1996 International Law Update, Volume 2, Number 1 (January).
In divided en banc opinion, Fifth Circuit rules that it had admiralty jurisdiction over injury on oil rig in foreign waters, and that federal maritime law, not foreign law, should govern; Court also declines invitation to adopt "modified joint liability" for federal maritime tort law
Maritime Industrial Services (MIS) is a corporation of one of the United Arab Emirates (UAE). Using foreign employees, it specializes in repairing vessels and offshore oil rigs. On a recruiting trip to Mississippi from UAE, an MIS agent hired Earl Coats, a Mississippi domiciliary, for an indefinite term beginning in December 1987. While doing an unfamiliar pressure test on a U.S. flag jack-up rig (Rig 69) moored in UAE territorial waters, Coats severely injured his knee. Penrod Drilling Corporation, a Delaware corporation headquartered in Texas, owned the rig and had contracted for the test.
In April 1989, Coats sued MIS and Penrod in a Mississippi federal court based on diversity and admiralty jurisdiction, alleging Penrod's negligence and the unseaworthiness of Rig 69. Coats later added a claim for compensatory and punitive damages against MIS for failing to provide maintenance and cure. Penrod cross-claimed against MIS for indemnity and contribution. After the judge dismissed the punitive damages claim, the jury awarded Coats $925,000 and assigned fault as follows: 20% to Coats, 20% to Penrod and 60% to MIS. Applying U.S. maritime law, the court entered judgment for Coats for $740,000 jointly and severally against MIS and Penrod. All parties appealed. After a panel opinion affirmed, upholding personal jurisdiction over MIS and rejecting a forum non conveniens challenge [see 5 F.3d 877], the U.S. Court of Appeals for the Fifth Circuit ordered rehearing en banc on the choice-of-law issue and on Penrod's proposed change in the maritime law of joint and several liability.
In a 10 to 6 ruling with opinions covering well over 200 pages, the Fifth Circuit affirms. The Court first rejects MIS's contention, based on the alleged lack of U.S. maritime jurisdiction, that the choice-of-law option came down to Mississippi versus UAE law. Since Coat's injury came in the course of work on a U.S. flag vessel in navigable waters, involving disruption of traditional maritime activities, there was federal admiralty jurisdiction.
As to the Lauritzen-Rhoditis factors governing maritime choice-of-law, the Court notes that, although the accident took place in UAE territorial waters, and the base of relevant operations of both MIS and Penrod is the UAE, it should give weight to the fact that Rig 69 flew the U.S. flag. Moreover, Coat's domicile is Mississippi and, though MIS is a UAE corporation, Penrod is clearly American. In addition, Coats and MIS agreed on contract terms within the U.S. On balance, the Court concludes that the United States has a greater interest in having its maritime law applied than does the UAE.
Next, the Court addresses Penrod's contention that federal maritime law should adopt Penrod's theory of "modified joint liability." It would limit each joint tortfeasor's maximum liability to the amount for which that tortfeasor would have been liable to the plaintiff if the court compared only the negligence of that tortfeasor with the negligence of the plaintiff. The proposed rule would, for the first time in maritime history, shift the risk of noncollection to plaintiffs, allocating the risk of noncollection of an admiralty judgment among the contributorily‑ negligent plaintiff and the defendants in proportion to their respective faults.
The Court concludes that replacing joint and several liability in the general maritime law with modified joint liability would be neither authorized nor prudent. It would impose an undue burden of expense and risk of loss upon plaintiffs forced to recover from each tortfeasor in order to achieve full compensation. If one or more tortfeasor became judgment-proof, for example, plaintiff would never be able to secure his proper damages. Under the simpler rules of the existing system, the law leaves it to potential tortfeasors (who are better able to assess their risks of insolvency than potential plaintiffs) to work such matters out in advance via contract and/or insurance. Recognizing a state trend toward modified liability, the Court nevertheless notes that most states have brought it about via legislation and not by judicial fiat.
Though the six dissenters disagree on certain issues, their main thrust is that UAE law should govern the case and that the Court should adopt "modified joint liability" in maritime tort cases. On the choice-of-law issue, the dissenters stress that the situs of the injury was in the UAE and noted that Rig 69 had for months been in a "jacked-up" status with its hull out of water and its legs on the bottom. Nor was Coats an employee of Penrod, the U.S. company, but of MIS under a UAE work permit. Thus, UAE law should control. The dissenters also suggest that, if U.S. law is applicable, the Court should derive it from federal legislation on the rights of harbor workers.
On the liability issues, the dissenters point out at length with several pages of mathematical examples, that their theory adapts to current trends in comparative fault doctrine and stakes out a middle ground between placing all burdens on plaintiffs or all upon tortfeasors. Eighty percent of the states have rejected the view adhered to by the majority. The Uniform Comparative Fault Act has adopted a form of modified liability like that advocated by the dissenters. According to the dissenters, the present maritime system can lead to the absurdity that, in certain situations, a court could hold a slightly negligent defendant liable for 90% of the damages of a plaintiff whose causative negligence was ten times greater than defendant's. The dissenters chide the majority for failing to take the lead in developing a more just allocation of maritime damages.
