2008 International Law Update, Volume 14, Number 9 (September)

2008 International Law Update, Volume 14, Number 9 (September)

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

CHOICE OF LAW (LIMITATIONS OF ACTIONS)

Plaintiff, Nova Scotia resident injured in Wyoming auto accident where limitations law requires filing suit within four years of accident sued U.S. residents in own provincial court where Plaintiffs (unlike in Wyoming) may commence civil actions merely by filing complaint; Nova Scotia Court of Appeal rules that suit was timely since Plaintiff had filed his pleadings in compliance with Nova Scotia procedural rules within four years of collision in obedience to Wyoming substantive law

Back in 2000, a motor vehicle accident in Wyoming, U.S.A. injured Richard Vogler (Plaintiff), a Nova Scotia resident. In January 2003, he filed an action in the Nova Scotia courts against the Defendants Christopher Szendroi, the driver, and Carole Sheehan, the owner of the vehicle in which Plaintiff was riding at the time. Service of these pleadings has been, at the very least, delayed. It was not until May of 2006, some three years after the filing of the action and six years after the accident, that the Plaintiff served Defendant Sheehan in California. It appears that the Plaintiff has not yet served Defendant Szendroi, a resident of Quebec.

A Wyoming statute requires a Plaintiff to file a civil action such as this within four years of the accident. At the heart of this appeal is Wyoming’s Rule of Civil Procedure 3 which seems to link the commencement of an action to service of process. Subparagraph (a) provides that a Plaintiff commences an action by filing a complaint with the court. Subparagraph (b) then specifies that, if Plaintiff fails to serve the pleadings within 60 days of filing, Plaintiff does not “commence” the action until the date of service:

In Nova Scotia, on the other hand, a Plaintiff starts an action simply by filing the appropriate pleadings. Civil Procedure Rule 9.01 provides: “Subject to rule 9.06(2) every proceeding, ... shall be commenced by filing an originating notice and a copy thereof in the prothonotary’s office, and the notice is deemed to have been issued on the day it is filed.”

The following basic choice‑of‑law principles govern this appeal. Regardless of where Plaintiff files an action, the substantive laws of the jurisdiction where the alleged tort took place (the lex loci delicti) apply – here the State of Wyoming. The law generally classifies limitation periods as “substantive.” In this case, all parties acknowledge that Wyoming’s four‑year rule is substantive and does apply to the Plaintiff’s case.

On the other hand, forum law and/or rules will govern procedures in such a case as this, i.e., the rules of Nova Scotia procedure. From this flows an important corollary. Wyoming’s rules of procedure have no application in Nova Scotia. This leads to the ultimate issue on appeal: Is Wyoming Rule 3(b) substantive or procedural in nature? If it is substantive, then it applies to the Plaintiff and bars this Nova Scotia action. On the other hand, if it is procedural, it does not apply in this case and the Plaintiff’s action remains timely because it complied with Wyoming’s substantive four‑year rule.

The lower court granted Defendant’s motion to quash and Plaintiff appealed. The Nova Scotia Court of Appeal decides it need only address the first two of Plaintiff’s claims of error: [1] that the trial judge erred in law in failing to apply the law of Nova Scotia in determining whether Wyoming R. Civ. P. Rule 3(b) was substantive or procedural in nature; [2] that the trial judge erred in law in finding that Rule 3(b) was substantive rather than procedural in nature. Finding merit in Plaintiff’s contentions, the Court allows Plaintiffs appeal and sets aside the dismissal order.

The lead opinion then sets forth the Court’s rationale. “The second ground identifies the ultimate issue that I have noted above, namely: Is Rule 3(b) substantive or procedural in nature? As observed, the Plaintiff asserts that the judge erroneously found it to be substantive. As the analysis of that ultimate issue also addresses the first ground, I will deal with them as a single ground of appeal.” [¶ 14]

“Let me begin by initially addressing the standard upon which we should review the judge’s decision. This is an appeal from a discretionary interlocutory order which normally would attract significant deference. However, because the effect of this order was to finally dispose of [Plaintiff’s] action, less deference is owed. Our review, therefore, examines whether there was an error in law resulting in an injustice.”

“In considering this question, it is noteworthy that there was no factual dispute before the Chambers judge. He was engaged strictly in legal analysis involving a question of private international law. In other words, if the judge did err in his analysis, it would be an error of law that would leave us free to substitute what we would view as the proper result. [Cites].”

“I begin my analysis by explaining, in some detail, the distinction between substantive law and procedural law. Consider the respective definitions as set out in Black’s Law Dictionary, 8th ed. (St. Paul, MN: Thomson West, 2004). Substantive law involves a litigant’s rights or obligations. [It is] the part of the law that creates, defines, and regulates the rights, duties, and powers of parties. On the other hand, procedural law involves the process by which a litigant’s rights or obligations are enforced or defended. Thus, procedural law is defined as: [t]he rules that prescribe the steps for having a right or duty judicially enforced, as opposed to the law that defines the specific rights or duties themselves.”

