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

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

2002 International Law Update, Volume 8, Number 7 (July)

ENTERTAINMENT LAW

English Court of Appeal (Civil Division) dismisses appeal by Sir Elton John from adverse ruling on disposition of income from United States tours among Sir Elton and various tour and booking agents in context of Internal Revenue Service requirements for tax payments

In April and June 2001, the High Court of Justice Chancery Division entered orders that dismissed a lawsuit brought by Sir Elton John and three associated companies (the EJ companies) mainly against Price Waterhouse (PW). Plaintiffs had alleged that PW had breached its duties under a 1986 contract relating to a management company known as John Reid Enterprises Ltd. (JREL). From the 1970s, Reid had been a close personal friend of Sir Elton as well as the manager and administrator of his business affairs.

In essence, the claims were that PW, as auditor and financial adviser, had failed to make sure that JREL bore certain costs and expenses of Sir Elton’s highly successful musical activities rather than the EJ companies and Sir Elton. The Chancery Court disagreed, however, and dismissed plaintiffs’ case as not borne out by a sound interpretation of the 1986 contract. Plaintiffs took their appeal to the Court of Appeal (Civil Division) only on the issue of the tour agents’ costs. In a two-to-one vote, the appellate court dismisses the appeal.

PW’s main legal defense was that the 1986 contract (correctly interpreted) did require the EJ companies to bear these costs and not JREL. PW also raised several other defenses, for example, the denial of any loss caused by the alleged breaches, and reliance upon the “booking agent” exception in paragraph 7.2 of the contract.

Sir Elton started his highly successful career in the late 1960s. From the early 1970s, John Reid via JREL has been managing Sir Elton’s career. During this decade, the financial controls both of Sir Elton’s business affairs and of JREL itself turned out to have been inadequate. There is evidence that Sir Elton himself was indifferent to the business details of his foreign tours.

In a witness statement in the lower court, Sir Elton had declared as follows. “ ... I trusted John Reid absolutely. We had a personal relationship for five years from 1970 until 1975 and, even after that relationship came to an end, we were extremely close throughout the time of his management of my affairs until, really, the last year. I relied upon him and the advisers he employed, in particular [PW] and Andrew Haydon [a chartered accountant] to look after my business affairs properly and to do all that was necessary to act in my best interests. I left business matters entirely to [JREL] and the professionals they retained to act and advise on my behalf and on behalf of my companies.” [para. 16]

The appellate court decides that, in construing the 1986 agreement, it was entitled to take account not only of Sir Elton's generosity and long‑standing friendship with Reid, but also of JREL's indebtedness to the EJ companies (which the agreement itself mentions).

Live concerts given by Sir Elton on tours in the United States and Canada were highly profitable. The U.S. Internal Revenue Service makes every effort, however, to ensure that it collects taxes on profits made by non U.S. residents on tour. In the absence of a previously approved arrangement, the IRS will send officials to the concert. There they will demand immediate payment on an estimated basis, requiring the performer to seek later refunds of any overpayments.

A performer can avoid immediate payment by putting in charge a tour producer established in the U.S. and approved by the IRS. Before a tour, the U.S. producer would send a budget to the IRS. The tour producer and Happenstance or Bondi [two EJ companies] would set up a withholding arrangement with the IRS. This defers the payment of taxes and allows the artist to claim deductible expenses at tax time.

As the Chancery court had described the setup of an American tour: “In order to perform its obligations under the Withholding Agreement [with the IRS] the tour producer, as principal, enters into a contract with each of the other parties whose services are necessary to enable the tour to proceed. So far as performances are concerned two such parties are engaged. The first is known as a ‘booking agent.’ His task is to know the territory in which the tour is taking place and, in conjunction with the tour producer and the artist or his manager, to arrange an itinerary for the artist to visit and perform in particular places.”

“The second is a ‘local promoter’ who owns or controls particular venues at which the artist may perform. In determining the itinerary, one of the principal functions of a booking agent is to identify appropriate local promoters who will arrange for the artist to perform at the venues which they have available. ... JRE Inc. [a California company and subsidiary of JREL] was solely liable to the third parties who had provided the services in respect of which the expenses were incurred.” [paras. 22, 26]

To make sure that the IRS did not look upon JRE, Inc. as too close to Sir Elton, Ms. Constance Hillman agreed to act as Sir Elton’s U.S. tour producer through a company named Constant Communications Corporation (CC). It was set up in the spring of 1982 and had its base in Los Angeles. JRE, Inc. then dropped out of the picture. For each tour, CC entered into a simple form of agreement with The Howard Rose Agency (HRA) of Beverley Hills, California as “booking agent.”

HRA was a representative engaged to negotiate rather than an agent in the full sense, but, insofar as he was an agent, his principal was CC and not Sir Elton, Happenstance, Bondi or JREL. Neal Levin & Co., (NL) a firm of certified public accountants based in Beverley Hills, was taken on to deal with tour accounts and taxes. Rose gave evidence that in New York and California a booking agent needed a license (which HRA had, but JREL did not have).

Much of the argument on appeal centered on the proper interpretation of Clause 7 of the 1986 contract and its subdivisions. Clause 7.2, for example, began as follows: “JREL shall not be entitled to appoint an agent or agents to act on its behalf in the performance and discharge of any of its obligations hereunder without the prior written consent of the person (‘the Principal’) in respect of whose activities such agent is appointed save for an agent in respect of bookings for a live performance concert tour. Any such appointment shall be subject to the following provisions of this clause: ‑‑ 7.2.1 Mr Reid shall at all times exercise supervision and control of the activities of such agent; 7.2.2 the fees and expenses of such agent shall be paid by JREL out of the Commission and administration fees paid to it hereunder unless otherwise agreed in writing by the Principal.” [para. 49] [emphasis added]

The judge below boiled the essentials of the plaintiffs’ case down to four propositions: "(1) Each of the tour agents [CC, HRA, the non‑American booking agents and NL] is an agent of the kind referred to in the opening words of Clause 7.2. (2) Each of the tour agents is an agent for whose appointment written consent was either unnecessary (i.e. a booking agent) or must be regarded as having been given. (3) Accordingly the fees and expenses of each of the tour agents were payable by JREL under Clause 7.2.2, no agreement to the contrary having been made.”