Citation: Coats v. Penrod Drilling Corp., 64 U.S.L.W. 2113, 61 F.3d 1113 (5th Cir. 1995).
On appeal of district court's review of ICCCA arbitration award, First Circuit finds that neither New York Convention nor Title 9 precludes judicial stay of arbitration award to allow arbitral panel to consider plaintiff's setoff claims
In 1982, Apollo Computer, now owned by Hewlett-Packard Company (HP), entered into a two-year contract with Dicoscan, a Swedish firm, to distribute Apollo's products in various Nordic countries. The contract had a compulsory arbitration clause. Though the parties renewed the contract in March 1984, Apollo terminated it in September 1984 claiming that Dicoscan was way behind in payments. In October, Dicoscan filed for bankruptcy. The Swedish court appointed Berg and Skoog (Berg) to bring claims against Apollo.
Claiming millions of dollars of losses from the unilateral contract cancellation, Berg requested arbitration from the International Chamber of Commerce Court of Arbitration (ICCCA). Apollo counterclaimed for $10,000 due on the 1984 contract and $207,000 due on the 1982 contract. Applying Massachusetts law pursuant to the contracts, the panel awarded $700,000 to Berg but surprisingly declined to consider Apollo's $207,000 setoff as beyond their mandate. Apollo paid the award less the amount due on the 1982 contract plus interest. It also demanded arbitration of the 1984 contract dispute. In January 1993, HP sued Berg in the Massachusetts federal court for a declaration that it had fully satisfied the 1982 award. Upon motions to dismiss, the court ruled that HP was not entitled to its set-off and claimed a lack of power to delay confirmation of the award. HP appealed.
The U.S. Court of Appeals for the First Circuit vacates and remands. It agrees with HP that it is entitled to have the ICCCA panel, not the district court, decide its 1982 setoff claim. For the lower court to rule on this claim would contravene the strong policies favoring arbitration embodied in the New York Convention and in 9 U.S.C. §§ 201-208. On the other hand, Dicoscan's bankruptcy and the panel's refusal to decide the 1982 setoff created a risk that HP will have to pay the claim against it and yet be unable to collect on its setoff. Article VI of the Convention, however, does not appear to authorize a stay under the circumstances present here. Nevertheless, courts have often stayed arbitration on grounds not literally authorized.
In an effort to avoid disrespecting the policies favoring expedited arbitrations shared with more than one hundred parties to the Convention, the Court notes the unusual equities that favor HP. Exercising caution and prudence, the Court remands the case for the district court to allow arbitration of HP's setoff, hinting mightily that the lower court would have some explaining to do if it confirmed the full arbitration award at this stage.
Citation: Hewlett-Packard Co. v. Berg, 61 F.3d 101 (1st Cir. 1995).
Passenger's injury on public escalator in Tokyo airport on way to gate is held by First Circuit not to have occurred while passenger was "embarking" on an international flight within Warsaw Convention
To resume her 1990 flight with Northwest Airlines from Boston to the Far East, Eileen McCarthy arrived late at the Tokyo airport. After surrendering her ticket, passport and boarding pass to a Northwest agent, and as the agent was leading her "at a fast trot" through the public area of the terminal toward the plane, a down escalator malfunctioned causing McCarthy to fall and break her knee. Invoking the Warsaw Convention, she sued Northwest under a strict liability theory. Ruling that plaintiff was not in the process of "embarking" on an international flight within Article 17 of the Convention, the district court granted summary judgment to Northwest. Plaintiff appealed.
The U.S. Court of Appeals for the First Circuit affirms. After examining the negotiation history of the Convention, the Court concludes that, it should read Article 17 "parsimoniously." In interpreting the reach of the term "embarking," the Courts have generally focused on three factors: (1) the passenger's activity at the time of the injury; (2) his her or whereabouts at the time of injury in relation to the designated aircraft; and (3) the extent to which the carrier was exercising control at that point. The Court finds that these factors militate against plaintiff. "At bottom, plaintiff had only an attenuated connection with entering an aircraft, and it is augmented by nothing more than an indulgent interpretation of control. Thus, these factors cannot overcome the remoteness of the accident site from the aircraft." 
Citation: McCarthy v. Northwest Airlines, Inc., 63 U.S.L.W. 2758, 56 F.3d 313 (1st Cir. 1995).
European Community publishes draft communication on services for the general good under the Second Banking Directive
The EC Commission has published a communication on the Second Banking Directive (89/646/EEC), explaining its view on the freedom of services for banks operating in the EU. In this draft communication, the Commission interprets, for example: The nature of the services covered under the Directive, rules governing advertising, required notification to supervisory authorities, host-country rules adopted in the interest of the general good.