“Thus, as noted over 60 years ago by John Salmond in Jurisprudence 476 (Glanville L. Williams ed., 10th ed. 1947), these two concepts are inextricably linked: ‘So far as the administration of justice is concerned with the application of remedies to violated rights, we may say that the substantive law defines the remedy and the right, while the law of procedure defines the modes and conditions of the application of the one to the other.’”

“This court has described the distinction between substantive and procedural law in these terms: ‘[S]ubstantive law creates rights and obligations and is concerned with the ends which the administration of justice seeks to attain, whereas procedural law is the vehicle providing the means and instruments by which those ends are attained. It regulates the conduct of Courts and litigants in respect of the litigation itself whereas substantive law determines their conduct and relations in respect of the matters litigated.’” [¶¶ 16‑20]

“... [T]here is no dispute that Wyoming’s substantive law applies in this matter. As the parties have acknowledged, Wyoming’s statutory four‑year limitation period is a matter of substantive law. See Tolofson v. Jensen, [1994] 3 S.C.R. 1022 (S.C.C.) at ¶¶ 86 ‑88. Therefore, [Plaintiff] had four years to commence his action. His present Nova Scotia action was filed within four years.”

“...[T]here is no question that matters of procedure, on the other hand, are governed by the law of the domestic forum, in this case Nova Scotia (see Tolofson at ¶ 41). Thus, the consequences of determining [Wyoming] Rule 3(b) as either substantive or procedural come to the fore. If Rule 3(b) is substantive, it applies in this case and [Plaintiff’s] action, because of the late service, will have lapsed. If it is procedural, Rule 3(b) has no application in this case and the Nova Scotia action is preserved.”

“There exists this further underlying question. When approaching and resolving this issue, is our analysis governed by domestic Nova Scotia law or does Wyoming’s jurisprudence on this provision apply? The undisputed answer is that Nova Scotia jurisprudence governs the analysis. Thus, we should ask: If such a provision existed in Nova Scotia, applying Nova Scotia’s jurisprudence, would it be considered substantive or procedural? See Somers v. Fournier , [2002] O.J. No. 2543 (Ont. C.A.) at ¶¶ 20 &31, and Brown v. Flaharty, [2004] O.J. No. 5278 (Ont. S.C.J.) at ¶ 9.

“Returning to the ultimate question of whether Rule 3(b) is substantive or procedural, we must draw our attention to the true subject matter of the impugned provision. In other words, is Rule 3(b) about timing as the respondents suggest, i.e., concerning when an action must be commenced? If so, and given its alignment with Wyoming’s four‑year statutory rule, it would appear to be more substantive than procedural in nature. On the other hand, the Plaintiff suggests that this provision is not about timing but about methodology. In other words, it describes the manner in which an action is (or is deemed to have been) commenced. That would be a subject matter more akin to procedure.”

“In summary, when approaching questions such as these, I would advocate a three‑step analysis: 1. identify the exact subject matter covered by the impugned foreign provision; 2. determine whether, in the domestic forum (in this case Nova Scotia), this subject matter would be considered procedural or substantive; and, 3. if the subject matter would be characterized as substantive, then the foreign provision should be applied. On the other hand, if the subject matter is characterized as procedural, then the foreign provision should not be applied.” [¶¶ 24‑28]

“By tying Rule 3(b) to the Wyoming Statute of Limitations, the judge, erroneously I believe, concluded that Rule 3(b) involved filing deadlines – i.e., when an action must be started. However, in my view, Rule 3(b) does not involve when an action must be commenced. That issue is clearly set out in Wyoming’s Statute of Limitations, which prescribes four years. As acknowledged, this four‑year rule, like most limitation period provisions, is substantive in nature. Instead I view Rule 3(b) as directing how an action is commenced. In Wyoming this task involves both filing and service. In Nova Scotia, as noted, the task is completed simply by filing the relevant documentation.” [¶ 32]

“I disagree with this submission. In my view, this introductory phrase in Rule 3(b) simply identifies the rationale for the provision. In other words, Rule 3(b) sets out the process for complying with statutory deadlines for filing actions. In this case, the limitation period is four years and that is prescribed by statute. Nothing in Rule 3(b) changes that. Again, it simply directs how one can comply with this prerequisite. In summary, Rule 3(b) is not about how long you have to file a claim; it is about how a plaintiff commences a claim.” [¶ 35]

“[T]wo substantive rights are at stake in this appeal: [Plaintiff’s] right to sue the [Defendants] in negligence and the [Defendants’] corresponding right not to be sued after four years.... Rule 3(b) sets out the manner in which [Plaintiff’s] right is pursued. Viewed in this light, Rule 3(b) does not alter, nor is it linked to, the [Defendants’] rights not to be sued after four years. All this, in my opinion, leads to the inescapable conclusion that Rule 3(b) is procedural and not substantive in nature.”