“(4) Although the structure under which one or other of the EJ companies initially bore all the tour agent's fees and expenses was one which was concurred in by all the claimants, and was indeed essential if the claimants were not to suffer United States tax to an unacceptable extent, the effect of Clause 7.2.2 is to require JREL to adjust the position by a system of recharging under which JREL recouped to the relevant EJ company the tour agent's fees and expenses which it had borne." [para. 50]

Quoting a well-known English precedent on the interpretative role of contract negotiations, the lead opinion points out that: “The reason for not admitting evidence of [negotiations] is not a technical one or even mainly one of convenience (though the attempt to admit it did greatly prolong [this] case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus.” [para. 62]

In addition, the Court of Appeal finds it impossible to ignore the choice of language in schedule 5. Under it, five of the paragraphs (a) to (j) deal with JREL doing things itself, and five with JREL getting other people to do things. The latter included (d) engaging musicians etc; (f) arranging travel etc; (h) the appointment of local tour promoters; (i) arranging insurance; and (j) generally supervising and arranging tours.

As the lead opinion notes: “To my mind this appeal illustrates, yet again, a melancholy truth. The fact that very large sums of money are to change hands under a commercial agreement, and the further fact that it has been negotiated and prepared over a long period by well‑remunerated professionals, provide no guarantee of competent drafting. Given the factual background, and in particular the established procedures for North American tours as I have described them, it is remarkable that ... the language of the agreement is so vague and inappropriate to the way in which the parties actually carried on their business affairs. ... But the court's task is to make sense of the agreement as best it can, even if the eventual answer cannot be regarded with any more enthusiasm than that it is the least unsatisfactory construction.” [paras. 74, 75]

Plaintiffs argued that contracts sometimes use the term “agent” in a broader business sense rather than in strict legal usage. Defendants disagreed. “Both sides' arguments have some force. But looking for the present mainly at the structure and language of clause 7 as a whole, I think the judge was right to see it as addressing legal matters in appropriate legal language. Those legal matters were JREL's authority (as an agent in the full sense); the degree to which JREL ... was to perform its obligation through Mr Reid personally; and the circumstances in which (in derogation from clause 7.1.3) a limited amount of delegation of responsibility was to be permitted.” [para. 81]

“If that is the right way in which to approach clause 7, then it is apparent that it does not fit at all well with the way in which Sir Elton's tours (and especially his North American tours) were organised. The legal structure provided for CC to act as principal at the top of the pyramid, as it were. In theory, CC was exposed to the risk ... of a tour turning out to be a disaster.” [para. 82]

“The judge [below] very carefully examined the evidence about cash flows on North American tours, analysing ... how gate receipts received by local promoters flowed ... to HRA and from HRA (after deduction of its commission ...) to CC for onward transmission (after CC had recouped its substantial expenses and taken its remuneration) to Happenstance and JREL (by way of contractual fee and commission respectively). ... The fourth step in the appellant's main submissions in both courts required a system of recharging expenses, by way of recoupment, which is not clearly spelled out in the agreement.” [para. 86]

“This is in my view a powerful point. The 1986 agreement is heavily freighted with provisions which might be described as financial controls directed at JREL ... In the face of these provisions, and the existing pattern of cash flows, it would be surprising if the agreement allowed JREL to receive substantial sums which it would have to pay out again by way of recoupment. Moreover in practice any such recoupment would have been to Happenstance, not ... to tour agents as JREL's sub‑agents.” [para. 87]

Finally, the lead opinion finds the “booking agent” language decisively against plaintiffs’ position. “In clause 7.2 it can as a matter of language mean either 'any appointment which requires consent' or 'any appointment which requires consent or in respect of which the need for consent has been dispensed with'. On contextual grounds I would prefer the former.... [But] I would add the pointlessness, as I see it, of inserting the booking agent exception if its only purpose was to dispense with a formal consent which all parties knew would be readily granted.” [para. 91]

The opinion concludes with the following observation. “The process of construction often ... involves the assessment of disparate (and therefore incommensurable) factors to reach what is ultimately an intuitive (but not irrational) conclusion. If a judge makes a point‑by‑point evaluation of the opposing arguments addressed to him he is performing his duty to give reasons for his decision. But point‑by‑point analysis of that sort cannot fully reflect the nature of the judicial process of construing a complex and difficult commercial agreement.” [para. 94]

Citation: John v. Price Waterhouse et al., 2002 WL 1819859 (CA), [2002] E.W.C.A. Civ 899 [Ct. App. (Civ. Div.) June 24.]

SOVEREIGN IMMUNITY

Applying recently amended Section 1605(a) of FSIA, D.C. Circuit holds that Libya, though foreign state responsible for terrorism, is not “person” for Due Process purposes

Two American citizens brought an action against Libya under the Foreign Sovereign Immunities Act (FSIA) [28 U.S.C. Sections 1330, 1602-1611] alleging that Libya held them hostage and tortured them. A recent amendment to the FSIA deprives foreign states that commit torture, hostage taking and other wrongs, of their sovereign immunity in U.S. courts. See 28 U.S.C. Section 1605(a)(7).