Interested parties may submit their comments by 4 March 1996 to the Directorate XV, Unit C-1, of the EC Commission.
Citation: Draft Commission Communication, Freedom to provide services and the interest of the general good in the Second Banking Directive, 1995 Official Journal of the European Communities (C 291) 7, 4 November 1995.
Under aegis of NAFTA, Canada and United States enter into agreement to improve coordinated enforcement of their respective competition laws and laws on deceptive marketing practices
Having regard to their prior bilateral accords of 1959, 1969 and 1984, an OECD recommendation in 1986, and Chapter 15 of NAFTA, the U.S. and Canada have agreed effective August 3, 1995 better to coordinate the enforcement of their laws against anticompetitive activity and deceptive marketing practices. Agencies involved include the U.S. Department of Justice and Federal Trade Commission on the one hand and Canada's Director of Investigation and Research on the other.
An important aspect of the Agreement involves prompt and specific notification to the other when one agency finds, e.g., that it is interested in activities of import to the other party or seeks evidence located in the territory of the other. Mutual exchange of relevant information on facts and changes in law or policy is seen also as in the interests of both parties. This might include mutual notification of activities illegal in one country that may also have an anticompetitive effect in the other. In matters of joint interest, the agreement contemplates the coordination of working arrangements between the above agencies. Each party is to give careful consideration to avoiding conflicts in enforcement actions that might bring about adverse effects on the other. Regular consultations and semi-annual meetings are also emphasized. The Agreement contains detailed provisions for protecting confidentiality to the extent required by the laws of each.
Citation: Agreement between the Government of the United States and the Government of Canada Regarding the Application of their Competition and Deceptive Marketing Practices Laws, State Department No. 95-205.
In case of first impression, Ninth Circuit holds in defamation case brought by public figure that Free Speech protections of First Amendment apply to Australian citizen legally present in United States
Ralph Underwager is a Minnesota psychologist who specializes in testifying on the reliability of children's testimony about sexual abuse, having testified in about 250 trials. In August 1990, two American attorneys, James Peters, Sr. and Charles R. Vaughan appeared on an Australian TV version of "Sixty Minutes" during which they allegedly defamed Underwager's integrity and credentials. In January of 1992, Kim Oates, an Australian university professor, played a portion of the videotape at a California conference. Underwager thereupon sued in a California federal court alleging that Peters, Vaughan and Oates had defamed him. The district court dismissed Peters and Vaughan for lack of personal jurisdiction and gave summary judgment to Oates on the merits. Underwager appealed.
The U.S. Court of Appeals for the Ninth Circuit affirms. Underwager had argued, inter alia, that First Amendment protections did not apply to Professor Oates because he is not an American citizen. Unable to find direct authority on point, the Court cited Supreme Court dicta on those parts of the Bill of Rights that might apply to aliens. For example, it has been said that, once legally present in the United States, an alien is entitled to the protections of the First and Fifth Amendments and of the due process clause of the Fourteenth Amendment. These provisions generally apply to all "persons," suggesting no distinction between citizens and legal aliens.
"Here, the attempt of a United States citizen to use our courts to deny the privilege of free speech to a visitor to the United States, legally within the country, cannot be countenanced. Accordingly, we hold that the First Amendment shields statements made by Oates during his visit. The First Amendment requires a plaintiff who is a public figure [as here] to demonstrate actual malice by clear and convincing evidence."  Finally, the Court decides that Underwager failed to raise genuine factual and legal issues as to Oates on these matters.
Citation: Underwager v. Channel 9, Australia, 69 F.3d 361 (9th Cir. 1995).
In dismissing federal copyright infringement suit between two Singapore corporations over computer sound cards on grounds of forum non conveniens for litigation in Singapore courts, district court did not abuse discretion, according to Ninth Circuit
Two Singapore corporations, Creative Technology, Ltd. (CTL) and Aztech Systems Pte, Ltd. (ASP) compete in the design, manufacture and distribution of computer sound cards. Through California subsidiaries, CTL distributes its "Sound Blaster" products while ASP markets its "Sound Galaxy" products throughout the United States. After settlement of prior Singapore litigation fell through, CTL sued ASP and its American sub in California federal court alleging ASP's infringement of American copyright laws by making and distributing "Sound Blaster clones" within the U.S. ASP responded with a countersuit under the Singapore Copyright Act (SCA) in the Singapore courts to which CTL filed compulsory SCA counterclaims on the clones issue. ASP then moved to dismiss the American suit under the forum non conveniens doctrine (FNC) and the federal court granted it. CTL appealed.