“In summary, the Chambers judge erred in concluding that Rule 3(b) was substantive in nature and thereby enforceable as a bar to [Plaintiff’s] Nova Scotia action. Instead, Rule 3(b) is a Wyoming Rule of Civil Procedure and therefore has no application to this case. Pursuant to Nova Scotia Civil Procedure Rule 9.01, [Plaintiff] commenced his action by filing it. He did so within four years. His claim should not have been dismissed.” [¶¶ 40‑41]

Citation: Vogler v. Szendroi, 2008 CarswellNS 85; 2008 N.S.C.A. 18; 50 C.P.C. (6th) 264 (2008).

DEFAMATION

In libel action by parental opponent of gay rights curriculum in British Columbia schools against radio “shock jock” who seemed to compare her to historic rabble‑rousers as Hitler, George Wallace, Orval Faubus and others, Canadian Supreme Court upholds judgment for Defendants based on “fair comment” defense

Kari Simpson (Plaintiff) belonged to an organization which opposed the placement and use of materials in schools showing families with same‑sex parents. It also was against any promotion of, or tolerance for, gay lifestyles in the schools. She helped put together a document aimed to assist parents to successfully oppose gay rights‑related teachings in public schools called the Declaration of Family Values; she also spoke at a rally where she vigorously advanced her position on the school controversy.

In October 1999, Rafe Mair (Defendant), a so‑called “shock jock” radio talk‑show host, wrote and read an editorial on a private radio station owned and operated by radio station CNKW a subsidiary of station WJC (Defendant 2). In the editorial, Defendant referred to the Plaintiff’s speech and made statements which compared the Plaintiff to violent and intolerant historical figures.

This is a partial quote: “For [Plaintiff’s] homosexual, one could easily substitute Jew. I could see Governor Wallace ‑‑ in my mind’s eye I could see Governor Wallace of Alabama standing on the steps of a schoolhouse shouting to the crowds that no Negroes would get into Alabama schools as long as he was governor. It could have been blacks last Thursday night just as easily as gays. Now I’m not suggesting that [Plaintiff] was proposing or supporting any kind of holocaust or violence but neither really ‑‑ in the speeches, when you think about it and look back ‑‑ neither did Hitler or Governor Wallace or [Orval Faubus] or Ross Barnett. They were simply declaring their hostility to a minority. Let the mob do as they wished.”

The Plaintiff brought a civil action for libel in the British Columbia courts against Defendant 1 and Defendant 2. The court of first instance dismissed it. The judge found that Defendant’s statements were indeed defamatory, but that the issue in question was a matter of public interest and thus applied the defense of “fair comment” to Defendant 1’s words.

The Court of Appeal allowed the Plaintiff’s appeal. It ruled that the defense of fair comment was not available because no evidentiary foundation existed for the imputation that the Plaintiff “would condone violence toward gay people”, nor had Defendant testified that he had an honest belief that the Plaintiff would do so. Defendant 1 and Defendant 2 appealed. The Supreme Court of Canada allows the appeal and dismisses the action.

In the Court’s view, the editorial made clear the factual basis of the controversy. Defendant’s listeners were generally aware of it. In the absence of proven malice on his part, which the trial judge had held was not a dominant motive, the law shielded his expression of opinion. Defendant was a radio personality with strong opinions, not a reporter of facts. Thus, the applicable defense was Fair Comment.

“This is a private law case that is not governed directly by the Canadian Charter of Rights and Freedoms. Yet it was common ground in the argument before us that the evolution of the common law is to be informed and guided by Charter values. Particular emphasis was placed on the importance of ensuring that the law of fair comment is developed in a manner consistent with the values underlying freedom of expression. However, the worth and dignity of each individual, including reputation, is [also] an important value underlying the Charter and is to be weighed in the balance with freedom of expression, including freedom of the media.”

“The Court’s task is not to prefer one over the other by ordering a ‘hierarchy’ of rights (Dagenais v. Canadian Broadcasting Corp., [1994] 3 S. C. R. 835 (S.C.C.)), but to attempt a reconciliation. An individual’s reputation is not to be treated as regrettable but unavoidable ‘road kill on the highway of public controversy,’ nor should an overly solicitous regard for personal reputation be permitted to ‘chill’ freewheeling debate on matters of public interest. As it was put by counsel for the intervener, Media Coalition, ‘No one will really notice if some [media] are silenced; others speaking on safer and more mundane subjects will fill the gap.’” [¶ 2]

“The [Plaintiff] on this appeal did not challenge the view that [Defendant’s] imputation that [Plaintiff] ‘would condone violence toward gay people’ was a comment not an imputation of fact. I agree that the ‘sting’ of the libel was a comment and it would have been understood as such by [Defendants’] listeners. ‘What is comment and what is fact must be determined from the perspective of the reasonable viewer or reader. [Cite]. [Defendant] was a radio personality with opinions on everything, not a reporter of the facts. The applicable defence was fair comment. On that point, I agree with the trial judge.” [¶ 27].

