2005 International Law Update, Volume 11, Number 3 (March)

2005 International Law Update, Volume 11, Number 3 (March)

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

ARBITRATION, REVIEW OF

Ontario Court of Appeals turns down Mexico’s challenge of ICSID arbitration award to U.S. company denied “national treatment” in violation of NAFTA

Marvin Ray Feldman Karpa (taxpayer) is a citizen of the United States who owns and operates an export business in Mexico called Corporacion de Exportaciones Mexicanas S.A. de C.V. (CEMSA). CEMSA was buying cigarettes from volume retailers such as Wal‑Mart and Sam’s Club within Mexico and selling them to customers outside Mexico.

Impuesto Especial Sobre Produccion y Servicios (the “Special Tax on Production and Services” or IEPS) applies to the manufacture and sale of cigarettes. If a cigarette business exports certain products, such as cigarettes, subject to the IEPS tax , the Mexican government may give rebates to the exporter. To obtain the rebate, however, the exporter has to produce invoices that “separately and expressly state the amount of the IEPS tax paid”.

From time to time, CEMSA applied for the tax rebates and the Mexican government generally granted them. Mexico later changed its approach, however, and refused to pay CEMSA the tax rebates; it claimed that CEMSA could not come up with invoices that separately set forth the amount of the tax paid.

Apparently what happened was this. Cigarette manufacturers declined to sell to CEMSA and other exporters; leading CEMSA to buy its cigarettes from volume retailers (VRs). The invoices sent to CEMSA by the VRs, however, did not separately list the tax because the makers had already paid it before selling the cigarettes to the VRs. As a result, the price paid by CEMSA for cigarettes included the tax, but the tax portion did not show up on the invoices gotten from the VRs.

In 1998, the Mexican Taxation Agency, the Secretaria de Hacienda y Credito Publica (SHCP) audited CEMSA. The SHCP decided that CEMSA had incorrectly received IEPS tax rebates between January 1996 and September 1997. SHCP demanded repayment of about US $25 million. The audit also alleged that CEMSA had flagrantly overstated the amount of the IEPS tax it had paid.

In April 1999, CEMSA filed a notice of arbitration at the International Center for Settlement of Investment Disputes (ICSID) in Ottawa pursuant to Chapter 11, Article 1120, of the North American Free Trade Agreement (NAFTA). The tripartite tribunal had members from Greece, the United States and Mexico.

In its application, CEMSA asked for damages roughly equivalent to US$ 50 million and raised three arguments. Most importantly, CEMSA maintained that Mexico’s refusal to pay it the IEPS rebates constituted a violation of NAFTA article 1102 requiring that Mexico grant to investors of another party to NAFTA treatment no less favorable than it affords to its own investors. After a hearing, a majority of the tribunal held that Mexico had breached Article 1102 on “national treatment.” The tribunal saw no merit in the other two claims.

The majority award defined the issue under Article 1102 of NAFTA as follows at para. 169: “The question ... is whether rebates have in fact been provided for domestically owned cigarette exporters while denied to a foreign re‑seller, CEMSA. ... Thus, if the IEPS Article 4 invoice requirement is ignored or waived for domestic cigarette reseller/exporters, but not for foreign owned cigarette reseller/exporters, that de facto difference in treatment is sufficient to establish a denial of national treatment under Article 1102.”

In concluding that Mexico had breached article 1102, the tribunal stated at para. 187 of the award: “ ... [A] majority of the Tribunal concludes that Mexico has violated the Claimant’s rights to non‑discrimination under Article 1102 of NAFTA. The Claimant has made a prima facie case for differential and less favourable treatment of the Claimant, compared with treatment by SHCP of the Poblano Group.”

“The inescapable fact is that the Claimant has been effectively denied IEPS rebates for the April 1996 through November 1997 period, while domestic export trading companies have been given rebates not only for much of that period but through at least May 2000, suggesting that Article 4(III) of the law has been de facto waived for some, if not all, domestic firms.”

“Finally, the Claimant has not been permitted to register as an exporting trading company, while the Poblano Group firms have been granted this registration. All of these results are inconsistent with the Respondent’s obligations under Article 1102, and the Respondent has failed to meet its burden of adducing evidence to show otherwise.”

The majority awarded damages to CEMSA based substantially on the amount of rebates withheld from CEMSA. As adjusted downward, the award was equivalent to about U.S. $1.6 million. Mexico applied to the Ontario courts for judicial review since Ottawa was named as the place of arbitration. In the Superior Court of Justice, Mexico proceeded under the ICAA, c. I‑9 and the UNCITRAL Model Law on International Commercial Arbitration (Model Law).

The first instance judge dismissed the application and Mexico appealed to the Ontario Court of Appeal. That Court unanimously dismisses the appeal.

The appellate court first comments on the scope of its review in cases such as this. “Notions of international comity and the reality of the global marketplace suggest that courts should use their authority to interfere with international commercial arbitration awards sparingly.” [¶ 34]

The Court cites Quintette Coal Ltd. v. Nippon Steel Corp., [1990] B.C.J. No. 2241 (B.C.C.A.). It declared that the “concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes ... are as compelling in this jurisdiction as they are in the United Sates or elsewhere. It is meet therefore, as a matter of policy, to adopt a standard which seeks to preserve the autonomy of the forum selected by the parties and to minimize judicial intervention when reviewing international commercial arbitral awards.’” [¶ 36]

“Quite apart from principles of international comity, our domestic law in Canada dictates a high degree of deference for decisions of specialized tribunals generally and for awards of consensual arbitration tribunals in particular.” [¶ 37]

“The ICSID Additional Facility rules, which govern this arbitration, provide that ‘the award shall be final and binding’ and no more. There are no additional words to exclude appeals and judicial review. Indeed, judicial review is expressly provided for under Section 34 of the Model Law.”

