2006 International Law Update, Volume 12, Number 8 (August)

2006 International Law Update, Volume 12, Number 8 (August)

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

ALIEN TORT CLAIMS ACT

In dispute over pollution from mine in Papua New Guinea that sparked decade of violent uprisings, Ninth Circuit, in matter of first impression, concludes, inter alia, that Alien Tort Claims Act does not contain an exhaustion requirement

The Plaintiffs in this case are present and former residents of Bougainville, an island province of Papua New Guinea (PNG), who allegedly suffered violations of international law at the hands of the Defendant, Rio Tinto, PLC, a London-based mining corporation. The Plaintiffs assert that, with the aid of PNG’s government, Defendant committed war crimes, crimes against humanity, and environmental devastation.

More than thirty years ago, Defendant set out to develop a copper and gold mine on Bougainville, offering the PNG government 19.1 % of the profits for its cooperation. Mining started in 1972, and involved the blasting of about 300,000 tons of ore and waste rock per day. Waste from the mine soon began to pollute the environment. Moreover, Defendant was allegedly keeping the black islanders who worked there in “slave-like” conditions. In 1988, sabotage by the islanders forced the mine to close down. When Defendant called on the PNG government for help, the PNG army intervened, killing civilians, bombing civilian targets, and burning villages. The struggle lasted for 10 years.

Eventually, the Plaintiffs sued in a California federal court, seeking compensation and injunctive relief. The court asked for guidance from the U.S. Department of State (DOS) as to the impact of the suit on U.S. foreign policy. The DOS filed a Statement of Interest (SOI), opining that the lawsuit might have an adverse impact on the PNG peace process.

The district court dismissed the lawsuit, finding all of the claims non-justiciable. It also dismissed the racial discrimination claim, and a claim arising under the 1982 United Nations Convention on the Law of the Sea (UNCLOS) [21 I.L.M. 1261, not listed by DOS as of 1/1/2005 as ratified by U.S. ] international comity and the Act of State Doctrine. This appeal followed.

The Ninth Circuit affirms in part and reverses in part. The Court agrees that Plaintiffs may pursue some of their claims in the U.S. courts. It vacates the judgment, however, for the lower court to reconsider its dismissal of the racial discrimination and UNCLOS claims.

First, the Court applies the Political Question Doctrine, pursuant to the six factors outlined in Baker v. Carr, 369 U.S. 186 (1962). The four factors at issue in this case are: (1) “a textually demonstrable constitutional commitment of the issue to a coordinate political department”; (2) “the impossibility of a court’s undertaking independent resolution without expressing lack of respect due coordinate branches of government”; (3) “an unusual need for unquestioning adherence to a political decision already made”; or (4) the potentiality of embarrassment from multifarious pronouncements by various departments on one question.”

In applying the Baker factors, the Court ponders the weight it should accord to the SOI. “Guided by separation of powers principles, ... we conclude that, although we will give the view in the SOI ‘serious weight,’ ... [I]t is not controlling on our determination of whether the [pertinent] Baker factors are present. Ultimately, it is our responsibility to determine whether a political question is present, rather than to dismiss on that ground simply because the Executive Branch expresses some hesitancy about a case proceeding.” [Slip op. 11].

The Court concludes that there is no political question here. The DOS did not request the district court to dismiss on political question grounds, and the Court is unable to discern that any “embarrassment” could arise from deciding this case. The SOI does not establish that any of the Baker factors is “inextricable from the case.” See Baker, 369 U.S. at 217.

The Court then turns to the Act of State Doctrine (ASD). Generally speaking, the ASD prevents the U.S. courts from inquiring into the validity of the public acts of a sovereign nation carried out on its own territory. The Court finds, however, that the discrimination alleged would violate jus cogens and therefore, under international law, cannot be lawful acts of a sovereign. Thus, the district court had erred in dismissing these claims.

As for the alleged UNCLOS violation, the Court agrees with the district court that PNG’s efforts to exploit its own resources are sovereign acts. “[A]lthough UNCLOS codifies norms of customary international law, ... it is not yet clear whether ‘the international community recognizes the norm[s] as one[s] from which no derogation is permitted.’ [Cite] ... Without more, we cannot conclude that the UNCLOS norms are also jus cogens norms. Therefore, ... the UNCLOS provisions at issue do not yet have a status that would prevent PNG’s acts from simultaneously constituting official sovereign acts. We further agree with the district court that to adjudicate the UNCLOS claim would require a court to judge the validity of these official acts.” [Slip op. 16-17].

The Court next considers international comity. Comity allows a U.S. court to decline to exercise an otherwise valid jurisdiction out of respect for differing foreign interests. In dismissing the racial discrimination and UNCLOS claims, the court below discerned a true conflict between U.S. and foreign law. PNG’s Compensation (Prohibition of Foreign Proceedings) Act of 1995 bars the filing of foreign court actions (such as the present one) to seek compensation arising out of mining and petroleum projects in PNG.

Furthermore, the Restatement of the Foreign Relations Law of the United States Section 403(2) suggests some non-exhaustive standards for such a review. The Restatement factors include (a) the link of the activity to the regulating state, (b) the connections between the regulating state and the person principally responsible for the activity to be regulated, and ( c) the character of the activity to be regulated. The court below should reconsider its decision in light of the insufficiencies of the SOI.

Defendant had cross-appealed, arguing that the ATCA requires exhaustion of local remedies. The ATCA simply provides that the “district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” 28 U.S.C. Section 1350. Although the U.S. Supreme Court hinted in Sosa that, in an appropriate case, it may find an exhaustion requirement implicit in the ATCA, this remains an unresolved issue.

In a statutory exhaustion inquiry, Congressional intent is of paramount importance. The Torture Victim Protection Act of 1991 (TVPA), for instance, does contain an explicit exhaustion requirement (see 106 Stat. 73). Congress noted, however, that it did not intend the TVPA to replace the ATCA. Hence, the Court cannot determine Congressional intent from these sources.

Finally, Defendant contended that the Court should impose an exhaustion requirement as an exercise of judicial discretion. “The central argument [that] Defendant, amicus curiae and the dissent advance to justify exercising judicial discretion is that exhaustion of local remedies is an established aspect of international law. ... But see Foreign Relations Law Restatement Section 703, cmt. D (‘The individual’s failure to exhaust remedies is not an obstacle to informal intercession by a state on behalf of an individual ...). ... Consequently, the ‘law of nations’ language of the ATCA allegedly provides courts with the discretion to import an international law doctrine of exhaustion into an ATCA claim.”

“Moreover, the argument goes, not only would requiring exhaustion be consonant with international law, but such requirement would address many of the policy concerns identified by the district court in its decision to dismiss some (or all) claims on political question, act of state and comity grounds. Finally, exhausting local remedies assumedly would encourage the development of effective local criminal and civil penalties for human rights violations.”

“However, this is a patchwork argument. ... First, the international law of exhaustion does not compel a U.S. court to apply it in an ATCA cause of action. Exhaustion, to the extent it may be a norm within international human rights law, was developed specifically in the context of international tribunals ... which were created through treaties and with the consent of sovereign countries. ...”

