2007 International Law Update, Volume 13, Number 1 (January)

2007 International Law Update, Volume 13, Number 1 (January)

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

ANTI‑SUIT INJUNCTION

In dispute over contamination of oil shipment, Second Circuit holds that other instruments may incorporate arbitration clauses by reference and that lower court had properly issued anti‑suit injunction against parallel Nigerian litigation under China Trade test

Ibeto Petrochemical Industries Limited (Plaintiff) filed suit in a New York federal court, to recover damages caused by seawater contamination of a cargo of base oil. The Defendants are the vessel M/T Beffen, plus Bryggen Shipping and Trading A/S (Defendants).

The tanker sailed from a New Jersey port in February 2004, loaded with base oil for delivery to the Plaintiff in Nigeria. The shipper of record was Chemlube International, Inc. The Bill of Lading referenced the standard “Asbatankvoy” Tanker Charter Party and the “Chemlube Terms” dated September 2002. The Asbatankvoy provisions included a clause providing for arbitration of disputes in either New York or London. The Chemlube Terms specified arbitration in London.

By the time the M/T Beffen made port in Nigeria, sea water had allegedly contaminated the base oil shipment. Plaintiff sued the Defendants in a Nigerian court in March 2004. Plaintiff demanded arbitration in London and, alternatively, filed this suit in New York “out of an excess of caution.”

The New York court granted Defendants’ motions (1) to stay the present action and (2) to issue an antisuit injunction (ASI) against the Nigerian litigation. Plaintiff appealed these two rulings. The Second Circuit affirms in part and modifies in part.

As for the ASI directed at the Nigerian case, the district court reasoned that the Nigerian litigation might frustrate the general U.S. policy of enforcing arbitration clauses. Defendants argued that the court had issued the ASI improperly because Plaintiff had not expressly agreed to arbitrate this matter.

The Court explains that other instruments may incorporate by reference “boiler plate” arbitration clauses. In Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela, 991 F.2d 42, 48 (2d Cir. 1993), for example, the Court held that an arbitration clause in a Charter Party binds the parties to a Bill of Lading (BOL) which had incorporated the Charter Party by reference.

The Court then turns to the appropriateness of the ASI against the Nigerian litigation and its terms. It holds that the district court had properly applied China Trade & Dev. Corp. v. M.V. Choon Young, 837 F.2d 33, 35‑36 (2d Cir. 1987). “Pursuant to the China Trade test, ‘[a]n anti‑suit injunction against parallel litigation may be imposed only if: (A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined. China Trade, above at 35. Once past this threshold, courts are directed to consider a number of additional factors, including whether the foreign action threatens the jurisdiction or the strong public policies of the enjoining forum.’ Id. at 36.”

“The ‘threshold’ described is clearly met in this case, for the parties are the same in this matter and in the Nigerian proceeding and the resolution by arbitration of the case before the District Court is dispositive of the Nigerian proceeding. The factors then to be considered under the China Trade test are the following: ‘(1) frustration of a policy in the enjoining forum; (2) the foreign action would be vexatious; (3) a threat to the issuing court’s in rem or quasi in rem jurisdiction; (4) the proceedings in the other forum prejudice other equitable considerations; or (5) adjudication of the same issues in separate actions would result in delay, inconvenience, expense, inconsistency, or a race to judgment.’ China Trade, above at 35.” [Slip op. 7].

Applying these factors, the Second Circuit agrees that the Nigerian litigation might frustrate the general federal policy favoring arbitration and that inconsistent outcomes may result. In addition, it would be seriously inconvenient to shuttle witnesses back and forth between the two widely separated venues. Although the Nigerian litigation was first in time, the Second Circuit finds that the ASI is fully justified in this case, particularly in light of the strong U.S. federal policy favoring arbitration.

Citation: Ibeto Petrochemical Industries Limited v. M/T Beffen, Her Engines, Tackles, No. Boiler, No. 05‑6610‑cv (2d Cir. January 17, 2007).

CUSTOMS (EUROPEAN UNION)

In answering question of EC customs law referred to European Court of Justice by Dutch court, ECJ responds that value of free operating systems software added to imported Compaq computers has to be included in transaction value of said computers for Customs purposes

Compaq Computer International Corporation (Plaintiff) is a company set up under Netherlands law and a subsidiary of Compaq Computer Company (CCC), a United States company. Plaintiff sells Compaq data processing equipment in Europe and has, for that purpose, a distribution centre in the Netherlands.

Under a contract between CCC and Microsoft Corporation, CCC can install software consisting of the MS‑Dos and MS Windows operating systems (MSOSs) on its computers. Microsoft sells these operating systems to run the Compaq hardware for a payment of $31.00 to Microsoft for every computer equipped with an MSOS.

CCC bought a number of laptop computers from two Taiwanese computer manufacturers. As part of this sale, the parties agreed that the seller would install the MSOSs on the hard drives of the computers when they were delivered. To that end, CCC made these systems available free of charge to the manufacturers, who then installed them on those computers.

Plaintiff then bought the Taiwanese laptops from CCC and had them shipped f.o.b. from Taiwan to the Netherlands. Upon their arrival, Plaintiff declared to Dutch customs that the computers were for “free circulation.” When officials were calculating their customs value under Article 29 of the Community Customs Code, Plaintiff used the selling price between the Taiwanese manufacturers and CCC, which did not include the value of the MSOSs.

In 1999, a customs authorities’ National Valuation Team (NVT) got in touch with Plaintiff to check on the accuracy of the declared customs value of the computers in question. The NVT decided that the custom value should include the value of the MSOSs installed on these computers. Based on Article 32(1)(b) of the Customs Code, the customs authority adjusted the customs value of every computer upward by the value of the MSOSs installed. It then sent two demands for payment to Plaintiff for the higher amounts as additional customs duties on the imports of laptop computers declared for free circulation during the period from January 1, 1995 to December 31, 1997.

Plaintiff sued in the Gerechtshof te Amsterdam (GTA) against the customs authorities’ decisions to dismiss the objections lodged against its demands for payment. During those proceedings, the following legal question came up before the GTA: for the purposes of determining customs value, were the customs authorities justified under Article 32(1)(b) of the Customs Code in marking up the transaction value of the laptop computers by the value of the MSOSs installed on those computers.

The GTA found that the conditions for applying that provision were satisfied in the main proceedings. The GTA took the view, however, that paragraphs (i) to (iii) of the above Article do not apply stricto sensu to operating systems, such as the MSOSs. Nevertheless, because Microsoft incorporates them into the imported laptop computers, the GTA remained uncertain as to whether Customs should take into account the value of the MSOSs, given the rationale of Article 32(1)(b).

To resolve this issue, the GTA stayed its proceedings and referred the question to the Court of Justice for a preliminary ruling pursuant to Article 234EC. The question was: where computers equipped with operating systems by the seller are imported, must the value of the software made available to the seller by the buyer free of charge be added to the transaction value of the computers pursuant to Article 32(1)(b) of the Customs Code where the value of the software is not included in the transaction value?”

The European Court of Justice accepted the query and responded to the referred question. “Plaintiff’s arguments and the Commission’s claims precluding the application of Article 32(1)(b) of the Customs Code cannot be accepted.”

“First, it is apparent from Article 167(2)(a) of the Regulation implementing Article 34 of the Customs Code that goods consisting of integrated circuits, semiconductors and similar devices are excluded from the scope of Article 167.”

“It follows from the national court’s findings that Article 34 of the Customs Code and Article 167(1) of the implementing regulation do not apply in the main proceedings. According to those findings, the operating systems, which are software, were installed on the hard drives of the imported computers, which are constituent elements of those computers and do not constitute, by themselves, the imported products.”

“Such computers cannot be treated as mere carrier media for transporting that software since the principal function of those computers is the processing of data and they contain devices which, under Article 167(2)(a) of the implementing regulation, cannot be classified as carrier media.”