In a 2 to 1 decision, the U.S. Court of Appeals for the Ninth Circuit affirms. The majority first finds that, unlike suits under the Jones Act and the Federal Employers Liability Act, FNC does apply to Copyright actions. The exclusivity provision of 28 U.S.C. § 1338 applies only as between federal and state courts and does not rule out the jurisdiction of foreign courts. Nor do the "national treatment" demands of the Uniform Copyright Convention and the Berne Convention change the result since copyright suits by American plaintiffs are also subject to FNC treatment.
Next the majority believes that plaintiff has an adequate remedy in the Singapore courts. Both parties have already submitted to its jurisdiction over similar infringement issues. Since it does not appear that SCA is substantively inadequate, injunctive relief against ASP at its seat would seem highly effective. Moreover, if those courts should conclude that the SCA cannot provide adequate relief to plaintiff for wrongs done outside of Singapore, 28 U.S.C. § 1338 could not operate extra-territorially to keep them from applying U.S. copyright law.
Nor did the lower court abuse discretion in balancing the private interest factors in favor of FNC dismissal. Both of the primary parties, the main infringing conduct and the bulk of the witnesses are in Singapore. The result is the same with the public interest factors. This is basically a suit between two Singapore entities over which first developed the disputed technology in Singapore. It does not involve the scope of American statutory protection for U.S. companies or American products.
The dissenter, however, sees this essentially as a suit for violating American law by the actions of American companies within the U.S. with a focus on the local actions of ASP's California sub. In his view, the "national treatment" mandates of the above Conventions requires giving foreign copyright plaintiffs the same privilege of litigating in the U.S. courts over a U.S. infringement that U.S. plaintiffs have, thus making Singapore an unacceptable forum. As to the content of the SCA or as to the ability or willingness of the Singapore courts to give appropriate remedies under the complex body of U.S. law dealing with computer software, ASP has made no showing whatever. The dissenter views only U.S. law as applicable, thus calling for American judicial determination to avoid choice-of-law problems. Finally, the interests of the American public demand that we not leave resolution of thorny computer copyright problems under U.S. law to a foreign court.
Citation: Creative Technology, Ltd. v. Aztech System Pte., Ltd., 64 U.S.L.W. 2083, 61 F.3d 696 (9th Cir. 1995).
FOOD & DRUGS
U.S. government issues rule designed to improve international exchange of sensitive information on FDA-regulated products
The Food and Drug Administration (FDA) issued a final rule to improve its communications with state and foreign government officials regarding the disclosure of non-public safety, effectiveness, and quality information on FDA-regulated products.
Under the rule, disclosure to foreign government officials will not require the FDA to make the information or documents available to the public (see 21 C.F.R. Part 20). The rule is necessary because of increasing international cooperation in the pharmaceutical area. One example is the program "International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use" (ICH) involving the European Union, Japan, and the United States.
The new rule follows a 1993 rule (21 C.F.R. 20.89) which allows the FDA, under certain safeguards, to disclose confidential commercial information regarding FDA-regulated products to foreign government officials who perform functions similar to the FDA "as part of cooperative law enforcement or regulatory efforts." The rule becomes effective January 8, 1996.
Citation: 60 Fed. Reg. 63372 (December 8, 1995).
Supreme Judicial Court of Massachusetts enforces English default judgment for legal fees and, as the exchange conversion date, adopts day of payment
On August 20, 1992, the Queen's Bench Division of the High Court of Justice in London entered a default judgment in favor of Manches & Co., a firm of solicitors, against Suzanne Gilbey and Gilbert Thornton for unpaid legal fees arising out of handling the estate of Gilbey's father. On the date of judgment, it was equivalent to $58,450 in U.S. dollars. Manches then brought suit in the Massachusetts courts to enforce the judgment under the state's version of the Uniform Foreign Money Judgments Recognition Act (UFMJRA). Over Gilbey's objection to the enforceability of the judgment, the lower court entered summary judgment for Manches on December 13, 1993. At this point, the English judgment was worth $45,130 due to the decline in the exchange rate of the pound sterling against the dollar. Both plaintiff and defendants appealed.
The Supreme Judicial Court of Massachusetts affirms in part and reverses in part. First, it rejects defendants' challenges to the enforceability of the default judgment under UFMJRA. First as to jurisdiction, Manches had gotten leave from the English court to serve defendants and, because English law governed the fee contract, those courts had jurisdiction over the parties. Secondly, the English courts did not deny defendants due process at the trial level or in their attempt to appeal the default judgment. Finally, defendants erred in maintaining that England had been a "seriously inconvenient forum." In any event, that objection under UFMJRA applies only where, unlike here, jurisdiction rested "only on personal service."