“Thus, the international norm of exhaustion does not speak to the hybrid situation before us where a domestic court in a sovereign country, rather than an international tribunal, is charged with adjudicating violations of customary international law through the vehicle of a civil suit. ... [T]he exhaustion limitation imposed on and accepted by international tribunals as a requirement of international law is not dispositive as to a United States court’s discretion to impose exhaustion as part of the ATCA.” [Slip op. 27-28]

In sum, the Court reverses the district court’s dismissal of all claims as non-justiciable political questions, and the dismissal of the racial discrimination claim on ASD grounds. The Court vacates the district court’s dismissal of the racial discrimination claim and the UNCLOS claims.

Citation: Sarei v. Rio Tinto, PLC, 456 F.3d 1069, 36 Envtl. L. Rep. 20,157 (9th Cir. 2006).

ARBITRATION

First Circuit affirms lower court’s decision that Fed. R. Civ. P. 59(e) prevents presentation of new arguments in motions for reconsideration even when issues concerned relate to international arbitration

In 2000, Marks 3-Zet-Ernst Marks GmbH (Plaintiff), a German company, and Presstek, Inc. (Defendant), a Delaware corporation, had entered into a commercial agreement. The agreement stated that the Plaintiff would market Defendant’s products in various parts of Europe. Neither party had the right to terminate the contract for three years, except under certain conditions.

Section 10(g) of the contract provided in part: “Applicable Law and Jurisdiction. Any dispute . . . between the Parties arising out of, or relating to, this Agreement which cannot be settled amicably shall be referred to, and determined by, arbitration in the Hague under the International Arbitration rules. The ruling by the arbitration court shall be final and binding.....”

The arbitration clause notably fails to designate the specific arbitral body at The Hague for there are several. The contract also states that “the International Arbitration Rules” would govern the dispute when there are no rules by that name.

In April 2002, Defendant notified Plaintiff that it wished to terminate the contract. Plaintiff looked upon this termination as a contract breach and tried several times to persuade Defendant to arbitrate. The record shows only that the first request was under the UNCITRAL Arbitration Rules. All other attempts were unsuccessful. Plaintiff next sent letters to the Permanent Court of Arbitration at The Hague (PCA) asking it to launch an arbitration proceeding. In its application, Plaintiff asserted that the arbitration clause calls for UNCITRAL to provide the governing rules. The PCA did notify Defendant of Plaintiff’s arbitration request, but raised questions about the PCA’s competence to arbitrate this case. Defendant eventually responded to the PCA. It refused to stipulate to the applicability of the UNCITRAL Arbitration Rules, contending that the contract language was not clear enough. The PCA later concluded that it did lack the competence to handle this case.

In March 2004, Plaintiff again implored Defendant to arbitrate the dispute, this time pursuant to the Netherlands Arbitration Act. Defendant failed to respond. Plaintiff moved the New Hampshire federal court in April 2005 to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, [21 U.S.T. 2517; T.I.A.S. 6997; 330 U.N.T.S. 3; June 7, 1959.] Plaintiff asked, inter alia, for an order directing Defendant to arbitrate in The Hague under the American Arbitration Act’s International Rules. In effect, Plaintiff was trying to arbitrate the dispute at the PCA under rules which the PCA could not honor.

In September 2005, the district court dismissed Plaintiff’s petition. Plaintiff moved for reconsideration under Fed. R. Civ. P. 59(e) which the district court denied. Plaintiff appealed but the First Circuit affirms.

In his Rule 59 motion, Plaintiff had urged new arguments. Stressing the broad federal policy favoring arbitration of disputes, it claimed (1) that it is entitled to arbitration in some forum (not necessarily the PCA), (2) that this could take place under some set of arbitration rules, (3) that it required a court hearing to sort out the possibilities. It argued that “the Supreme Court has noted that the policy favoring arbitration has ‘applies [sic] with special force in the field of international commerce.’ See Restoration Pres. Masonry Inc. v. Grove Eur. Ltd., 325 F.3d 54, 60 (1st Cir. 2003) ....” [Slip op. 9] According to Plaintiff, it was not improper to wait until the motion for reconsideration to specify this relief since the petition was seeking “such other and further relief as the Court deems appropriate and just.”

The First Circuit, however, disagrees. “[B]road policy favoring arbitration -- even in the context of international arbitration -- does not create an exception to the general rule that a motion to reconsider does not allow a party ‘to introduce new evidence or advance arguments that could and should have been presented to the district court prior to the judgment.’ Aybar, 118 F.3d 10, 16 (1st Cir. 1997).” [Slip op. 10] .

“Arbitration clauses were not meant to be another weapon in the arsenal for imposing delay and costs in the dispute resolution process. . . . In the context of international contracts, the opportunities for increasing the cost, time, and complexity of resolving disputes are magnified by the presence of multiple possible fora, each with its own different substantive rules, procedural schematas, and legal cultures. This is fertile ground for manipulation and mischief, and acceptance of [plaintiff’s] arguments would lead to the very problems the [New York] Convention sought to avoid.” [Slip op. 10]

Citation: Marks 3-Zet-Ernst Marks GmbH & Co. KG v. Presstek, Inc., 455 F.3d 7 (1st Cir. 2006).

ENVIRONMENTAL LAW

As matter of first impression, District of Columbia Circuit determines in context of Montreal Protocol that “decisions” of parties made within framework of international agreements do not constitute “laws” which are enforceable in U.S. courts

The U.S. belongs to the Montreal Protocol on Substances that Deplete the Ozone Layer (Sept. 16, 1987), S. Treaty Doc. No. 100-10, 1522 U.N.T.S. 29 (Protocol). It obliges signatory states to reduce the use of chemicals that affect the stratospheric ozone layer. One of the substances at issue here is Methyl Bromide, a toxic gas used as a fumigant.

The Environmental Protection Agency (EPA) issued a “critical use” exemption from the Protocol’s general ban on Methyl Bromide. See 40 C.F.R. pt. 82. The Parties to the Protocol agreed to the U.S.’s continued use of the substance in certain categories, and from existing stocks.

The Natural Resources Defense Council (NRDC), however, challenged that EPA exemption. The NRDC charged that it violated decisions under the Protocol in three ways. These were that the U.S. (1) failed to disclose the full amount of existing stocks; (2) neglected to offset new production and consumption by the full amount of these stocks; and (3) declined to reserve the stocks for critical uses. The District of Columbia Circuit, however, denies the NRDC’s petition for review of the EPA rule.

The NRDC claimed that the Clean Air Act (CAA) (42 U.S.C. Section 7607 (d)(9)(A)) required the EPA to abide by the Protocol. Because the Protocol did allow for future inter-party agreements on the scope of critical-use exemptions, the NRDC submits that those agreements serve to define the scope of EPA’s authority under the CAA. In other words, the “decisions” under the Protocol constitute “law” within the CAA to be applied by U.S. courts.

The Circuit Court disagrees. “NRDC’s interpretation raises significant constitutional problems. If the ‘decisions’ are ‘law’—enforceable in federal court like statutes or legislative rules—then Congress either has delegated lawmaking authority to an international body or authorized amendments to a treaty without presidential signature or Senate ratification (sic), in violation of Article II of the Constitution. The Supreme Court has not determined whether decisions of an international body created by treaty are judicially enforceable.”

