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.

1999 International Law Update, Volume 5, Number 11 (November).

ARBITRATION

Applying New York Arbitration Convention, Hong Kong's Court of Final Appeals enforces Chinese arbitration panel's award of damages to Chinese company that bought nonfunctional American-made tire recycler through Hong Kong importer

Jacobson, Inc., a U.S. corporation, makes equipment designed to recycle rubber tires by turning them into powder. Hebei Export and Import of Hong Kong (respondent) sold and delivered one of these recyclers to Polytek Engineering Co., a Mainland (PRC) company (claimant). The total purchase price was $1,281,029.

By December of 1994, respondent and Jacobson's technicians were unable to bring about the production of rubber powder that conformed to the contract standard. The claimant then invoked a contract stipulation that provided for arbitration of disputes through the China International Economic and Trade Arbitration Commission (CIETAC). Conceding there were machinery problems, respondent contended that further changes could remedy the recycler's defects, and blamed the American manufacturer and its technicians.

At one point, the arbitration proceedings included a technical inspection at the end-user's plant by experts appointed by the tribunal. While the chief arbitrator and claimant were present, respondent for some reason had not received notice of this session and thus did not attend. When it later got the inspection report, respondent asked the tribunal to make Jacobson a respondent or at least a principal witness at a further hearing. The tribunal, doubting it had the power to carry out either request, decided not to try.

After receiving thorough expert input, the tribunal ultimately found the recycler defective and ordered respondent to refund its price to claimant. Respondent then asked the Beijing No. 2 Intermediate People's Court to set aside the award but it dismissed the petition.

Respondent failed to honor the award. In July 1996, appellant obtained ex parte leave to enforce the award and the Hong Kong court of first instance entered judgment upon it. [Editor's Note: China is a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517, 330 U.N.T.S. 38, and the Hong Kong Arbitration Ordinance incorporates its provisions into domestic law.]

Respondent appealed, essentially relying on a denial of procedural justice and a breach of public policy. The Court of Appeals reversed. Claimant then gained review in the Hong Kong Court of Final Appeal (CFA).

The CFA reverses the appeals court and reinstates the trial court's enforcement order. Referring to Scherk v. Alberto‑Culver Co., 417 U.S. 506 (1974), the CFA stresses that the goal of the Convention is to unify procedural standards so as to encourage the enforcement of foreign arbitral awards.

In the CFA's view, the record here does not suggest that respondent had been unable to put on its case. For example, it shows no indication that the chief arbitrator took an active part in the deliberations, his only apparent function being to guarantee the impartiality and independence of the experts' inspection. Nor was there convincing proof of private communications between the experts and the chief arbitrator.

Moreover, there was an "irreconcilable conflict of evidence" on whether the tribunal had committed itself to an inspection in the presence of both sides. The CFA also notes that respondent had failed to seek a hearing at which to question the experts, to call witnesses or to put on further evidence.

The CFA also points out that a party relying on failure to comply with procedural rules has a duty of promptitude. It should not go on with the arbitration and keep its complaints "up [its] sleeve" for use in later judicial challenges. In this case, respondent's lack of due diligence disabled the tribunal from considering what, if any, unfairness or improper communications may have taken place at the factory inspection. It also prevented the tribunal from curing any irregularities it found.

A party's failure to raise a public policy objection before the Beijing court of supervisory jurisdiction, does not, in the CFA's view, prevent a party from raising it in the enforcement jurisdiction. [See Convention, Article V(2)(b).] In the absence of a consensus on an "international" standard of public policy, however, each jurisdiction is left to apply its own concepts. Citing Parsons & Whittemore Overseas Co., Inc. v. RAKTA, 508 F.2d 969 (2nd Cir. 1974), the CFA affirms that Hong Kong law counts among its basic ideas of justice and morality that a party have a chance to present its case before a tribunal [See also Convention, Article V(1)(b)] and that there should be no private communications that might influence a tribunal.

In sum, the Court notes, the parties had agreed to procedures (under CIETAC rules and PRC law) unlike those ordinarily followed in Hong Kong. Most significantly, respondent had failed to timely complain about the alleged irregularities and to ask the tribunal to cure them. Thus, respondent's public policy defense may not prevail.

Citation: Hebei Import & Export Corp. v. Polytek Engineering Co., Ltd., 1999-2 H.K.C. 205 (H. K. Ct. Fin. App). [See also TAXATION, below].

BANKING

Affirming convictions for fraud committed on Korean bank, Second Circuit holds that 18 U.S.C. Section 1014 applies to fraudulent loan applications submitted to U.S. agency of foreign bank

Myung Koh ran a number of businesses on whose behalf he submitted several fraudulent applications for letters of credit to the New York office of the Bank of Seoul. Koh's companies were in fact insolvent.

In two separate trials, a federal court convicted Koh of conspiracy to submit false loan applications to the Bank of Seoul contrary to 18 U.S.C. Section 1014 ("the false statements statute"). Section 1014 provides in part that "Whoever knowingly makes any false statement or report ... for the purpose of influencing in any way the action of ... a branch or agency of a foreign bank ... shall [be guilty of a crime]."