As to the monetary conversion date, American courts have come up with three approaches: the date of the breach, the date of judgment and the date of payment. Assuming without deciding that Massachusetts law governs this question of first impression, the Court adopts the payment day rule as best calculated to make plaintiffs whole without giving defendants a windfall. This is what the Uniform Foreign-Money Claims Act (UFMCA) provides. "Judgment shall be entered ordering that Manches & Co. shall recover from the defendants, at the defendants' option, either (a) the amount of the English judgment (pounds sterling 30,138.35) or (b) the equivalent in dollars of the English judgment determined at the exchange rate in effect on the day of or the day before payment, with interest on that amount (in each instance), payable in pounds or dollars, at the Massachusetts rate of interest from the date of entry of the action until the date of payment." [419, 89]
Citation: Manches & Co. v. Gilbey, 419 Mass. 414, 646 N.E.2d 86 (1995). [Editorial note: the following states have enacted versions of both the UFMJRA and the UFMCA: California, Colorado, Connecticut, Illinois, Minnesota, Montana, New Mexico, Ohio, Oklahoma, Oregon, Virginia and Washington].
German government publishes list of Swiss competent authorities pursuant to the Hague Service Convention
The German Federal Gazette (Bundesgesetzblatt) issued a notice on the Hague Convention on Service Abroad of Judicial and Extra Judicial Documents in Civil or Commercial Matters in 1965 (T.I.A.S. 6638, 20 U.S.T. 361, 4 I.L.M. 338). There are now 34 convention members. Switzerland acceded to the Convention on 1 January 1995, and made reservations and declarations. For example, instead of sending the documents to be delivered to the regional authorities, they may be sent to the Department of Justice and Police (Eidgenössisches Justiz- und Polizeidepartement, Bern), which in turn will forward them to the regional authority. The regional (cantonal) competent authorities are (required language in parentheses):
Appenzell Ausserrhoden, Kantonsgericht Appenzell A.Rh., 9043 Trogen, Phone: (071) 942461 (German).
Appenzell Innerrhoden, Kantonsgericht Appenzell I.Rh, 9050 Appenzell, Phone: (071) 879551 (German).
Aargau, Obergericht des Kantons Aargau, 5000 Aargau, Phone: (064) 211940 (German).
Basel-Landschaft, Obergericht des Kantons Basel-Landschaft, 4410 Liestal, Phone: (061) 9255111 (German).
Basel-Stadt, Appellationsgericht Basel-Stadt, 4054 Basel, Phone: (061) 2678181(German).
Bern, Justizdirektion des Kantons Bern, 3011 Bern, Phone: (031) 6337676 (German, French).
Fribourg, Tribunal cantonal, 1700 Fribourg, Phone: (037) 253910 (French, German).
Genève, Parquet du Procureur général, 1211 Genève 3, Phone: (022) 3192111 (French).
Glarus, Obergericht des Kantons Glarus, 8750 Glarus, Phone: (058) 611532 (German).
Graubünden, Justiz-, Polizei- und Sanitätsdepartement Graubünden, 7001 Chur, Phone: (081) 212121 (German).
Jura, Département de la Justice, 2800 Delémont, Phone: (066) 215111 (French).
Luzern, Obergericht des Kantons Luzern, 6002 Luzern, Phone: (041) 245111 (German).
Neuchâtel, Département de Justice, 2001 Neuchâtel, Phone: (038) 223111 (French).
Nidwalden, Kantonsgericht Nidwalden, 6370 Stans, Phone: (041) 637950 (German).
Obwalden, Kantonsgericht des Kantons Obwalden, 6060 Sarnen, Phone: (041) 669222 (German).
St. Gallen, Kantonsgericht St. Gallen, 9001 St. Gallen, Phone: (071) 213111 (German).
Schaffhausen, Obergericht des Kantons Schaffhausen, 8201 Schaffhausen, Phone: (053) 827422 (German).
Schwyz, Kantonsgericht Schwyz, 6430 Schwyz, Phone: (043) 241124 (German).
Solothurn, Obergericht des Kantons Solothurn, 4500 Solothurn, Phone: (065) 217311 (German).
Tessin, Tribunale di appello, 6901 Lugano, Phone: (091) 215111 (Italian).
Thurgau, Obergericht des Kantons Thurgau, 8500 Frauenfeld, Phone: (054) 223121 (German).
Uri, Gerichtskanzlei Uri, 6460 Altdorf, Phone: (044) 42244 (German).
Valais, Tribunal cantonal, 1950 Sion, Phone: (027) 229393 (French, German).
Vaud, Tribunal cantonal, 1014 Lausanne, Phone: (021) 3131511 (French).
Zug, Obergericht des Kantons Zug, Rechtshilfe, 6300 Zug, Phone: (042) 253311 (German).
Zürich, Obergericht des Kantons Zürich, Rechtshilfe, 8023 Zürich, Phone: (01) 2579191 (German).
Citation: Bekanntmachung über den Geltungsbereich des Haager Übereinkommens über die Zustellung gerichtlicher und aussergerichtlicher Schriftstücke im Ausland in Zivil- oder Handelssachen, 1995 [German] Bundesgesetzblatt II, number 28, page 755, September 22, 1995.