“... [A] properly disclosed or sufficiently indicated by the audience factual foundation (or [one] so notorious as to be already understood by the audience) is an important objective limit to the Fair Comment defence, but the general facts giving rise to the dispute between [Defendant] and [Plaintiff] were well known to [Defendants’] listening audience, and were referred to in part in the editorial itself. [Plaintiff’s] involvement in the Declaration of Family Values was familiar to [Defendants’] audience. Her repeated invitations to her followers to pick up the phone and call talk shows and politicians assured her views a measure of notoriety. [Cite].”

“The [Plaintiff] has offered no persuasive reason to justify the Court of Appeal’s interference with the trial judge’s conclusion that the defence has established that every element of the factual foundation was either stated or publicly known; that [Defendant] was aware of them all; and that they were all substantially true in the sense that they were true in so far as they go to the pith and substance of the opinion [Defendant] expressed.” [¶ 34]

“Of course the law must accommodate commentators such as the satirist or the cartoonist who seizes on a point of view, which may be quite peripheral to the public debate, and blows it into an outlandish caricature for public edification or merriment. Their function is not so much to advance public debate as it is to exercise a democratic right to poke fun at those who huff and puff in the public arena.”

“This is well understood by the public to be their function. The key point is that the nature of the forum or the mode of expression is such that the audience can reasonably be expected to understand that, on the basis of the facts as stated or sufficiently indicated to them, or so generally notorious as to be understood by them, the comment is made tongue‑in‑cheek so as to lead them to discount its ‘sting’ accordingly.” [¶ 48]

“Applying the law of Fair Comment to the facts of the case, the trial judge dealt with the issues in an appropriate sequence. The defamatory meaning of the words complained of was considered in their full context in determining that the comments were defamatory. No reason existed to interfere with that conclusion, as it was plainly correct. The public debate about the inclusion in schools of educational material on homosexuality clearly engaged public interest. No statement existed which would be understood to be a matter of fact, and the language in which it was couched was such that it was clearly opinion. The comment was based on a sufficient substratum of facts to anchor the defamatory comment.”

“The Plaintiff did not dispute the contents or tone of her speeches in the court record. Further, the Defendants satisfied the honest belief requirement. Notwithstanding the absence of a subjective honest belief that the Plaintiff would condone violence, Defendant was entitled to rely on the objective test. The [Plaintiff’s] use of violent images could support an honest belief on the part of at least some of her listeners that she ‘would condone violence toward gay people’. Considering both the content of the [Plaintiff’s] speeches and the broad latitude allowed by the defence of Fair Comment, the defamatory imputation that while the [Plaintiff] would not engage in violence herself she ‘would condone violence’ by others, was an opinion that could honestly have been expressed on the proved facts by a person ‘prejudiced, exaggerated or obstinate [in] his views’.”[¶ 62]

Citation: Simpson v. Mair, 2008 CarswellBC 1311, 2008 S.C.C. 40 (Sup. Ct. Can. June 27).

INSURANCE

House of Lords panel reverses Court of Appeal, ruling that Illinois nonprofit international umbrella company is covered for default and collapse of Parmalat, Italian member company, under accountants’ indemnity policy specifically covering its ninety‑three member companies

This is an appeal by the insured from a decision in favor of the insurers on the interpretation of an extension to an accountants’ professional indemnity policy. The appellant is Grant Thornton International (GTI) a “not for profit” umbrella corporation with its headquarters in Illinois. It is broadly responsible for managing and maintaining the worldwide organisation of Grant Thornton firms. The policy covered as the “Assured Firm” listed 93 GTI member firms, not including GTI itself. Extension 3, however, did include GTI as an insured firm but “solely in respect of claims made against [GTI] arising from claims made against a member firm of [GTI] insured by the terms and conditions of the policy”.

The financial collapse of Parmalat Finanziaria SpA , an Italian company, led Parmalat investors to file class action lawsuits in the United States against GTI’s Italian firm as auditors of Parmalat and against GTI as an entity in control of GT Italy. This followed the revelation that Bonlat Financing Corporation, its Cayman Island subsidiary, did not have the Euro 3.95 billion credit balance with Bank of America, New York branch, which had appeared in its, and the Parmalat group’s, accounts. GT Italy had audited these accounts, later known as Italaudit SpA in liquidation.

The insurers then avoided the policy for GT Italy’s alleged non‑disclosure and breach of warranty; they also notified GTI that, since they had avoided GT Italy’s insurance ab initio, GTI had lost any cover otherwise available to GTI. The insurers sued for a declaration that they had validly avoided the policy or were discharged from liability by reason of breach of warranty and obtained a default judgment against GT Italy. GTI obtained summary judgment in its favor on the ground that, even if the insurers succeeded against GT Italy, GTI would be entitled to an indemnity, since the claims made against it arose from claims made against GT Italy and were within Extension 3. The Court of Appeal upheld the insurers’ appeal.