On appeal, Koh contended that Section 1014 does not apply to dishonest loan requests presented to a U.S. agency of a foreign bank that is neither federally chartered nor federally insured. The Second Circuit affirms, however, and rules that Section 1014 does apply to fraudulent loan applications submitted to a U.S. agency of a foreign bank, regardless of whether it is chartered or insured under federal law.

The International Banking Act (IBA) [12 U.S.C. Sections 3101-11] defines "agency" as "any office or any place of business of a foreign bank located in any State of the United States at which credit balances are maintained incidental to or arising out of the exercise of banking powers, checks are paid, or money is lent but at which deposits may not be accepted from citizens or residents of the United States."

The Court rejects Koh's argument that Section 1014 applies only to federally chartered or insured banks. "Here, the statute at issue unambiguously applies to a 'branch' or 'agency' as defined in the IBA. The IBA, in turn, defines branch or agency by the term 'any,' with no limitations. Thus, there is no ambiguity in the definition of 'agency' or 'branch' to justify exclusion of those institutions that are not federally chartered or federally insured. [...] In Section 1014, Congress also made it a crime to submit a false loan application to ‘any institution the accounts of which are insured by the Federal Deposit Insurance Corporation.' ... Adopting Koh’s reading would make the addition of references to branches and agencies of foreign banks superfluous if Congress had intended those terms to be limited to institutions already covered by the statute.'" [Slip op. 8-10]

Citation: United States v. Koh, Nos. 99-1034(L), 99-1036(CON) (2d Cir. November 10, 1999).

CHOICE OF LAW

In action by Michigan resident against successor Canadian corporations, Sixth Circuit declines to enforce Ontario default judgment against predecessor corporation since Ontario law made applicable by contract's choice-of-law clause requires express agreement by successor company to be bound by such judgment

Manutec Steel Industries, Inc., a Canadian corporation, and John Johnson, a resident of Michigan, entered into a sales representation contract in September 1985. For a 5% commission on all sales, Johnson was to be the exclusive sales representative for Manutec in the United States.

The contract had a two-year termination notice and a choice-of law clause. The latter provided that "[t]his agreement shall be interpreted and governed by the laws of the Province of Ontario."

In September 1987, Manutec became the wholly owned subsidiary of Ventra Manufacturing, Ltd. Although Johnson claims to have worked up a substantial amount of business with Chrysler and GM, Manutec fired him without notice in April 1988.

Johnson sued Manutec (but not Ventra) in an Ontario court the following month. In February 1990, the Court entered a default judgment for about $1,500,000 in Johnson's favor.

While Johnson's suit was pending, ITL Industries Ltd., a Canadian corporation, bought 100% of Ventra Manufacturing's shares and renamed itself Ventra Group, Inc., with Manutec as wholly owned subsidiary. In December 1989, Manutec's secured creditors put the company into receivership. A year later, Ventra Group and its new subsidiary, Ventratech, bought certain assets from a Manutec plant in Ontario.

In January 1994, Johnson sued Ventra Group and Ventratech in a Michigan court to enforce his default judgment against Manutec. His transnational theory was that a successor corporation was liable under Michigan law to pay his default judgment. Ventra removed the case to federal court.

Responding to various motions by both sides, the district court ruled that Ontario, not Michigan, law was controlling. Ultimately, the court gave defendants summary judgment on all of Johnson's claims.

Johnson appealed several rulings on foreign and domestic law and procedure as well as the lower court's ruling that Ontario law would govern the case. The U.S. Court of Appeals for the Sixth Circuit, however, affirms.

Since the federal court has diversity jurisdiction, it has to apply the choice-of-law principles of its local state. If those rules lead to the application of foreign law, the Court points out, determination of its content is reviewable as a "question of law" under F. R. Civ. P. 44.1.

Michigan generally follows the Restatement of Conflicts (2nd) approach to choice-of-law clauses. Section 187(2) generally allows their enforcement with two exceptions. The first does not pertain here. The second exception operates (1) if applying the law of the chosen state would go contrary to a basic policy of another state that has a materially greater interest than the chosen state and (2) the other state would constitute the state of the applicable law (under the factorial analysis found in Section 188) in the absence of an effective choice of law by the parties.

Plaintiff challenged the validity of the choice-of-law clause. Unlike many boilerplate provisions in contracts of adhesion, the Court notes, plaintiff bargained over, and agreed to, this clause. Thus he cannot sue under the substantive provisions of the contract while rejecting the contract's selection of Ontario law.

Plaintiff also urged that Michigan's version of the Uniform Foreign Money Judgment Recognition Act supported the enforcement of his Ontario judgment. The Court disagrees, however, because the Act does not deal with the problems of successor liability, the key issue in this case.

The first exception to Section 187(2) does not apply due to the clear linkages to the Ontario defendants, Ontario also being where plaintiff finalized his contract. The applicability of the second exception, however, is vigorously contested.