“But there is a close analogy in this court. The United States is party to a treaty establishing the International Court of Justice (ICJ). In Committee of United States Citizens Living in Nicaragua v. Reagan, 859 F.2d 929 (D.C. Cir. 1988), we held that rulings of the ICJ do not provide ‘substantive legal standards for reviewing agency actions,’ ... because the rulings, though authorized by the ratified treaty, were not themselves self-executing treaties. ... [...]”

“The legal status of ‘decisions’ of this sort appears to be a question of first impression. There is significant debate over the constitutionality of assigning lawmaking functions to international bodies. ... A holding that the Parties’ post-ratification side agreements were ‘law’ would raise serious constitutional questions in light of the non-delegation doctrine, numerous constitutional procedural requirements for making law, and the separation of powers.” [Slip op. 8]

In addition, the Parties’ post-ratification actions support the treatment of “decisions” as international political commitments rather than enforceable domestic law. For example, when the Protocol parties agreed to the latest critical-use exemptions, they did not censure the U.S. over the EPA rule at issue here.

This holding in no way curtails the Executive’s power to enter into international agreements that constrain that Branch’s own behavior. The Executive may implement ongoing collective endeavors with other countries. Without congressional action, however, “decisions” or side agreements made after the President has ratified a treaty do not become the law of the land. They are enforceable solely through international negotiations. Thus, the EPA rule—even if inconsistent with these decisions—does not violate any domestic law within the meaning of the CAA.

Citation: Natural Resources Defense Council v. Environmental Protection Agency, No. 04-1438 (D.C.Cir. August 29, 2006).

ENVIRONMENTAL LAW

Ninth Circuit holds that applying CERCLA to Canadian company where slag dumped in Canada became deposited along banks of Columbia River within U.S. and was releasing toxic metals into its waters did not involve extraterritoriality

Joseph A. Pakootas and Donald R. Michel as individuals and as enrolled members of the Confederated Tribes of the Colville Reservation in Washington state (Plaintiffs) sued to enforce a Unilateral Administrative Order (UAO) issued by the U.S. Environmental Protection Agency (EPA) against Teck Cominco Metals, Ltd., a Canadian corporation (Defendant). The Order would require Defendant to conduct a remedial investigation/feasibility study (RI/FS) along a segment of the Columbia River lying entirely within the United States, where hazardous substances disposed of by Defendant in Canada have come to be located. On this interlocutory appeal of the district court’s denial of Defendant’s motion to dismiss, the main transnational issue is whether a citizen suit based on Defendant’s alleged non-compliance with the UAO is a domestic or an extraterritorial application of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. Sections 9601-9675, a strict liability statute.

In August 1999, the Colville Tribes petitioned the EPA to assess the hazardous substance contamination in and along the Columbia River in northeastern Washington state. The EPA found ongoing contamination including heavy metals such as arsenic, cadmium, copper, lead, mercury and zinc.” The “EPA also observed the presence of slag, a by-product of the smelting furnaces, containing glassy ferrous granules and other metals, at beaches and other depositional areas at the Assessment Area.” The EPA decided that the Upper Columbia River Site (the Site) was eligible to be listed on the National Priorities List (NPL).

Defendant owns and operates a lead-zinc smelter (Trail Smelter) in Trail, British Columbia. Between 1906 and 1995, Defendant has been generating and disposing of hazardous materials, in both liquid and solid form, into the Columbia River. Before mid-1995, the Trail Smelter had been dumping up to 145,000 tons of slag per year into the Columbia River. Although the discharge itself took place within Canada, the EPA concluded that the river’s current bore Defendant’s wastes southward into the U.S. where it settled out in slower-flowing quiescent areas.

A substantial quantity of slag has built up and adversely affects the surface water, ground water, sediments, and biological resources of the Upper Columbia River and Lake Roosevelt. Technical evidence shows that the Defendant’s Smelter is the main source of pollution at the Site.

Plaintiffs filed this action in Washington federal court under the citizen suit provision of CERCLA. They asked for a declaration that Defendant has violated the EPA Order, for injunctive relief enforcing the Order against Defendant, as well as for penalties for non-compliance and recovery of costs and fees. Defendant moved to dismiss the complaint for failure to state a CERCLA claim and for lack of subject matter jurisdiction, on the ground that the district court could not enforce and EPA Order against activities carried out by Defendant in Canada. The District Court denied the motion but certified the issues for interlocutory appeal. In a July 3 opinion, the U.S. Court of Appeals for the Ninth Circuit affirms.

Defendant’s primary argument is that, in absence of a clear statement by Congress that it intended CERCLA to apply extraterritorially, the presumption against extraterritorial application of United States law precludes CERCLA from applying to Defendant in Canada. The Court needs to address whether the presumption against extraterritoriality applies only if this case does involve an extraterritorial application of CERCLA.

“Unlike other environmental laws such as the Clean Air Act (CAA), the Clean Water Act (CWA), and [the] Resource Conservation and Recovery Act (RCRA), CERCLA is not a regulatory statute. Rather, CERCLA imposes liability for the cleanup of sites where there is a release or threatened release of hazardous substances into the environment. [Cite]..” [1073].

“CERCLA liability attaches when three conditions are satisfied: (1) the site at which there is an actual or threatened release of hazardous substances is a ‘facility, ...’ (2) a ‘release’ ... of a hazardous substance from the facility has occurred, ... and (3) the party is within one of the four classes of persons subject to liability.”

“CERCLA defines the term ‘facility’ as, in relevant part, ‘any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located.’ Section 9601(9). The Order defines the ‘facility’ in this case as the Site, which is described as the ‘extent of contamination in the United States associated with the Upper Columbia River.’ UAO at 2 (emphasis added). The slag has ‘come to be located’ at the Site, and the Site is thus a facility under Section 9601(a). [Cite].”

“ ... Defendant does not argue that the Site is not a CERCLA facility. Because the CERCLA facility is within the United States, this case does not involve an extraterritorial application of CERCLA to a facility abroad. The theory of Plaintiffs’s complaint, ... does not invoke extraterritorial application of United States law precisely because this case involves a domestic facility.” [1074].

“The second element of liability under CERCLA is that there must be a ‘release’ or ‘threatened release’ of a hazardous substance from the facility into the environment. ... CERCLA defines a ‘release,’ with certain exceptions not relevant here, as ‘any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment.’ Section 9601(22).”

“Plaintiffs has (sic) alleged that the leaching of hazardous substances from the slag that is in the Site is a CERCLA release, and Defendant has not argued that the slag’s interaction with the water and sediment of the Upper Columbia River is not a release within the intendment of CERCLA. Our precedents establish that the passive migration of hazardous substances into the environment from where hazardous substances have come to be located is a release under CERCLA. [Cites]. We hold that the leaching of hazardous substances from the slag at the Site is a CERCLA release. That release -- a release into the United States from a facility in the United States -- is entirely domestic.” [1075].