“Following this, it is necessary to point out that ... in order to answer the referring court’s question, the determination of the transaction value does not form part of the Court’s considerations. According to the wording of Article 29(1) of the Customs Code, the transaction value is a value which is adjusted, where necessary, in accordance with Articles 32 and 33 .... ‘Transaction value’, therefore, must be interpreted as meaning a value which is adjusted once the conditions for an adjustment are met.”

“Consequently, if the judicial and administrative authorities of a Member State have accepted as the transaction value the price which was fixed on the occasion of a sale prior to the one immediately before the determination of the customs value, that is the transaction value on which any adjustment must be made.” [¶¶ 24‑28].

“When, in order to determine the customs value, a sale price is substituted for that which applied in the contract concluded by the Community purchaser, the logic of the provisions at issue requires that not only that price, but also the whole contractual relationship be taken into consideration. That means that, in this context, for the purposes of the application of Article 32(1)(b) of the Customs Code, ‘buyer’ must be interpreted as meaning the company that concluded the contract of which the sale price constitutes the transaction value.”

“In respect of the determination of the customs value in the main case, according to the case‑law, the Community legislation on customs valuation seeks to introduce a fair, uniform and neutral system excluding the use of arbitrary or fictitious customs values. [Cites]. The customs value must thus reflect the real economic value of an imported good and, therefore, take into account all of the elements of that good that have economic value.

“Furthermore, the Court has held that software is intangible property, the cost of acquiring which, when such property is incorporated in an item of goods, must be regarded as an integral part of the price paid or payable for the goods, and hence of the transaction value. [Cite].”

“The operating systems at issue in the main proceedings are software that was made available to the Taiwanese manufacturers free of charge by CCC, in order for it to be installed on the hard drives of the computers at the time of their manufacture. Furthermore, it is accepted that that software has a unitary economic value of $31.00 which was not included either in the value of the transaction between the Taiwanese manufacturers and CCC or in that of the transaction between CCC and Plaintiff. It must therefore be held that, in such circumstances, the adjustment of the transaction value must be made.” [¶¶ 29‑33].

“Having regard to the foregoing, the answer to the question referred must be that, in order to determine the customs value of imports of computers equipped by the seller with software for one or more operating systems made available by the buyer to the seller free of charge, in accordance with Article 32(1)(b) or (c) of the Customs Code, the value of the software must be added to the transaction value of the computers if the value of the software has not been included in the price actually paid or payable for those computers.”

“The same is true when the national authorities accept as the transaction value, in accordance with Community law, the price of a sale other than that made by the Community purchaser. In such cases, ‘buyer’ for the purposes of Article 32(1)(b) or (c) of the Customs Code must be understood to mean the buyer who concluded that other sale.” [¶¶ 37‑38].

Citation: Compaq Computer International Corporation v. Inspecteur der Belastingdienst, Case C‑306/04, 2006 ECJ Celex Lexis 697 (Eur. Ct. Just., 1st Chamb., November 16, 2006).

EUROPEAN UNION

European Court of Justice rules that decision of EC Commission to file civil actions against U.S. tobacco companies in U.S. federal court did not alter legal rights of companies and thus was not subject to their action to annul under Article 230EC

The American Plaintiffs before the EC Court of First Instance (CFI) were R. J. Reynolds Tobacco Holdings, Inc., RJR Acquisition Corp., R. J. Reynolds Tobacco Company, and R. J. Reynolds Tobacco International, Inc., Philip Morris International Inc. was also a party. The principal Defendants were the Commission of the European Communities, supported by the Council of the European Union. Principal Interveners were Spain, France, Italy, Portugal, Finland and the European Parliament.

By their appeal, the appellants ask the Court to set aside the judgment of the CFI of January 15, 2003 in Joined Cases T‑377/00, T‑379/00, T‑380/00, T‑260/01 and T272/01, Philip Morris and Others v Commission, 2003 ECR II‑1. In these cases, the CFI had dismissed as inadmissible their applications for annulment of the decisions of the Commission of the European Communities of July 19, 2000 adopting the principle of a U.S. civil action against certain American cigarette manufacturers.

On November 3, 2000, the EC Commission filed a federal civil action (A‑1) in the Eastern District of New York on behalf of the European Community (EC) against several U.S. manufacturers. In A‑1, the Community alleged that the present Plaintiffs were actively smuggling cigarettes into EC territory and distributing them there. Specifically, the EC sought compensation for lost customs duties and value added tax (VAT) as well as injunctions to stop the alleged activities.

The Community relied on the Racketeer Influenced and Corrupt Organizations Act 1970 (RICO) as well as on common law fraud, public nuisance and unjust enrichment. Originally aimed at combating organized crime, RICO provides for treble damages. On July 16, 2001, the District Court dismissed the EC’s claims.

On July 25, 2001, the Commission approved the principle of a second civil action in the U.S. federal courts, jointly by the Community and at least one Member State, against the A‑1 defendants. On August 6, 2001, the Commission filed a second action in the District Court (A‑2) against Philip Morris and Reynolds on behalf of the European Community and numerous Member States. In A‑2, the Commission itself relied solely on the above common law doctrines. The Member States, however, also rested their claims on RICO plus on principles of public nuisance and unjust enrichment. The federal court also dismissed this suit.

The Commission and the above Member States filed a third action with the District Court against Japan Tobacco and other associated tobacco companies (A‑3) in January 2002. On February 19, 2002, the District Court dismissed A‑2 and A‑3 based on the common law Revenue Rule. Under it, the U.S. Courts decline to enforce the fiscal legislation of other nations. On March 25, 2002, the Community and the 10 Member States noted an appeal before the Second Circuit.

On October 15, 2001, the above tobacco companies (Plaintiffs) filed actions in the CFI against the Commission’s decision to bring the U.S. actions. The Commission raised an objection of inadmissibility on the ground that the contested decisions are not acts which may be the subject of an action such as that provided for in the fourth paragraph of Article 230 EC.

In the judgment under appeal, the CFI upheld the objections of inadmissibility raised by the Commission and dismissed the actions. The CFI pointed to consistent EC case‑law. It has two relevant aspects. Firstly, to find out whether a measure whose annulment is sought is open to challenge, it is necessary to look to its substance since the form in which it is cast is, in principle, immaterial. Secondly, annulment applies only to measures the legal effects of which are binding on, and capable of affecting the interests of, the Plaintiff. The measure must do so by bringing about a distinct change in his legal position. The CFI cited, inter alia, Case 60/81, IBM v. Commission, 1981 ECR 2639.

The CFI found that the Commission’s decision to file legal proceedings did not, in itself, alter the legal position of Plaintiffs. Therefore, it cannot be a decision which is open to annulment. The Plaintiffs countered that those decisions did produce binding legal effects with regard to the Commission’s powers and the EC’s institutional balance.

On that point, the CFI found that, like any act of a Community institution, the contested decisions do imply that the institution in question has adopted a position as to its competence to adopt them. But this cannot give rise to a binding legal effect for the purposes of Article 230 EC because, even if it is wrong, it has no meaning independent of the act adopted. The CFI rejected the argument that the contested decisions subjected the Plaintiffs to another legal order or brought about a change in their legal position at the substantive or procedural level.

According to the CFI, all courts are required to apply the procedural rules of their own legal order and the substantive rules determined in accordance with their own rules governing conflict of laws. Regardless of which rules apply, the CFI cannot attribute the resulting legal effects, whether they arise by operation of law or from the decisions of the court seized, to the party who brought the proceedings. The mere filing of an action before a U.S. court does not, therefore, impose new obligations on the Plaintiffs; nor does it create a duty for them to modify their activities.

Plaintiffs’ also contended that the proceedings before the U.S. Court differ significantly from those which the Commission might have instituted before the courts in the Member States in one important respect: there is no mechanism for a reference for a preliminary ruling pursuant to Article 234 EC. The CFI replied that it is well accepted in cases with international elements that the foreign court seized must apply its own substantive doctrines within the context of its own rules of procedure.