In the Court's view, plaintiff incorrectly argued that Ontario has no law on successor liability. On the other hand, Ontario law does differ from Michigan law on the point."  The fact, however, that a different result might be achieved if the law of the chosen forum is applied does not suffice to show that the foreign law is repugnant to a fundamental policy of the forum state. (Cit.) If the situation were otherwise, and foreign law could automatically be ignored whenever it differed from the law of the forum state, then the entire body of law relating to conflicts would be rendered meaningless." [Slip op. 5]

Not only is the contract clause broad enough to cover the plaintiff's causes of action but the Court submits that either the factorial analysis of Restatement Section 188 or Michigan's lex loci contractus doctrine would, even in the absence of the clause, lead to the application of Ontario law.

"Although Michigan has substantial ties to the instant transaction because it is Johnson's place of residence and the place where a major part of the performance occurred, Ontario has the more significant relationship because Manutec as well as the present defendants are Ontario corporations, the contract was negotiated and signed in Ontario, and the alleged breach occurred in Ontario. Accordingly, Ontario law would govern under a Section 188 analysis." [Slip op. 6]

Pursuant to Rule 44.1, both sides called expert witnesses to testify about the Ontario law of successor liability. Defendants presented Colin F. Dodd, an Ontario solicitor. He declared that successor liability does not follow the purchase of corporate assets as under a "mere continuation" approach but only by an express transfer of the obligation at the time of sale.

Even plaintiff's expert admitted that Canadian law had not yet developed to the point of specifically accepting the "mere continuation" doctrine. Finally, plaintiff has failed to show any express assumption of liability at the time of either defendant's purchase of Ventra Manufacturing's assets. Hence, summary judgment was appropriate.

Citation: Johnson v. Ventra Group, Inc., 191 F.3d 732, 1999 WL 701176 (6th Cir.(Mich.)).

EVIDENCE (CRIMINAL)

Citing U.S. Federal Rule of Evidence 410, Singapore High Court rules that accused's pre-charge statements made to Attorney General in unsuccessful attempt to head off prosecution are inadmissible at his Singapore trial for either substantive or impeachment purposes

In July 1997, the Singapore Corrupt Practices Investigation Board (CPIB) began looking into the affairs of Knight Glenn Jeyasingam (respondent). He, in turn, had his Member of Parliament forward certain of his "representations" to the Attorney General's Chambers (AGC) in an effort to persuade the AGC not to charge him.

Unsuccessful in this aim, respondent went to trial in October 1998. After respondent had testified on direct examination, the Deputy Public Prosecutor (DPP) tried to impeach him by cross-examining him about his representations to the AGC. The trial judge, however, kept them out of evidence because respondent had conveyed them to the AGC "without prejudice" in the course of negotiating a favorable disposition.

Under Singapore procedure, the judge granted the DPP's petition to refer a special question of law to the High Court. It queried the admissibility of a potential accused's statements to the AGC in criminal proceedings (1) to cross-examine an accused about his direct testimony; (2) to impeach his credibility; or (3) to serve as substantive evidence against him. The High Court gives a negative answer to these legal questions.

The Court first rules on whether the exclusio­nary rule applies to statements the accused makes before the government files any charges. The Court decides that it does. The doctrine also includes statements made by the accused when he is trying to bring about either withdrawal of charges or lenient treatment.

In an interesting comparative legal analysis, the High Court approves the approach of Federal Rule of Evidence 410 and several U.S. judicial constructions of its language. "At its highest, the F.R.E. provides useful guidance on the evidential treatment of representations. In any case, I note that the court in U.S. v. Boltz 663 F. Supp. 956, 961 (D. Alaska 1987), an authority mentioned by the District Judge, found that it made no difference that the bargaining took place before charges were filed. [Boltz] even observed ... that it will often make sense to both sides to bargain before charges are filed. Indeed, the consequent savings in costs and resources apply with equal validity to Singapore as they do in the United States." [para. 21]

The Canadian and British cases also look upon plea negotiations as "without prejudice" and thus similar to being privileged. In the United States, Rule 410 expressly makes plea bargaining statements inadmissible in criminal litigation, subject to certain exceptions. Moreover, United States v. Mezzanatto, 998 F.2d 1452 (9th Cir. 1993) has applied Rule 410 to prevent the use of plea bargaining statements as prior inconsistent statements for impeachment.

In like manner, plea bargaining in Singapore constitutes a serious effort to dispose of the criminal prosecution without trial. The law should, therefore, encourage these negotiations by refusing to allow admissions or concessions made during the negotiations to be used at trial against the accused for impeachment or as substantive evidence of guilt. The High Court follows United Kingdom practice in civil cases of eventually allowing disclosure when there are no outstanding issues of criminal culpability remaining.

Citation: Public Prosecutor v. Jeyasingam, 1999-2 S.L.R. 499 (High Court).

