On review by Delaware Supreme Court of international contract litigation where Saudi Arabian law applied, Court upholds trial court's thorough study of experts on that law as applied to Saudi tort law of ghasb or usurpation
Saudi Basic Industries Corporation (SABIC) is a Saudi Arabian corporation which is now 70 percent owned by the Saudi government. SABIC was set up in the late 1970s to work jointly with several firms to use petroleum based feedstocks in making polyethylene, a type of plastic. SABIC later began looking into the possibility of forming joint ventures to manufacture polyethylene.
The result was the formation, in April 1980, of two separate 50 50 joint ventures. One was between SABIC and Mobil Yanbu Petroleum Company (Mobil) (the Yanpet venture), and the other came about between SABIC and Exxon Chemical Arabia, Inc. (Exxon) (the Kemya venture). The aim of both ventures was to turn out polyethylene in Saudi Arabia.
A carefully negotiated premise of both joint ventures was one restricting each partner's profits to the profits earned by its venture. The goal was to prevent any partner from profiting at the venture's expense. In line with that policy, the joint venture agreements barred any partner from charging a "mark up" on technology obtained from a third party and sublicensed to the joint venture.
In order to manufacture polyethylene, Yanpet soon found that it needed technology that it did not own. Initially, the parties thought that Yanpet would license Unipol ( R ) PE technology directly from Union Carbide Corporation (UCC). After a Spring 1980 meeting in Riyadh, Saudi Arabia, however, SABIC notified its partner, Mobil, that SABIC itself would license the technology directly from UCC and then sublicense it to Yanpet.
SABIC vowed to Mobil that SABIC would pass through to Yanpet at its cost, the amounts SABIC paid to UCC for Yanpet's use of the Unipol ( R ) PE technology. In fact, SABIC really intended to supply the technology to Yanpet at a mark up above SABIC's cost.
In September 1980, SABIC and UCC executed an agreement granting SABIC an exclusive license to the Unipol ( R ) PE technology within the Kingdom of Saudi Arabia (the SABIC/UCC License Agreement). Neither SABIC nor UCC allowed either Mobil or Yanpet to come to any of the meetings where SABIC and UCC talked about the financial terms of the SABIC/UCC License Agreement. Ultimately, SABIC and Yanpet executed the SABIC Yanpet Unipol ( R ) PE Technology License Agreement, effective in October 1980.
Over the following twenty years, SABIC charged Yanpet sublicense fees and royalties that were quite a bit higher than what SABIC was paying to UCC under the SABIC/UCC License Agreement. During that entire time, Mobil thought that SABIC was passing its royalties through to Yanpet at cost.
Ultimately, as with Yanpet, SABIC told Exxon, in a March 1980 meeting in Riyadh, that it (SABIC) would license that technology directly from UCC, and then sublicense the technology to Kemya. As with Mobil, Exxon was kept out of the negotiations over the financial terms of the SABIC/UCC license. Finally, SABIC never intended to do anything except charge a big markup for the Unipol ( R ) Technology.
Not until the year 2000 did Exxon or Mobil find out about the overcharge. It came about when the Saudis decided to tax the royalties.
The claims at issue formally emerged in litigation brought by SABIC against Exxon/Mobil in the New Jersey federal court. In that court, SABIC asked for a declaratory judgment that Exxon/Mobil had used technology, previously developed for Kemya, to obtain proprietary information (including patent and trade secrets) in breach of Exxon/Mobil's service agreement with Kemya. SABIC sought a ruling that Kemya owned the patents, and an injunction ordering Exxon/Mobil to transfer legal title to those patents to Kemya.
Against SABIC's claim, Exxon/Mobil raised the defense of "unclean hands." It urged that SABIC had improperly overcharged Kemya for the royalty payments at issue here. During the discovery stage, SABIC agreed to a consent order that would have demanded that SABIC respond to discovery about the overcharge issues. SABIC, however, failed to comply with that order. Instead, it filed the Delaware Superior Court action that is the subject of this appeal.