The plaintiffs, Michael Price and Roger Frey, were living and working in Libya. Authorities arrested them in March 1980 after they had taken photographs in and around the capital of Tripoli. Plaintiffs claim that the government kept them in a “political prison” for 105 days under deplorable conditions such as urine-soaked mattresses, a cramped cell shared with seven other inmates, and inadequate food. In addition, prison guards allegedly “kicked, clubbed and beat” plaintiffs. Eventually the Libyan courts acquitted plaintiffs of any charges and released them. They sued Libya in 1997, each seeking $20 million in damages.

Libya moved to dismiss the case, claiming sovereign immunity and lack of personal jurisdiction. The district court denied the motion, and Libya brought this interlocutory appeal. The U.S. Court of Appeals for the D.C. Circuit reverses the district court’s denial of Libya’s motion to dismiss the hostage taking claim, and remands to provide the plaintiffs with an opportunity to amend their complaint as to the torture claim.

As a preliminary matter, the Court first points out that this opinion does not address the issue of whether the plaintiffs actually have a cause of action against Libya. “The parties appear to assume that a substantive claim against Libya arises under FSIA, but this is far from clear. The FSIA is undoubtedly a jurisdictional statute which, in specified cases, eliminates foreign sovereign immunity and opens the door to subject matter jurisdiction in the federal courts. [Cite] There is a question, however, whether the FSIA creates a federal cause of action for torture and hostage taking against foreign states.”

“The ‘Flatow Amendment’ to the FSIA confers a right of action for torture and hostage taking against an ‘official, employee, or agent of a foreign state,’ codified at 28 U.S.C. Section 1605 (note) [Cite], but the amendment does not list ‘foreign states’ among the parties against whom such an action may be brought. While it is possible that such an action could be brought under the ‘international terrorism’ statute, 18 U.S.C. Section 2333(a), no such claim has been raised in this case.” [Slip op. 6-8]

This appeal raises two important questions: first, whether plaintiffs have alleged facts that are legally sufficient to deprive Libya of FSIA immunity. Congress amended the FSIA with Section 1605(a)(7) to create a judicial forum to compensate the victims of terrorism and to punish designated foreign states who have committed or sponsored such acts. This Section, however, has some important restrictive features.

“First, not all foreign states may be sued. Instead, only a defendant that has been specifically designated by the State Department as a ‘state sponsor of terrorism’ is subject to the loss of its sovereign immunity. Section 1605(a)(7)(A). Second, even a foreign state listed as a sponsor of terrorism retains its immunity unless (a) it is afforded a reasonable opportunity to arbitrate any claim based on acts that occurred in that state, and (b) either the victim or the claimant was a U.S. national at the time that those acts took place. Section 1605(a)(7)(B). In the present case, Libya has been designated as a sponsor of terrorism. [Cite] Moreover, both plaintiffs are American citizens, and Libya does not contend that it has been denied a chance to arbitrate their claims.“ [Slip op. 13-14]

As for the plaintiffs’ hostage-taking claim, the Court sees no merit in it. The FSIA definition derives from Article 1 of the 1979 International Convention Against the Taking of Hostages [T.I.A.S. 11081; 28 U.S.C. Section 1605(e)(2)]. The Convention defines “hostage taking” as the detention of a person in order to compel a third party to do or abstain from doing an act as a condition for the release of the hostage. The plaintiffs’ imprisonment does not fit this definition. Thus, the district court should have dismissed this count.

As for the plaintiffs’ torture claim, the Court finds that the plaintiffs’ conclusory allegations are not enough to bring them within Section 1605(a)(7). The plaintiffs, however, persuaded the Court that they can allege sufficient facts to support a claim for torture. Therefore, the Court remands the case to allow plaintiffs to amend their complaint.

Second, the Court addresses whether the assertion of personal jurisdiction over Libya according to the FSIA violates the Due Process Clause. Before the enactment of Section 1605(a)(7), the courts read the FSIA to require a tangible connection between the conduct of the foreign defendant and the territory of the U.S. Under the new Section, the only required link between the defendant nation and the territory of the U.S. is the claimant’s nationality. Therefore, Section 1605(a)(7) permits personal jurisdiction over defendants under circumstances that do not satisfy the “minimum contacts” requirement of the Due Process Clause, if it applies.

Libya takes for granted that a foreign state is a “person” within the meaning of the Due Process Clause. In previous cases, the D.C. Circuit proceeded “as if” this were true, but has never so held. In fact, both the Supreme Court and this Court have noted that this is an unresolved issue. Now that the issue is directly before the Court, it finds that foreign states are not “persons” within the meaning of the Due Process Clause.

“Our conclusion is based on a number of considerations. First, as the Supreme Court noted in Will v. Michigan Department of State Police, there is an ‘often-expressed understanding that ‘in common usage, the term ‘person’ does not include the sovereign, and statutes employing the word are ordinarily construed to exclude it.’ 491 U.S. 58, 64 (1989). ... In the context of a specific statute, ‘person’ may be given a broader meaning. ... In this case, however, what is at issue is the meaning of the Due Process Clause, not a statutory provision. And, on this score, it is highly significant that in South Carolina v. Katzenbach, 383 U.S. 301, 323-24 (1966), the Court was unequivocal in holding that ‘the word ‘person’ in the context of the Due Process Clause of the Fifth Amendment cannot, by any reasonable mode of interpretation, be expanded to encompass the States of the Union.’ Therefore, absent some compelling reason to treat foreign sovereigns more favorably than ‘States of the Union,’ it would make no sense to view foreign states as ‘persons’ under the Due Process Clause.” [Slip op. 35-37]

The Court notes that serious problems would arise if foreign states could use the protections of the Due Process Clause. For example, foreign states could often challenge the freezing of their assets or the imposition of economic sanctions as deprivations of property without Due Process. Foreign states, however, may still invoke the forum non conveniens doctrine when being sued in the U.S. Finally, the Court points out that this holding does not necessarily extend to other entities within the FSIA’s definition of “foreign state,” such as government-held corporations.