“That said, Section 34 of the Model Law limits judicial review to traditional jurisdictional grounds. In addition, Section 34 provides judicial review if the subject matter of the dispute is not capable of settlement by arbitration under Ontario law or the award is in conflict with the public policy of Ontario.” [¶ 39]

“NAFTA tribunals settle international commercial disputes by an adversarial procedure under which they determine legal rights in a manner not dissimilar to the courts. This may suggest that such tribunals ought not to attract a high degree of deference upon judicial review. However, I accept that there is merit in the submission of counsel for [CEMSA] that ‘the dispute settlement mechanism and the need for expertise, all combine to indicate that the statutory purpose is to take the resolution of these disputes out of the hands of domestic courts.’” [¶ 41]

“The matters to be decided by the tribunal in this case were heavily fact laden. ... However, it is trite to say that a tribunal, which is engaged primarily in a fact‑finding task, is entitled to a high degree of judicial deference. Taking the above factors into account, I conclude that the applicable standard of review in this case is at the high end of the spectrum of judicial deference.” [¶¶ 42-43]

“Mexico submits that the majority award is contrary to article 2105 of NAFTA by drawing adverse inferences from Mexico’s failure to make disclosure of information related to domestic taxpayers. Article 2105 provides: ‘Nothing in this Agreement shall be construed to require a party to furnish or allow access to information the disclosure of which would impede law enforcement or would be contrary to the Party’s law protecting personal privacy or the financial affairs and accounts of individual customers of financial institutions.’” [¶ 45]

“Mexico further argues that since a chapter 11 tribunal is without authority to compel disclosure of taxpayer information, it has no authority to draw an adverse inference from a party’s inability to lawfully provide such information.” [¶ 46]

“[Appellant] refers in particular to paragraph 178 of the arbitration award, where the majority made reference to the failure of the appellant to provide an explanation why it did not lead evidence to show that a domestic group of companies had not been treated in a more favourable fashion than CEMSA.” [¶ 47]

“Mexico [also] relies upon Article 34(2)(a)(ii) of the Model Law which provides that an arbitral award may be set aside by the court if the party seeking judicial review was unable to present its case. This ground of appeal is linked to the first ground of appeal in that Mexico relies upon the majority’s drawing of adverse inferences from the appellant’s failure to present evidence in respect of the treatment of domestic taxpayers.”

“[Appellant] submits that, pursuant to Article 69 of its Fiscal Code, it was prohibited from disclosing the treatment afforded to other taxpayers and that such position was consistently stated to the tribunal. Mexico further submits that by drawing adverse inferences from its failure to present evidence of the position of other taxpayers, the tribunal effectively prevented Mexico from presenting its defence.” [¶¶ 49-51]

The Court of Appeal points out that the tribunal did not require Mexico to produce any information which it did not wish to produce contrary to Article 69 of the Fiscal Code. “It chose to file the statements of Mr. Diaz and other evidence. The majority were not persuaded that Mexico had satisfied the burden of responding to the prima facie case made by the claimant, Mr. Feldman.”

“I see some merit in Mexico’s argument that, if the tribunal is without authority to compel disclosure of taxpayer information, it has no authority to draw an adverse inference from a party’s inability to provide such information. ... [Mexico] decided, however, to produce certain taxpayer information. That information failed to satisfy the tribunal which, in turn, led the tribunal to conclude that if Mexico had [other] evidence that a domestic taxpayer had ‘been treated in a manner equivalent to the claimant...[it] would have provided that evidence.’ In my view, the tribunal was entitled to come to such a conclusion.” [¶¶ 57-58]

“... [T]he issue ... was essentially a question of fact ‑‑ ‘whether rebates have in fact been provided for domestically owned cigarette exporters while denied to a foreign reseller, CEMSA’. In this case, the majority found, on Mexico’s own evidence, that it had allowed rebates for domestic exporters that it had refused to CEMSA. On a finding of fact, for which there is support in the evidence, the court must defer to the tribunal.”

“I am unable to conclude that the majority of the tribunal acted in breach of NAFTA article 2105 ... In my view, the arbitral procedure was not contrary to the agreement of the parties and Mexico was not prevented from presenting its case.” [¶¶ 60-61]

The Court of Appeal also addresses Mexico’s contention that the damages awarded to CEMSA rested upon unlawful rebates and are, therefore, contrary to Ontario public policy.[see ¶ 39 above] The Court, however, is unpersuaded.

“The damages are equivalent to the rebates that CEMSA had been refused at the same time that domestic exporters were receiving rebates. Mexico was in effect waiving the requirement to produce invoices stating the tax separately for domestic exporters, while at the same time refusing to waive the requirement for CEMSA.” This is incompatible with “national treatment.”

The Court also finds nothing fundamentally unjust or unfair about the arbitral award. “It is rationally connected to the discriminatory conduct found by the tribunal and seeks to redress the effect of the discrimination. The award is a logical quantification of the harm caused to CEMSA by the discriminatory conduct.” [¶ 67]

Nor does CEMSA’s conduct in claiming fictitious rebates render the adjusted award contrary to Ontario public policy. “While this court does not condone such conduct, the extent to which it should affect the award of damages is for the tribunal to decide. The tribunal made allowances for the inflated rebate claims in its [downward] assessment of damages. I cannot conclude that its failure to deny any monetary recovery is contrary to public policy.” [¶ 68]

Citation: United Mexican States v. Karpa, Docket No. C41169, [2005] O.J. No. 16, 2005 WL 95624, 2005 CarswellOnt. 32 (Ont. Ct. App. January 11).