According to the CFI, the lodging of legal proceedings before any court necessarily entails that forum’s application of its own procedural rules; this does not amount to a legal effect under Article 230 EC. The Court further noted that, while Article 234 EC does give Member State courts the power, and sometimes the duty, to refer questions to the ECJ for a preliminary ruling on EC law, it does not confer any right of referral on the litigants before those courts.

Furthermore, the CFI conceded that a U.S. federal court can, by virtue of its procedural law, adopt decisions having binding effects on the parties to the case before it, e.g., obliging them to disclose facts and documents. Those effects result, however, from the independent exercise of the powers with which U.S. law invests those courts; they cannot, therefore, be imputed to the Commission. The contested U.S. decisions, of course, may have had the effect of letting the Plaintiffs know that they were running a real risk of having the U.S. Court impose penalties on them; this, however, is a mere consequence of fact and not a legal effect within Article 230EC.

While it may seem desirable that individuals should have, in addition to the possibility of an action for damages, a remedy to prevent or terminate actions of the Community institutions liable to prejudice their interests but which do not amount to decisions, it is clear that the Treaty does not provide a remedy of that nature. This would necessarily involve the Community judicature in issuing directions to the other Branches. It is not for the judicature to usurp the function of the founding authority of the Community in order to change the system of legal remedies and procedures laid down by the Treaty.

On the appeal to the ECJ, a Grand Chamber of the Court considers the various contentions, but ends up dismissing the appeal.

The ECJ first holds that the first plea is admissible. “As regards the first part of that plea in law, as the [CFI] rightly pointed out, ... it is settled case‑law that only measures the legal effects of which are binding on, and capable of affecting the interests of, the [Plaintiff] by bringing about a distinct change in his legal position are acts or decisions which may be the subject of an action for annulment (see, IBM v. Commission , above, ¶ 9.” [¶ 54]

“Accordingly, the [CFI] did not err in law by inferring from the fact that the contested decisions did not produce binding legal effect for the purposes of Article 230 EC that they could not be the subject of an action without restricting the scope of that approach to preparatory acts.” [¶ 56].

The ECJ also rejects the second part of the first plea. “[I]t must be stated that the [CFI] rightly found ... that, although the commencement of proceedings constitutes an indispensable step for the purpose of obtaining a binding judgment, it does not per se determine definitively the obligations of the parties to the case, so that, a fortiori , the decision to bring legal proceedings does not in itself alter the legal position in question.” [¶ 58].

As to the third part of the plea: “the [CFI] was also right in finding, ... that the commencement of legal proceedings before any court necessarily entails the application by the court of its own procedural rules, which cannot therefore be viewed as a legal effect, for the purposes of Article 230 EC, of the decision to bring an action.”

“... [W]hether the Commission’s contested decisions can be categorised as legal acts which are open to challenge ... cannot be dependent on the fact that, if the Commission had commenced legal proceedings before a court in a Member State, a reference for a preliminary ruling under Article 234 EC would have been possible in the context of those proceedings.” [¶¶ 61‑62]. The ECJ declines to uphold that part of the first plea in law.

“As regards the fourth part of the plea, the CFI correctly [read the precedents] that a decision to initiate the procedure for examining State aid produces legal effects as referred to in Article 230 EC. Specific legal consequences flow from the assessment and classification of the aid mentioned and from the choice of procedure which follows from that. By contrast, the mere fact that, by the contested decisions, the Commission made a choice as to the procedure to be undertaken against the [Plaintiffs] and thus excluded other procedures cannot, in itself, be a legal effect for the purposes of that article.” [¶ 64].

“As regards the fifth branch of the plea, as the [CFI] rightly found, if, like any act of a Community institution, the contested decisions carry an incidental implication that the institution in question has adopted a position as to its competence to adopt them, that adoption of a position cannot itself be viewed as a binding legal effect for the purposes of Article 230 EC, as interpreted in the case‑law.” [¶ 66].

“The issue of whether the competent United States court applied the Act of State doctrine or not is irrelevant in the light of the concept of challengeable act for the purposes of Article 230 EC.” [¶ 73].

“It is true that, as the [CFI] observed ..., by means of Articles 230 EC and 241 EC, on the one hand, and Article 234 EC, on the other, the Treaty establishes a complete system of legal remedies and procedures designed to ensure review of the legality of acts of the institutions and has entrusted such review to the Community courts.”

“However, the fact remains that, although the requirement as to legal effects which are binding on, and capable of affecting the interests of, the [Plaintiff] by bringing about a distinct change in his legal position must be interpreted in the light of the principle of effective judicial protection, such an interpretation cannot have the effect of setting aside that condition without going beyond the jurisdiction conferred by the Treaty on the Community courts.”

“The [CFI] was also right to hold, ..., that even though individuals are unable to bring an action for annulment of those measures, they are not denied access to justice since an action for non‑contractual liability [tort] under Article 235 EC and ... Article 288 EC is available if the conduct in question is of such a nature as to entail [civil] liability on the part of the Community.” [ ¶¶ 80‑82].

The fourth plea alleges misapplication of [this] Court’s case‑law on whether clearly illegal measures may be challenged. “Secondly, without it being necessary to rule on whether it follows from the judgment in IBM v. Commission that, in exceptional circumstances, actions for annulment of measures that lack even the appearance of legality must be declared admissible, it must be stated that, in any event, that is obviously not the case here.”

“It is sufficient to point out in that regard that Article 211 EC provides that the Commission is to ensure that the provisions of the Treaty and the measures taken pursuant thereto are applied, that under Article 281 EC the Community has legal personality and that Article 282 EC, although restricted to Member States on its wording, is the expression of a general principle and states that the Community has legal capacity and is, to that end, to be represented by the Commission.” [¶¶ 93‑94].

In their Fifth plea, the Plaintiffs express concern that the Commission’s choice of a foreign court might produce a judgment binding as an internal EC matter. The ECJ disagrees. “It must be found that, ... a decision by a United States court as to the Commission’s power to bring legal proceedings before it is not capable of binding the Community and its institutions to a particular interpretation of the rules of Community law in the exercise of their internal powers. ... [S]uch a decision would be binding only in relation to the specific [ U. S.] proceedings. The fifth plea in law must therefore be dismissed as unfounded.”

“Since none of the pleas in law put forward by the appellants in support of their appeal is well founded, the appeal must be dismissed.” [¶¶ 102‑104].

Citation: R. J. Reynolds Tobacco Holdings, Inc. & Others v. Commission of the European Communities, Case C‑131/03 P; 2006 E. C. J. Celex Lexis 442 (Eur. Ct. Just. [Gr. Ch.], (2006).

EXTRADITION

In murder case, Ninth Circuit overturns California courts’ fifteen‑years‑to‑life sentence on extraditee from Venezuela where its extradition decree was conditioned on sentencing for term other than for life

In 1998, Venezuela extradited Cristobal Rodriguez Benitez (Petitioner), a Mexican citizen, to the U. S., where a California court convicted him of murder. Benitez allegedly shot and killed a man who got into a fracas with Defendant’s brother in San Diego, California. The Supreme Court of Venezuela and the Venezuelan Ministry of Foreign Affairs provided in the extradition decree for a sentence limitation to 30 years.

The U.S.‑Venezuelan extradition treaty provides that: “[T]he Contracting Parties reserve the right to decline to grant extradition for crimes punishable by death and life imprisonment. Nevertheless, the Executive Authority of each of the Contracting Parties shall have the power to grant extradition for such crimes upon receipt of satisfactory assurances that in case of conviction the death penalty or imprisonment for life will not be inflicted.” Treaty of Extradition, January 19‑21, 1922; U.S.‑Venezuela, Article IV, 43 Stat. 1698, T.S. No. 675; 49 U.N.T.S. 435 (in force April 14, 1923).

The California State Court rejected Petitioner’s claim that it should recognize Venezuela’s condition on his receiving less than a life term; it sentenced him to serve an indeterminate term of fifteen years to life. Petitioner filed for a writ of habeas corpus in state court. In it, he claimed that his sentence could not exceed thirty years based on the Venezuelan extradition decree.