Citation: Price v. Socialist People’s Libyan Arab Jamahiriya, No. 00-7244 (D.C. Cir. June 28, 2002).

SOVEREIGN IMMUNITY

On appeal from default judgment in international dispute between insurance companies, Seventh Circuit rules (1) that Argentine insurance company had to post pre-judgment security to file new answer despite claim of foreign sovereign immunity and (2) that Argentina, by signing New York and Panama Conventions, waived immunity from pre-judgment attachment of assets

In 1979, the U.S. outfit, International Insurance Company (IIC), bought re-insurance from the Argentine company, Caja Nacional de Ahorro y Seguro (Caja). Caja claims to be an instrumentality of the Argentine Government.

When Caja failed to pay IIC more than $2 million in indemnity obligations, IIC initiated arbitration proceedings pursuant to the arbitration clauses of their agreements. The agreements provided for arbitration to be held in Chicago, Illinois, and that “judgment may be entered upon the award of the Arbitrators in any court having jurisdiction.” Caja failed to take part in these proceedings. The arbitral tribunal, therefore, entered a default judgment against Caja for about $4.7 million.

IIC then petitioned an Illinois federal court to confirm the award. Caja filed an answer and affirmative defenses. IIC also moved for an order requiring Caja to post pre-judgment security. The Illinois Insurance Code prescribed that foreign companies have to post security to cover a final judgment before filing any pleadings. The district court reviewed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) [9 U.S.C. Section 201; 21 U.S.T. 2517; T.I.A.S. 6997; 330 U.N.T.S. 3], which permits courts to require “suitable security.” It rejected Caja’s claim that it is immune under the FSIA and thus not required to post such security. After Caja failed to post security or file a new answer, the district court entered a default judgment. Caja appealed. The U.S. Court of Appeals for the Seventh Circuit, however, affirms.

The Court first addresses the issue of its subject matter jurisdiction over this dispute. The Federal Arbitration Act (FAA) governs the enforcement, validity, and interpretation of arbitration clauses in commercial contracts in both state and federal courts (see 9 U.S.C. Section 9), and provides for actions to enforce arbitration awards. The FAA, however, does not provide an independent basis for federal question jurisdiction.

On the other hand, both the U.S. and Argentina are parties to the Inter-American Convention on International Commercial Arbitration (“Panama Convention”) [9 U.S.C. Section 301]. Title 28, Section 1331 grants U.S. district courts original jurisdiction for proceedings “arising under the Constitution, laws, or treaties of the United States.” In this case, IIC’s action against Caja arises under the Convention because it involves a commercial arbitration agreement between two businesses domiciled in signatory countries (see 9 U.S.C. Section 202). Therefore, the Court does have federal question jurisdiction.

The Court then turns to Caja’s claims of immunity under the Foreign Sovereign Immunity Act (FSIA). FSIA Section 1605(a)(6)(A) provides that a foreign state or instrumentality is not immune from the jurisdiction of U.S. courts in proceedings to confirm arbitral awards where that foreign state or instrumentality agreed to submit to arbitration and the arbitration took place in the U.S. Here, by agreeing to Chicago as the venue for arbitration, Caja waived its immunity in a proceeding to confirm the arbitral award even if the law would consider Caja a foreign state instrumentality.

The Court then addresses the question of whether Caja is immune from having to post pre-judgment security. FSIA Section 1609 provides that generally “... a foreign state shall be immune from attachment arrest and execution ...” Caja submitted three documents in support of its being a foreign state instrumentality: (a) an affidavit from its American attorney, (b) an affidavit from one of Caja’s Argentine attorneys, and (c) a 1998 document that purportedly indicated that Caja’s administration had been transferred to the Argentine Government. These documents, however, do not set up a prima facie case that Caja is a government instrumentality. Such evidence should be easy to obtain, such as authenticated corporate documents, and an affidavit of a government officer.

“Additionally, we note that an affidavit executed outside the United States must include a statement that the affiant has made his declarations ‘under penalty of perjury under the laws of the United States of America.’ 28 U.S.C. Section 1746. [The Argentine attorney’s] affidavit contained no such declaration. However, even if it had been properly executed, the affidavit only refers to a document that was apparently executed in 1998, and nothing therein indicates that, as of the relevant time, such as the time of this lawsuit in 2000, at least 50% of Caja was owned by the Argentinian government.” [Slip op. 18-19]

Even if Caja were a foreign state instrumentality, the district court judgment must stand. The record shows that Caja had waived its immunity under FSIA Section 1610(d), which provides that “the property of a foreign state ... used for a commercial activity in the United States, shall not be immune from attachment prior to the entry of judgment in any action brought in a court of the United States ... if - (1) the foreign state has explicitly waived its immunity from attachment prior to judgment ..., and (2) the purpose of the attachment is to secure satisfaction of a judgment that has been or may ultimately be entered against the foreign state, and not to obtain jurisdiction.”[emphasis added]

“The purpose of the New York Convention, and similarly the Panama Convention, is to ‘encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.’ (Cites). Article VI of the New York Convention states, ‘if an application for setting aside or suspension of the award has been made to a competent authority ... the authority before which the award is sought to be relied upon may, if it considers it proper, ...on the application of the party claiming enforcement of the award, order the other party to give suitable security.’ 9 U.S.C. Section 201, art. VI (emphasis added).”

“Similarly, Article 6 of the Panama Convention states, ‘if the competent authority ... has been requested to annul or suspend the arbitral decision, the authority ... at the request of the party requesting execution, may also instruct the other party to provide appropriate guaranties” 9 U.S.C. Section 301, art. 6 (emphasis added). The emphasized language in these Conventions allowing a court to impose a security requirement is very explicit. Thus, the court-ordered pre-judgment deposit of security is clearly appropriate. (Cite) Because Argentina signed the New York and Panama Conventions, it has waived protections of the FSIA for their instrumentalities.” [Slip op. 21-22]

Citation: Int’l Ins. Co. v. Caja Nacional de Ahorro y Seguro, No. 01-3054 (7th Cir. June 7, 2002).