CONTRACTS (ESPIONAGE)

U.S. Supreme Court holds that former spies cannot use U.S. courts to enforce compensation agreements for espionage services

John and Jane Doe, husband and wife, claim to be two former Cold War spies. Alleging that the Central Intelligence Agency (CIA) reneged on their compensation agreement, they sued the CIA and the U.S. in district court. The Does claim to have been citizens of a country formerly hostile to the U.S., for which John Doe served as a high-ranking diplomat. Allegedly promising financial and personal security for life, the CIA talked them into staying at their posts and providing valuable espionage services. Later they immigrated to the U.S., apparently with CIA support, and John found a job in Washington State.

When John lost his job in 1997, however, the CIA refused to furnish financial support. The Does now claim that the CIA had violated their procedural and substantive due process rights [1] by denying them financial support and [2] by using unfair procedures for reviewing their claims.

The district court and the Ninth Circuit essentially decided that the lawsuit was permissible. The U.S. Supreme Court, however, in an opinion by Chief Justice William H. Rehnquist, unanimously reverses.

In Totten v. United States, 92 U.S. 105 (1876), the Court had held that public policy barred a Civil War spy’s estate from bringing a court action to enforce a secret espionage agreement. “When invoking the ‘well established’ state secrets doctrine, we indeed looked to Totten [see also United States v. Reynolds, 345 U.S. 1, 7 n. 11 (1953)]. ... But that in no way signaled our retreat from Totten’s broader holding that lawsuits premised on alleged espionage agreements are altogether forbidden.”

“Indeed, our opinion in Reynolds refutes this very suggestion: Citing Totten as a case ‘where the very subject matter of the action, a contract to perform espionage, was a matter of state secret,’ we declared that such a case was to be ‘dismissed on the pleadings without ever reaching the question of evidence, since it was so obvious that the action should never prevail over the privilege.’...”

“There is, in short, no basis for respondents’ and the Court of Appeals’ view that the Totten bar has been reduced to an example of the state secrets privilege. In a far closer case than this, we observed that if the ‘precedent of this Court has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions.’ ...”

“We adhere to Totten. The state secrets privilege and the more frequent use of in camera judicial proceedings simply cannot provide the absolute protection we found necessary in enunciating the Totten rule. The possibility that a suit may proceed and an espionage relationship may be revealed, if the state secrets privilege is found not to apply, is unacceptable: ‘Even a small chance that some court will order disclosure of a source’s identity could well impair intelligence gathering and cause sources to ‘close up like a clam.’”

“... Forcing the Government to litigate these claims would also make it vulnerable to ‘graymail,’ i.e., individual lawsuits brought to induce the CIA to settle a case (or prevent its filing) out of fear that any effort to litigate the action would reveal classified information that may undermine ongoing covert operations. And requiring the Government to invoke the privilege on a case-by-case basis risks the perception that it is either confirming or denying relationships with individual plaintiffs.” [Slip op. 14-18]

Citation: Tenet v. Doe, 125 S.Ct. 1230, 73 U.S.L.W. 4182 (S.Ct., 2005); see also The Washington Post, March 3, 2005, page A3.

JUDGMENTS(ANTITERRORISM ACT)

Reviewing attempt to enforce judgment against Iran by levying on its U.S. property, Second Circuit rules that plaintiffs had relinquished such rights by accepting payments under Victims of Trafficking and Violence Protection Act

The following case concerns the fourth attempt by the family of Charles Hegna to enforce their judgment against the Government of Iran. Members of Hezbollah had killed Hegna, an American diplomat, during a 1984 airplane hijacking. See 2004 International Law Update 108.

The plaintiffs brought an action in April 2000 pursuant to a provision of the 1996 Antiterrorism and Effective Death Penalty Act which amended the Foreign Sovereign Immunities Act (FSIA) of 1976 to revoke the sovereign immunity of nations that sponsor terrorism. See 28 U.S.C. Section 1605(a)(7). Eventually, the plaintiffs won a $375 million judgment against Iran and the Iranian Ministry of Information and Security.

The plaintiffs then sought to attach, among other Iran-related properties, the former New York residence of the Consul General of Iran. They also filed a claim under the Victims of Trafficking and Violence Protection Act (VTVPA), as amended by the Terrorism Risk Insurance Act (TRIA), which permits the U.S. to disburse funds belonging to Iran or Cuba to judgment-creditors. See VTVPA, Pub.L. No. 106-386, Section 2002; 114 Stat. 1464, 1541-43 (2000); TRIA, Pub.L. No. 107-297, Section 201; 116 Stat. 2322, 2337-40 (2002).

The district court, however, decided that plaintiffs had given up their right to levy on Iranian assets as a condition of accepting a payment from the U.S. government under the VTVPA and the TRIA. It also held that the Iranian property is “at issue” before the Iran-United States Claims Tribunal that the nations set up after the Iranian hostage crisis. The plaintiffs appealed.

The U.S. Court of Appeals for the Second Circuit affirms with some modifications. “Two aspects of [the VTVPA and the TRIA] are noteworthy for purposes of this appeal. First, because Congress understood that the pool of funds from which payments would be made would not suffice to cover in their entirety claims by potential beneficiaries of the VTVPA as amended by the TRIA, the TRIA authorizes pro rata payments to judgment-creditors based on the size of their compensatory damage awards relative to the overall pool of available funds. ...”