The Court then refers to the ‘domestic effects’ exception to the presumption against extraterritorial application of United States law. See Steele v. Bulova Watch Co., 344 U.S. 280, 287-88 (1952) (finding jurisdiction in a trademark suit against a person in Mexico who manufactured counterfeit Bulova watches that then entered and caused harm within the United States). “In Steele the prohibited conduct, ... took place in Mexico but the harm, the dilution of Bulova’s trademark, took place in the United States. Id. at 287. The Court therefore held that there was jurisdiction in that case.”

“The location where a party arranged for disposal or disposed of hazardous substances is not controlling ... Because the actual or threatened release of hazardous substances triggers CERCLA liability, and because the actual or threatened release here, ... took place in the United States, this case involves a domestic application of CERCLA.” ... [1079].

Citation: Pakootas v. Teck Cominco Metals, Ltd., 36 Envtl. L. Rep. 20, 130, 452 F.3d 1066 (9th Cir. 2006).

HAGUE SERVICE CONVENTION

English Court of Appeal (Civil Division) applies, inter alia, provisions of Hague Service Convention in ruling that Swiss rather than English court first became seised of conflicting civil actions so as to give Swiss court exclusive right to litigate dispute pursuant to requirements of EU law

Mr. Robin Symes (the bankrupt) and Mr. Christo Michailidis [last name also spelled “Michaelidis”] were partners dealing in antiquities (partly through a company owned by the bankrupt). After Mr. Michailidis died in July 1999, Jonathan Guy Anthony Phillips, Robert Andrew Harland (suing as Administrators of the estate of Christo Michaelidis) (Plaintiffs) filed proceedings against the bankrupt. In the Spring of 2003, those proceedings ended up (1) in a default judgment for the Plaintiffs, (2) in a direction for the taking of partnership accounts and enquiries, (3) the bankruptcy of Mr. Symes and (4) the appointment of the Trustees as his trustees in bankruptcy.

On July 24, 2002, one judge had put in place an interlocutory regime (“the regime”) which enabled the business to go on operating pending the dispute. Pursuant to the regime, the bankrupt allegedly sold Statue #1 to Philos Partners Inc. of Wyoming, for US$1.6m. The Plaintiffs then found out that he had in fact sold it to Sheik Al-Thani for US $4.5m, the effect being that the bankrupt had effectively removed some US$2.9m in assets from the U. K.

In March 2003, the Plaintiffs applied first to the English court for appropriate relief against the bankrupt. They also sought a finding as to whether, as the bankrupt claimed, Frieda Nussberger and Galerie Nefer AG (Defendants) had an interest in Statue #1.

The Defendants were also involved with another contempt committed by the bankrupt. This concerned statute #2 which he had apparently offered to sell to the same Sheikh for US$8m. On hearing about this, the Plaintiffs applied in August 2003 to have the bankrupt committed for breaching the terms of the regime.

The Plaintiffs eventually showed that the bankrupt had sold Statue #2 to Defendant Nefer on February 14, 2003 for US$3m, but that no money has changed hands. This was said to be justified on the basis that Defendant Nussberger, who owns Defendant Nefer, had various claims exceeding US$3m which she was entitled to set off against the money due for Statue #2. In the present proceedings, the Plaintiffs’ claim against the Defendants for US $3m rests on the notion that this is the sum which the Defendants should have paid for Statue #2.

Defendant Nussberger lives in the canton of Aargau in Switzerland, and Defendant Nefer’s registered office is in Zurich. Therefore, Plaintiffs had to serve these proceedings on them in compliance with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters of 1965 [20 U.S.T. 361; T.I.A.S. 6638; 658 U.N.T.S. 163, in force for U.S. February 10, 1969] (the HSC).

In a momentous innovation, HSC Articles 2 and 3 require each Contracting State to designate a “Central Authority” to effect prompt service of such documents as are forwarded to it with a request in the appropriate form by the “authority or judicial officer competent under the law of the state in which the documents originate”. The competent judicial officer for English proceedings is the Senior Master, and the relevant Swiss Central Authority is, in the case of the Defendant Nussberger, the Obergericht (or Superior Court) of Aargau, and, in the case of Defendant Nefer, the Obergericht of Zurich.

The Plaintiffs next prepared an appropriate claim form. When issued by the Court Service, however, someone erroneously stamped the claim form: “Not for service out of the jurisdiction”. On December 15, 2004, the day before the claim form was issued, the High Court granted the Plaintiffs a worldwide freezing order (WFO) against the Defendants’ assets up to a value of US$3m.

On December 31, 2004, Plaintiffs’ solicitors filed two identical packages with the Foreign Process Section: one for service on the Defendant Nussberger and the other for service on Defendant Nefer, together with requests for service abroad. Despite the mistaken stamp, the Senior Master went ahead and arranged for service by the relevant Obergericht in Switzerland.

To enforce the WFO, the Plaintiffs had to obtain attachment orders against the Defendants in the appropriate Swiss courts. Accordingly, the Plaintiffs issued requests for attachment in the Bezirksgericht of Zurzach in Aargau (the BGZ) as well as in the Zurich Obergericht (ZOG). The BGZ attached the assets of both Defendants on December 20. On the following day, officials served Defendant with the attachment order with a copy of the WFO.

The Defendant next persuaded the BGZ to set aside the attachment order on January 19, 2005. More importantly here, the BGZ handed the Defendant a package, which the Plaintiffs’ representatives reasonably believed to include all the documents which Plaintiffs had filed in the U. K. Foreign Process Section.

Unbeknownst to the Plaintiffs, however, a BGZ official -- noticing the (erroneous) stamp on the claim form -- had taken the form out of the package, and sealed it up again. During the January 19 court session, no BGZ official notified Plaintiffs’ that this had been done.

On March 11, 2005, a BGZ official certified to the Senior Master that all the documents sent to the BGZ had been served on the Defendant, with the exception of the copy claim form. A mistake by the Swiss post office had prevented service on Nefer.

Meanwhile, on February 4, 2005, the Defendants filed proceedings against the Plaintiffs in the ZOG. They sought (a) declaratory relief that the Defendants are not liable to the Plaintiffs as claimed below; and (b) declaratory relief as to their ownership of Statue #1.

Plaintiffs first found out about this case from Defendants’ letter of February 9. In it, Defendants argued that, under Article 21 of the Lugano Convention (to which both the U. K. and Switzerland are parties), the Swiss proceedings had priority over the present English proceedings, and that the English court had a duty to stay the instant proceedings.

Hoping that this would enable the U.K. proceedings to secure priority over the Swiss proceedings, the Plaintiffs then asked the High Court to dispense them from having the claim form served on Defendants. The Defendants opposed the application.

Under Title II of the Convention, the High Court has jurisdiction to entertain these proceedings against the Defendants, and the ZOG also has jurisdiction to entertain the Swiss proceedings. In relation to this case, Article IV of Protocol No. 1 to the Lugano Convention effectively incorporates the provisions for modes of service set forth in the HSC.

Article 21 of the Lugano Convention provides as follows: “Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Contracting States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.” [¶ 26].

In the Court’s view, these proceedings and the Swiss proceedings substantially “involv[e] the same cause of action” and are “between the same parties”. Thus Article 21 does control on the priority issue. Under Swiss procedure, the ZOG became seised of the Swiss proceedings when they were issued, namely on February 4, 2005. An English court arguably becomes seised of proceedings only when the claim form is served.