The Court of Appeal agreed with the insurers’ case. Thus, it came down to these two issues: [1] whether the claim was one for which the policy did not cover GT Italy and [2] if so, whether GTI could still obtain coverage under it.

GTI argued that Extension 3 did cover it as an assured within the insuring clauses and that the wording of Extension 3 was merely a shorthand reference to the second insuring clause in that the phrase “insured by the terms and conditions of this policy” was merely descriptive. Thus it did not amount to a positive requirement that either the claim or the member firm had to be validly covered.

Upon granting review, four members of the House of Lords unanimously agree with the reasoning in Lord Mance’s opinion and allow the appeal. The most telling consideration on the appeal was the hodgepodge nature of the coverage that would result from the insurers’ reading of the policy.

Lord Mance preferred GTI’s reading of Extension 3 because it gave GTI, as an assured firm, the protection of the second insuring clause without any need to show that the claim against GT Italy was itself one which was insured under either of the two insuring clauses. That meant that the phrase “insured by the terms and conditions of this policy” did not relate to the earlier words “claims made”, but rather to the words “a member firm of [GTI].”

“The Court of Appeal took the view that the second insuring clause was likely only to be relevant in relation to International Work as defined in the policy. I am not persuaded by this. Question 18 in the proposal addresses the risk of liability arising from mere association in, or with, the [GTI] family. Allegations of vicarious or partnership liability of this nature, however tenuous they might appear to an English lawyer, are a foreseeable risk of such association.”

“Indeed, in the present New York litigation, GTI is said to be liable ‘as an entity ... in control of [GT Italy]’, i.e. simply because of the association between them within the Grant Thornton family or organisation. There is also a claim against GTI for violating United States securities laws, but GTI does not suggest that that this can be covered by the second insuring clause, read with Extension 3.” [¶ 17]

“If individual member firms are, as between themselves, given full cover in respect of liability for such claims incurred by reason of their membership in [GTI], it would seem very odd that GTI itself should not enjoy similarly full cover in respect of claims holding it responsible on a vicarious or partnership for, or with, one of the insured member firms in its international family. The submission that this would not, because GTI is not, as the umbrella entity, itself a ‘member’ of [GTI] and that it cannot therefore incur liability ‘by reason of its membership in [GTI] is formalistic in the extreme; and anyway [it] ignores the different potential shades of meaning attaching to ‘Grant Thornton International’.”

“If insurers are right, then GTI, in respect of the acknowledged risk of claims (however tenuous) made against it, only achieved cover under this policy in two particular situations: [1] one where a member firm received a claim relating to International Work as defined, [2] the other where a member firm was itself the recipient of a claim that it was liable for another member firm on some vicarious or partnership basis by reason of its membership in [GTI]. [GTI] would then have cover if, ‘arising from’ the claim made against a member firm, [GTI] itself also received a claim.”

“This limited patchwork cover would mean, on insurers’ case, that [GTI] needed another policy insuring it for vicarious or partnership type claims arising in other circumstances, such as (it appears) the present [ones]. In the vacuum surrounding the present policy, all that can be said is that there is no indication of any relevant gap‑filling insurance, and that insurers’ construction appears on any view to postulate an unlikely allocation and splitting of insurance risks.”

“In these circumstances, I have come to a different conclusion to the Court of Appeal. I consider that [GTI’s] construction of Extension 3 is to be preferred. It gives to [GTI] as an Assured Firm the protection of the second insuring clause, without any need to show that the claim against GT Italy is itself one which is insured under either of the two insuring clauses. This means that the phrase ‘insured by the terms and conditions of this policy’ do not relate to the earlier words ‘claims made’, but rather to the words ‘a member firm of Grant Thornton International’.” [¶¶ 20‑22]

Citation: Brit. Syndicates Ltd. v. Italaudit SpA. & Ors., [2008] U.K.H.L. 18; 2008 WL 576931(HL); [2008] All. E. R. 1140 (House of Lords).

SECURITIES FRAUD

In case concerning extraterritorial application of U.S. Rule 10b, Second Circuit encounters “foreign‑cubed” securities action for first time and rules that actions by Australian bank as to American company did not require application of Rule 10b to its actions

In 1998, National Australia Bank (NAB), headquartered in Melbourne, acquired HomeSide Lending, Inc. (HomeSide), an American mortgage service company. HomeSide had made inaccurate assumptions about its future earnings, causing NAB to suffer several write‑downs, along with falling share values.

The Plaintiffs in this case bought NAB shares that lost value, and sued NAB, HomeSide, as well as certain officers and directors (jointly Defendants). They allege numerous violations of securities rules, including Rule 10b‑5, because of HomeSide’s unreasonably optimistic valuations. A New York federal court dismissed the complaint for failure to state a claim. This appeal followed. The U.S. Court of Appeals for the Second Circuit affirms.