The state courts denied his habeas petitions as not yet ripe because Defendant might not have to serve more than 30 years. Petitioner then sought the same remedy in federal court. The court found the matter ripe, but held that Petitioner failed to show that his sentence violated clearly established federal law.

The Ninth Circuit, in a per curiam opinion, reverses. It rules that federal courts have to respect reasonable conditions on extradition if they are within that country’s rights under the extradition treaty. Thus, the district court’s decision not to enforce the limitation in this case was objectively unreasonable.

“The clearly established federal law controlling this case comes from United States v. Rauscher, 119 U.S. 407 (1886), and Johnson v. Browne, 205 U.S. 309 (1907), which set forth the principles of interpretation and international comity relevant to enforcing extradition treaties and the terms of specific extraditions. ... Rauscher and Browne are also clear that these expectations and rights are interpreted expansively in the unique context of foreign extradition relationships, which depend upon trust and mutual respect.”

“In Rauscher, the Supreme Court implied into the United States‑Great Britain extradition treaty a term restricting [the] prosecution of extradited defendants to those charges for which extradition was secured. The Court found that by enumerating only certain crimes as extraditable, the treaty implicitly incorporated the ‘public law’ principle that an extraditing country has the right to decide the grounds of extradition, which bind the receiving country. ...”

“Although no express treaty language limited the receiving country’s jurisdiction to prosecute extradited defendants, that absence was ‘met by the manifest scope and object of the treaty itself’—no other interpretation of ‘solemn public treaties between the great nations of the earth can be sustained by a tribunal called upon to give judicial construction to them.’ ...”

“This interpretive framework was subsequently upheld and applied in Browne, which reaffirmed that ‘it is still most important that a treaty of this nature between sovereignties should be construed in accordance with the highest good faith.’ ...”

“Additionally, Rauscher and Browne demonstrate that enforcement of an extradition treaty also entails giving effect to ‘the processes by which it is to be carried into effect.’ Rauscher, 119 U.S. at 420‑21. Most importantly, this means that language in a foreign nation’s extradition order invoking provisions of an extradition treaty must be enforced by federal courts. ...” [Slip op. 4].

The state courts failed to give effect to the Venezuelan extradition decree, an unreasonable interpretation of Rauscher and Brown. The Ninth Circuit, however, does not wish to enforce extradition conditions that are neither expressly agreed in, nor implied by, the relevant extradition treaty. The present treaty does not impose a numerical limitation, it only permits the extraditing nation to limit the extraditee’s sentence to something less than life. On remand, therefore, any revised sentence must preclude Petitioner from serving a life term.

Citation: Benitez v. Garcia, No. 04‑56231 (9th Cir. January 22, 2007).

FORUM SELECTION CLAUSES

On application by U.S. defendant for change of forum, English Commercial Court rules that neither risk of parallel U.S. proceedings nor takeover of English plaintiff by U.S. corporation required English court to decline to enforce freely‑bargained‑for clause selecting English forum for contract litigation

Biosafety, U.S.A., Inc. (Applicant) petitioned the Commercial Court in London to set aside or to stay proceedings filed there by X, the Respondent. Respondent had hailed Applicant into an English court on a claim for breach of contract. Applicant is a company incorporated in the U.S. while X is a United Kingdom company. X was a manufacturer of chemical products in the U. K. while Applicant was under contract to market the items in the U.S.

Their distribution contract included a non‑exclusive English jurisdiction clause. Since entry into the contract, Antec International Ltd., a U.S. company, had become the owner of X’s assets. Applicant contended that the U.S. instead of the U. K. was the proper forum in which X and Applicant should litigate their dispute.

The Commercial Court dismisses the application. It could not find a strong or overwhelming reason to justify an English Court to depart from the choice‑of‑forum clause in the contract. The fact that Applicant and X had freely negotiated the distribution agreement and the forum clause, generates a strong prima facie case for English jurisdiction.

In the Court’s view, the relevant factors would not include factors of convenience or inconvenience which the parties could have foreseen at the time they were negotiating the distribution agreement. Thus, the parties made their deal presumably realizing that, in case of a litigation in London, Applicant would have to transport some witnesses and/or documents from the U.S. to the U. K.

Nor is there merit in Applicant’s contention that the fact that a U.S. company had taken over X affected the jurisdictional equation. The change in ownership and the slight operational changes that came about do not amount to an unforeseeable consequence that would be likely to produce injustice.

Finally, Applicant had suggested at some point that it might file a claim in the U.S. courts against X’s new American owner. While this could conceivably risk the expense caused by parallel U.S. proceedings as well as increase the danger of inconsistent results, the Commercial Court notes that Applicant had not taken this step as of the time the forum issue came before the Court. Moreover, the mere fact that one of the parties had filed, or was about to file, proceedings in another jurisdiction outside the scope of the forum selection clause does not supply a compelling reason to relieve that party of his bargain, despite the undesirability of parallel proceedings and the danger of conflicting outcomes.

Citation: Antec International Ltd. v. Biosafety U.S. A., Inc. (Eng. High Court, Queen’s Bench Division, Commercial Court, 2006), as summarized at 2006 I. L. Pr. 497 (Sweet & Maxwell).

JURISDICTION (NAFTA)

Ontario Court of Appeal dismisses appeal of Union challenging constitutionality of NAFTA arbitration tribunals set up to resolve investors disputes since they deal only with issues arising between parties to nafta and have not been incorporated into Canadian domestic law

The Council of Canadians, members of the Canadian Union of Postal Workers and members of the Charter Committee on Poverty Issues filed a suit in the Ontario courts. It challenged the constitutionality of Canada’s agreement in the North American Free Trade Agreement (NAFTA) to set up arbitration Tribunals to resolve claims by foreign investors that they had suffered damage due to governmental measures undertaken by Canada.

The application judge first took up the question of whether Section 96 of the Constitution Act of 1867 applied to the investor‑state arbitration mechanism in Chapter 11 of NAFTA. She found that it did not because Canada had not made NAFTA part of Canada’s domestic law. The Act provides that: “The Governor General shall appoint the Judges of the Superior, District, and County Courts in each Province, except those of the Courts of Probate in Nova Scotia and New Brunswick.”

While NAFTA does provide standing to foreign investors, the obligations enforced by NAFTA tribunals constitute international commitments made by that Treaty among the three NAFTA parties, Canada, Mexico and the United States. She held that Section 96 of the Constitution Act did not affect NAFTA as an international agreement.

Assuming arguendo that the Canadian courts might someday decide that Section 96 does reach the NAFTA tribunals, the judge concluded that there was still no violation. The arbitration tribunals decide only whether a NAFTA Party had breached its Treaty obligations, a type of jurisdiction that superior courts have never exercised. Since an aggrieved investor could complain about a government measure either to a domestic court or to a NAFTA tribunal, the latter did not have exclusive jurisdiction to hear disputes about contested government measures. Thus, NAFTA could not have usurped a core function of the superior courts.

Finally, the judge held that the mere establishment through NAFTA of the system of arbitration tribunals did not breach any rights guaranteed by the Charter of Rights and Freedoms. As a result, any question of a Charter violation arising from a particular tribunal decision was premature. Plaintiffs took an appeal.

The Ontario Court of Appeal, however, dismisses. The application judge correctly determined that the tribunals set up under Chapter 11 had not been incorporated into the domestic law of Canada thus removing one possible basis for applying Section 96 to them.

There is a clear and well‑known distinction in Canadian law between (1) parliamentary approval of a treaty on one hand, and (2) incorporation of that treaty into domestic law on the other. The NAFTA Implementation Act clearly did the former, and just as clearly did not purport to do the latter. The provision in the Commercial Arbitration Act that made decisions by NAFTA tribunals enforceable in Canadian courts, went no further.