“Second, in exchange for receiving payments from the United States, Congress required that judgment-creditors give up some of their rights to enforce their judgments through other means. In particular, the TRIA requires that the creditors relinquish their rights to collect punitive damages, as well as rights to execute against or attach property ‘that is at issue in claims against the United States before an international tribunal.’ ...” [Slip op. 4-5]

Here, the Hegnas had gotten payments totaling $8 million from the U.S. Government pursuant to the VTVPA and the TRIA. Thus, the Court agrees with the district court that the Hegnas have given up their right to levy. Moreover, the Court points out that this approach comports with the opinions of three other Circuits. The Court then modifies the district court’s decision so that it is “without prejudice” in case the Iran-United States Claims Tribunal resolves its pending matters and allows levies on Iranian property.

Citation: Hegna v. Islamic Republic of Iran, No. 04-1230-cv, 2005 WL 535141 (2d Cir. March 8).

JUDICIAL PROCEDURE, TRANSNATIONAL

In House of Lords, majority rules that it did not violate English public or judicial policy to allow French plaintiff in English libel suit to present his trial testimony by video link where he declines to appear in person for fear of extradition to United States as fugitive from imprisonment for admitted sex crime

The plaintiff, Roman Polanski, the well-known film director, is a French citizen, residing in France. He has sued Conde Nast Publications Limited (defendant) in the English courts for libel. It stems from an article in the July 2002 issue of “Vanity Fair” magazine which circulates, inter alia, in the United Kingdom.

The alleged libel arose from the following related incidents. On the night of August 8, 1969, members of the Manson gang had murdered plaintiff’s wife, the actress Sharon Tate, at their home in California. Plaintiff was working in London at the time. He flew to California and stayed there until after his wife’s funeral on August 13. On his way back from Los Angeles to London he stopped over in New York City and, toward the end of August, went to “Elaine’s” restaurant to meet Mia Farrow.

Here are some key excerpts from the “Vanity Fair” article as quoted by the House of Lords. “I was sitting at a table with a friend of mine who had brought the most gorgeous Swedish girl you ever laid eyes on. ... Polanski came over and asked to join us. ... The Swedish beauty was sitting next to me. Polanski pulled up a chair and inserted himself between us, immediately focusing his attention on the beauty, inundating her with his Polish charm. Fascinated by his performance, I watched as he slid his hand inside her thigh and began a long, honeyed spiel which ended with the promise ‘And I will make another Sharon Tate out of you’.”

Plaintiff initially asked for an apology and a retraction which defendant declined. Plaintiff then filed the present English suit in August 2002. Though most plaintiffs wish to, and do, testify live at the trials of their cases, this plaintiff raised a difficulty. He was determined to avoid entering the U.K. to give trial testimony because he was a fugitive from U.S. criminal justice and afraid of being extradited there.

In August of 1977, plaintiff had pleaded guilty before a California court to a charge of illegal copulation with a thirteen-year-old girl. After spending 42 days in state prison while undergoing court-ordered tests, plaintiff fled to France (whose constitution bars the extradition of French citizens) before the judge could sentence him. Since that time, he has avoided all sojourns to either the U.S. or the U. K.

His English attorney, therefore, asked for a pre‑trial order allowing plaintiff to be deposed from France by means of a video conference link (VCF) pursuant to Civil Procedure Rule SI 1998/3132, Pt. 32.2. It provides that “The Court may allow a witness to give evidence through a video link or by other means.” After hearing arguments on the point, the first instance judge ruled in plaintiff’s favor.

The defendant then filed an interlocutory appeal. The Court of Appeal (Civil Division) unanimously held that the judge had mistakenly issued that order. In the Court’s view, the general policy of the courts should be to disapprove, not to promote, the notion that litigants can readily evade the normal processes of the law.

The plaintiff next obtained review in the House of Lords. In a 3-to-2 vote, the Lords of Appeal reverse the ruling below and reinstate the trial judge’s order.

As the Lords see it, the issue presented is: whether upholding the trial judge’s ruling would tend to discredit the administration of justice. The lead opinion explains why the majority answers in the negative.

“A number of features are to be noted. First, in the present case Mr. Polanski’s criminal conduct did not take place in this country. But the public interest in furthering the proper processes of investigation, trial and punishment of criminal offences committed in the United Kingdom applies equally where an extradition crime has been committed or allegedly committed in a country with which the United Kingdom has a relevant extradition treaty. Countries which are parties to an extradition treaty or the like have a mutual interest in seeing that persons who commit crimes in one country do not escape trial or punishment by fleeing abroad. [Cite].” [¶ 24]

“Second, a fugitive from justice is not, as such, precluded from enforcing his rights through the courts of this country. This is so whether the fugitive is claimant or defendant. [Plaintiff’s] status as a fugitive offender does not deprive him of any rights he would otherwise possess in respect of the subject matter of this action. His flight from California in 1978, and the steps he has taken ever since to remain beyond the reach of the Californian court, do not preclude him from bringing proceedings in England in respect of damage to his reputation flowing from publication of defamatory material in this country.” [¶ 25]

“ ... It may seem unattractive that a person can, at one and the same time, evade justice in respect of his criminal conduct and yet seek the assistance of the courts in protection of his own civil rights. But the contrary approach, adopted in the name of the public interest, would lead to wholly unacceptable results in practice. It would mean that, for so long as a fugitive remained ‘on the run’ from the criminal law, his property and other rights could be breached with impunity. That could not be right. Such harshness has no place in our law. [Plaintiff] is not a present‑day outlaw. Our law knows no principle of fugitive disentitlement.” [¶ 26]

“Thirdly, a direction that a fugitive such as Mr. Polanski may give his evidence by use of video conferencing (VCF) is a departure from the normal way a claimant gives evidence in this type of case. But the extent of this departure from the normal should not be exaggerated. It is expressly sanctioned by the Civil Procedure Rules. The power conferred by the rules is intended to be exercised whenever justice so requires. Seeking a VCF order is not seeking an ‘indulgence’.” [¶ 27]

“Fourthly, in the situation under consideration, a VCF order will not assist the fugitive’s evasion of justice. Whether a VCF order is made or not, the fugitive will not come to this country. He will not put himself at risk of arrest. In the present case, come what may, [plaintiff’s] longstanding evasion of justice will continue. It will be unaffected by the court’s decision on whether to make or refuse a VCF order.”