TORTS

British Columbia Supreme Court rules that California broker intentionally interfered with contractual relations between Canadian yacht owner and California physician by falsely telling physician that owner had increased his asking price for yacht

Estefania is a 72-foot motor yacht built in 1992. J. Michael Jensen Boat Sales, Ltd. (JBS), a Canadian company, entered into a non-exclusive, 10% commission, Open Listing Agreement for the sale of the yacht with Point Loma Yacht and Ship Brokers of San Diego in February 1995. The principal of JBS is Michael Jensen who owns a marina in Vancouver, B.C. Point Loma hired Linda Krantz of Driscoll Yacht and Ship Brokers Inc. (Driscoll) to sell the ship. Ms. Krantz called in Mr. Roger McAfee, a lawyer knowledgeable about luxury vessels. After looking the Estefania over, McAfee gave it a favorable rating.

Ms. Krantz then found a California physician named Claud Cahen who made a firm offer of $575,000 for the yacht. In mid September of 1995, Jensen and Dr. Cahen signed a “Bill of Sale” for Estefania with a price of $575,000 U.S. The deal was subject to giving Mr. Jensen ten days to confirm that he would take Dr. Cahen's vessel, Sweet Life III, in trade at $307,000 U.S. Dr. Cahen gave Jensen a $20,000 U.S. down payment and the latter signed title transfer documents on September 14th.

Meanwhile, Ms. Krantz had found a couple, the Monteleones, who were interested in buying Sweet Life III. They were expected to buy that vessel from Jensen before the ten days ran out. Jensen next went to California to meet the Monteleones. As part of a proposed financing package, however, Jensen asked the couple to pledge their home as security. This caused the Monteleones to back out of the deal.

At a September 27 meeting, McAfee met with Jensen at the shipyard. According to McAfee, Jensen made the improbable demand of an additional $100,000 for Estefania but Jensen denied that he made such a demand. When McAfee told Dr. Cahen that the Estefania’s “new” price was $675,000, the latter called the whole deal off and asked for the return of his down payment. Jensen gave the $20,000 back to Dr. Cahen without being told of his alleged increase in the sale price.

McAfee then told Edward Belzberg, one of his regular clients, that he might be able to buy the Estefania for much less than $575,000. A few days later, Belzberg met with Jensen. There he offered to buy Estefania for $400,000 (a figure suggested by McAfee) and presented his personal check for that amount. Discouraged by the delays, Jensen decided to sell the Estefania to Belzberg, especially after Ms. Krantz told Jensen (1) that Jensen would not owe her a commission and (2) that there was no way to revive the sale to Dr. Cahen.

On December 23, Jensen got in touch with McAfee and told him he would sell the ship to Belzberg for $400,000. Belzberg then bought the vessel in the name of his company, Jayberg Enterprises, Ltd. (Jayberg). Closing took place on January 5. That same day, Dr. Cahen gave Ms. Krantz a signed all-cash offer to buy Estefania from Jayberg for $575,000. On January 6, Ms. Krantz received a General Listing Agreement signed by McAfee for Jayberg. It provided her with a 10% commission. The parties completed the sale on February 8.

Jensen sued Belzberg, McAfee, and Jayberg in the B.C. courts, claiming civil conspiracy and intentional interference with contractual relations. After hearing the evidence, the judge reached the following conclusions. “I find that Mr. Belzberg bought Estefania through Jayberg for the purpose of reselling her to Dr. Cahen who he understood at the time would pay $575,000 US. ... The sale and resale of Estefania was arranged by Mr. McAfee who was able to put Mr. Belzberg in a position to turn a very quick profit of well over $100,000 US. ... Jayberg sold Estefania for $175,000 US more than it paid for her, and Driscoll received a commission of $57,000 US that it was not required to share with Point Loma as it would have been had Dr. Cahen purchased the vessel from Jensen Boat Sales.” [paras. 24-25]

“Ms. Krantz ... knew that Driscoll was to receive a commission on the sale from Jayberg to Dr. Cahen that would not have to be shared with Point Loma. She was then induced to breach the fiduciary obligations inherent in the contractual relationship her employer Driscoll bore as a vendor's agent. The result of what she did was that Dr. Cahen purchased Estefania from Jayberg instead of from Jensen Boat Sales. ... I find that Mr. Jensen would have sold Estefania to Dr. Cahen on the same terms as Mr. Belzberg did had Ms. Krantz not conducted herself as she did.” [paras. 29-30]

Applying the law to the facts, the Court rules for the plaintiff and against defendants Belzberg, McAfee, and Jayberg. “The evidence that has been adduced is in some respects less than complete. Mr. Belzberg was examined for discovery but has not testified at trial. Mr. McAfee has given evidence but much of what he says is hearsay and of no evidentiary value. Further, his memory has been shown to be selective, and I consider him to have been less than forthright in the testimony he has given. Ms. Krantz has not been called and only very limited excerpts of the testimony she gave at the trial in California have been read in.”

“However, in my view, the evidence that has been adduced leaves little room for doubt that there was an intentional interference with the contractual relations between Jensen Boat Sales and its sub‑agent Driscoll. The interference was arranged for Mr. Belzberg by his consultant Mr. McAfee. It was supported by Mr. Belzberg, he derived the benefit, and it was effected through his company Jayberg. All three are liable in the result.” [para. 33]

The Court sets plaintiff’s damages at the Canadian equivalent of $95,500 U.S. This represents the difference between the additional sale proceeds JBS would have gotten if it had sold Estefania to Dr. Cahen ($175,000), minus the commission it would have paid ($57,000) and the net amount obtained in settling the California litigation ($22,500). Added to this is prejudgment interest on that amount at Registrar's rates from February 8, 1996 and its costs of the action. The conversion rate is to be determined in accordance with s. 1(2) of the Foreign Money Claims Act , R.S.B.C. 1996, c. 155.

