticipated conflict in how Canada and the United States approach protection from self-incrimination, however. That procedure is designed to enable the parties to make submissions as a result of which the Court will craft a protective mechanism tailored to the situation.

The parties have yet to engage this process. As a result, no one knows yet what protective mechanism will be crafted. We cannot decide that Charter rights will be infringed in a vacuum or engage in speculation. The particular Order that is before us under appeal does not as yet lead us to conclude that the appellants’ Charter rights will be violated.” [¶ 10]

“Further, while there is an overlap between the criminal investigation in the United States and the investigation in Canada being conducted by the Inspector under the CBCA insofar as non-compete payments to the appellants respecting both Hollinger Inc. (the Canadian Company) and Hollinger International (the U.S. Company) are concerned, in other areas there is no overlap. For example, the management fees paid by Hollinger Inc. to the appellants do not appear to be the subject of any proceedings in the United States at this time.” [¶ 11]

“The protection under the Charter is witness-specific and fact-specific. The balancing of potential prejudice to a particular appellant against the necessity of obtaining the evidence must be undertaken in context. For example, by his plea of guilty in the United States, Mr. Radler may be in a different position in some respects than the other two appellants and may not need protection from the use that can be made of his answers - at least in respect of the matters to which he has already pled guilty.”

“[The judge below] indicated that he was prepared to rule on whether the appellants should be compelled to answer specific questions and we regard that as the appropriate context in which to consider the appellants’ rights. Also, ... we are not persuaded that Canada is completely powerless to protect those under its jurisdiction. Having regard to the contextual approach proposed by [the judge below], we would decline to order a stay of his order. Accordingly, the appeal is dismissed.” [¶¶ 12-14]

Citation: Catalyst Fund General Partner, Inc. v. Hollinger Inc., Dockets: C43639, C43642, C43643; [2005] O.J. No. 4666 (Ont. Ct. App. Nov. 1).

SOVEREIGN IMMUNITY

D.C. Circuit holds that plaintiff’s purchase of airline tickets in United States was enough to confer federal jurisdiction over state-owned foreign airline under “commercial act” exception to Foreign Sovereign Immunities Act

At a Washington, D.C., travel agency, Elisabeth Kirkham (plaintiff) bought tickets on state-owned Air France (defendant) to Bastia, Corsica, with a stopover in Paris. As she was following a uniformed man at the Paris airport, a person or a luggage cart struck her foot. She has needed to have several foot surgeries since that incident.

Plaintiff sued defendant in District of Columbia federal court. Defendant argued that it did not owe plaintiff a duty of care because she was at most a “prospective passenger,” not having checked in for her flight when the accident occurred. The district court, however, found that the uniformed man exercised the necessary control over plaintiff to create a passenger-carrier relationship. The U.S. ticket sale provided an adequate commercial basis for plaintiff’s jurisdictional claim. Air France appealed.

The U.S. Court of Appeals for the District of Columbia Circuit affirms. Under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Section 1605(a)(2), a foreign state is not immune from suit in U.S. federal courts if the claim is “based upon a commercial activity carried on in the United States by the foreign state.” The ticket sale necessary to establish plaintiff’s claim was enough to trigger the FSIA’s “commercial activity” exception.

The more substantial question here is whether plaintiff’s negligence claim is “based upon” her conceded ticket purchase. In Saudi Arabia v. Nelson, 507 U.S. 349 (1993), the Supreme Court ruled that the exception does not apply where the alleged commercial activity was not an essential ingredient of the plaintiff’s claim. In that case, the commercial activity (a Saudi hospital’s recruiting efforts in the U.S.) was not related to the alleged harm (intentional torts committed against Nelson in Saudi Arabia).”

“The case at bar differs from Nelson. Here, plaintiff had to show that she had bought a ticket to establish a passenger-carrier relationship with the defendant. The ticket sale is thus necessary to the ‘duty of care’ element of her negligence claim.”

“Although we agree with the district court that Kirkham cannot prevail on the merits of her claim without first demonstrating she acquired passenger status prior to her injury, we think that issue irrelevant to the jurisdictional question before us. Under the commercial activity exception as interpreted by Nelson, we must determine whether the ticket sale is one of ‘those elements of a claim that, if proven, would entitle [Kirkham] to relief under [her] theory of the case.’ 507 U.S. at 357. The district court appears to have thought that the term ‘elements’ refers only to the primary components of Kirkham's negligence claim, i.e., duty of care, breach of duty of care, and proximate causation between that breach and the alleged injury. ...”

“[W]e think it more consistent with Nelson and the FSIA to read ‘elements’ as referring to each fact necessary to establish a claim. In other words, so long as the alleged commercial activity establishes a fact without which the plaintiff will lose, the commercial activity exception applies, regardless of whether the plaintiff has either alleged or provided sufficient evidence of the additional facts necessary to prevail on the merits. ....” [Slip op. 6]

Citation: Kirkham v. Société Air France, 2005 WL 3108467, No. 04-7209 (D.C. Cir. November 22, 2005).