Leaders of Bosnia, Croatia and Serbia sign Paris peace agreement to end Bosnia war and to allow 60,000 IFOR troops to implement the agreement
On December 14, 1995, the leaders of Bosnia, Croatia and Serbia signed a peace agreement in Paris that is intended to end the 3½ years of war in Bosnia. The United States, who has had a key role in reaching this agreement, pledged not only financial support for Bosnia's reconstruction but also troops for the NATO international peacekeeping force to implement the peace treaty.
The General Framework Agreement arose out of the Proximity Peace Talks at Wright-Patterson Air Force Base in Dayton, Ohio, November 1-21, 1995. The Talks resulted in the initialing of the General Framework Agreement. In the Framework Agreement, Bosnia and Herzegovina, Croatia and the Federal Republic of Yugoslavia agree to fully respect the sovereign equality of one another and to settle disputes by peaceful means. The cease‑fire that began with the agreement of October 5, 1995 will continue.
With UN approval, the agreement invites a multinational military Implementation Force (IFOR) of about 60,000 troops into Bosnia and Herzogovina under NATO command. Bosnia and Herzegovina will continue as a sovereign state within its present internationally‑recognized borders. It will consist of two entities: the Moslem-Croat Federation and the Bosnian Serb Republic.
Citation: Proximity Peace Talks, General Framework Agreement for Peace in Bosnia and Herzegovina, published by the U.S. Department of State (Phone: (202) 647-4000). The agreement is also available on the Internet at http://dosfan.lib.uie.edu/bosagree.hmtl. Statements by U.S. President Clinton, Secretary Christopher, and Deputy Secretary Talbott about the Proximity Peace Talks have been reprinted in the U.S. Department of State Dispatch, Volume 6, Number 45 (November 6, 1995).
SEC issues rule to exempt certain Mexican state securities to allow their being traded in futures contracts
The U.S. Securities and Exchange Commission issued a final rule that amends Rule 3a12-8 under the 1934 Securities and Exchange Act to treat designated debt obligations of the Mexican states as "exempted securities" for the purpose of marketing and trading futures contracts on those securities in the U.S. (see 17 C.F.R. Part 240).
Under the Commodity Exchange Act, to trade a futures contract on any individual security, the security must have exempt status for purposes of the Securities Act of 1933 or the Securities Exchange Act of 1934. Debt obligations of foreign governments ordinarily do not constitute exempted securities under these statutes. Under Rule 3a12-8, however, the Commission may designate certain government securities as exempt, so that persons can sell futures contracts on the debt obligations in the U.S. So far, the Commission has designated for this purpose the state securities of Great Britain, Canada, Japan, Australia, France, New Zealand, Austria, Denmark, Finland, the Netherlands, Switzerland, Germany, the Republic of Ireland, Italy, and Spain.
Citation: 60 Fed. Reg. 62323 (December 6, 1995).
Fifth Circuit holds that conversion of former German dictator's paintings fell into "foreign act" exception to waiver of U.S. immunity from suit under FTCA
Art investor Billy Price had acquired the rights to certain watercolor paintings of Adolf Hitler and historical photographs from the heirs of Heinrich Hoffman, Hitler's personal photographer. The U.S. government had removed the paintings, originally in Hoffman's possession, from Germany during the allied occupation after World War II. In 1983, Price sued the U.S. under the Federal Tort Claims Act (FTCA) to recover four watercolor paintings by Hitler being stored in the National Archives in Washington, D.C. The district court found for Price, awarding damages of almost $8,000,000. The U.S. appealed.
The U.S. Court of Appeals for the Fifth Circuit finds that the district court lacked subject matter jurisdiction and reverses. Although the FTCA vests the district courts with subject matter jurisdiction over a tort claim against the United States, there is no jurisdiction under 28 U.S.C. § 2680(k) if a claim arises in a foreign country. See Eaglin v. U.S., Dep't of Army, 794 F.2d 981, 982 (5th Cir. 1986).
Here, the conversion of the paintings occurred when the U.S. military authorities in Germany ordered their transfer to the U.S. Therefore, the act of conversion is not within the waiver of sovereign immunity and the district court was without subject matter jurisdiction.
Price also raised claims to certain photographic archives by Hoffman and his son, in which the U.S. Attorney General claimed all rights under a 1951 Vesting Order based on the Trading with the Enemy Act, 50 U.S.C.App. §1-33. The Fifth Circuit finds that the Vesting Order deprived the court of subject matter jurisdiction over this claim. Section 2680(e) excepts from the immunity waiver all claims "arising out of an act or omission of any employee of the Government in administering [the Trading with the Enemy Act]." The U.S. government, therefore, may dispose of these items as it sees fit.
Citation: Price v. United States, 69 F.3d 46 (5th Cir. 1995).