FOREIGN INVESTMENT

Russian Federation enacts new Foreign Investment Law that puts direct foreign investment on more equal plane with domestic investors, allows damage actions for government breaches of law and stabilizes taxation of foreign investments

On July 9, 1999, President Yeltsin signed into law a new Russian Foreign Investment Law (FIL). The law replaces the 1991 FIL and provides basic guarantees to protect foreign investments in the Russian Federation. With certain exceptions, the law allows foreign investors the same scope of activity and use of profits that Russian investors enjoy (Article 4).

The new FIL first promotes "direct" foreign investment. This includes (1) acquiring more than 10% ownership of a Russian business, (2) investing in a branch of a Russian business, and (3) leasing of certain transportation equipment (Article 2). It does not apply to investments for "socially useful goals" such as in educational or scientific non-profit organizations (Article 1).

Second, foreign investors may sue to recover damages that result from unlawful acts or omissions of government institutions or of government officials (Article 5). They may also collect compensation for the government's expropriation of their property (Article 8).

Most importantly, the new law stabilizes taxation on investments. Any new laws or regulations that would increase the overall tax burden on the investment will not apply until after its recovery. (Article 9). Finally, the law permits the unrestricted repatriation of after-tax income (Article 11). The government will specify the necessary details by regulations.

Citation: Federal Law No. 160-FZ of July 9, 1999, on Foreign Investment in the Russian Federation (adopted by the State Duma on June 25, 1999, and approved by the Federation Council on July 2, 1999) (English translation available in the RFLAW database in LEXIS/NEXIS). [See also Analysis of Russia's New Foreign Investment Law by David Wack, published in BISNIS Bulletin of U.S. Department of Commerce (November 1999) and website of Business Service for Newly Independent States (www.bisnis.doc.gov)].

HUMAN RIGHTS

Relying on European Human Rights Convention and domestic law, Paris Court of Appeals overturns injunction directing Internet provider to cease unauthorized distribution of nude photos of famous model but upholds her right to damages

Early in 1998, Estelle Smet-Hallyday (respondent), a well-known professional model, was disconcerted to learn that someone was distributing 19 nude photographs of her over the Internet in an unrestricted access mode. The photos were part of respondent's personal and private collection.

She promptly sued Valentin Lacambre (appellant) in the Tribunal de Grande Instance (District Court) in Paris. Appellant owned the CELOG information center, a service provider.

Respondent based her suit on the privacy provisions of Article 8 of the European Human Rights Convention and on Section 9 of the French Civil Code. Convention Article 8(1) provides that "Everyone has the right to respect for his private and family life, his home and his correspondence."

More specifically, respondent complained of appellant's failure to provide for the most elementary steps to verify that a subject has authorized the Internet use of his or her private photos. She demanded injunctive relief and damages as well.

In a judgment handed down on June 9, 1998, the Court found it urgent to prevent repetition of the illegal nuisance and issued an interlocutory injunction in respondent's favor. The injunction required appellant to take such steps as would make it impossible for any of his websites to disseminate respondent's photographs. It did not, however, award respondent any provisional damages.

Appellant sought review in the Cour d'Appel and respondent cross-appealed on the damages issue. Lacambre maintained that, as of the date of the injunction, the photographs were no longer accessible from his websites, thus depriving the case of urgency. In addition, appellant pointed out that the injunction was imprecise in its terms and required him to control the contents of a website for which he was not responsible.

He also noted the technical difficulty of controlling such a myriad flow of documents. Moreover, appellant assured the court that he has put out three e‑mail notices to receive complaints from users of the server. Finally, he claims to have set up an electronic device that immediately blocks an account that contains documents that clearly violate the law. Respondent replied that appellant's actual stoppage of the wrong shows that he did have control over these matters and had failed to protect her rights.

The Cour d'Appel upholds the appeal, ruling that the lower had court erred in issuing the injunction. In the Court's view, however, the appellant was liable to pay provisional damages for his violation of respondent's image.

The appellate court agrees with respondent that everyone has an absolute right over the use of his or her own image. This entitles the victim to prevent its copying and distribution in any medium without his or her explicit permission.

Thus, the lower court had the power to issue the injunction in question to bring to a speedy end the manifestly unlawful nuisance being committed by appellant. On the other hand, by the time the official had served process on him, appellant had already seen to the withdrawal of the photographs from the site he controlled.

In these circumstances, the Court declares, the lower court erred in issuing the drastic remedy of injunction to preclude the renewal of a merely potential nuisance. Moreover, the error is heightened by the vague terms of the order, making it hard to carry out.

As to the cross-appeal, however, the Court upholds respondent's claim for damages. By providing anonymous services on a website he created and manages for anyone and everyone wishing to publicize images, sounds or messages of any kind, appellant clearly went far beyond the technical role of a simple disseminator of information. This activity brings him considerable wealth. He thus has to accept liability for infringing the rights of third parties.

Since there is no dispute that publication of the 19 photographs violated respondent's right to her own image and to the intimacy of her private life, respondent is clearly entitled to damages. In light of respondent's career as a famous professional model and of the harm caused by the secondary diffusion of her images on the Internet, the Court sets the figure at FF 300,000 [approximately $46,150­].