The main difficulty here involves the extraterritorial application of Rule 10b‑5: “When Congress wrote the Securities Exchange Act, however, it omitted any discussion of its application to transactions taking place outside of the United States. See Itoba Ltd. v. LEP Group PLC, 54 F.3d 118, 121 (2d Cir. 1995) (‘It is well recognized that the Securities Exchange Act is silent as to its extraterritorial application.’) .... Therefore, when faced with securities law claims with an international component, we turn to ‘the underlying purpose of the anti‑fraud provisions as a guide to discern whether Congress would have wished the precious resources of the United States courts and law enforcement agencies to be devoted to such transactions.’ Europe & Overseas Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d 118, 125 (2d Cir. 1998) ....”

“The underlying purpose of Section 10(b) is ‘to remedy deceptive and manipulative conduct with the potential to harm the public interest or the interests of investors.’ ... Harm to domestic interests and domestic investors has not been the exclusive focus of the anti‑fraud provisions of the securities laws. As our case law makes clear, we believe that it is consistent with the statutory scheme to infer that Congress would have wanted ‘to redress harms perpetrated abroad which have a substantial impact on investors or markets within the United States.’ ...”

“We decided in Psimenos v. E. F. Hutton & Co., 722 F.2d 1041, 1045 (2d Cir. 1983) that, in determining the extraterritorial reach of Section 10(b), we look to whether the harm was perpetrated here or abroad and whether it affected domestic markets and investors. This binary inquiry calls for the application of the ‘conduct test’ and the ‘effects test.’ ... We ask: (1) whether the wrongful conduct occurred in the United States, and (2) whether the wrongful conduct had a substantial effect in the United States or upon United States citizens. ... Where appropriate, the two parts of the test are applied together because ‘an admixture or combination of the two often gives a better picture of whether there is sufficient United States involvement to justify the exercise of jurisdiction by an American court.’ ... In this case, however, [Plaintiffs] rely solely on the conduct component of the test.”

“Under the ‘conduct’ component, subject matter jurisdiction exists if activities in this country were more than merely preparatory to a fraud and culpable acts or omissions occurring here directly caused losses to investors abroad. ... Our determination of whether American activities ‘directly’ caused losses to foreigners depends on what and how much was done in the United States and on what and how much was done abroad. ... ” [Slip op. 7‑9]

Plaintiffs contend that the fraud took place mainly in Florida, because that is where the false forecasts were created. The district judge disagreed. HomeSide’s knowing use of phony numbers is an insufficient basis for subject matter jurisdiction, because it was only part of the events that lead to the present lawsuit. There would have been no securities fraud allegations “but for” the (1) alleged use of false information, (2) in public filings and statements made abroad, (3) to investors abroad who relied on it for securities purchases abroad.

Furthermore: “The district court believed that the difficulty of this case is heightened by its novelty. Here, a set of (1) foreign plaintiffs is suing (2) a foreign issuer in an American court for violations of American securities laws based on securities transactions (3) in foreign countries. This is the first so‑called ‘foreign‑cubed’ securities class action to reach this Circuit. See Stuart M. Grant & Diane Zilka, The Role of Foreign Investors in Federal Securities Class Actions, in Corporate Law and Practice Handbook Series (Number B‑1442) 91, 96 (Practicing Law Institute ed., 2004) (coining the term ‘foreign‑cubed’) ... But despite this unusual fact‑pattern, the usual rules still apply. As we noted, subject matter jurisdiction exists over these claims only ‘if the Defendant’s conduct in the United States was more than merely preparatory to the fraud, and particular acts or culpable failures to act within the United States directly caused losses to foreign investors abroad.’” [Slip op. 10]

In the end, the issue for the Court to resolve is what conduct forms the core of the alleged fraud. “We conclude that we do not have subject matter jurisdiction. The actions taken and the actions not taken by NAB in Australia were, in our view, significantly more central to the fraud and more directly responsible for the harm to investors than the manipulation of the numbers in Florida.”

“HomeSide, as a wholly owned, primarily operational subsidiary of NAB, reported to NAB in Australia. HomeSide’s mandate was to run its business well and make money. The responsibilities of NAB’s Australian corporate headquarters, on the other hand, included overseeing operations, including those of the subsidiaries, and reporting to shareholders and the financial community. NAB, not HomeSide, is the publicly traded company and its executives — assisted by lawyers, accountants, and bankers — take primary responsibility for the corporation’s public filings, for its relations with investors, and for its statements to the outside world.”

“Appellants’ claims arise under Rule 10b‑5(b), which focuses on the accuracy of statements to the public and to potential investors. Ensuring the accuracy of such statements is much more central to the responsibilities of NAB’s corporate headquarters, which issued the statements, than those of HomeSide, which did not. Liability under Rule 10b‑5(b) requires a false or misleading statement. ‘Anything short of such conduct is merely aiding and abetting, and no matter how substantial that aid may be, it is not enough to trigger liability under Section 10(b).’ ... NAB’s executives possess the responsibility to present accurate information to the investing public and to the holders of its ordinary shares in accordance with a host of accounting, legal and regulatory standards. When a statement or public filing fails to meet these standards, the responsibility, as a practical matter, lies in Australia, not Florida.”