“Although framed as an appointing power accorded to the federal government, it is now well established that Section 96 was designed to ensure the independence of the judiciary and to provide some uniformity to the judicial system throughout the country. See, for example, Reference re Amendments to the Residential Tenancies Act, (N. S.), [1996] 1 S. C. R. 186. Moreover, the application of Section 96 must be addressed in functional terms if it is to properly serve these purposes. See McEvoy v. New Brunswick (A.G.), [1983] 1 S. C. R. 704 at 718.” [¶ 31]

The Residential Tenancies case laid down the well‑known test for determining whether a conferral of power on an inferior tribunal violates Section 96. Paragraph 74 of that ruling explains further. “It consists of three steps, represented by the following questions: (1) does the power conferred ‘broadly conform’ to a power or jurisdiction exercised by a superior, district or county court at the time of Confederation? (2) if so, is it a judicial power? (3) if so, is the power either subsidiary or ancillary to a predominantly administrative function or necessarily incidental to such a function? The first two steps may be seen as identifying potential violations of Section 96; the last step as setting out the circumstances in which the transfer of a Section 96 power to an inferior tribunal is ‘transformed’ and hence constitutionalized by the administrative context in which it is exercised.” [¶ 32].

“Even if the conferral of the power in question does not transgress the Residential Tenancies test, if it constitutes the complete removal from the superior courts of a power that is integral to the core or inherent jurisdiction of those courts, it will nonetheless violate Section 96. ...”

“In applying the Residential Tenancies test, the application judge focused on the first of these three steps. In my view, the same focus is warranted in this court. ... [T]his step is designed to determine whether the power conferred on the inferior tribunal is analogous to, or in broad conformity with, one exercised by the courts that became Section 96 courts at the time of Confederation.”

“She said that this requires that the power be characterized by focusing on the type of dispute involved, rather than on a technical analysis of the remedies used by the tribunal. She also directed that, in applying step one of the test, the reviewing court look at the subject matter of the disputes being resolved and not [at the] the apparatus of adjudication used to resolve them.”

“Keeping these considerations in mind, I have no doubt that the application judge was correct in concluding that the power conferred on NAFTA tribunals is not analogous to one exercised by superior courts at the time of Confederation.”

“The type of dispute to be resolved by those tribunals is clearly revealed by Chapter 11 of NAFTA, their only source of power. The state obligations they enforce are set out in Article 11. Article 1102 is the ‘national treatment’ obligation, namely, the obligation of each Party to accord investors of another Party treatment no less favourable than it accords to its own investors.”

“Article 1103 is the ‘most‑favoured‑nation’ treatment obligation, namely the obligation of each Party to accord investors of another Party treatment no less favourable than that accorded to investors of any other state. Article 1105 is the minimum standard of treatment obligation, that is, the obligation of each Party to accord investors of another Party fair and equitable treatment. Finally, article 1110 contains the obligation of each Party not to expropriate investments from investors of another Party except for a public purpose, on a non‑discriminatory basis and in accordance with due process and with compensation.”

“These are all state obligations mutually undertaken in NAFTA by the three Parties signing the Treaty. They derive only from the Treaty. They bind the three Parties only because they signed the Treaty. And they regulate only the conduct of each Party in adopting measures relating to investors from another Party. The NAFTA tribunals only have power to adjudicate upon the consistency of governmental measures with these state obligations. Alleged inconsistency with these state obligations are the causes of action that NAFTA tribunals have authority to determine.”

“We have been shown nothing that suggests that there were any domestic causes of action known to the superior courts at the time of Confederation that could be said to be broadly analogous to these international obligations to accord national treatment, most‑favoured‑nation treatment, and fair and reasonable treatment to the foreign investors.”

“The only arguable exception is the expropriation obligation contained in article 1110. However, this is but one particular obligation among those that are part of the scheme of powers given to NAFTA tribunals. That scheme is animated by the principle of protecting and promoting international investment throughout North America by giving investors of any Party the capacity to bring claims under NAFTA against another NAFTA Party.”

“This is a quite different principle from the traditional domestic law of expropriation which is designed to regulate the government taking of domestic private property, not to facilitate the flow of international investment in North America. This difference is enough to constitute even the expropriation component of the powers of NAFTA tribunals [as] a novel jurisdiction different from the expropriation jurisdiction of superior courts at the time of Confederation.”

“In addition to the obligations enforced by these tribunals, the law they must apply and the limits on the effect of their decisions are also relevant at step one of the Residential Tenancies test. Article 1131 of NAFTA obliges the tribunals to decide the disputes before them in accordance with NAFTA, and the applicable rules of international law. Article 1136(1) ensures that the tribunals have no power to alter or affect domestic laws through their awards by providing that these awards have no binding effect except between the disputing parties and in respect of the particular case. By contrast, the process of superior courts are shaped by domestic law and clearly carry effects beyond the immediate litigants and the particular case.”

“In summary then, these tribunals have been given the power to adjudicate only upon alleged breaches of the international obligations mutually undertaken by treaty by the NAFTA Parties, obligations which have no counterpart in pre‑1867 domestic law in Canada. They are to do so using international law principles—not domestic law—and they are to issue awards which have no effect beyond the disputing parties and the particular case. In all these respects, there is no broad conformity with a Section 96 court power.” [¶¶ 33‑42]

Nor was there was any removal of original jurisdiction from the superior courts. Article 1121 expressly contemplated that investors could elect to proceed in the domestic courts rather than complain to a NAFTA tribunal.

The appellants also contended that Section 96 courts cannot exercise judicial review over NAFTA tribunals constituted outside Canada thus removing that core function from those courts.

“Again the answer is straightforward. The judicial review jurisdiction of Section 96 courts is with respect to tribunals constituted under domestic law for alleged violations of domestic law. It has never been a part of the core jurisdiction of superior courts to review international tribunals conducted offshore and acting under international law.” [¶ 55].

Citation: Council of Canadians v. Canada (Attorney General), [2006] O. J. No. 4751; 2006 ON. C. LEXIS 4649 (Ontario Ct. App. 2006).

POLITICAL QUESTION

District of Columbia Circuit holds it lacks appellate jurisdiction under “collateral offshoot” principle to review denial of Exxon’s motion to dismiss based on Political Question doctrine in case where Indonesian villagers have accused Exxon of crimes and torts committed by its security forces in Indonesia

Exxon Mobil Corporation and several of its subsidiaries (jointly “Exxon”) have long been running a natural gas extraction and processing facility in the Aceh province of Indonesia. In June 2001, Villagers from Aceh brought the present lawsuit, alleging that Exxon’s security forces have been committing acts of murder, torture, assault, false imprisonment and other offenses. The Exxon security forces allegedly consist of members of the Indonesian military.

The district court asked for the Department of State’s opinion as to whether honoring Plaintiffs’ claims would interfere with U.S. foreign policy interests. The Legal Advisor filed a letter in July 2002, opining that this litigation might have serious adverse effects on U.S. interests. In particular, it might affect U.S.‑Indonesia relations and discourage foreign investment in Indonesia.

The district court, however, denied Exxon’s motion to dismiss. In this interlocutory appeal, Exxon maintains that the district court should have granted the motion because Plaintiffs’ arguments pose non‑justiciable “political” questions. Not addressing the merits of Exxon’s arguments, the District of Columbia Circuit holds that it lacks jurisdiction and dismisses the appeal.

The issue is whether a district court’s denial of a motion to dismiss on political‑question grounds is the type of collateral or interlocutory order that the losing party can appeal immediately as an exception to the final‑judgment rule. A majority of the Court holds in the negative.

“Here, Exxon has not established that the political question doctrine confers a ‘right not to stand trial’ that can justify an immediate appeal. Exxon asserts that interlocutory review of the district court’s political question holding is necessary to protect the executive branch from judicial intrusion into sensitive foreign policy matters; it argues that any such intrusion will be effectively unreviewable on appeal from final judgment.”