Eighth Circuit disallows foreign tax credits for income taxes paid in Brazil pursuant to Brazil's tax on interest income earned by foreign lenders
Norwest Corporation (Norwest) is the parent company of several corporations that filed consolidated U.S. income tax returns for 1980 and 1982. During those years, Norwest made loans to Brazilian borrowers, and Brazil imposed a 25% tax on interest earned by foreign lenders (local tax). Brazilian law requires borrowers to obtain their foreign currency from local banks. Brazil collects the local tax by withholding the full amount of the local tax when borrowers bought foreign currency from local banks. Brazil also grants a "pecuniary benefit" to those borrowing from foreign lenders. When such borrowers purchase foreign currency for interest payments, the bank credits the borrowers's account for the pecuniary benefit. Brazil sets the pecuniary benefit as a percentage of the local tax that the law required the borrower to set aside through the withholding system.
To reduce international double taxation, 26 U.S.C. § 901 allows a domestic corporation to claim credit against its federal income tax liability in "the amount of any income ... taxes paid or accrued during the taxable year to any foreign country."
Norwest subsequently claimed foreign tax credits (FTCs) under 26 U.S.C. § 901 for income taxes paid to Brazil based on the Brazilian tax on interest income earned by foreign lenders. The U.S. Tax Court disallowed the FTCs, and the U.S. Court of Appeals for the Eighth Circuit affirms.
The Court first rejects the Commissioner's cross-appeal claiming that Norwest is not legally liable for the local tax, and thus not entitled to FTCs for paying the local tax, because only the borrower had the legal duty to withhold it. The foreign lender "pays" the local tax even if the Brazilian borrower operates as its agent for payment and even if the Brazilian government's tax enforcement trains its guns on the Brazilian borrower, rather than on the principal (the foreign lender).
As for Norwest's appeal, "[t]he regulation reasonably views the payment of the local tax and the receipt of the pecuniary benefit or subsidy together in order to determine the amount of foreign taxes creditable for purposes of 26 U.S.C. § 901. ... This interpretation is also consistent with the intent of Congress to reduce international double taxation. Norwest can claim [an FTC] for the amount of the local tax reduced by the pecuniary benefit or subsidy. Norwest is not subject to double taxation because the pecuniary benefit or subsidy was not paid to the Brazilian government. This is because the pecuniary benefit or subsidy operated as a rebate of most of the local tax, in effect reducing the tax rate by 80%, from 25% to 5%." [8-9] The reduction of the local tax is an indirect subsidy within the plain meaning of the regulation. Brazilian law provides it to the Brazilian borrower who engaged in a business transaction with the taxpayer and calculates it as a specific percentage of the tax imposed on the payment to the taxpayer.
Citation: Norwest Corp. v. Commissioner of Internal Revenue, 69 F.3d 1404 (8th Cir. 1995).
Intel Corporation had overpaid taxes on its export earnings and congress in ERTA did not bar allocation of R & D expenses in computing "combined taxable income" of Intel's Domestic International Sales Corporation, according to Ninth Circuit
The Commissioner of Internal Revenue (CIR) sought to collect about $35,876,000 in taxes from Intel Corporation and Consolidated Subsidiaries (Intel) for 1978-80. When Intel exports its products to country X, it arranges for title and risk of loss to pass in X. Often by treaty, the U.S. "shares its tax base" with X and minimizes double taxation on American companies by allowing Intel a credit for taxes paid by Intel to X. For the taxpayer the effort is to move deductions home and to send income overseas.
In this case, over Intel's opposition, the CIR argued for application of the "Independent Factory Price Method" that would increase Intel's U.S. income and decrease the income allocable to X. In a timely action in the U.S. Tax Court, Intel persuaded the Court to reject this argument and secured a determination that it had overpaid about $12,600,000 in U.S taxes. Intel lost, however, on the branch of the case dealing with allocation of its R & D expenses. Both the CIR and Intel appealed.
The U.S. Court of Appeals for the Ninth Circuit affirms the Tax Court on both issues. The Court first notes that in 1957, the Treasury Department enacted Treas. Reg. § 1.861-7 providing that a sale of property takes place where the seller parts with title to the buyer. Analyzing the other applicable laws and regulations, the Court concludes that they do not support the CIR's "Independent Factory Price" approach here. "We recognize that our holding will reduce the taxes Intel pays to the United States. No doubt Intel fashioned a method of doing business that reduced its taxes. It is for Congress to determine whether this favorable treatment of export sales should continue. The third branch of government is not equipped to decide issues embedded not only in the nation's arcane tax law of longstanding but also in its foreign trade policies and balance of payment concerns." 