In its Delaware action, SABIC sought a declaratory judgment that Kemya's and Yanpet's royalty payments to SABIC did not amount to anticontractual overcharges. In response, Exxon/Mobil filed counterclaims for damages. These rested upon SABIC's alleged breaches of the joint venture agreements; breaches of fiduciary duty and of the implied duty of good faith; and the doctrines of unjust enrichment and promissory estoppel. Exxon/Mobil also demanded a jury trial.
During the trial, it was generally agreed that Saudi law governed a number of critical issues. SABIC, however, lodged a post-verdict challenge to the methodology which the trial court had used to determine Saudi law. By its very nature, this objection assailed the procedural foundation of all of the trial judge's substantive rulings on Saudi law. In essence, SABIC claims that the ijtihad process that the trial judge employed to determine Saudi law was "free wheeling," "standardless," and a "bare "guess' as to the correct content of Saudi law."
On March 21, 2003, at the conclusion of a two-week trial, the jury returned a verdict awarding compensatory damages of $220,238,108 to Mobil and $196,642,656 to Exxon. The jury found (1) that SABIC had breached both the Yanpet and Kemya joint venture agreements, and (2) that SABIC had committed the Saudi tort of usurpation (ghasb) against both Mobil and Exxon.
Defendants appealed. In a January 14 opinion by Justice Jack B. Jacobs, the Supreme Court of Delaware unanimously affirmed.
Pursuant to Del. R. Civ. P. 44.1, the content of foreign law is no longer for the jury as under the common law rule; it presents a question of law for the court which an appellate court reviews de novo. In Justice Jacobs view, SABIC's challenge lacks merit. "We reject [SABIC's] contentions, because the record clearly establishes that the trial judge went to extraordinary lengths to understand the applicable Saudi law and to make rulings that were consistent with the numerous Saudi law sources presented to her. To understand how and why that is so, a prefatory discussion of the Saudi system of jurisprudence, and of the Saudi ijtihad analytical approach, is helpful."
"In Saudi Arabia, Islamic law (shari'a), which is a fundamentally religious law based on both the Q'uran and the model behavior of the Prophet Muhammed, is the law of the land. Although early Islamic law scholars eventually coalesced into various guilds or schools, only four of those guilds have survived in modern times: the Hanbali, the Hanafi, the Shafi'i and the Maliki. In Saudi Arabia, the judges are instructed to rule exclusively in accordance with the teachings of the Hanbali guild."
"The Saudi law system differs in critically important respects from the system of legal thought employed by the common law countries, including the United States. Perhaps most significant is that Islamic law does not embrace the common law system of binding precedent and stare decisis. Indeed, in Saudi Arabia, judicial decisions are not in themselves a source of law, and with minor exceptions, court decisions in Saudi Arabia are not published or even open to public inspection."
"The trial judge was keenly mindful of this distinctive characteristic of Saudi law and of the problems that it created for defining the elements of, and remedies for, ghasb and for how to instruct the jury on those issues." [Slip op. 21]
"Instead of relying upon statutes or decisional precedent to discern the law applicable to a particular case, judges in Saudi Arabia must "first and last ... navigate within the boundaries' of the Hanbali school's authoritative works, which are the scholarly treatises primarily consulted by Saudi judges. Using these scholarly writings as guides, Saudi judges identify a "spectrum of possibilities on any given question, rather than a single "correct' answer.'"
"Thus, in this highly different legal environment, the predominate factor in determining the Saudi law on a given issue is the study and analysis, or ijtihad, that a judge brings to bear in each particular case. To state it in different terms, the critical inquiry is whether "the proper analytical procedures are followed in reaching the results.'"
"The trial judge so recognized, observing that "[w]hen faced with the daunting task of determining the elements of ghasb and the damages available for this tort, the Court, weighing the credibility of each Saudi law expert, exercised, as best it could under the circumstances, ijtihad, to reach the "right' result.'"