“In the present case, the effect will be to relieve [plaintiff] from one of the disadvantages of his fugitive status, namely, that he cannot travel freely to a country which has a relevant extradition treaty with the USA. To that extent a VCF order will enable [plaintiff] to sidestep one of the adverse consequences of his own criminal conduct and flight from justice.” [¶ 28]

“Thus the practical consequences of the alternative answers on this issue are that, if a court makes a VCF order, the fugitive will be relieved of a disadvantage otherwise attendant upon his fugitive status; but if the court refuses to make a VCF order, the fugitive’s oral evidence will not be available at the trial. By adopting the latter course the court will in effect be saying to the fugitive: ‘unless you surrender your fugitive status you cannot pursue (or, as the case may be, defend) your civil proceedings’”. [¶ 29]

“I understand the intuitive dislike of relieving a fugitive of a disadvantage which until recently was inherent in his self‑created status. ... But, overall, the matter which weighs most with me is this. Despite his fugitive status, a fugitive from justice is entitled to invoke the assistance of the court and its procedures in protection of his civil rights. He can bring or defend proceedings even though he is, and remains, a fugitive.”

“If the administration of justice is not brought into disrepute by a fugitive’s ability to have recourse to the court to protect his civil rights even though he is, and remains, a fugitive, it is difficult to see why the administration of justice should be regarded as brought into disrepute by permitting the fugitive to have recourse to one of the court’s current procedures which will enable him in a particular case to pursue his proceedings while remaining a fugitive. To regard the one as acceptable and the other as not smacks of inconsistency.”

“If a fugitive is entitled to bring his proceedings in this country, there can be little rhyme or reason in withholding from him a procedural facility flowing from a modern technological development which is now readily available to all litigants. For obvious reasons, it is not a facility claimants normally seek to use, but it is available to them. To withhold this facility from a fugitive would be to penalise him because of his status.” [¶¶ 30-31]

These excerpts from the opinion by one of the two dissenting Lords of Appeal outline their rationale. “It weighs heavily in the appellant’s favour that this article, if not true, is a serious and unpleasant libel only published some 33 years after the incident and with a motive about which it would be wrong to speculate. On any view, it is one in which his desire to clear his name from the slur, whatever other suggestions may have been made about his conduct in sexual matters, is well understandable.” [¶ 46]

“It is thus, in my opinion, relevant to inquire why he asks for this permission. The reason is clear and there is only one reason. It is to avoid the risk or likelihood of arrest and extradition and to escape sentence and punishment in the U.S.A. for an admitted offence. No other reason is suggested as to why video link evidence should be provided or is needed.” [¶ 49]

“Just as the United Kingdom has an interest in ensuring that people wanted here for criminal trial or following conviction here are brought here by extradition from other states, so by the very nature of the extradition process the United Kingdom has an interest in seeing that those who have been convicted are returned, in this case, to carry out their sentences. It seems to me that to accede to a request like the present, whose avowed sole aim is to avoid his being extradited, in the absence of other overriding considerations compelling the grant of the application, is contrary to public or judicial policy.” [¶ 50]

“I am prepared to assume that he could not effectively take [libel] proceedings in the United States. But the same is not true, it seems, of his position in France of which he is a citizen and where he resides. True there is a short limitation period but, as far as I can see, he began his action in England well within the limitation period applicable in France when he could have sued there. I have not seen an acceptable excuse put forward on his behalf as to why he could not have sued in France.”

“The publication in France was in smaller numbers than in England and much less than that in the USA. It may be for that and other reasons that he would be likely to recover less damages in France than he would in the United Kingdom. That does not seem to be here a significant reason for not suing in France since, as I understand it, the appellant’s motive is not to secure a large sum of money but to clear his reputation of what he regards as a nasty slur. Qualitatively if not quantatively that could be done as well in France as in England.” [¶ 52]

“The task of the Court here is one of balancing different policy considerations and not merely deciding case management. ... The policy requirement of satisfying the criminal sentence is by no means less important than the desirability of his suing in libel for an allegation which is serious but no more serious than the criminal offence of which he has been convicted. The possibility of suing in France is a further contra‑indication to any obligation to grant such a video link.” [¶ 56]

Citation: Polanski v. Conde Nast Publications Ltd., [2005] U.K.H.L. 10, [2005] All E.R. (D) 139 (House of Lords, February 10) (Approved judgment).

JUDICIAL PROCEDURES, UNDUE LENGTH OF

European Court of Human Rights rules that Austrian courts breached Article 6(1) of Human Rights Convention in taking five years with long periods of inaction to decide enforceability of Michigan divorce decree sought by U.S. husband against Austrian wife who had abducted their daughter from U.S.

In August 1999, Thomas R. Sylvester (applicant) filed an action in the European Court of Human Rights (ECHR) against the Republic of Austria (government). It alleged that the government’s long drawn out procedures prejudicially delayed the Austrian recognition and enforcement of his U.S. divorce and custody judgment in violation of Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECPHR).

The applicant was a citizen and resident of Ohio when he married an Austrian woman in April of 1994 in the United States. The couple settled in Michigan where their daughter was born in September 1994. In October 1995, his wife took the daughter with her to live in Austria without applicant’s consent. Applicant promptly petitioned for divorce in a Michigan court.