“Another significant factor at play here is the striking absence of any allegation that the alleged fraud affected American investors or America’s capital markets.[Plaintiffs] press their appeal solely on behalf of foreign plaintiffs who purchased on foreign exchanges and do not pursue the ‘effects’ test. They do not contend that what [Defendants] allegedly did had any meaningful effect on America’s investors or its capital markets. This factor weighs against our exercise of subject matter jurisdiction.”

“A third factor that weighs against jurisdiction is the lengthy chain of causation between the American contribution to the misstatements and the harm to investors. HomeSide sent allegedly falsified numbers to Australia. [Plaintiffs] do not contend that HomeSide sent any falsified numbers directly to investors. If NAB’s corporate headquarters had monitored the accuracy of HomeSide’s numbers before transmitting them to investors, the inflated numbers would have been corrected, presumably without investors having been aware of the irregularities, much less suffering harm as a result.”

“In other words, while HomeSide may have been the original source of the problematic numbers, those numbers had to pass through a number of checkpoints manned by NAB’s Australian personnel before reaching investors. While HomeSide’s rigging of the numbers may have contributed to the misinformation, a number of significant events needed to occur before this misinformation caused losses to investors. This lengthy chain of causation between what HomeSide did and the harm to investors weighs against our exercising subject matter jurisdiction. ...”

This particular mix of factors — the fact that the fraudulent statements at issue emanated from NAB’s corporate headquarters in Australia, the complete lack of any effect on America or Americans, and the lengthy chain of causation between HomeSide’s actions and the statements that reached investors — add up to a determination that we lack subject matter jurisdiction.” [Slip op. 17‑19]

Citation: Morrison v. Nat’l Australia Bank Ltd., 07‑0583‑cv (2d Cir. October 23, 2008).

VIENNA CONVENTION

In case of Nigerian national convicted of heroin distribution, Seventh Circuit holds that Defendant is entitled to evidentiary hearing on his petition for writ of Habeas Corpus based upon ineffective assistance of counsel, where his attorney had neglected to raise issue of Government’s failure to inform Defendant of his right to consular assistance under Article 36 of Vienna Convention on Consular Relations

Johnbull K. Osgiede (Defendant) is a citizen of Nigeria . Law enforcement authorities arrested him after he bought 25 grams of heroin from a police informant. Defendant pled guilty to heroin distribution after counsel advised him that he would face only an 18‑month sentence. The government then produced the testimony of co‑defendants and wire tap recordings to show that Defendant had distributed 1300 grams of heroin, thus making him liable to a sentence of more than 10 years.

The district court found that Defendant had committed the additional conduct and sentenced him to 97 months in prison. Defendant later petitioned for habeas corpus in an Illinois federal court alleging that he was denied effective assistance of counsel. Defendant’s lawyer did not pursue the Government’s failure to inform Defendant of his right to consular assistance under Article 36 of the Vienna Convention on Consular Relations (Convention), in force for U.S. Dec. 24, 1969 [21 U.S. T. 77; T. I. A. S. 6820; 596 U. N. T. S. 261].

The district court dismissed the petition without an evidentiary hearing because any attempt to remedy the violation after the fact would be futile. Defendant applied for a certificate of appealability to the Seventh Circuit. The Circuit Court grants Defendant’s petition. It concludes that the record did not conclusively show that Defendant was not entitled to relief for the government’s failure to inform Defendant of his right to consular assistance. The Circuit Court vacates the district court’s order and remands the case for further proceedings. Though the Court agreed with the district court that the Defendant was not entitled to a dismissal, the Court concluded that Defendant had shown “a denial of a constitutional right.” Thus, he was entitled to an evidentiary hearing unless “the files and the records of the case conclusively show that he is entitled to no relief”, which they did not.

The appellate Court then explains its ruling. “[T]he assistance of an attorney cannot entirely replace the unique assistance that can be provided by the Consulate. The Consulate can provide not only an explanation of the receiving state’s legal system but an explanation of how that system differs from the sending state’s system. [Cite]. This assistance can be invaluable because cultural misunderstandings can lead a detainee to make serious legal mistakes, particularly where a detainee’s cultural background informs the way he interacts with law enforcement officials and judges.” [Slip Op. 4‑5]

The Government had argued that the Convention does not confer individual rights in a criminal proceeding. In any event, political and diplomatic channels are the only legitimate means of enforcement. In the Circuit Court’s view, this position confused the issues in the case. Defendant’s appeal is based on a violation of his Sixth Amendment right to the effective assistance of counsel. What rights and remedies the Convention confers are only factors in assessing the Sixth Amendment claim.