“In Will v. Hallock, 126 S. Ct. 952, 958 (2006), the Supreme Court did identify ‘honoring the separation of powers’ as a value that could support a party’s interest in avoiding trial. ... However, ... it only did so while discussing cases involving immunity. ... [C]laims of immunity have long been held to fall within the collateral order doctrine. Thus, although Will did refer to the separation of powers as a ‘value of a high order,’ that case does not support the broad principle that all district court orders that reject separation of powers defenses are immediately appealable under the collateral order doctrine.” [Slip op. 6].

Exxon has not presented a single case where a federal appeals court held that a denial of a motion to dismiss on political grounds is an immediately appealable collateral order. To allow litigants to immediately appeal the denial of a motion to dismiss based on such grounds would substantially expand the scope of the collateral order doctrine.

The Court also rejects Exxon’s alternative petition for a writ of mandamus. The petition failed to show a clear right to have the Plaintiffs’ claims dismissed under the political question doctrine.

Citation: Doe v. Exxon Mobil Corp., No. 05‑7162 (D.C. Cir. January 12, 2007).

SOVEREIGN IMMUNITY

In FSIA appeal, Second Circuit finds that Plaintiffs cannot attach assets of Argentine Central Bank to satisfy debt obligations of the Republic of Argentina despite Argentina’s general control over Central Bank

In 2001, Argentina imposed a moratorium on its debt service payments and since then has not made scheduled payments. NML Capital, Ltd. (NML) and EM, Ltd. (EM) (Plaintiffs) hold some of those debt obligations. In 2003, they sued Argentina in New York federal court. The bonds held by Plaintiffs contain waivers of Argentina’s sovereign immunity.

The district court granted EM a final judgment for almost $725 million. NML has not yet obtained any judgment. Plaintiffs sought to attach $105 million of the Banco Central de la Republica Argentina [Central Bank of the Republic of Argentina] (BCRA) at the Federal Reserve Bank of New York (FRBNY).

Plaintiffs argued that the court can attach the funds based on two Argentine decrees. They authorized its Government to use BCRA funds to repay Argentina’s debt to the International Monetary Fund (IMF). Argentine President Nestor Kirchner issued Decrees 1599/2005 and 1601/2005 to use certain BCRA reserves for the payment of international debts. The decrees made about $8.4 billion available for these purposes.

The district court granted EM a restraining notice under 28 U.S.C. Section 1610(c) of the Foreign Sovereign Immunities Act of 1976 (FSIA). It provides that a federal court may order the attachment of, or execution against, the assets of a foreign state or its instrumentalities. NML also obtained an ex parte order of prejudgment attachment and temporary restraining orders as to the same assets.

The FSIA generally protects a foreign state’s property from attachment and execution, subject to existing international obligations, except for limited circumstances (see 28 U.S.C. Sections 1610 and 1611). The FSIA protections also apply to instrumentalities of a foreign state such as BCRA, though the standards differ from those for the states as such. The FSIA specifically protects the U.S. assets of foreign central banks. 28 U.S.C. Section 1611(b)(1).

In January 2006, the government of Argentina and BCRA moved to have the court set aside the attachments and restraining notices. The district court agreed, considering the funds immune based on the FSIA, 28 U.S.C. Sections 1609‑11. Although the Plaintiffs appealed, the Second Circuit affirms.

The Argentine decrees did not, in its view, create an attachable interest on the part of Argentina in the FRBNY Funds. Further, the FRBNY Funds are immune from attachment because BCRA, an entity that is separate from the Republic of Argentina, continues to own them.

Here, Plaintiffs relied on the attachment provisions applicable to foreign states in Section 1610; this assumed that the FRBNY Funds are attachable assets of the Republic of Argentina—but not of BCRA. “Although plaintiffs hold or seek judgments against the Republic, the FRBNY Funds that plaintiffs seek to attach are held in BCRA’s name. Plaintiffs have conceded that: (1) before December 15, 2005, the date on which the Decrees were issued, the FRBNY Funds were the property of BCRA; (2) plaintiffs had no right to attach the FRBNY Funds before that date; and (3), even after issuance of the Decrees, the FRBNY Funds were held in BCRA’s name. Thus, under New York law, it is presumed that the FRBNY Funds continue to be owned by BCRA even after issuance of the Decrees. ...”

“Plaintiffs do not bring to our attention any contrary New York or Argentine legal principles governing ownership of funds in bank accounts ..., nor do they point to any order or other document explicitly transferring ownership of the FRBNY Funds from BCRA to the [Argentine] Republic. Instead, plaintiffs contend that the Decrees changed the legal status of $8.4 billion of BCRA’s reserves—i.e., the funds that the Decrees designated as Unrestricted Reserves – when it made those funds available to pay the Republic’s debt to the IMF.”

“NML contends that the Decrees had the effect of making the Unrestricted Reserves property of the Republic. ... EM argues that it is immaterial whether the ‘nominal’ holding and ownership of the Unrestricted Reserves changed, because, under New York attachment law, the Unrestricted Reserves are attachable if the Republic has a right to assign or transfer them. ... According to EM, the Unrestricted Reserves must be subject to attachment because the Decrees demonstrated the Republic’s power to assign or transfer BCRA’s assets. ...” [Slip op. 8]

The Court disagrees. The Decrees did not alter property rights in the FRBNY Funds. They merely reflect Argentina’s ability to control BCRA itself. Plaintiffs failed to show that they can attach the FRBNY Funds based on Argentina’s control over BCRA. There is no evidence that BCRA transferred ownership or control over the funds to the Republic.

“We see no reason why the presumption of separateness required by Bancec and applied in Letelier and LNC Investments [see below] should not apply here to shield the FRBNY Funds from attachment. The separate juridical status of BCRA is not disputed by plaintiffs, ... and plaintiffs expressly elected not to argue in support of attachment that BCRA’s separate juridical status should be disregarded because BCRA is the alter ego of the Republic. ...”

“Nor have they argued that the Bancec presumption should be overcome based on a finding that disregarding BCRA’s separate juridical status is necessary to prevent fraud or injustice. ... In fact, neither EM nor NML even so much as mentions Bancec in its briefs.”

“We reject plaintiffs’ effort to circumvent First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 628‑33 (1983) (Bancec) and our decisions in Letelier v. Republic of Chile, 748 F.2d 790, 794 (2d Cir. 1984) and LNC Invs., Inc. v. Republic of Nicaragua, 115 F. Supp. 2d 358 (S. D. N. Y. 2000), aff’d sub nom. LNC Invs., Inc. v. Banco Central de Nicaragua, 228 F.3d 423 (2d Cir. 2000) by characterizing the Republic’s ability and willingness to control BCRA as a transfer of property rights sufficient to give the Republic an attachable interest in the FRBNY Funds.”

“Under Bancec and its progeny, plaintiffs bear the burden of overcoming the presumption that the FRBNY Funds are not available to satisfy a judgment against the Republic. Bancec indicates two circumstances in which the presumption may be overcome—if BCRA were proven to be the alter ego of the Republic, or if disregarding BCRA’s separate juridical status were necessary to avoid fraud or injustice. Plaintiffs chose not to argue that either of these circumstances existed here, even though the Republic’s alleged misdeeds cited in plaintiffs’ briefs might have lent some credence to these arguments. ...”

“Bancec forecloses any argument that all of BCRA’s $26.8 billion in reserves are ‘attachable interests’ of the Republic merely because the Republic hypothetically could have ordered (but in the Decrees did not order) BCRA to assign or transfer the FRBNY Funds. See Letelier, above at 794 (findings that assets and facilities of Chile’s instrumentality LAN ‘were under the direct control of Chile, which had the power to use them; [and that] Chile could have decreed LAN’s dissolution and taken over property interests held in LAN’s name’ did not support allowing creditor to attach LAN’s assets in order to satisfy judgment against Chile).” [Slip op. 12‑13].

Finally, the Court notes that FSIA Section 1610(a) dealing with “property in the United States ... used for a commercial activity in the United States” does not permit the attachment of the FRBNY Funds even if they were considered an attachable asset of the Republic of Argentina. A government’s repayment of its debt to the IMF is not a “commercial activity” and there is no showing that the FRBNY Funds were to be “used for” repayment of the IMF obligations.