Had a Swiss official had not removed the claim form from the package, the High Court would have been seised of these proceedings as of January 19, 2005. “So the only reason that there is any issue in this case is because the copy claim form was removed from the package before it was served on the Defendant.” [¶ 29].

“The [BGZ’s] removal of the copy claim form from the packages delivered through the Senior Master for service on the Defendants, even if unauthorised, was understandable. ... The removal ultimately resulted from the mistaken stamping of the claim form and the subsequent acceptance of copies for service abroad, both acts of the English Court Service.” [¶ 31].

Article 4 of the HSC provides that, if the “Central Authority” (the Aargau Obergericht), considers that “the request [for service] does not comply with the provisions of the ... Convention, it shall promptly inform the applicant”, the Senior Master. ... Article 5 requires the Central Authority itself or “an appropriate agency” to serve the documents in accordance with the request.

“... It is, I believe, common ground that the Swiss Central Authority (or its authorised agent, the BZG) was entitled to ‘perform ... a summary review to ascertain that the request satisfie[d] the requirements laid down by the [Hague] Convention’. The Judge below ruled that the BGZ was not entitled to refuse to serve a document, ...in the form stipulated by the HSC, merely because that document was stamped in the terms in which the copy claim form was stamped in this case.”

The appellate court is not so sure. “... [A]lthough the request form, read on its own, was unambiguous in asking for service of everything in the package, the stamp on the copy claim form was an equally unambiguous instruction not to serve that very document. ... ” [¶¶ 33-35].

The Plaintiffs contend that the English High Court was “first seised” as against the ZOG on the basis of two alternative arguments. “The first argument is that the High Court was seised of these proceedings against the Defendants on December 31, 2004, when the packages (including the copy claim form) were delivered to the Senior Master for service on the Defendants. The alternative argument is that, under U.K. procedures, the High Court became seised of the proceedings when the Defendant received the package (albeit without the copy claim form) on January 19, 2005.”

“The Judge below ... accepted the second argument. He held that, although the copy claim form was not in fact served on the Defendant on January 19, 2005, he had discretion under CPR6.9 to dispense with its service, that he should exercise that discretion, and that, ... these proceedings thus achieved Article 21 priority over the Swiss proceedings.”

“Article 21 (of Lugano) has been metaphorically described as a ‘tie-break rule’ which operates on the basis of strict chronological preference. ... The European Court of Justice (ECJ) in Zelger v. Salnitri [1984] E.C.R. 2397 at 2408 held that the court first seised: ‘is the one before which the requirements for proceedings to become definitively pending are first fulfilled, such requirements to be determined in accordance with the national law of each of the courts concerned.’” [¶¶ 39-41].

“Further, the Brussels Convention now no longer applies in any EU member state (apart from Denmark), having been replaced by Council Regulation (EC) No 44/2001 (‘the 2001 Regulation’) ... The 2001 Regulation unifies the seisin rule through Article 30, which states that seisin occurs in the court of any Contracting State ‘when the document instituting the proceedings is lodged with the court’ provided that the claimant does not fail to take steps to serve the Defendant appropriately.”[¶ 48].

“If Plaintiffs’ argument is to succeed, the CPR would have to make it clear that service on a Defendant out of the jurisdiction was deemed to be effected when the claim form was lodged with the Senior Master ... In my view, analysis of the provisions of CPR6 leads to the conclusion that, as one would expect, a foreign Defendant is not served with documents under the Hague Convention until he receives those documents.” [¶ 55].

“... Part III of CPR6, ... envisage[s] that ‘service’ of a document on a Defendant out of the jurisdiction involves the same concept as ‘service’ of a document on a Defendant [within] the jurisdiction, namely the provision of the document to him personally (although there will be exceptions such as substituted service).” [¶ 58].

“The position as of 4 February 2005, when the Swiss proceedings were issued, was this. As the Defendant had not been served with the copy claim form, the High Court was not seised of these proceedings as against her, and accordingly, as the Swiss rule is that seisin occurs on issue, the Swiss proceedings had priority under Article 21.”

“In these circumstances, it appears to me that there is obvious force in the proposition that it is not possible (or, if it is possible, it would not be right) for this court, subsequent to 4 February 2005, to invoke its discretionary jurisdiction under a domestic rule of procedure, such as CPR6.9, to enable these proceedings to snatch back priority for the purposes of Article 21 from the Swiss proceedings. The court would thereby be trying to enable the English proceedings to jump the Article 21 queue, or, ... it would be seeking to achieve a retrospective replay of the tie-break with a different outcome.” [¶ 78].

“[The prior] observations of this court appear to be focussed pretty closely on the point at issue here, while those of the ECJ are of more general application. ... [T]hey appear to me to present insuperable obstacles to the Plaintiffs’ invocation of CPR6.9 to enable these proceedings to achieve priority under Article 21 over the Swiss proceedings, when these proceedings would not otherwise enjoy such priority, indeed when the Swiss proceedings have already gained such priority.” [¶ 90].

“... In my view, the facts of the present case would not justify invoking CPR6.9. First, it was not in any way the fault of the Defendants that the copy claim form was not served before 4 February 2005; they did not, for instance, evade service of these proceedings. Secondly, the Plaintiffs must take at least some of the blame for the failure to serve the copy claim form.”

“Thirdly, it cannot be inappropriate for the Defendants to start their own proceedings in the court of a country which has jurisdiction under the Lugano Convention, especially in their country of residence. Further, there is nothing wrong in the Defendants seeking a negative declaration in this context, even where the Plaintiffs might characterise that course as forum-shopping. [Cite]. Fourthly, [even] if the [BZG] could be criticised for its failure to serve the copy claim form or to report promptly on its non-service, that would not be a sufficient reason to justify exercising this court’s CPR6.9 jurisdiction.”. [¶¶ 92, 93].

“... [I]f the instant proceedings were permitted to continue, there could be a race to judgment between the Plaintiffs in this country and the Defendants in Switzerland. Further, if the Plaintiffs were to succeed here and the Defendants were to succeed in Switzerland, neither judgment would be enforceable in the other country by virtue of Article 27(3) of the Lugano Convention. Conflicts between national courts, involving such races to judgment, inconsistent decisions, and unenforceable orders, are the very stuff of what such international Conventions are designed to avoid. Such conflicts are best avoided by national Courts faithfully and consistently following the provisions of the Conventions, and applying domestic procedural rules, not only simply and predictably, but also consistently with the Conventions.” [¶¶ 105,106]. “In these circumstances, it follows that the Defendants’ appeal must be allowed.” [¶ 113].

Citation: Nussberger v. Phillips, [2006] E.W.C.A. 654, 2006 WL 1333325 (Ct. App., Civ. Div. May 19, 2006).

HUMAN RIGHTS

European Court of Human Rights finds that action filed by Saddam Hussein against twenty-one members of Council of Europe who may have contributed forces to the U.S. run coalition in Iraq, inadmissible for failure to specify whether and how named Respondents took part in his capture and trial on charges of war crimes and crimes against humanity

The Applicant is Mr. Saddam Hussein, a sixty-nine-year-old Iraqi national. He has filed a proceeding for relief in the European Court of Human Rights (ECHR) against Albania, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Turkey, Ukraine, and the United Kingdom. He is the former President of Iraq and is currently detained there.