Citation:  Lacambre v. Smet‑Hallyday, [1999] E.C.C. 444 (Cour d'Appel, Paris).

IMMIGRATION

U.S. Supreme Court holds that Ninth Circuit failed to accord Chevron deference to determination by Board of Immigration Appeals that it should deny alien's request for withholding of deportation because he had committed serious nonpolitical crimes in his native Guatemala

Juan Anibal Aguirre-Aguirre (respondent) is a Guatemalan who, in 1994,  petitioned the I.N.S. to withhold his deportation and grant other relief. At his administrative hearing, he admitted that, as a political activist, he had carried out a number of illegal acts in protest against various policies and actions by the Guatemalan government. For example, he had set buses on fire, assaulted passengers and vandalized or destroyed private property.

Although the Immigration Judge ruled in respondent's favor, the Board of Immigration Appeals (BIA) vacated the order. The BIA found that his actions constituted "serious nonpolitical crime[s]."  Using a balancing test, the BIA decided that the common-law or criminal nature of respondent's actions outweighed their political character.

The Immigration and Nationality Act (INA) [8 U.S.C. Section 1253(h)(1)] authorizes the Service to withhold deportation to a nation when "the Attorney General determines that [an] alien's life or freedom would be threatened in such country on account of ... political opinion." Withholding is generally mandatory if the alien proves that he is more likely than not to be "subject to persecution on [that] ground."  Under Section 1253(h)(2)(C),  however, withholding is not obtainable if the Attorney-General concludes that the alien had committed a "serious nonpolitical crime" before he came to the United States.

Upon review, a divided panel of the U.S. Court of Appeals for the Ninth Circuit reversed and remanded the case. [121 F.3d 521] The majority disagreed with the BIA on three grounds.

First, the Court thought that the BIA should have explicitly weighed respondent's admitted crimes against the danger of political persecution. Second, it should have taken into account whether respondent's actions were grossly disproportionate to their claim­ed goals or were "atrocious" in light of Circuit precedent. Finally, the BIA ought to have evaluated the political necessity and effectiveness of respondent's tactics.

The U.S. Supreme Court granted certiorari and reverses the Ninth Circuit. In requiring the BIA to add to its balance-analysis the evaluation of the above three elements, the Circuit failed to give the BIA's interpretation of the statutes the degree of deference demanded by Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

If the statute being administered is silent or ambiguous on a particular point, the reviewing court should ask whether the BIA's conclusion rested on an allowable interpretation of the statute. Chevron deference is particularly fitting in the immigration context, the Court notes, since the law vests the BIA with the Attorney General's discretionary authority to pour meaning into ambiguous statutory language on a case-by-case basis.

The Circuit court went furthest astray when it ruled that the BIA should have weighed respondent's criminal acts against the likelihood of oppression in his homeland. A reasonable reading of the statutory language is that it demands independent evaluation of the danger of persecution facing the alien. Although the Circuit Court had relied upon a U.N. handbook [Office of the United Nations High Commissioner for Refugees, Handbook on Procedures and Criteria for Determining Refugee Status (Geneva, 1979)], it is not binding either on the Attorney General, the BIA or the U.S. courts.

Moreover, while disproportionality and atrociousness may bear on the nonpolitical crime exception, the Court regards it as premature to treat these two elements as setting the exception in stone.

The Court notes that the statute, by using the term "serious," implies a deed less culpable and aggravated than an "atrocious" one. Thus, the Circuit Court erred in mandating that the BIA compare respondent's crimes with Circuit cases interpreting the term "atrocious."

Nor was the Ninth Circuit correct in insisting that the BIA had to give more explicit consideration to the need for, and political success of, respondent's criminal acts. Even assuming a plain causal link to politics, a lack of proportionality may strip a crime of its political character.

Nevertheless, respondent, who had the burden of persuasion, failed to brief this point in the BIA. Thus, the BIA's somewhat perfunctory coverage does not justify reversal on this record.

Citation: Immigration and Naturalization Service v. Aguirre-Aguirre, 526 U.S. 415, 119 S. Ct. 1439, 143 L.Ed.2d 590 (1999).

JURISDICTION (PERSONAL)

Fifth Circuit finds that Texas federal court had specific personal jurisdiction over German attorney who had negotiated substantial agreements in Texas on behalf of Texas client

Wien Air Alaska, Inc. is an Alaskan corporation based in Texas and owned by Thor Tjontveit. It leases U.S. aircraft.

Attorney Gerald Brandt of Frankfurt, Germany, had aided Tjontveit in acquiring Wien Air as well as in later transactions. Brandt came to Texas several times during the acquisition of Wien Air and for other business meetings.

In late 1990, Wien Air found out that Brandt's partner, Hubertus Kestler from a separate law firm in Frankfurt, was representing a business very similar to Wien Air. Moreover, Kestler was helping GAC Trans-Air Carrier Lease GmbH Flugzeugleasing (GAC) to come up with a plan to compete with Wien Air.