He also began proceedings in Austria to secure his daughter’s return pursuant to the Hague Convention on the Civil Aspects of International Child Abduction [T.I.A.S. 11670] [See Sylvester v. Austria, 2003 International Law Update 162 (Austrian courts’ improper reliance on their own delayed enforcement of U.S. husband’s rights to return of daughter wrongfully abducted to Austria by its mother breached Article 8, ECPHR).].

In April 1996, the Michigan court confirmed a default decree previously issued against the wife. The court pointed out that the wife had failed to properly move to set aside the default. It also granted the applicant sole custody over the daughter. Two months later, the applicant lodged a request with the Austrian Federal Ministry of Justice (FMJ) to recognize the Michigan decree.

Five months later, the FMJ turned the request down because the wife, having defaulted, had not been heard on the merits in the Michigan domestic proceeding. “Referring to Section 24(1) of the Fourth Implementing Regulation to the Marriage Act (FIRMA), it considered that a recognition of the divorce decree would be contrary to Austrian ordre public as the applicant’s wife, being the defendant in the proceedings before the [Michigan] Court, had not been heard as she was considered to be in default, despite the fact that the applicant’s petition for divorce had been duly served on her.” [¶ 13]

In November 1996, the applicant filed a complaint with the Austrian Administrative Court (AC) which launched preliminary proceedings later that month. During January 1997, the AC received the observations of the FMJ and of the wife as a third party.

Almost two years later, the AC referred the case to the Austrian Constitutional Court asking it to review the constitutionality of Section 24(1) of the FIRMA. The AC contended that Article 6 of the ECPHR, which has constitutional status in Austrian law, applied to the recognition of foreign divorce decrees because their outcomes directly affect the civil law relationship of the persons concerned. Thus, it contravened Article 6 for the FMJ, an administrative authority, to pass upon the request for recognition. The AC’s later assumption of jurisdiction did not save the case, it argued, because the law of family relations lay within the very core of the notion of “civil rights”.

The Constitutional Court got the AC’s request in February 1999. The AC filed three more petitions in other cases raising the same issue. The Constitutional Court received these in July, October and November of 1999, respectively. The high Court joined the proceedings in these three cases to the applicant’s case. In February 2000, the AC supplemented its request in the applicant’s case and, one year later, in the three other similar cases.

The Constitutional Court handed down its judgment in June 2001. It decided that Section 24(1) of the FIRMA conformed to the Austrian constitution but it voiced some doubts as to whether Article 6 ECPHR applied to enforcement proceedings. Even assuming that Article 6 did apply, the Court ruled that the AC’s scope of review was adequate, proceedings over the recognition of foreign divorce decrees principally involving questions of law. In October 2001 the AC resumed its proceedings, and dismissed the applicant’s complaint. It had the decision served on the applicant later that month.

The applicant then brought his case to the European Court of Human Rights (ECHR). There he argued that the length of the proceedings had been incompatible with the “reasonable time” requirement demanded by Article 6(1) of the ECPHR. It reads in relevant part as follows: “In the determination of his civil rights and obligations ... everyone is entitled to a ... hearing within a reasonable time ...”

A seven-judge panel of the ECHR unanimously rules in favor of the applicant. It first points out that, as its many precedents hold, the Court has to adjudge the reasonableness of a proceedings’ length based on the circumstances of each case. The following factors are crucial: [1] the complexity of the case, [2] the applicant’s conduct of his or her own case, [3] the relevant authorities and [4] what was at stake for the applicant in the dispute.

The Court then addresses the undue delay issue. “The proceedings at issue started on 26 September 1996, when the Federal Ministry of Justice refused the applicant’s request for recognition, and were terminated on 29 October 2001 when the Administrative Court’s decision was served. Thus, they lasted five years and one month.”

The ECHR admits that the case had a degree of legal complexity. “Given that the case came before three levels of jurisdiction, an overall duration of five years and a month does not in itself appear unreasonable.”

“However, three years out of these five elapsed without any procedural steps being taken: There was a period of inactivity of one year and eleven months before the Administrative Court between 20 January 1997, when the parties’ observations were ready, and 18 December 1998 when it referred the case to the Constitutional Court.”

“The latter joined the applicant’s case to three others raising the same legal issue, which accounts for some delay. Nevertheless, there is no explanation as to why a year and almost one month elapsed between 4 February 2000, when the Administrative Court filed supplementary submissions with the Constitutional Court in the applicant’s case, and 28 February 2001, when it did so in the three other cases.” [¶¶ 29-30]

“Where the duration of proceedings may not be excessive in itself but is marked by substantial periods of inactivity, the Court considers that the importance of what is at stake for the applicant plays a decisive role see Hadjikostova v Bulgaria [2003] E.C.H.R. 36843/97 at ¶ 35.

“... [T]he proceedings concerning the applicant’s request for recognition of a divorce decree and custody decision issued by a United States court, were directly decisive for his marital status and parental rights. In this connection, the Court reiterates that, in cases relating to civil status, special diligence is required in view of the possible consequences which the excessive length of proceedings may have, notably on enjoyment of the right to respect for family life, Laino v Italy [1999] E.C.H.R. 33158/96 at ¶ 22). Given the importance of what was at stake for the applicant in the present case, the courts were required to display special diligence.”