On March 20, 2003 coalition forces, led by a U.S. General, invaded Iraq. The U.S. and the U. K. provided the bulk of the forces supporting this campaign. (For current purposes, however, the ECHR assumes that the coalition forces included support from each of the twenty-one respondent States during the relevant period.) The coalition forces consist of Divisions, each with military responsibility for a particular zone of Iraq.

In early April, U.S. forces captured Baghdad. A U.S. General soon proclaimed the creation of the Coalition Provisional Authority (CPA), a civilian administration that would temporarily exercise governmental powers in Iraq. The following month, the U.S. Secretary of Defense appointed Ambassador Bremer as Administrator of the CPA. In July, an Iraqi Governing Council (IGC) came into being although the Administrator could veto any or all of its decisions. The CPA was to co-ordinate with the IGC on all matters involving the temporary governance of Iraq.

On December 13, 2003 U.S. troops captured the Applicant near Tikrit. During the June following, the U. N. Security Council adopted Resolution 1546 (2004). The Resolution approved the formation of a sovereign interim Government of Iraq which would assume, by June 30, 2004, full responsibility and authority for governing the country; it welcomed the end of the occupation and of the CPA when Iraq would reassert its full sovereignty. It also noted that, pending the assumption of full security responsibility by Iraqi forces, the presence of the multinational force in Iraq was at the request of the incoming Interim Government of Iraq (Arts 1, 2, 8 and 9 of the Resolution). On June 28, 2004, all CPA authority passed to the new Iraqi Interim Government (IIG). Two days later, U.S. forces handed the applicant over to the IIG for trial on war crimes, crimes against humanity and other charges.

The Applicant complained to the ECHR about his arrest, detention, handover and ongoing trial under Arts 2, 3, 5, and 6 together with Art.1 of the 6th and 13th Protocols to the European Convention for the Protection of Human Rights and Fundamental Freedoms. [312 U.N.T.S. 221, in force Sept. 3, 1953, as amended]. He complained that a finding of guilt after a “show trial” for which he lacked even the basic tools of defense would likely result in his execution. Applicant argued that he fell within the jurisdiction of one or more of the twenty-one respondent States, which continued to hold de facto power in Iraq as the occupying powers. All of them are parties to the Convention and thus stand responsible for ensuring the protection of human rights in Iraq.

In unanimously deciding that the application is inadmissible, the ECHR considers Applicant’s jurisdictional arguments unsubstantiated. “While the Applicant referred to certain UN documents, press releases and academic publications, these referred, without more, to coalition partners acting together. The Applicant did not address each Respondent State’s role and responsibilities or the division of labour/power between them and the U.S. He did not refer to the fact or extent of the military responsibility of each Division for the zones assigned to them. He did not detail the relevant command structures between the U.S. and non-U.S. forces except to refer to the overall Commander of coalition forces who was at all relevant times a U.S. General.”

“Finally, and importantly, he did not indicate which respondent State ... had any (and, if so, what) influence or involvement in his impugned arrest, detention and handover. Despite the formal handover of authority to the Iraqi authorities in June 2004 and elections in January 2005, the Applicant simply maintained, without more, that those [coalition] forces remained de facto in power in Iraq.”

“In such circumstances, the Court considers that the Applicant has not established that he fell within the jurisdiction of the respondent States on any of the bases alleged. The Court considers that he has not demonstrated that those States had jurisdiction on the basis of their control of the territory where the alleged violations took place . [Cites]. Even if he could have fallen within a State’s jurisdiction because of his detention by it, he has not shown that any one of the Respondent States had any responsibility for, or any involvement or role in, his arrest and subsequent detention. [Cites].”

“This failure to substantiate any such involvement also constitutes a response to his final submission to the effect that the Respondent States were responsible for the acts of their military agents abroad. Finally, there is no basis in the Convention’s jurisprudence and the Applicant has not invoked any established principle of international law which would mean that he fell within the Respondent States’ jurisdiction on the sole basis that those States allegedly formed part (at varying unspecified levels) of a coalition with the U.S., when the impugned actions were carried out by the U.S., when security in the zone in which those actions took place was assigned to the U.S. and when the overall command of the coalition was vested in the U.S.”

“Accordingly, the Court [unanimously] does not consider it to be established that there was or is any jurisdictional link between the Applicant and the Respondent States or, therefore, that the Applicant was capable of falling within the jurisdiction of those States, within the meaning of Art.1 of the Convention.” [224-25].

Citation: Hussein v. Albania et al., (2006) 42 E.H.R.R. SE 16; 2006 WL 1518660 (ECHR) (4th Section, 2006).

RACIAL DISCRIMINATION

Second Circuit rules, as matter of first impression, that Civil Rights Act of 1871, as amended, does not apply to alleged acts of racial discrimination by U.S. company that took place outside U.S. territory

American International Group, Inc. (Defendant) was employing John Ofori-Tenkorang (Plaintiff), an alien black man who lived in Connecticut. In September 2003, Plaintiff accepted a temporary assignment to South Africa. There he allegedly endured many instances of racial discrimination. Some examples include: (1) that his superiors placed him in an office with a white colleague of questionable ethics, (2) that he received a comparatively smaller bonus, and (3) that he received disparate treatment based on his race. Some acts of discrimination allegedly took place in the U.S.

Plaintiff brought the present civil rights case against Defendant in a New York district court. Section 1981(a) of the Civil Rights Act of 1871, as amended provides in part that “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts ... as enjoyed by white citizens.”

Relying on the italicized language, the district court dismissed Plaintiff’s racial discrimination claims on the grounds that the ban of 42 U.S. C. Section 1981 on racially discriminatory conduct does not reach outside U.S. territory. Plaintiff duly noted his appeal. The U.S. Court of Appeals for the Second Circuit affirms in part and vacates in part, and remands to the district court to litigate the allegations of wrongdoing within the U.S.

The Courts presume that Congress generally intends its statutes to have a domestic application. To find otherwise requires clear evidence of Congress’s extraterritorial intent. In search of such an intent, a court first looks at the statutory language. If the language is unclear or ambiguous, the court may look to other evidence of statutory meaning, including its structural context and its legislative history.

No other Circuit has apparently addressed this issue. All district courts, however, have concluded that Section 1981 does not apply extraterritorially. Furthermore, where Congress has decided to have other civil rights statutes apply extraterritorially, it did so explicitly. For example, Section 109 of the Civil Rights Act of 1991, Pub.L. No. 102-166, 105 Stat. 1071, 1077, amended the definition of “employee” to cover employment abroad. Based on the text and legislative history of Section 1981, however, the Court finds that Congress has not extended the reach of that statute beyond the territorial jurisdiction of the U.S.

Plaintiff alternatively argued that a Court does not have to apply Section 1981 “extraterritorially” because his employment contract with the U.S. company placed him within U.S. jurisdiction under a “center of gravity test.” The Court disagrees. First, the Court cannot justify an exception to the Section 1981 requirement that the person be “within the jurisdiction of the United States” simply because the parties executed the employment agreement in the U.S.