Brandt then suggested that Tjontveit buy GAC for 5 million German Marks [about U.S. $2.7 million]. At the same time, Brandt arranged for Wien Air to purchase 25% of Flugservice Berlin (FSB), a company owned by the former East German Airlines.

Wien Air, however, did not receive the FSB stock. A Wien Air employee later found out that Brandt himself was holding it.

Meanwhile, the parties failed to close the GAC deal. Despite this, Kestler withdrew the 5 million German Marks from Wien Air's bank account in Germany. To untangle the mess, the parties scheduled a meeting in Iceland but Brandt did not show up. Finally, in May 1991, Brandt declared that the GAC deal would not go through and that the agreement was unenforceable because it had not been properly notarized in Germany.

Wien Air sued Brandt in Texas state court, alleging fraud, breach of contract and other claims. Defendant then removed the case to federal court. Without an evidentiary hearing, the district court granted Brandt's motion to dismiss for lack of specific personal jurisdiction. The U.S. Court of Appeals reverses, however, concluding that Brandt had enough contacts with Texas to expose himself to jurisdiction there.

Texas construes its long-arm statute as coextensive with the Due Process Clause of the 14th Amendment. Because the district court did not hold an evidentiary hearing on jurisdiction, Wien Air had only to make out a prima facie case for the litigation to proceed in Texas.

"Of course, when a lawyer chooses to represent a client in another forum, that in itself does not confer personal jurisdiction if the claim does not arise from the lawyer's contacts with the forum. ... However, when the claim arises from a breach of fiduciary duty based on a failure to disclose material information, the fact that the lawyer continually communicated with the forum while steadfastly failing to disclose material information shows the purposeful direction of material omissions to the forum state." [Slip op. 14].

Once the plaintiff shows minimum contacts, the burden shifts to the defendant to show that jurisdiction would be unfair. The courts generally consider the exercise of jurisdiction fair once they have found minimum contacts.

"Brandt claims the assertion [of personal jurisdiction over him] would be unfair and unreasonable because he is a German citizen, most of the witnesses are in Germany, the courts in the U.S. would not be able to subpoena the German witnesses, German law applies to all of the issues, the judicial system's interest in efficiency would dictate Germany should resolve this dispute, and Texas has no interest in the case. Wien Air's prima facie evidence [however] disputes many of these assertions, especially the issue of where most of the witnesses reside and whether they would be available to testify." [Slip op. 21].

Citation: Wien Air Alaska, Inc. v. Brandt, No. 98-11141 (5th Cir. November 5, 1999).

TAXATION

Fifth Circuit rules that U.S. accrual taxpayer who wins foreign arbitral award need not report it as accrued income for federal tax purposes until time to appeal confirmation of award by foreign court has expired

In 1966, Sedco, Inc. (which later became part of Schlumberger Technology Corp.), entered into a joint venture for oil and gas exploration with Sonatrach, a company owned by the Algerian Government. The agreement provided for binding arbitration of contract disputes in Switzerland.

A dispute did in fact arise when Sonatrach (who owned 51%) liquidated the venture and offered Sedco $2.6 million for its share of the proceeds. Sedco claimed that Sonatrach had sold the assets below market value to entities that Sonatrach owned or controlled.

In 1984, a Swiss Arbitration Tribunal awarded Sedco almost $26 million. Since Sonatrach had no attachable assets in Switzerland, Sedco sought enforcement in the French courts under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (June 10, 1958, referred to as "New York Convention," 21 U.S.T. 2517, 330 U.N.T.S. 38, reprinted in 9 U.S.C.A. Section 201 (hist. and stat. note)). On September 19, 1984, Sedco obtained an exequatur that provisionally recognized the award and allowed Sonatrach three months to appeal.

A few weeks after the enforcement order, however, the French court allowed Sedco to begin attachment proceedings. On December 11, 1984, Sedco and Sonatrach reached a tentative settlement, subject to approval by the Algerian Government and Sedco's Board of Directors.

On December 24, 1984, Sedco merged into Schlumberger Technology Corporation, making Sedco's taxable year end on that day. Sedco, however, did not list the arbitral award as income on its 1984 tax return. After auditing the return, the Internal Revenue Service (IRS) assessed amounts due as well as penalties. Sedco paid them and brought this refund action against the IRS.

Sedco maintained that the award did not accrue in 1984 because Sonatrach could have defeated enforcement of the award by invoking a defense under the New York Convention. Under this theory, accrual did not take place until 1985 when Sonatrach actually agreed to pay the award. The IRS replied that Sedco had completed the enforcement in France before the end of 1984. In its view, Sedco could not show enough of a doubt as to the ultimate enforceability of the award under French law.

The district court gave summary judgment to Sedco on the theory that the arbitral award was contingent until France had judicially recognized it. The U.S. Court of Appeals for the Fifth Circuit affirms.