WORLD TRADE ORGANIZATION

WTO Appellate Body reverses parts of earlier dispute settlement report and largely upholds U.S. position in dispute over antidumping duties on Mexican steel pipe

The Appellate Body of the World Trade Organization (WTO) has reversed an earlier decision of the Dispute Settlement Body (DSB) regarding the U.S.-Mexican dispute over U.S. antidumping duties on Mexican steel pipe.

The U.S. Department of Commerce (USDOC) has to conduct “sunset” reviews every five years to figure out whether or not dumping is likely to continue thus warranting renewal of its antidumping duties for five more years. Next, the U.S. International Trade Commission (USITC) reviews this decision.

At issue here is the year 2000 sunset review on oil-country tubular goods (OCTG) imported from Mexico. The U.S. had imposed antidumping duties of 23.79% on these products in August 1995 which it later reduced to 21.7%.

Here, both the USDOC and the USITC determined that dumping and injury were likely to continue or recur unless the U.S. renewed the existing antidumping duties.

In requesting the setting up of a Dispute Settlement Panel in July 2003, Mexico claimed, inter alia, that the USDOC’s Sunset Policy Bulletin (SPB) which provides guidance for sunset reviews, conflicted with WTO rules. The Panel below largely agreed. The Appellate Body now concludes that the SPB in fact does comply with WTO rules, and that the USITC has not violated WTO rules during the OCTG proceeding.

The Appellate Body holds first that the Anti-Dumping Agreement did not require the USITC to show the existence of a causal link between dumping and injury in a sunset review. In this respect, the Panel complied with Article 11 of the Dispute Settlement Understanding (DSU). Secondly, the Panel below correctly found that the USITC’s decision to conduct a cumulative assessment of imports in making its likelihood-of-injury determination harmonized with Articles 3.3 and 11.3 of the Agreement.

Third, however, the Panel failed to make an objective assessment (1) of the SPB’s consistency with WTO requirements, and (2) of the facts of the case, as DSU Article 11 demands. Finally, the Appellate Body rules that the SPB complies with Article 11.3 of the AD Agreement. It follows that the U.S. Tariff Act, the U.S.’ Statement of Administrative Action, and the SPB, collectively, do not set a standard that clashes with the AD Agreement.

Citation: United States - Anti-Dumping Measures on Oil Country Tubular Goods (OCTG) from Mexico (WT/DS282/AB/R) (2 November 2005). Report is available on WTO website www.wto.org; Press Release of U.S. Trade Representative of 11/02/2005.

WORLD TRADE ORGANIZATION

WTO compliance panel finds that United States has complied with WTO recommendations in long-standing United States-Canada softwood lumber dispute; U.S. has reluctantly accepted adverse NAFTA tribunal ruling on similar issues

In 2002, Canada had filed with the WTO, claiming that the 2001 investigation of Canadian lumber by the U.S. International Trade Commission (USITC) had violated GATT 1994, the Antidumping Agreement (AD Agreement), and the Agreement on Subsidies and Countervailing Measures (SCM Agreement). The USITC investigation had resulted in anti-dumping and countervailing duties on Canadian lumber in the U.S. See 2004 International Law Update 59.

A WTO dispute settlement panel found the USITC’s determinations inconsistent with the AD and SCM Agreements. A likely, imminent substantial increase of such softwood imports (material injury) was not supported by the facts. Canada subsequently brought this case, alleging that the U.S. had not taken the necessary remedial action.

After the WTO decision, the USITC held a four-month “Section 129" proceeding; it collected additional evidence, held a public hearing, and gave the parties a chance to submit written briefs. The USITC report of November 24, 2004, saw a threatened material injury to the U.S. lumber industry by the subsidization of Canadian lumber. The compliance panel now holds that the USITC determination in the Section 129 investigation comports with the AD and SCM Agreements and with the recommendations in the WTO dispute settlement report.

A NAFTA panel has ruled on similar issues arising out of the U.S. -Canada trade in softwood lumber. Most Canadian lumber comes from logs harvested from government land, while private land is the primary U.S. source. American producers have long maintained that Canadian provinces have been indirectly subsidizing their softwood industries by charging artificially low cutting fees. A recent NAFTA dispute panel, however, rejected the U.S. position. See 2004 International Law Update 78.

On November 22, 2005, the USDOC, however, announced that, without conceding its correctness, it would comply with the ruling that countervailing U.S. duties on Canadian softwood should drop from about 16% to less than 1%. The Department also pointed out that its acceptance of the ruling did not preclude the U.S. from starting an extraordinary appeal later.

Citation: United States – Investigation of International Trade Commission in Softwood Lumber from Canada (WT/DS277/RW) (15 November 2005). Report is available at “www.wto.org.” See also press releases of U.S. Trade Representative of November 14 & 24, 2005, available at “www.ustr.gov.” On NAFTA case, see The New York Times (online), Ottawa, Canada, Wednesday, November 23, 2005 (byline of Ian Austen).