Second, the mere decision of a U.S. employer to discriminate against employees abroad forms no basis for a Section 1981 claim. This statute defines its territorial limitation based on where the Plaintiff endured the alleged discrimination, not where the Defendant’s facilities are located. Even if the Defendant planned them within the U.S., the acts alleged here affected the Plaintiff outside the U.S.

“[W]e underscore that it is not our role to decide whether 42 U.S.C. Section 1981 should, as a matter of public policy, apply extraterritorially to employees of U.S. corporations stationed overseas. We are not free to ignore the clearly-state (sic) purpose of Congress and expand Section 1981 to protection (sic) persons outside the ‘jurisdiction of the United States,’ no matter how sympathetic these persons or their claims may be. For the foregoing reasons, we decline to adopt a ‘center of gravity test’ ... that would introduce much uncertainty into the law. ...” [Slip op. 10-11]

Citation: Ofori-Tenkorang v. American International Group, Inc., 2006 WL 2349169 (2d Cir. August 15, 2006).

TAXATION

Canadian Federal Court of Appeal rules that investigation into taxpayer’s payment history to decide whether to audit taxpayer, with no reference to criminal charges such as U.S. had filed against taxpayer, did not trigger Canadian Charter protections applicable to criminal investigations

On April 1, 2004, a federal grand jury in California released its indictment of Roger Ellingson (Taxpayer) for various offenses. They included illicit drug importation and distribution and the laundering of the proceeds between June 2000 and March 2004. The following day the local U.S. Attorney issued a news release that included Taxpayer’s name.

The special enforcement program (SEP) unit of the Canadian Department of National Revenue (CRA) received a copy of a suspicious transaction referral form (the Referral) on or about April 16, 2004. It came from the HSBC Bank in Penticton, B.C. east of Vancouver.

A notation in the Referral entitled “description of suspicious activity” declares that: “Client brought in $5000.00 in cash all in 20s to be applied to two car loans he has with HSBC. The CSR noticed that the money had the distinct odour of marijuanna [sic]. A further review of the loans revealed that client consistently makes payments to the loans by way of cash.”

Though the Referral came from the Royal Canadian Mounted Police (RCMP) Proceeds of Crime unit, it gave no other information about Taxpayer. The Unit first sent the Referral to Darren Wilms in the Investigations Division (ID) of the CRA. Wilms had routinely come across a Penticton Herald article dated April 7, 2004, alluding to Taxpayer’s U.S. indictment on drug trafficking charges.

The CRA database revealed that Taxpayer had not filed any Canadian tax returns for the years 1997 to 2003. Wilms next sent the Referral, the newspaper article and the database search to David Matheson, an auditor/inspector in the SEP unit. Matheson, however, did not get hold of the grand jury indictment or the U.S. Attorney’s press release.

The SEP unit is a separate unit within the ID that audits taxpayers where the facts suggest they may have earned income from illegal sources; it does not currently conduct criminal investigations. When an auditor concludes that a taxpayer may have committed a criminal offense, however, he or she then refers the file to an ID investigator.

Matheson’s first task was to decide whether the SEP should start an audit. Having the sole responsibility for this file, all Matheson did was to issue the Requirement on July 20, 2004. The record shows no indication of any criminal investigation by the ID nor did any CRA official ever interview the Taxpayer.

Under ¶ 231.2(1)(a) of the Income Tax Act (the ITA), the Minister of National Revenue (Minister) may issue a “requirement letter” where the Minister suspects that there may be unreported income and illegal activity. Under the ITA, the Minister may compel any person to provide documents or information, including a return of income or supplementary return. This letter directed Taxpayer to produce his signed income tax returns from 1999 to 2003, as well as signed statements of his assets, liabilities and personal expenses for those same years (the Requirement). The Taxpayer did not respond but sought judicial review to quash the Requirement.

A Federal Court judge (the Applications Judge or AJ) ruled that, when the SEP issued the Requirement, a penal liability investigation was already underway. This gave rise to protection under the Canadian Charter of Rights and Freedoms (the Charter) in accordance with the Supreme Court of Canada decision in R. v. Jarvis, [2002] 3 S.C.R. 757 (S.C.C.) [Jarvis]. The judge, therefor, quashed the SEP requirement letter of July 20, 2004.

The Minister appealed the AJ’s order. He urged that the SEP official had correctly followed the pre-auditing practices approved in Jarvis, and thus, on the facts of this case, The Canadian Charter of Rights and Freedoms protections do not arise.

According to the Minister, the AJ had ignored key facts and mischaracterized a 1992 Working Arrangement between the RCMP and the CRA. According to the Minister, the AJ erred in holding that the SEP unit functioning under the 1992 Working Arrangement is only able to conduct criminal investigations.

The Federal Court of Appeal agrees with the Minister and allows the appeal. It notes that the “predominant purpose” test in Jarvis does not prevent the Minister from conducting parallel criminal investigations and audits. The timing of such processes, however, is crucial. Auditors can share information they obtain with CRA investigators, provided that the auditors got the information before the criminal investigation got underway. At that point, the adversarial relationship arises and engages Charter protections. The Supreme Court summarized the law in the following words: “...as previously stated, it is clear that, although an investigation has been commenced, the audit powers may continue to be used, though the results of the audit cannot be used in pursuance of the investigation or prosecution.” See Jarvis, ¶ 103.

“Jarvis requires a reviewing court to consider what the dominant purpose in issuing a requirement was: the conduct of an audit or the pursuit of a [criminal] investigation. This is a two step test. The first step is to determine whether there is a clear decision to pursue a criminal investigation based on the evidence. If the answer to the first step is yes, the inquiry ends there and the power to issue a Requirement can no longer be exercised by the Minister.” [¶ 14].

“If there is no clear decision, then the trial judge must embark on a search to determine whether the inquiry or question in issue gives rise to an adversarial relationship. All factors are to be examined including, but not limited to, the questions as framed by the Supreme Court of Canada in Jarvis (hereafter ‘the Jarvis Factors’).”

“In the present case, there is no evidence of a clear decision by either the RCMP or the [ID] of the CRA to embark on a criminal investigation. The record is silent on this point. Accordingly an inquiry in accordance with step two of Jarvis must be conducted. Instead of proceeding in that fashion, the [AJ] chose to state the issue in the following words: ‘...the sole question for determination is as follows. ‘When the Auditor made the decision to issue the Requirement, was a penal liability investigation under way?’ If the answer is ‘yes’, on the authority of Jarvis, it is agreed that the Auditor acted beyond his jurisdiction.’” [¶ 16].

“That is clearly an error of law. As indicated in Jarvis at paragraphs 97 and 103, audits and investigations are permissible on parallel tracks. The issue of whether the [AJ] correctly applied the relevant case law to whether the CRA had the jurisdiction to send the Requirement is a question of law, which suggests the least deferential standard of review. [Cite].” [¶ 17].

“[Applying Factor A :] [a]t the time the Requirement was issued, the inquiry by the CRA through its audit function was responding to mere suspicion of unreported income from illegal activity. While it was open to the CRA to conduct both a criminal investigation and audit, the evidence does not show that the CRA were doing both. Rather the evidence is that the pre-audit inquiry was but a first step in determining whether [Taxpayer] was a non-filer for the taxation years 1999 to 2003. Accordingly, I can see no basis on the present evidence to conclude that the CRA had reasonable grounds to lay criminal charges under the Act at this early stage.” [¶ 19].