The Court first points out that an accrual basis taxpayer such as Sedco must report income in the taxable year in which the last event occurs which unconditionally fixes the right to receive the income. It is difficult, however, to define "an unconditional fixed right to receive it."

For example, a domestic judgment constitutes an unconditional, fixed right to receive money despite the potential for collateral attack. Therefore, the question becomes whether an international arbitral award sufficiently resembles a domestic judgment. The Court rejects the analogy.

"First, an arbitral award must be con­firmed, and the confirmation process allows for appeal and potential denial of enforcement based on the defenses of the New York Convention. ... Had Sonatrach appealed successfully, Sedco would not have had an enforceable judgment in France, but only an arbitral award which Sedco would have been forced to confirm and enforce elsewhere. [...]

Second, once Sedco received the final award from Swiss arbitration, the award was not self-executing. ... In other words, before an order of execution could issue which would allow the award to be enforced, the award first had to be converted by confirmation into a judicial judgment." [Slip op. 9-11]

The Court of Appeals concludes that a foreign arbitral award does not become accrued income until a court in the enforcement jurisdiction confirms it. "The lack of such enforcement for a bare arbitral award is thus a decisive distinction. Drawing the line at the existence of an unappealable judicial confirmation is also a rule that is easy to follow and apply. Furthermore, in the context of international arbitration, it makes sense to give the taxpayer the benefit of the doubt given the inherent difficulties associated with collecting foreign awards in foreign countries." [Slip op. 14-15]

Citation: Schlumberger Technology Corp. v. United States, No. 98-20810 (5th Cir. November 5, 1999).

TRADEMARKS

Having been denied European Union trademark on "Baby-Dry" diapers because name was purely descriptive, Procter & Gamble, Inc., succeeds in persuading European Court of First Instance to annul adverse decision by administrative agency for failure to consider one of applicant's legal theories

In April 1996, Proctor & Gamble, Inc. (applicant), sought to register the sign "Baby-Dry" as a European Community trade mark. (It already had obtained a U.S. trade mark.)  The products in question were "disposable diapers made out of paper or cellulose" and "diapers made out of textile" in classes 16 and 25 respectively of the 1957 Nice Agreement concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks.

An examiner at the Office for Harmonisation in the Internal Market (Trade Marks and Designs) ruled that "Baby-Dry" was not eligible for registration. This was because the purely descriptive nature of the sign brought it within the ban of Art. 7(1)(c) of Council Regulation (EC) 40/94 on the Community trade mark. Article 7(1)(c) denies registration to "trade marks which consist exclusively of signs or indications which may serve, in trade, to designate the ... intended purpose... of the goods...."

Procter & Gamble then filed for review in the Board of Appeal. There it additionally argued that the sign did qualify for registration under Art. 7(3) of the Regulation because it had "become distinctive in relation to the goods...for which registration [was] re­quested."  The Board, however, rejected this argument as inadmissible because the applicant had not raised it before the examiner.

Agreeing with the examiner, the Board concluded in July 1998 that the ban in Article 7(1)(c) did apply. Applicant then took its case to the European Court of First Instance. After hearing arguments, the Second Chamber of that Court finds a lack of eligibility under Article 7 but nevertheless annuls the administrative rulings.

The Court first refers to Article 4 of the Regulation. It provides that "A Community trade mark may consist of any signs capable of being represented graphically, particularly words, including personal names, designs, letters, numerals, the shape of goods or of their packaging, provided that such signs are capable of distinguishing the goods or services of one undertaking from those of other undertakings."

Under that language, the Court holds, the key factor in determining the eligibility for Community trade mark status was its ability to set the products of one undertaking apart from those of another. Merely descriptive signs cannot bring about that result. The Court also points out that failure to meet any one of the absolute grounds for refusal in Article 7(1) is enough to deprive a potential trade mark of eligibility. Here, "Baby-Dry" directly communicated the products' intended purpose to customers. Moreover, the term had no distinctive feature to mark applicant's product off from those of other companies as required by Article 7(1)(c).

On the other hand, the Board of Appeal violated Article 62(1) when it declined to consider applicant's contentions based on Article 7(3). Applicant had notified this argument to the Board in advance. Since the Board took and decided the appeal, it had two options for handling the Article 7(3) point. First, it could have ruled on the merits of the matter or, second, it could have remanded it to the examiner. The Board did neither and therefore the Court annuls the contested decision.

Citation: The Procter & Gamble Co. v. Office for Harmonisation in Internal Market (Trade Marks and Designs), Case T-163/98, [1999] All E.R. (E.C.) 648 (C.F.I., 2d Chamber).

WORLD TRADE ORGANIZATION

In complaints brought by United States and New Zealand, World Trade Organization's Appellate Body largely confirms that Canadian Dairy Program provides improper export subsidies

In a Report circulated on October 13, 1999, the WTO Appellate Body confirmed the earlier WTO Dispute Settlement Panel decision finding that the Canadian Dairy Program provides improper export subsidies and violates Canada's WTO obligations.