On the second branch of the case, the Court notes that Congress, in 1971, enacted provisions for the creation of a tax-exempt Domestic International Sales Corporation (DISC), a local subsidiary that "masquerades" as a foreign sub, to allow deferrals of tax similar to those enjoyed by exporters with foreign subsidiaries [see I.R.C. §§ 991-97]. The Court concludes that the Economic Recovery Tax Act of 1981, 26 U.S.C. § 174 note (1982) (ERTA), does not bar the allocation of R & D expenses in computing the "combined taxable income" (CTI) of a DISC. "ERTA responded to a different need, viz., the loss of a deduction from domestically taxable income for research and experimental costs allocated to foreign sources whose tax laws often allowed no deduction for these costs when not incurred within their jurisdiction. ERTA's purpose is unrelated to the combined taxable income computation." 
Citation: Intel Corp. and Consol. Subsidiaries v. Commissioner of Internal Revenue, 67 F.3d 1445 (9th Cir. 1995).
EU plans to launch European Community Trade Mark in April 1996
The European Community Trade Mark (CTM) should go into effect in April 1996. With the CTM, one may obtain trademark protection throughout the EU by filing a single application. It is possible to file an application for a CTM from January 1, 1996 on and claim a filing date of April 1, 1996. The CTM is particularly advantageous to European-wide operating companies. Among the advantages of a CTM over national trademarks are the lower costs, reduced paperwork, and the broad coverage of the entire EU with a single application. The EU Trade Mark Office (CTMO) is located in Alicante, Spain.
Citation: Council Regulation (EC) No. 40/94 on the Community Trade Mark for the implementation of the agreements concluded in the framework of the Uruguay Round, 1994 Official Journal of the European Communities (O.J.) (L 11) 1, 14 January 1994, as amended by Regulation 3288/94, 1995 O.J. (L 349) 83, 31 December 1994.
Argentina and United States update Air Transport Agreement. An agreement between the United States and Argentina amending their Air Transport Services Agreement of October 1985, as amended and extended [TIAS 11262], entered into force on July 3, 1995. The new agreement replaces Annexes I and II of the prior agreement and deals with routes, intermediate points, authorized air carriers and the maximum number of flights per week to be flown by various types of aircraft. Citation: State Department No. 95-183.
Use of mediator agreed upon in U.S.-Canada salmon dispute. In January 1985, the U.S. and Canada entered into a treaty and a memorandum of understanding on the Pacific Salmon fisheries regime. A dispute having arisen as to the interpretation of these documents, the parties have, effective September 11, 1995, agreed to have a mediator appointed to speedily resolve the differences between the parties in a non-binding way. The mediator is to operate confidentially and to have access to relevant documents. Each party pledges to use its best efforts to resolve the dispute prior to the 1996 negotiations on fishing regimes. Citation: State Department No. 95-211.
EU to sign cooperation agreement with MERCOSUR. The European Union and the South American customs union MERCOSUR (of Argentina, Brazil, Paraguay and Uruguay) have signed the EU-Mercosur Interregional Framework Cooperation Agreement at the European Council meeting in Madrid on December 15. The agreement will promote regular political dialogue, trade cooperation, economic cooperation, as well as culture and information, and is intended to pave the way for closer cooperation in the long term. Citation: European Union News, Press release No. 74/95, December 13, 1995.
EU establishes EUROPOL police organization. The EU Council published an Act to establish a European Police Office (Europol). Europol will establish a framework of police cooperation to prevent and combat terrorism, drug trafficking and other forms of international crime. Citation: Council Act ..., 1995 Official Journal of the European Communities (C 316) 1, 27 November 1995.
ICJ pondering legality of use of nuclear weapons in armed conflict. On November 15, 1995, on request for an Advisory Opinion by the World Health Organization, the International Court of Justice (ICJ) concluded the public hearings on the question of the legality of a state's use of nuclear weapons in armed conflict, as well as the legality of the threatened use of nuclear weapons. The date for publication of the ICJ advisory opinion has not yet been determined. Citation: ICJ Press Communiqué No. 95/37, 20 November 1995.
EU and U.S. conclude cooperation program in higher education. The EU Council issued a decision approving an EU-U.S. cooperation program in higher education and vocational training. Under the program, consortia of institutions will carry out educational projects, and scholarships will be provided. The EU will contribute ECU 6.5 million [about $5 million] for the first 5-year period of the program. Citation: Council Decision ..., 1995 Official Journal of the European Communities (L 279) 11, 22 November 1995.
"New Transatlantic Agenda" agreed to by EU and U.S. At the Madrid Summit on December 3, the European Union and the U.S. agreed on a "Transatlantic Agenda" to improve political ties and economic relations. The agreement addresses the peace process in former Yugoslavia, a common security policy, measures against international crime, environmental protection, as well as a "new transatlantic marketplace" to improve mutual trade and investment. A senior level group of officials will oversee work on the New Agenda, and progress will be evaluated at regular summits. Details of the planned cooperation are outlined in a Joint EU-U.S. Action Plan. Citation: see Internet at http://www.cec.lu/en/agenda/eu-us/pub/tai/index.hmtl