Applying Factor B: “While Mr. Matheson was unaware of the indictment at the time he issued the Requirement, presumably the Referral and the grand jury indictment could provide a basis upon which an investigation under the Act could be commenced by the RCMP or criminal investigators within the CRA. This factor favours [Taxpayer].”[¶ 20].

[Under Factor C] “The general conduct of the CRA with respect to [Taxpayer] is also not consistent with the pursuit of a criminal investigation, in that the CRA did not issue a search warrant or conduct an interview. Rather its conduct is consistent with simply gathering information to determine whether to commence an audit.” [¶ 21].

“[Under Factor D],whether a file has been transferred to an investigator is yet another factor in determining whether an adversarial relationship exists. However, by itself it is not conclusive (see Jarvis at paragraph 92). The present case does not involve a situation where the file is first transferred from the audit to investigation section and then returned to the auditor who then issues a requirement for documents. In such circumstances, the Supreme Court of Canada has directed that courts must pay close attention to determine whether an investigations section has truly declined to pursue the case or whether the auditor is merely collecting information on its behalf.”

“Here, the file relating to [Taxpayer] has only been acted upon by Mr. Matheson. It is his undisputed evidence that while the file could have been transferred to the [ID] if he had determined that an offence had been committed, that was not done in this case. While it is true that Mr. Matheson does work as an auditor in the SEP unit, which is part of the [ID], the current policy indicates that the SEP unit only conducts audits and Mr. Matheson said that he had never conducted a criminal investigation. Accordingly, there is nothing in this record to suggest that information was exchanged that could give rise to an adversarial relationship.” [¶¶ 22,23].

“[Under Factors E and F], [t]here is also no evidence of any conduct by Mr. Matheson which could suggest that in his audit function he was being used as an agent of the ID or the RCMP in the collection of evidence. Rather, the record suggests that there was no contact once Mr. Matheson assumed conduct of the file.” [¶ 24].

“[Applying Factor G], In my analysis, the information sought in the Requirement is relevant to [Taxpayer’s] tax liability generally and is not only relevant to penal liability. It contains what can only be viewed as a normal CRA request in a situation where the taxpayer has not filed any tax returns and little or no financial information is available. For example, it sought the actual tax returns for the relevant years so as to be reviewed or verified by Mr. Matheson. It also sought information regarding income sources, assets, liabilities and personal expenditures also necessary so as to determine whether a net worth assessment was warranted. Again, in and of itself, this factor does not point to an adversarial relationship.” [¶ 25].

“In this circumstance, the appeal should be allowed, the order of the [AJ] dated August 4, 2005 should be set aside and the Requirement issued by the CRA on July 20, 2004 should be restored.” [¶ 35].

Citation: Ellingson v. Minister of National Revenue, 2006 F. C. A. 202, 2006 D.T.C. 6402 (Eng.) (Can. Fed. Ct. App. 2006).

District Court reaches mixed results under ATCA and FTCA in Iraqi prisoner abuse litigation. In June 2004, former Iraqi prisoners (Plaintiffs) brought a class action against L-3 Communications Titan Corp. and CACI International Inc. (Defendants) and several named individuals in the District of Columbia federal court. They alleged the Defendants had committed war crimes and crimes against humanity by taking part (with unnamed U.S. government officials) in a “torture conspiracy” that generated millions in revenue from federal contracts to render illegal services at Iraqi prisons. Plaintiffs invoked, inter alia, the Alien Tort Claims Act (ATCA), 28 U.S.C. Section 1350. Plaintiffs also included the common law claims of assault and battery, sexual assault and battery, wrongful death, intentional and negligent infliction of emotional distress and negligent hiring. On June 29, the District Court held that the ATCA merely gives district courts jurisdiction over a civil action brought by an alien for a tort committed in violation of the substantive Law of Nations or a U.S. treaty. That Law, however, does not apply to “private actors” such as these Defendants. The Court also dismissed the counts against three named defendants for their lack of minimum contacts with the District. On the other hand, the Court denied a summary-judgment motion on the combatant activities/government contractor exception to the waiver of sovereign immunity in the Federal Tort Claims Act, 28 U.S.C. Section 2680(j). In the Court’s view, the parties would need discovery to determine whether, in fact, the Defendants’ staff had been acting “essentially as soldiers.” The Court also let the common law counts stand. Citation: Saleh v. Titan Corp. et al., 436 F.Supp.2d 55 (D. D. C. 2006).

Federal Court finds 1917 Espionage Act applicable to former Israeli lobbyist. In 2005, a federal grand jury indicted Steven J. Rosen and Keith Weissman for conspiring to obtain classified information about Iran and other Middle East nations from Lawrence A. Franklin, then a Pentagon analyst. (Franklin has pleaded guilty to passing government secrets). Federal authorities charge that Rosen, a prominent Washington lobbyist, and Weissman, a top Middle East strategist, passed on information about American policy options in the Middle East, about an FBI report on the 1996 Khobar Towers bombing in Saudi Arabia and about terrorist groups such as Al Qaeda. The indictment alleges that defendants disclosed the information (1) to colleagues at the American Israel Public Affairs Committee (AIPAC), a pro-Israel lobbying organization, (2) to an Israeli Embassy official and (3) to a reporter for the Washington Post. In a case of first impression, the court invoked the Espionage Act of 1917 that makes it a crime to disclose or receive any information “relating to the national defense”; it is not expressly limited to classified data or to government employees. The government will presumably have to prove that “national security is genuinely at risk” and that those who wrongly disclosed the information knew that its disclosure could harm the nation. Citation: The Los Angeles Times, Washington, D.C. Friday, August 11, 2006, at page 13 (byline of Richard B. Schmitt, Times Staff Writer) See United States v. Rosen, 2006 WL 2466947 (E.D. Va. 2006).

Indian governments complain of alleged contaminants in Coke and Pepsi. In 2003, and in 2006, the Indian Center for Science and the Environment (CSE) came out with a study showing excessive levels of pesticides in India’s most popular soft drink brands, Coca-Cola and Pepsi. The U.S. companies replied that the official tolerance limit of pesticides in food items like tea, eggs, rice, apple and milk products ranged between 6,000 and 34,000 times higher than the prescribed limits set by the Ministry of Health. Even the CSE, they point out, said the Coke and Pepsi violations were only about five to 25 times the limit. Nevertheless, Parliament banned such bottled drinks from being served in its canteen. Moreover, the state governments in Gujarat, Punjab, Madhya Pradesh, Rajasthan, Kerala and Karnataka soon announced that they were asking educational institutions and hospitals to stop stocking these soft drinks. Most stringently, the State of Kerala imposed a total ban on their production and sale. Both Pepsi and Coca-Cola claim that the water and sugar they use have recently undergone exacting tests by established laboratories to ensure that any contaminants are well below the prescribed levels. Citation: India Today (copyright Living Media India Ltd.), Saturday, August 12, 2006, 2006 W.L.N.R. 13898709 (byline of Raj Chengappa).