Citation: J. Michael Jensen Boat Sales Ltd. v. McAfee, No. C 963659, 2002 B.C.D. Civ. J. 440, 2002 B.C.D. Civ.J. LEXIS 304 (British Columbia Supreme Court. April 16, 2002).

WORLD TRADE ORGANIZATION

WTO panel finds that Canada failed to establish that Section 129(c)(1) of American Uruguay Round Agreements Act on time limits for implementation of WTO rulings in antidumping and countervailing duty cases is inconsistent with other trading rules

A Dispute Settlement Panel of the World Trade Organization (WTO) has upheld Section 129(c)(1) of the Uruguay Round Agreements Act (URAA) [Pub.L. No. 103-465, 108 Stat. 4838, 19 U.S.C. 3538 (1994)], which sets the time frame for implementation of WTO rulings in antidumping and countervailing duty cases.

URAA Section 129 is entitled “Administrative Action Following WTO Panel Reports,” and Section 129(c)(1) provides that “Determinations concerning Title VII of the Tariff Act of 1930 that are implemented under this section shall apply with respect to unliquidated entries of the subject merchandise ...” The U.S. Trade Representative may ask the U.S. International Trade Commission (ITC) or the U.S. Department of Commerce to take action consistent with a panel report only if such action is in accord with U.S. antidumping or countervailing duty law. On January 17, 2001, Canada brought this WTO case requesting consultations with the U.S. After the parties could not agree, Canada requested the establishment of a panel on July 24, 2001. The Panel circulated its report on July 15, 2002.

Specifically, the final report rejects a challenge from Canada that argued that the section was inconsistent with WTO trading rules. Canada sought a ruling from the WTO that would have required the U.S. to retroactively refund duties in the event that the U.S. loses a case before the WTO that challenges any antidumping or countervailing duty order. (The case stemmed from Canada’s wider objective of contesting the U.S. antidumping and countervailing duty orders on softwood lumber.)

In particular, the Panel concludes that Canada failed to establish that Section 129(c)(1) is inconsistent with: (1) Article VI:2, VI:3 and VI:6(a) of GATT 1994; (2) Articles 1, 9.3, 11.1 and 18.1 and 18.4 of the Antidumping Agreement; (3) Articles 10, 19.4, 21.1, 32.1 and 32.5 of the Agreement on Subsidies and Countervailing Measures; and (4) Article XVI:4 of the WTO Agreement. Therefore, the Panel makes no recommendations in this case.

Citation: United States - Section 129(c)(1) of the Uruguay Round Agreements Act (WT/DS221/R) (15 July 2002); Office of the US Trade Representative, Press Release 2002-52 (June 12, 2002).

WORLD TRADE ORGANIZATION

In India’s challenge to U.S. antidumping duties on steel plate, WTO panel largely upholds U.S. antidumping and countervailing duty laws, but finds that, in this anti-dumping investigation, U.S. improperly decided only on “facts available” basis, disregarding U.S. sales data which India had submitted

On June 28, 2002, a Panel of the World Trade Organization (WTO) circulated a report dealing with India’s challenge to U.S. countervailing measures on Indian cut-to-length carbon quality steel. After the U.S. had imposed an antidumping order on Indian steel plate on February 10, 2000, and after unsuccessful consultations between the parties, India asked the WTO to set up a dispute settlement panel to review the U.S. measure.

The U.S. Department of Commerce had begun investigating Indian steel plate based on a complaint filed by the U.S. Steel Group, Bethlehem Steel, and other entities. The only Indian provider at that time was the Steel Authority of India, Ltd. (SAIL). At issue were the “facts available” provisions of Sections 776(a), 782(d), and 782(e) of the Tariff Act of 1930. These allow the U.S. to complete antidumping and countervailing duty investigations when companies refuse or otherwise fail to provide necessary information. Since the U.S. claimed it could not get hold of usable information from SAIL, it used the “facts available” provisions to reckon SAIL’s antidumping margin.

The Panel makes four findings and conclusions. In its view, the U.S. first had acted inconsistently with Article 6.8 and paragraph 3 of Annex II of the Agreement on the Implementation of Article VI of the GATT 1994 (AD Agreement). It not only unjustifiably declined to take into account U.S. sales price information submitted by SAIL but also figured the dumping margin for SAIL entirely on the basis of “facts available” in the anti-dumping investigation at issue. Second, the above U.S. statutory provisions on the use of facts available are not at war with Articles 6.8 and paragraphs 3, 5, and 7 of Annex II of the AD Agreement.

Third, the U.S. did not act inconsistently with Article 15 of the AD Agreement with respect to India in the anti-dumping investigation underlying this dispute. Finally, the “practice” of the U.S. Department of Commerce regarding the application of “total facts available” is not a measure that can give rise to an independent claim of violating the AD Agreement, and so the Panel did not rule on this Indian claim. The Panel does not specifically recommend how the U.S. should conform its measures to WTO trading rules.

Citation: United States - Anti-Dumping and Countervailing Measures on Steel Plate from India (WT/DS206/R) (28 June 2002); U.S. Trade Representative press release 2002-60 (June 28, 2002). [U.S.T.R. briefs submitted to Panel are available at “www.ustr.gov/enforcement/briefs”].