IMO strengthens international marine pollution standards. On October 20, 2005, the secretary general of the U N.’s International Maritime Organization (IMO) announced updates in its efforts to reduce marine pollution. Annexe VI of MARPOL or the International Convention for the Prevention of Marine Pollution from Ships [London, November 2, 1973; T.I.A.S. 10561, as amended] came into force in May 2005, setting limits to sulphur oxide and nitrogen oxide emissions from ships. It also bans the intentional emission of ozone-depleting substances. The Annexe lays down a global cap of 4.5% by mass on the sulphur content of fuel oil. The sulphur content of fuel in a specially designated control areas such as the Baltic is not to go above 1.5%. Alternatively, the ship has to install an exhaust gas cleaning system or use other methods to limit emissions. The IMO has ordered a further review of Annexe VI and of the NOX technical code in the hopes of updating the regulations by 2007. IMO’s most important future aim is to set up a voluntary audit scheme for Member States to monitor their compliance (or lack of same) with IMO’s anti-pollution rules. Citation: Euromoney Institutional Investor PLC [EII], International Cruise and Ferry Review, Thursday, September 22, 2005 (copyrights of Gale Group, Inc., and EII).

WTO Council consents to Saudi Arabia’s membership. On November 11, 2005, the General Council of the World Trade Organization (WTO) finally adopted the terms of accession for Saudi Arabia. The negotiations began in 1993, and resulted in approximately 600 pages of legal texts. Among Saudi Arabia’s commitments to open trade and integration into the world economy are: (1) elimination of Saudi Arabia’s non-tariff measures that violate WTO trading rules; (2) avoidance of export subsidies on agricultural products; and (3) reduction of tariffs in stages until 2015. The accession will take effect on December 11, 2005. Citation: WTO Press Release #420 of 11 November 2005.

U.S., EU, Japan, Korea and Taiwan agree on tariff reduction for multi-chip packages. According to the U.S. Trade Representative, the U.S. has negotiated an agreement with the European Union, Japan, Korea and Taiwan to apply “zero tariffs” on multi-chip integrated circuits (“multi-chip packages” or MCPs). MCPs are a new kind of semiconductor to further miniaturize electronic products such as cell phones and digital cameras. The agreement is expected to enter into force on January 1, 2006. – At present, the U.S. manufactures approximately half of all MCPs. Citation: U.S. Trade Representative press release of 11/03/2005. A fact sheet on Agreement is available at “www.ustr.gov.”

U.S. and China conclude textile agreement. Resolving a major trade issue between both countries, the U.S. and China have concluded a broad textile agreement. The Agreement will apply as long as the China WTO Safeguards are in place until 2008, and covers more than 30 products. Citation: U.S. Trade Representative press release of 11/08/2005. A fact sheet on Agreement is available at “www.ustr.gov.”

United States ratifies U.N. convention against organized crime. On November 3, 2005, the United States deposited an instrument with the United Nations signifying its ratification of the U. N. Convention against Transnational Organized Crime, to take effect thirty days thereafter. The Convention is the first legally binding multilateral agreement that specifically draws a bead on cross-border organized crime. More than 120 nations took part in the negotiations. The Convention also comes with supplementary protocols to Prevent, Suppress and Punish Trafficking in Persons and on Migrant Smuggling. Citation: U.S. Department of State Press Statement # 2005/1012, Sean McCormack Spokesman, Washington, D. C., Thursday, November 3, 2005 at 3:40 pm EST.

U.S. brokers agreement on Gaza border crossings. After turning Gaza’s territory over to the Palestinians in mid-September 2005, Israel had continued its tight control over the crossing points, fearing a potential flood of terrorists and their weapons. This kept Gaza substantially sealed off from external trade and travel. In an all-night session, U.S. Secretary of State Condoleezza Rice negotiated the long list of issues that divided the two sides. “For the first time since 1967, Palestinians will gain control over entry and exit from their territory,” she said. The Agreement lays down the operational terms for cross border transportation of people and cargo. It also sets up a system of bus convoys to shuttle Palestinians between Gaza and the West Bank, the two territorial segments of what is seen as a future Palestinian state. Citation: The Washington Post; Jerusalem, Wednesday, November 16, 2005, at page A12 (bylines of Robin Wright and Scott Wilson, Post staff writers).

U.K. official allows extradition to U.S. of alleged terrorist fund raiser. Home Secretary, Charles Clarke, Britain’s top law enforcement official, recently ordered the surrender of Babar Ahmad, a British citizen, to the United States. U.S. authorities have accused Ahmad of using Web sites to raise funds in support of terrorism in Afghanistan and Chechnya. Traditionally, the requesting nation had to show evidence sufficient to support a finding that the elements of extradition existed. New extradition provisions, however, have apparently exempted some countries, including the United States, from proffering that evidence. Ahmad’s relatives said they would appeal to the High Court. Citation: The New York Times (online), London, Thursday, November 17, 2005 (byline of Alan Cowell).