On August 1, 1995, Canada had replaced its system of paying subsidies on dairy product exports with a permit system that allowed Canadian processors to purchase milk at lower prices if it was for export products. According to the U.S. and New Zealand complaints, the Canadian system of "Special Milk Classes" improperly bolstered the export of its dairy products.

Canada also installed an annual tariff quota for fluid milk as part of its Uruguay Round commitments on market access. The U.S. claimed that the administration of the tariff quota hindered commercial shipments of fluid milk.

With a decision circulated on May 17, 1999, a WTO Panel had found that Canada's export subsidies and import restrictions on dairy products had violated WTO trading rules (see 1999 Int'l Law Update 70). The Appellate Body largely confirms the Panel's findings.

For example, by setting up Special Milk Classes 5(d) [milk for export products] and 5(e) [milk to be removed from domestic market], Canada has provided export subsidies as listed in Article 9.1(c) of the Agreement on Agriculture higher than the quantity commitment levels set out in Canada's Schedule. Additionally, the Body found that Canada was violating Article II:1(b) [other duties or charges on tariff items] of GATT 1994 by restricting access to the tariff-rate quota for fluid milk in its Schedule to entries valued at less than C$20.

The Appellate Body, however, reverses the Panel's finding that Canada had violated Article II:1(b) of GATT 1994 by restricting access to the tariff-rate quota for fluid milk in its Schedule to consumer packaged milk imported by Canadian consumers for personal use.

Citation: Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products (WT/DS103/AB/R, WT/DS113/AB/R), Report of the Appellate Body (13 October 1999, corrected 18 October 1999). [Report is available on WTO website www.wto.org; U.S. Trade Representative press release 99-87 (October 15, 1999).]

EU bans supply of anti-riot equipment to Indonesia. The EU has issued Regulation 2158/1999 to ban the supply of equipment that Indonesia might use for internal repression or terrorism. The Regulation lists the specific controlled items, such as anti-riot helmets, hunting knives, water cannons, bombs and grenades, as well as chemicals used for military purposes. It also designates competent authorities in all EU Member States for the curbing of such products. In the UK, for example, it is the Export Policy Unit of the Department of Trade and Industry. Citation: 1999 O.J. of the European Communities (L 265) 1, 13 October 1999.

European Commission gives conditional approval to Exxon/Mobil merger. Under the 1991 EU-US agreement on cooperation in transnational antitrust matters, the European Commission, working with the U. S. Federal Trade Commission, has approved the merger subject to certain undertakings by the two companies. In particular, the Commission focused upon the possible effects of the transaction (1) on the exploration and production of crude oil and natural gas and (2) on the world-wide market for aviation lubricants. For example, Mobil agreed to divest its gas-trading entity in the Netherlands and Exxon will get rid of its 25% interest in Thyssengas GmbH, a long-distance wholesale gas transmission entity in Germany. Mobil will also divest its share in Aral, a motor fuel retaining company doing business in Germany, Austria and Luxembourg, while Exxon agrees to dispose of its aviation lubricants operations. Citation: European Union News, September 29, 1999, published by European Commission Delegation, 2300 M St., N.W., Wash., D.C. 20037. [For more details see "http://europa.eu.int"].

German district court holds that contracts submitted through Internet must be readable. The Landgericht for Munich, Germany, has held that subscriptions made using online forms through the Internet must be clearly legible. Moreover, the moment that the purchaser sends in the online form must not start the running of the cancellation period. The dispute arose between two companies that regularly produce publications listing available foreclosed real estate. Their customers can subscribe to those lists through an online form. The court noted that subscription orders are merely declarations of intent under the German law on consumer credit (VerbrKrG). Therefore, information such as the possibility of cancellation must be clearly legible and acknowledged with the customer's signature. Citation: Landgericht Muenchen, Urteil vom 13. August 1998, 7 O 22251/97 - Abo-Bestellung im Internet. [Court decision is available in German through website "www.netlaw.de."]

U.S. and Brazil conclude antitrust cooperation agreement. On October 26, 1999, U.S. Attorney General Janet Reno, Federal Trade Commission Chairman Robert Pitofsky, and Brazil's Minister of Justice Jose Carlos Dias, signed an antitrust cooperation agreement between the two countries. Brazil is the U.S.' third-largest export market in the Western Hemisphere, after Canada and Mexico. The agreement provides for cooperation in the enforcement and coordination of the two countries' antitrust laws. Similar to other antitrust agreements which the U.S. has concluded (e.g., with the EU), it contains a provision for "positive comity."  This allows each party to take action within its territory against anti-competitive activities that affect the other party. Citation: U.S. Department of Justice press release (October 26, 1999).

EU controls import of horses coming from U.S. The EC Commission has issued a decision to control the import of horses from the U.S. It requires a supplementary certificate of the competent U.S. veterinary authorities for American horses that enter the EU. The certificate must guarantee that the horses have not been in New York, Connecticut or New Jersey, or have been in contact with horses from those states, in the preceding 15 days. Citation: 1999 O.J. of the European Communities (L 280) 125, 30 October 1999.