U.S. signs Inter-American Convention Against Terrorism. On June 3, 2002, U.S. Secretary of State Colin L. Powell, along with 33 other government representatives of member states of the Organization of American States (OAS), signed the new Inter-American Convention Against Terrorism at its adoption during the OAS General Assembly in Barbados. The OAS handed down its mandate for negotiations shortly after the terrorist attacks in the U.S. of September 11, 2001. The Convention commits the Western Hemisphere to intensify cooperation in the fight against terrorism. Among other things, it denies safe haven to suspects, and requires the signatories to implement other international agreements against terrorism. Citation: U.S. Department of State Fact Sheet, May 31, 2002; The Washington Times, June 4, 2002, page A13.

U.S. adds Afghanistan to list of proscribed destinations in ITAR regulations. The U.S. Department of State, Bureau of Political-Military Affairs, has amended the list of banned destinations in the International Traffic in Arms (ITAR) regulations (22 C.F.R. Part 126) by adding Afghanistan. In general, the U.S. denies export licenses for defense articles and services to Belarus, Cuba, Iran, Iraq, Libya, North Korea, Syria, and Vietnam. This policy also applies to countries with respect to which the U.S. maintains an arms embargo. These include Burma, China, Haiti, Liberia, Rwanda, Somalia, Sudan, and the Democratic Republic of the Congo (formerly Zaire). The recent amendment modifies the denial policy by allowing exports of defense articles and services to the Government of Afghanistan (currently the Afghan Interim Authority) and to the International Security Assistance Force. Citation: 67 Federal Register 44352 (July 2, 2002).

Pakistani court convicts four in murder of U.S. reporter. On July 15, a special anti-terrorist court in Hyderabad, after a three-month trial, convicted Ahmed Omar Sheikh along with three accomplices for the kidnapping and murder of Daniel Pearl, a reporter for the Wall Street Journal. The court sentenced Sheikh to death and the co-defendants to life in prison. Once a student at the London School of Economics, Sheikh had become a zealot who had gone back to his homeland to wage a “holy war” against the West. Mr. Pearl’s murder marked the first in a series of attacks on Westerners in Pakistan during 2002. According to prosecutors, twenty-eight-year-old Sheikh had enticed Mr. Pearl into a trap by promising him information for a story. Pearl was looking into possible ties between militant groups and Richard C. Reid, a man arrested in the U.S. for allegedly trying to set off a “shoe bomb” during a commercial jet flight. Nasir Abbas, a cab driver, told how he had seen Mr. Pearl get into a car with Sheikh near a Karachi restaurant on the same day that the reporter had disappeared. Prosecutors also put on evidence from U. S. law enforcement agents who had traced the political “ransom notes” to Fahad Naseem, a co-defendant. He fingered Sheikh and the other co-defendants as part of the plot. A gang calling itself the National Movement for the Restoration of Pakistani Sovereignty was behind Mr. Pearl’s abduction and murder. A hitherto unknown outfit, Pakistani officials consider it a front for militants working with Al Qaeda. Citation: New York Times (online), Islamabad, July 15, 2002, byline of Dexter Filkins.

U.S. President terminates NEA/IEEPA emergency relating to Taliban. U.S. President George W. Bush has announced that he is ending the national emergency with respect to the Taliban of Afghanistan (see Executive Order 13129 of July 4, 1999). Because of the successful U.S. military operations in Afghanistan, there is no longer an emergency situation and the Taliban no longer harbors Usama bin Ladin (Osama bin Laden). Mr. Bush relied on powers granted by the International Emergency Economic Powers Act (50 U.S.C. 1701), the National Emergencies Act (NEA) (50 U.S.C. 1601), Section 5 of the United Nations Participation Act of 1945 (22 U.S.C. 287c), and 3 U.S.C. Section 301. The President also added Mohammed Omar (also known as “Commander of the Faithful”) and The Taliban to the list of affected entities in Executive Order 13224 of September 23, 2001. Citation: 67 Federal Register 44751 (July 3, 2002).

Japan takes new anti-terrorist measures. Japan has taken several anti-terrorist steps in the aftermath of the terrorist attacks on the U.S. on September 11, 2001. First, Japan has now frozen the assets of 13 specified terrorist entities, including the Abu Nidal Organisation, the Palestine Liberation Front (PLF), and the Al-Aqsa Martyr’s Brigade. Japan had already frozen assets of those associated with the Taliban and Usama bin Laden (Osama bin Laden), pursuant to United Nations Security Council Resolutions 1267, 1333, and 1390. – In a related matter, Japan has reported on its carrying out of the APEC Leaders’ Statement on Counterterrorism of October 2001. For instance, Japan has enacted an “Anti-Terrorism Special Measures Law,” is preventing visa issuance to terrorists, is providing refugee relief to countries near Afghanistan, and has ratified terrorism-related international conventions. Citation: The Ministry of Foreign Affairs of Japan, press release of July 5 [freeze assets] & Japanese Report on Implementation of APEC Leaders Statement on Counterterrorism (May 2002), available at www.mofa.go.jp.

U.S. Treasury amends bank secrecy regulations to require reports of suspicious transactions. The U.S. Treasury, Financial Crimes Enforcement Network (FinCEN), has amended regulations under the Bank Secrecy Act [31 C.F.R. Part 103] to require brokers and dealers of securities to report suspicious transactions to the Treasury Department. This amendment is part of the comprehensive system for reporting suspicious transactions by financial institutions operating in the U.S. within the framework of the Treasury’s program to fight money laundering. Citation: 67 Federal Register 44048 (July 1, 2002).