Citation: EM Ltd. v. Republic of Argentina, No. 06‑0403‑cv (2d Cir. January 5, 2007).

TAXATION (FEDERAL)

Seventh Circuit holds that, at least for federal tax purposes, Antarctica is not “foreign country” since it does not fall under recognized sovereignty of any national state

Dave Arnett (Taxpayer) worked for Raytheon Support Services Co. at McMurdo Station, Ross Island, Antarctica during calendar year 2001. On his tax return for that year, he claimed an exclusion for the gross income earned in a “foreign country” pursuant to 26 U.S.C. Section 911.

The Internal Revenue Service (IRS) disagreed with his claim and assessed a deficiency on the theory that Antarctica is not a “foreign country.” Under 26 C.F.R. Section 1.911‑2(h), only the territory under the sovereignty of a foreign nation is to be considered a “foreign country.” The Tax Court agreed with the IRS, and the Taxpayer appealed. The U.S. Court of Appeals for the Seventh Circuit, however, affirms.

In Smith v. United States, 507 U.S. 197 (1993), the U.S. Supreme Court analyzed the status of Antarctica in the context of the Federal Tort Claims Act, and indicated that federal courts have to construe the term “foreign country” in its particular statutory setting. The phrase “foreign country” is ambiguous and Section 911 itself provides little or no guidance on how to resolve the ambiguity.

The Court decides whether the IRS’s interpretation is reasonable. The history of how the courts have treated foreign‑earned income for U.S. tax purposes shows that the interpretations focused on a reading that decreases the taxpayer’s tax burden. The courts consistently make the “sovereign” status of the non‑U.S. territory the decisive criterion.

The Court notes that the U.S. does not recognize any claims of national sovereignty over Antarctica. See Smith, above at 198 n.1. “When read in its entirety and in common sense fashion, the rule supports the position that sovereignty is an essential component of the definition of a ‘foreign country’ under 26 C.F.R. Section 1.911‑2(h). The definition itself goes on to elaborate those other areas included in the definition of a ‘foreign country,’ all of which are tied to claims of [foreign] sovereignty ... .”

“The Rule uses the word ‘includes’ not only to reference territory within the sovereignty of a foreign nation, but also in reference to ‘territorial waters . . ., air space over the foreign country, and the seabed and subsoil . . . adjacent to the territorial waters . . . over which the foreign country has exclusive rights, in accordance with international law.’ 26 C.F.R. Section 1.911‑2(h). Each use of the word ‘includes’ in the definition of ‘foreign country’ is made in connection with some form of sovereign territorial rights.” [Slip op. 7]. Therefore, the Tax Court did not err when it determined that Antarctica is not a “foreign country” for federal tax purposes under Section 911.

Citation: Arnett v. Commissioner of Internal Revenue, No. 06‑1934 (7th Cir. January 16, 2007).

TORTS

In suit by owner/painter of valuable painting to prevent Defendant from asserting ownership of that painting, German Federal Supreme Court upholds judgment for Plaintiff

Under the terms of Article 5(3) of the Brussels I Regulation issued by the Council of the European Community, German courts had international jurisdiction to entertain a claim to bar future infringements of property rights. Here, the Defendant, living in another Member State had, on German territory, impaired or threatened the property interests belonging, or allegedly belonging, to a German citizen.

In the present case, the Defendant had claimed ownership of a painting of some value owned and/or painted by the Plaintiff. Under Section 1004 of the German Civil Code (BGB), the owner of property had two main options. First, he or she could claim that a third person must abstain in the future from alleging that the property in question was theirs where they directed such allegations against the owner. Second, the owner would have a claim where he or she had become aware that the defendant had articulated such claims in front of third parties.

The present case dealt with the legal ownership of a painting, rightfully bought by the current owner in an auction which had taken place in the United States. The authorities of the former Nazi regime had unlawfully confiscated the picture from the original German artist/owner.

The heir and/or representative of the interests of the deceased artist/painter (Plaintiff) had gone to a German court, claiming that the picture in question belonged to the painter’s estate. The case eventually reached the Bundesgerichtshof (German Federal Supreme Court).

That Court noted that the jurisprudence of the European Court of Justice has given a broad interpretation of what constitutes tortious actions under the provisions of Article 5(3) of the Regulation. It had specifically included claims brought under Section 1004 BGB which seeks to prevent damage caused by infringements of property rights from taking place.

Moreover, the formulation used in Article 5(3), included damage that was “likely to occur.” This makes it clear that damage need not have already occurred; the Plaintiff could file a preventive claim, petitioning the court to order the Defendant to desist from any future repetition of the conflicting assertion.

Despite a contention to the contrary, the German court held that there was no need for the court to submit the case to the European Court of Justice for a preliminary explication of applicable EC law under Article 234EC; the correct application of EC law was so obvious and apparent that there was no room for a different opinion.

A firm assertion by Defendant of the right to own a specific picture, especially where made to third persons, would in itself be a substantial threat to the security of the true owner’s interests. As a result, a claim for a defensive court order that the Defendant cease repeating that assertion was the only permitted form the owner had of defending his or her property from potential interference. In the present case, for instance, the Defendant had alleged ownership of the painting in a letter to an art magazine. This would be enough to throw doubt into a reader’s mind as to the Plaintiff’s right of property in the picture. This made the preventive measure an appropriate device to protect Plaintiff.

Citation: Case IIZR 329/03 (Bundesgerichtshof), 2006 N.J.W. 689, as translated and summarized in [2006] I. L. Proc. 424 (Sweet and Maxwell Pubs.).

India allows dual citizenship to its citizens. By traditional Indian law, citizenship lapsed the instant the Indian citizen took the oath of U.S. citizenship. That nation, however, has recently joined a growing list of countries which allow their citizens to be simultaneous nationals of other countries, i.e. dual citizens. To some social conservatives, dual citizenship strikes a blow to patriotism. Globalists, however, view it instead as a ticket to unimpeded labor mobility and a curb on the power of nationalism. Moreover, many governments regard dual citizenship as a way of retaining an economic link to their emigrants. For example, Indians abroad send more money home—$22 billion in 2004—than any other national group, including the overseas Chinese. Persons born in the U.S. can generally acquire a second citizenship if they qualify elsewhere. The number of U.S. citizens who either hold (or are entitled to hold) a second passport is about 40 million. On the basis of ancestry, in fact, several countries—notably Ireland, Italy and Israel—positively encourage Americans to become dual citizens. An American with an European Union passport, for instance, can live permanently in any of the 27 E.U. countries without laboring through the usual immigration formalities. By 2003, 15 of 17 Latin American nations allowed some type of dual citizenship. India’s change in policy means that every major country whose nationals emigrate to the U.S. now allows dual citizenship except for China, South Korea and Cuba. Citation: Factiva, a publication of Dow Jones and Reuters Company, New York City, Friday, December 15, 2006, at page B1.

New York federal court dismisses suit between French entities on forum non conveniens grounds. Carlyle Europe Partners (CEP) is a private equity fund in Europe; Otor, S.A., is a financially stretched French paper company. In May of 2000, CEP agreed to invest about 44 million euros in Otor. This done, CEP would obtain a minority equity position in Otor Finance, S.A. plus convertible bonds. If CEP converts the bonds to shares, this would give it a controlling stake in Otor Finance as well as indirect control of Otor S.A. The following year, Carlyle Luxembourg shareholders tried to obtain early conversion of their bonds; Otor Finance balked, however, and sought arbitration and a court action in France. The arbitrators ultimately decided that Otor had a duty to convert the bonds. Dissatisfied with the outcome, Otor brought suit in a New York federal court against the parties of the second part and Credit Lyonnais to decide the same dispute. It alleged violations of the SEC Act and the Investment Advisers Act along with fraud, breach of fiduciary duty and negligent misrepresentation. Apparently on Credit Lyonnais’s motion, the judge dismissed the case based on forum non conveniens. The judge pointed out that the case involved only French parties and their mutual obligations under French law. The agreements all took place outside of New York. Moreover, plaintiff had an adequate forum in a French court. The judge denied plaintiff’s request for discovery and required plaintiff to pay defendant’s attorneys’ fees. Citation: Mealey’s International Arbitration Report, Vol. 21, Issue 9 at page 6 (September 2006), citing Otor S. A. v. Credit Lyonnais S. A., 04‑CV 6978 ( S. D. N. Y. 2006).