“In these circumstances, the Court concludes that the overall duration of five years and one month with two lengthy periods of delay, cannot be considered as ‘reasonable’ within the meaning of Article 6(1) even taking into account that the case was of some complexity and came before three levels of jurisdiction.” [¶¶ 31-33]

The Court then proceeds to the question of compensation for the applicant. “Article 41 of the Convention provides: ‘If the Court finds that there has been a violation of the Convention or the Protocols thereto, and, if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.’” [¶ 35]

For these reasons, the ECHR unanimously takes the following actions. First, it “holds that there has been a violation of Article 6(1) of the Convention. [It also] [h]olds (a) that the respondent State is to [timely] pay the applicant, ... EUR 3,500 ... in respect of non‑pecuniary damage and EUR 2,500 ... for costs and expenses, plus any tax that may be chargeable on these amounts; (b) that, ... [as to late payment] simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points.”

Citation: Sylvester v. Austria (No. 2), [2005] E.C.H.R. 54640/00 (February 3).

VIENNA CONVENTION

Oregon Supreme Court holds that Vienna Convention does not create rights that individual foreign nationals may assert in U.S. criminal proceedings

In December 1999, Oregon police arrested Moises Sanchez-Llamas (defendant), a Mexican citizen (defendant), after a shoot-out. The police never notified defendant that he had an international law right to communicate with the Mexican Consulate about his predicament.

Later, defendant moved to suppress his post-arrest incriminating statements as obtained in contravention of the Vienna Convention on Consular Relations (VCCR) [24 April 1963, 21 U.S.T. 77, T.I.A.S. 6820, 596 U.N.T.S. 261 (1969)]. The trial court held that any violation of the VCCR that may have taken place did not require suppression of his statements.

The intermediate Court of Appeals affirmed, and defendant obtained review before the Supreme Court of Oregon. The Court affirms, on the theory that Article 36 of the VCCR does not create rights that individual foreign nationals may assert in a criminal proceeding.

Both the U.S. and Mexico are parties to the VCCR. Article 36 requires “competent authorities” to inform the respective consulate when a foreign national is arrested, and to permit the consulate to communicate with the detainee. The detainee must be informed “without delay” of those “rights.”

Petitioner contended that the VCCR created an individual right of consular access and notification. Further, he claimed that the VCCR, as a ratified U.S. treaty, is part of the “supreme law of the land” and thus on the same level as a federal statute. Therefore, the VCCR being “self-executing,” it is immediately enforceable by individuals in the American courts.

The Supreme Court is unpersuaded. “... [T]hat is an issue of federal law, and the federal cases suggest that treaties are ‘self-executing,’ in the sense of permitting enforcement by an individual right of action, only when a specific intent to create such rights can be discerned from the treaty as a whole. ... In fact, the general rule, widely recognized in the federal courts, is that rights created by international treaties belong to the signatory state and are not enforceable in American courts by private individuals. ... [...]”

“The rationale for the foregoing general rule (which in substance amounts to a presumption against the creation of individual, judicially enforceable rights) is obvious. ...The necessary and beneficial corollary of [the separation of powers] is that, in matters of international relations, the nation speaks through a single authoritative voice – the president. That beneficial effect, and the separation of powers principle itself, would be undermined if the Judicial Branch were to presume to enforce treaty provisions on behalf of individuals when its authority to do so is less than clear. ...”

“... [W]e do not mean to say that a court never can read a treaty to create privately enforceable rights. Certainly, the noted presumption can be overcome by explicit wording and even by provisions that necessarily imply a private right of judicial enforcement. For example, courts have allowed individuals judicially to enforce treaties that govern the rights of foreign nationals to inherit property, despite the absence of explicit treaty wording ... “ [Slip op. 8-12]

In the Court’s view, the mere use of the word “rights” in the VCCR does not indicate the signatories’ intent to allow enforcement by individuals. “Neither does any other wording in the treaty suggest an intent to create individual rights that are enforceable in a judicial proceeding. In fact, the purposes stated in the preamble (to ‘contribute to the development of friendly relations among nations’) and the initial clause of Article 36 (‘with a view to facilitating the exercise of consular functions relating to nations of the sending state’) both suggest that the treaty and Article 36 are concerned with relationships and obligations among nations, not with individual rights.”

“Finally, there is nothing about the subject matter of the VCCR that would compel an inference that a private right of action was intended. In that regard, we think it is perfectly reasonable to read the treaty as leaving enforcement of Article 36 entirely to the signatory states.”

“In the absence of any such clear indication to the contrary, we must conclude that the obligations that Article 36 describes are enforceable only by the affected signatory states and not individual detainees.” [Slip op. 14-16]

[EDITORIAL NOTE: In letter dated March 7, 2005, from U.S. Secretary of State to U.N. Secretary General, U.S. has announced its withdrawal from Optional Protocol to VCCR, see IN BRIEF, below, at page 47.]

Citation: State of Oregon v. Sanchez-Llamas, 338 Or. 267, 2005 WL 552819 (Sup. Ct. Ore. March 10)(en banc).

WORLD TRADE ORGANIZATION

In later phase of banana importation dispute among U.S., EU and Ecuador, European Court of Justice holds that legal persons such as banana importers lack standing to plead incompatibility of EU laws with WTO trading rules in Member State courts

Van Parys NV is a Belgian company that imports Ecuadorean bananas. In 1998 and 1999, the Belgian authorities (Belgisch Interventie-en Restitutiebureau) refused to issue import licenses for the full quantity applied for, based on EU import restrictions. Van Parys appealed to the Belgian Council of State, claiming that certain EU regulations were contrary to a decision of the WTO Dispute Settlement Body. See 2001 International Law Update 61 & 108. The Regulations at issue include (EEC) No 404/93, as amended, and Regulations Nos 2362/98, 2806/98, 102/1999 and 608/1999).

The Belgian Raad van State referred the matter to the ECJ for an advisory opinion under Article 234. Essentially, it asked the ECJ to determine the validity of the above EU regulations on bananas in light of GATT 1994, Articles I [equal application of trade advantages, favors, privileges or immunities] and XIII [non-discriminatory administration of quantitative restrictions].