Belgian court has dismissed war crimes charges against Ariel Sharon. On June 26, 2002, a Belgian Appeals Court dismissed the war crimes case against Israeli Prime Minister Ariel Sharon brought by 23 Palestinian survivors of attacks on refugee camps. The case concerned Mr. Sharon’s alleged role in the massacre of Palestinians at the Sabra (Shaba) and Shatila (Chatila) refugee camps in Lebanon, near Beirut, in 1982. Lebanese Christian militiamen had attacked the refugees in an area controlled by Israeli forces when Mr. Sharon was the Israeli Defense Minister. See 2002 International Law Update 46. The Court confirmed its jurisdiction over war criminals regardless of where the alleged crime occurred, based on a 1993 “universal jurisdiction” law. It noted, however, that the accused must be on Belgian soil to be investigated and tried. Several other cases are pending in Belgian courts against political leaders, including Fidel Castro, Yasser Arafat, Saddam Hussein, and several African leaders. The Belgian courts have already convicted and sentenced four Rwandans, including two Catholic nuns, to 12 to 20 years for taking part in the murders of Tutsi tribe members by Hutu militia in 1994. Citation: The Washington Post, June 27, 2002, page A24; The Times (London), June 27, 2002, page 17.

U.S. Department of Justice requires screening of all foreign citizens taking flight training in U.S. The U.S. Department of Justice has issued an interim final rule requiring flight schools and other flight training providers to notify the Attorney General of any foreign nationals, or other specified persons, receiving flight training. The institutions can only continue to train such persons if the Attorney General determines, after a risk assessment pursuant to Section 113 of the Aviation and Transportation Security Act (ATSA) (Pub.L. 107-71), that the person does not present a risk to aviation and to national security. Citation: 67 Federal Register 41140 (June 14, 2002).

U.S. and Mexico reach accord on Rio Grande waters. On June 29, 2002, the U. S. State Department announced that the United States and Mexico have reached an agreement as to the management of the Rio Grande valley’s international waters. The accord will keep a balance between meeting the water supply needs of the border communities and farmers and will carry out the duties laid down under the 1944 Treaty Relating to the Utilization of Waters of the Colorado and Tijuana Rivers and of the Rio Grande.[59 Stat. 1219; T.S. 994; 9 Bevans 1166; 3 U.N.T.S. 313]. The goal of the Agreement is to bring about a more efficient use of water in the Rio Grande basin. This will not only guarantee a supply for Mexican users but also will ensure compliance with the obligations to U. S. users found in the 1944 Treaty. The Agreement adopts four principal approaches. The first will be to update the hydrological infrastructure. Second, it innovates a binational financial package to develop new methods of water conservation. Third, Mexico assigns to the U. S., on a contingency basis, 90,000 acre-feet of water from international storage. Finally, the Agreement recommits both governments to reform the NADBank and BECC as agreed to by the respective Presidents at Monterrey in March 2002. Citation: Joint Communique of the United States and Mexico Concerning the Water Problem in the Rio Grande, released on June 29, 2002 by Richard Boucher, U.S. State Department Spokesman. [For texts of all press statements, please consult http://www.state.gov/r/pa/prs/ps/.]

S.E.C. mandates EDGAR use by foreign issuers of securities. The Securities and Exchange Commission has announced amendments to the rules concerning the 1993 Electronic Data Gathering, Analysis and Retrieval system (EDGAR, see 17 C.F.R. Parts 230, 232, 239, 240, 249 and 269). The changes will require foreign private issuers and governments to file the majority of their securities documents electronically through the EDGAR system. These documents include registration statements under the Securities Act of 1933, reports, and other documents provided for under the Securities Act of 1934. Additionally, first-time EDGAR filers no longer have to send paper copies of electronic filings to the Commission. The rule amendments will better enable the SEC to continue providing the same quality of information transmittal, dissemination, analysis and retrieval which has become standard with the Commission since it required EDGAR filing. The changes will take effect November 4, 2002. Citation: 67 Federal Register 36678 (May 24, 2002).

United Nations resolves issue of International Criminal Court jurisdiction. The United Nations Security Council has issued a resolution on the jurisdiction of the International Criminal Court. It provides that the Court not prosecute or investigate personnel of UN-established or UN-authorized operations who are from nations that are not party to the Court’s Statute, for a 12-month period beginning July 1, 2002. Citation: Daily Press Briefing by Office of Spokesman for Secretary General [of United Nations] (15 July 2002), available at www.un.org; Declaration by Presidency of European Union on U.N. Security Council’s unanimous decisions concerning Bosnia-Herzegovina/International Criminal Court (Brussels, 13 July 2002), available at “ue.eu.int/Newsroom”; The Financial Times (London), July 15, 2002, page 16; [Japan] Ministry of Foreign Affairs press conference of 16 July 2002, available at www.mofa.go.jp.

EU takes further action against terrorism. The European Union has taken further steps against terrorism. The Council has issued Framework Decision 2002/475/JHA on combating terrorism. The Decision includes a definition of “terrorist offenses,” which includes attacks on people’s lives, hostage taking, seizure of aircraft, and interfering with water supply, when committed with the goal of intimidating the population or putting pressure on a government or international organization (Article 1). The Member States must establish punishments that are more severe for such “terrorist” offenses than for offenses committed without the “terrorist” intent (Article 5). The punishment may be reduced for offenders that renounce terrorist activity or assist in the investigation and prosecution of terrorist offenses (Article 6). Also organizations can be held liable to terrorist acts that are committed for their benefit (Article 7). – In a related matter, the EU has updated its lists of restricted terrorist persons and entities. The list includes the Abu Nidal Organisation (ANO), Aum Shinrikyo, the terrorist wing of Hamas, and the Palestinian Islamic Jihad. – In another related development, the EU has amended its Regulation 881/2002 restricting persons and entities associated with Usama bin Laden (Osama bin Laden), Al-Qaida, and the Taliban by amending the list of restricted persons and entities. Citation: 2002 O.J. of the European Communities (L 164) 3, June 22, 2002 [framework decision] & (L 160) 26, June 18, 2002 & (L 160) 32, June 18, 2002 [updated list of terrorist entities] & (L 145) 14, June 4, 2002 [restrictions on Al-Qaida and Taliban].