"... [T]he trial judge made exceptional efforts to ensure that she was fully informed of the Hanbali teachings upon which to ground her legal rulings. Before trial, the parties presented the trial judge with seven reports from four Saudi law experts (two expert witnesses for each side), as well as each expert's lengthy deposition."
"Perceiving a conflict in the experts' opinions, the trial judge also retained an independent expert, Mr. Herbert S. Wolfson, [cf. Federal Evidence Rule 706] and obtained his advice on critical issues, including the elements of, and the damage remedies available for, usurpation. Mr. Wolfson prepared an initial report and the trial court permitted him to conduct additional research in Saudi Arabia, after which Wolfson prepared a supplemental report and was deposed for a full day."
"After reviewing a total of nine reports and over one thousand pages of deposition testimony, the trial judge then held a day long pretrial hearing, to permit the parties to present live testimony from Professor Hallaq, Dr. Vogel and Mr. Wolfson. Only after this extensive process did the trial court undertake to determine the disputed elements of ghasb. Even after that comprehensive inquiry, the court considered (over Exxon/Mobil's objection) two additional reports of Dr. Vogel submitted post trial." [Slip op. 22]
"It is notable that only after SABIC received the adverse jury verdict did it attack the trial court's ijtihad process, even going so far as to contend, in a post trial affidavit of Dr. Vogel, that the trial judge "was simply not qualified to practice ijtihad.' SABIC advances that same position on appeal. Confronting that contention, the trial judge made the following observations which, in our view, afford a complete answer to SABIC's position: "What troubles the Court even more is that Dr. Vogel opines that this Court cannot credibly engage in the ijtihad process."
"According to Dr. Vogel, "ijtihad requires, for its credibility, qualifications which on the very face of things, neither Prof. Hallaq, myself or, with respect, any U.S. Court possesses.' If Dr. Vogel is correct, then why did SABIC choose to file this dispute in a United States Court? If Dr. Vogel is correct in that neither he nor Dr. Hallaq possess the qualifications to engage in the ijtihad process, then what Saudi law "expert' would be able to assist this United States Court in determining the applicable Saudi law?" [Slip op. 22-23]
"As we view it, the careful, painstaking inquiry that the trial judge conducted puts to rest SABIC's contention that she engaged in a standardless, "seat of the pants' determination of the disputed Saudi law issues. It is one thing for SABIC to argue that one or more specific decisions resulting from the trial judge's inquiry are legally erroneous. On this record, however, it is not fair for SABIC to contend that the trial court's analytical process itself was arbitrary, unprincipled or lawless." [Slip op. 24].
"In short, the record supports the trial judge's foreign law determination that the Hanbali sources do not require that the wrongful exercise of ownership or possessory rights over the property of another must be "open and obvious.'"
"Nor do the Hanbali texts support SABIC's second argued for element, that the taking must be "intentional.' SABIC bases that argument upon the (rejected) testimony of Dr. Vogel, who never identified any Hanbali source that supports a definition of usurpation which includes an element of intentional transgression."
"Mr. Wolfson [the trial court's appointed expert], ... opined that "the intent to infringe cannot possibly be a necessary element' of a civil claim for usurpation, based on numerous examples of usurpation in the authoritative texts that demonstrate that even an innocent purchaser of wrongfully taken property can be held liable. Although the usurper must "inten[d] to exercise ownership, he need not inten[d] to infringe the rights of the true owner.'"
"The trial judge's determination of Saudi law, based entirely on expert testimony, is entitled to deference, as no basis has been shown to overturn it. Accordingly, we find that the trial court committed no error in submitting the usurpation claim to the jury or in denying SABIC's motion for judgment as a matter of law." [Slip op. 25]
Citation: Saudi Basic Industries Corp. v. Mobil Yanbupetrochemical Co., Inc., 2005 WL 120789 (Del . Supr. 2005).
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