The Circuit Court then assessed the performance of Defendant’s counsel under the ineffective assistance of counsel standard in Strickland v. Washington, 466 U.S. 668 (1984). It requires [1] that “counsel’s performance [fall] below an objective standard of reasonableness when measured against prevailing professional norms” and [2] that there is a reasonable probability that the outcome would have been different if not for the counsel’s deficient performance. [Slip Op. 17]

According to Defendant, his attorney should have been aware of the Convention requirement that

the Government inform foreign nationals of their right to consular assistance and that, in failing to pursue this issue, his counsel was fatally deficient. The Government, however, counters that Defendant’s counsel could not have been defective because no court has ruled that the Convention created such individual rights that could have entitled the Defendant to relief.

The Seventh Circuit rejects the Government’s rationale. It is well established that the Convention had created individual rights or that courts proceed as if it had created such rights. The Court further determined that invoking the right to consular assistance was a standard practice in the state of Illinois and that, absent a tactical reason for doing so, it was deficient for counsel not to pursue the issue. The Circuit Court is convinced that Defendant’s counsel did “fall below an objective standard of reasonableness when measured against prevailing professional norms.”

Turning to the second factor of the Strickland test, i.e. that, absent the deficient performance, the result of the proceeding would have been different, the Circuit Court disagrees with the Government’s overly narrow argument that the deficiency could not have changed the result because violations of the Convention do not entitle Defendant to any relief.

“There is, however, a more fundamental flaw in the Government’s position on remedies. The Government seems to assume that the only recourse available to [Defendant]’s counsel would have been to file a motion to suppress evidence or for dismissal, or perhaps to let the proceedings run their course and then raise the Article 36 violation on appeal. The Government focuses inordinately on backward‑looking remedies and ignores the fact that the trial court judge is in a unique position to remedy an Article 36 violation before prejudice has occurred. [Cite]. [Defendant]’s lawyer could have taken a simple action to remedy the Government’s violation of his Article 36 rights: she could have informed the foreign national of his rights and raised the violation with the presiding judge... The record makes clear that [Defendant]’s counsel failed to seek this modest remedy. This failure precluded [Defendant] from exercising his right to consular assistance and may well have been prejudicial.” [Slip Op. 25‑26]

The Circuit Court determined that consular assistance had the potential to have been of great help to Defendant. The Consulate could have provided funds or expertise to help analyze or translate the tape recordings that were offered as evidence against Defendant. Additionally, the Consulate could have helped to find Defendant’s brother, Lasisi, whom one of the witnesses mistook for Defendant in a photo array. The Court finds that the failure of Defendant’s counsel to obtain this assistance may have prejudiced the outcome of the case and that Defendant was entitled to an evidentiary hearing on these matters.

Citation: Osagiede v. United States, No. 07‑1131 (7th Cir. 2008).

Bosnian court convicts and sentences Serb for war crimes. On November 6 last, Bosnia’s war crimes court reported that it had convicted Mladen Blagojevic, a Bosnian Serb, of War Crimes and sentenced him to seven years in prison. The judges found that, after the Bosnian Serb attack on the Muslim enclave of Srebrenica, Defendant had persecuted Muslim Bosniak civilians on political, ethnic and religious grounds with intent to injure them. Blagojevic was a Bosnian Serb military policeman when the Bosnian Serb Army and Police overran Srebrenica in July of 1995. The Serb forces then separated the men and boys from the women and, within a few days, had massacred 8,000 Muslim males. The court, however, acquitted three other Defendants of committing Crimes Against Humanity. Citation: The Associated Press (online), Sarajevo, Bosnia‑Herzegovina; Thursday, November 6 at 15:37:27 GMT.

U.S. will no longer list North Korea as terrorism supporter. The U.S. Government has removed North Korea from its list of countries that assist in terrorism. A U.S. State Department official said that the two parties had reached a deal after North Korea agreed to provide full access to its controversial nuclear program. “Every element of verification that we sought has been included in this agreement,” the official said. The U.S. blacklisting has been a major factor leading to deadlock over North Korea’s nuclear disarmament. State Department spokesman Sean McCormack said that North Korea has agreed to resume its disablement of nuclear facilities. Although the two nations had concurred on this last year, North Korea recently threatened to restart its Yongbyon reactor. Under the latest accord, North Korea will allow nuclear experts to take samples and conduct forensic tests at all its declared nuclear facilities and undeclared sites, on mutual consent, the statement said. The North will also allow inspectors to verify that it has told the truth about transfers of nuclear technology to other nations and an alleged uranium program – which North Korea has always denied. Analysts say several previous arrangements have broken down over varying interpretations over what is required; it is unclear whether this latest agreement will succeed. Correspondents expect that some critics will no doubt question the timing of the agreement, i.e. just before a presidential election, since it does seem to grant the Bush administration a much‑needed foreign policy accomplishment in its final months. Additionally, Tokyo has raised objections to the accord because North Korea has failed to resolve issues arising out of its kidnaping of Japanese citizens in the 1970s and 1980s. Citation: B.B.C. NEWS (online), Saturday, October 11, 2008 at 17:39UK.