The EU has approved the WTO Agreements, including GATT 1994. Under Article II(2) of the WTO Agreement, “[T]he agreements and associated legal instruments ... are integral parts of this Agreement, binding on all Members.”

The ECJ first examines whether WTO Agreements give EU citizens a right of action to challenge EU legislation. The ECJ notes that, based on ECJ precedent, WTO Agreements are not among the documents to consider when reviewing European legal acts. Only when a EU measure seeks to enforce a particular WTO requirement, or expressly refers to it, can the ECJ assess its compatibility with WTO trading rules.

Here, the EU did not intend to assume any WTO obligation after the adverse WTO Dispute Settlement Body (DSU) report. Thus, the Regulations at issue do not refer to WTO agreements. Even if the WTO finds an EU measure incompatible with WTO trading rules, negotiations among the parties can, and should, be the way to resolve these disputes. To have EU courts regularly rule on the compatibility of EU law with WTO trading rules would deprive the legislative or executive bodies of the chance to bargain toward a solution. The ECJ also points out that the EU, the U.S. and Ecuador did manage to settle this controversy later on.

In principle, therefore, a legal person may not rely, in a Member State court proceeding, on the proposition that EU law does not square with WTO trading rules, even where a DSU has already determined their incompatibility.

[Editors’ Note: U.S. had challenged EU banana regime before WTO, and in 1997 Dispute Settlement Panel found in favor of U.S. (DS27). See 1997 International Law Update 123. The U.S. and EU resolved their dispute over EU banana regime in 2001].

Citation: Leon Van Parys N.V. v. Belgisch Interventie-en Restitutiebureau, Case C-377/02 (1 March 2005); ECJ Press Release No 16/05 (1 March 2005).

U.S. clears merger of IBM’s PC division with giant Chinese computer maker. On March 8, 2005, a spokesman for both organizations announced that the Committee on Foreign Investment in the United States (CFIUS), a U.S. national security oversight committee, unanimously approved the acquisition of IBM’s PC business by Lenovo Group Ltd., the largest PC maker in China, over the reservations of several U.S. lawmakers. In January 2005, U.S. antitrust authorities approved the deal, and Lenovo shareholders have also given it a green light. Since 1998, CFIUS, made up of 11 U.S. agencies, has been conducting security reviews of transnational business deals affecting U.S. government interests. It counts, inter alia, members of the U.S. departments of Treasury, State, Defense, Justice and Homeland Security. Lenovo has agreed to move its headquarters from Beijing to an as-yet-undisclosed site not far from IBM’s main office in Armonk, New York. The merger will set up the world’s third largest PC maker with roughly $12 billion in revenue and with a leading position in a number of fast‑growing markets. The terms of the approval remain confidential. IBM intends to keep a 19% share in Lenovo after the merger, let Lenovo use its PC brands for five years, and hold on to PC service, financing and support operations. Citation: Reuters News Service (via N.Y. Times online), San Francisco, Wednesday, March 9, 2005, posted at 10:20 a.m. ET.

U.S. withdraws from Optional Protocol to Vienna Convention. By letter dated March 7, 2005, from the U.S. Secretary of State to the U.N. Secretary General, the United States has withdrawn from the Optional Protocol to the Vienna Convention on Consular Relations of April 1963 [21 U.S.T. 325, 596 U.N.T.S. 487 (1969)]. The Protocol required signatory states to accept the International Court of Justice (ICJ) as the final arbiter as to whether a signatory state has denied citizens their Convention rights. The letter declares that the U.S. “hereby withdraws from the aforesaid Protocol.” This action will presumably deprive the ICJ of jurisdiction to review claims of Vienna Convention violations by the U.S. Last year the Court found that the U.S. had violated the Article 36 rights of 512 detained Mexican nationals. See Case Concerning Avena and Other Mexican Nationals (Mexico v. United States of America) (No. 128, 31 March 2004). See 2003 International Law Update 30 & 2004 International Law Update 52. The U.S. had ratified the Protocol in 1969, and had successfully invoked it before the ICJ in 1979 after Iran had taken 52 U.S. embassy hostages in Tehran. – Citation: CNN.com report of Friday, March 11, posted at 12:36 a.m. EST; The Washington Post, March 10, 2005, page A1. [Text of Convention and Optional Protocol is available on website of International Law Commission at http://www.un.org/law/ilc/texts/consul.htm.]

Japan finds that Intel has engaged in unfair competitive practices. On March 8, the Japanese Fair Trade Commission (JFTC) found that the Intel Corporation had unfairly pressured five Japanese PC makers, such as Sony and Toshiba, to stop buying, or at least to restrict the number of microprocessors they bought, from rivals Advanced Micro Devices (AMD) and the Transmeta Corporation. Since May 2002, Intel had been offering discounts and other incentives to bring this about. Intel’s global market share of chips runs at about 80%. Intel’s existing market dominance leaves PC makers little choice but to buy a large number of their chips from Intel to avoid losing their discounts. Intel chips take up about 90 % of the Japanese microprocessor market with AMD and Transmeta dividing the remaining 10%, the latter figure being down from 24% in 2002. The JFTC branded Intel’s sales methods as unfair since the side agreements virtually guaranteed that the computer makers would drastically cut purchases from Intel rivals. According to the JFTC, these unlawful practices impaired competition and were likely to raise consumer prices. The JFTC did not impose a fine on Intel but it did order the company to cease and desist. Citation: The New York Times (online), Tokyo, Wednesday, March 9, 2005 (byline of Todd Zaun).