China and Russia veto U.S. measure in U. N. Security Council to deplore Burmese human rights abuses. On January 12, China and Russia both vetoed a United Nations Security Council (UNSC) Resolution sponsored by the U.S. that criticized Burma’s human rights record. One of the most influential Third World nations, South Africa, a nonpermanent member of the UNSC, also voted in the negative. Nine members voted for the Resolution. According to the Russian delegate, the UNSC’s mandate is to deal with threats to international or regional peace and security while the alleged abuses by Myanmar’s (Burma’s) military junta are taking place on its own turf. Congo, Qatar and Indonesia abstained on the grounds that the U. N. Human Rights Council would be the proper organ for looking into Burma’s human rights record. Nine members of the UNSC did vote in favor of the Resolution. Many of the opponents of the Resolution including China and Indonesia did, however, express concern over the junta’s behavior and called for improvements. Citation: washingtonpost.com; United Nations, Saturday, January 13, 2007 at print page A12 (byline of Colum Lynch, WP Staff Writer).

Bolivian court strikes down statute barring foreigners from criticizing government. In 1996, Bolivia had passed a law that bars foreigners from “intervening in any way in internal politics or inciting the alteration of the social or political order.” During December 2006, Bolivian officials arrested Dr. Amauris Sanmartino, a Cuban dissident, in his home city of Santa Cruz; he had been openly criticizing Bolivian President Evo Morales’ for his close ties to the Castro government. Morales reportedly looks upon President Fidel Castro as a mentor and friend. The government then exiled Dr. Sanmartino to Columbia. On February 2, however, the Bolivian Constitutional Tribunal handed down an unappealable decision that the statute was constitutionally flawed because it set differing standards for freedom of expression as between citizens and foreigners. Dr. Sanmartino has attributed his harsh treatment to pressure from Cuba because he has been helping other Cuban doctors to flee Bolivia for Brazil or the United States. Citation: The New York Times (AP), La Paz, Bolivia, Friday, February 2, 2007 at 11:32 p.m. ET.

Irish court upholds extradition to U.S. of person charged with vehicular homicide and related offenses. In June 2001, Frederick David Russell (Respondent) was driving one of the vehicles involved in a multiple‑vehicle collision in the U.S. state of Washington. Three persons died in the event and others were seriously injured. Thereafter, local authorities charged the Respondent with vehicular homicide and vehicular assault but let him out on bail. Some in the local area looked upon Respondent with hostility and had allegedly threatened violence against him. Respondent then fled to the Republic of Ireland where he was working under an assumed name. The U.S. Department of Justice sought his extradition by request to the appropriate Irish Minister. The extradition crimes consisted of three charges of vehicular homicide, three charges of vehicular assault, one charge of check forgery and one charge of theft. The governing provisions were Section 20 of the Extradition Act of 1965, and the 1984 Treaty on Extradition between Ireland and the United States of America [T.I.A.S. 10813]. The Respondent objected to his extradition claiming that: (1) the U.S. authorities would likely prosecute and/or punish him for other offenses such as bail‑jumping and inter‑state flight to avoid prosecution; (2) there was a real threat to his life given the public hostility towards him; and (3) if placed in a segregated prison regime for his own safety, he was likely to suffer inhumane and degrading treatment in breach of his constitutional rights and those guaranteed under the European Convention for the Protection of Human Rights and Fundamental Freedoms [312 U.N.T.S. 221; E.T.S. 5, Nov. 4, 1950, as amended]. A judge of the Irish High Court, however, satisfied that the U.S. would scrupulously observe the Rule of Specialty, ruled against Respondent. The fact that the U.S. court might enhance his base level sentence by taking into account all the circumstances of the case, including conduct which was uncharged and unconvicted, would not breach the specialty provisions. The Respondent had also failed to discharge the heavy burden of proving that, if returned to the U. S., he faced a real risk of being subjected to inhumane or degrading treatment or punishment. Prison segregation, for example, or other means of protecting Respondent from internal danger to life and limb are designed to benefit Respondent. Moreover, the alleged danger to Respondent’s safety arose, if at all, from persons outside the prison system rather than those within it. Citation: Attorney General v. Russell, [2006] I.E.H.C. 164 (High Court 2006).

Syrian Court sentences alleged associate of September 11 hijacker. According to the National Organization for Human Rights, on January 11, 2007, a Syrian Higher State Security Court sentenced Mohammed Haydar Zammar (Defendant) to life imprisonment for his membership in the banned Muslim Brotherhood. Then, for unspecified reasons, the Court commuted the sentence to twelve years. Defendant is a citizen of Syria and Germany and is alleged to have known 9/11 hijacker, Mohamed Atta, and to have introduced him to the Al Qaida organization in Afghanistan. Syria has long made membership in the Brotherhood a capital offense. The German authorities had held Defendant for questioning but had let him go for lack of evidence. In December 2001, he was captured in Morocco whence the U.S. allegedly had arranged to have him sent to Syria. Citation: The New York Times (online) (from AP), Sunday, February 11, 2007 at 11:08 p.m. ET.

France’s highest court rejects appeal from adverse ruling by American‑Iran Arbitration Tribunal. A Claimant named Golshani had brought a claim for compensation shares before the Arbitration Tribunal for American‑Iranian disputes which sits at The Hague. He allegedly had suffered damages resulting from Iran’s expropriation of company shares. The Tribunal dismissed his claim and the French courts issued a decree enforcing the result of the arbitration. The Claimant, however, counterattacked by challenging the jurisdiction of the Tribunal, first because there was no agreement that gave it jurisdiction. Alternatively, the Claimant asserted that any document that purported to be such an agreement was void. His case eventually reached France’s highest court. On July 6, 2006, the 1st Civil Chamber of the French Supreme Court dismissed his appeal. It pointed out that Claimant had presented his claims to the Tribunal and, for nine years, had taken part in its proceedings without raising any questions about its jurisdiction. Thus, basic rules of estoppel barred Claimant from denying the existence of an agreement to arbitrate or from attacking the validity of a purported agreement. Citation: Golshani v. Iranian Islamic Republic (Court de Cassation, 1e chambre civile, [2006] Rev. Crit. DIP 602, as summarized at [2006] Int. Lit. Proc. 692 (Sweet & Maxwell).

Russian Supreme Court upholds shut down of Chechen rights organization. On January 23, 2007, the Russian Supreme Court affirmed a lower court ruling which had closed down the Russian‑Chechen Friendship Society (RCFS). It is a nongovernmental organization which has taken issue with the Kremlin’s interpretation of events in the ongoing Chechnya conflict. The RCFS had a network of correspondents and activists in Chechnya, a republic in southern Russia, who were reporting on alleged rights abuses by Russian forces and their Chechen allies. One of the group’s leaders pledged to fight the ruling in the Russian Constitutional Court and (since Russia belongs to the Council of Europe) in the European Court of Human Rights. A law on nongovernmental organizations, signed by President Vladimir Putin in January 2006, made it unlawful for grass‑roots groups to have persons convicted of extremism either as leaders or as members. Last February, a Russian court convicted an RCFS co‑chair for inciting racial hatred. The judicial restrictions on the group have led to protests from Western Europe and the United States. The European Union, the U.S. government‑funded National Endowment for Democracy and the Norwegian Foreign Ministry are the main underwriters of the RCFS. Citation: The Washington Post, Moscow, Wednesday, January 24, 2007, at page A08 (byline of Peter Finn, Post Foreign Service writer).