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In litigation prior to trial over validity and effect of Compromise Agreement among Jewish family members as to size and allocation of decedent’s estate where Rabbinical tribunals in New York and Switzerland are involved, U. K. Court of Appeal (Civil Division) rules that relevant EU Conventions limit choice of controlling law to that of countries, thus limiting choice to English versus Swiss law but that Agreement might be read as incorporating some principles of Jewish law as terms of contract
A judgment handed down by a Queens Bench judge dealt with an application for summary judgment brought by the Claimants. The Claimants are the son (Israel) and grandson (Samuel) of the late Rabbi Joseph Halpern and his wife Frieda, also deceased. This is an appeal from that judgment.
Their claim was to enforce a Compromise Agreement which they allege to have been reached between Israel and Samuel (who at all material times acted for his father Israel) and the Defendants (four other sons and a daughter of Joseph and Frieda). The Compromise was of an arbitration before a Beth Din composed of three Rabbis which for the most part was taking place in Zurich. The parties had intended that the arbitration was to settle issues, which had arisen after the deaths of Joseph and Frieda, between Israel (the first claimant) and his siblings relating to what he deemed to be his due inheritance.
The first three Defendants (Mordecai, David and Jacob) were the executors of both estates. The dispute, however, was not simply about the distribution of the estates (valued for Probate, as we were shown but the judge was not, in the case of Joseph at L309,945 and in the case of Frieda at L210,000). More importantly, it was to decide whether there were other assets which the Defendants should take account of in assessing what should be Israel’s fair share.
Mordecai made the Compromise on behalf of himself, his two executor brothers, another brother, Aaron, and his sister, Esther, as party A, and Israel and his son Samuel who had represented Samuel during the arbitration as party B. Mordecai drafted the agreement in Hebrew and an agreed upon translation was entered into the record. Although Claimants named all those listed as party A as Defendants, service was had only upon the three executor brothers.
As a ground for setting aside the Compromise, the executor brothers rely on the fact that a different Beth Din sitting in New York awarded the sister, Esther (as against the executor brothers) the whole of the estate which apparently involves several million pounds. The main area of dispute thus relates to whatever assets lie outside the estate as valued for probate.
That is further confirmed by the fact that, under the Compromise, if it be valid, Israel was to receive L2.4 million. The appellate court is concerned as to how the parties could square the figures at which the estates had been valued for probate with these figures, and especially with the L4M said to be the value of the estate the New York Beth Din awarded to Esther.
The Court mentioned another disturbing term of the Compromise relied on by the executor brothers as a condition precedent to any liability as to them. This was that all documents produced during the arbitration before the Beth Din in Zurich should be destroyed or handed over to the Defendants.
Moreover, Samuel had charged that the reason for such a term was to cover up a tax fraud on Her Majesty’s Revenue and Customs (HMRC). Indeed, the Court is worried about whether the parties are asking it to legitimize a Compromise agreement, one goal of which is to hide the true facts from HMRC. As a result, the Court requested that the executors swear out affidavits and allowed Israel and Samuel a chance to respond. The question then arises as to what steps we should take. The Court of Appeal, however, discerns a key point of law which it ought to resolve on a preliminary basis, i.e. the question as to the law governing the Compromise. This is the point on which the parties focused the most time and effort.
Thus, the defense wrote a memorandum headed “Application of Jewish law”. It referred to the submissions to arbitration and pleaded that Jewish law (Halakha) was intended not only to be the lex causa as well as the lex curia but also would regulate procedure. It took the following position: “Accordingly, in addition to the matters identified herein which offend ordinary principles of fairness and natural justice, it is further alleged that the Compromise Agreement is ineffectual by reference to Halakha. These Defendants intend to seek permission from the Court to rely upon expert evidence and to serve further particulars of the breaches of Halakha that are relevant to the issues in this claim.” [¶ 15].
“Only in its written submissions for the hearing below did Appellant expressly contend that the applicable law of the Compromise Agreement was Jewish law. Even then it was not identified precisely what the effect of applying Jewish law was as compared to the application of either English law or possibly Swiss law. …. During argument, Appellant suggested that if Jewish law applied there might be differences of consequence. For example, a point was developed by reference to the statement of Rabbi Gartner, exhibited to Mordecai’s statement, … that, under Jewish law, if duress or mistake were established that would render the Compromise void ab initio and not, as under English law, voidable.”
“This led … to the judge referring to Shamil Bank of Bahrain EC v Beximco Pharmaceuticals [2004] 1 W. L. R. 1784, a decision of the Court of Appeal which the judge suggested, at the very least, cast doubt on the question whether Jewish law, as opposed to the law of a country, could ever be adopted, expressly or otherwise, as the law applicable to contract …under English conflict of laws principles.”
“Appellant submitted that the Compromise contained terms which, either expressly or by implication, agreed [on] Jewish law as the applicable law. His argument … was primarily that Shamil was distinguishable and thus English conflict of laws would recognize that since there was a body of law recognized as Halakha, i.e. Jewish law, that law could be the applicable law of the contract in a true sense.”
“Alternatively, he argued that, as a matter of construction, Halakha would, if chosen as the applicable law whether expressly or by implication, be incorporated into the contract as terms thereof similarly to the way in which the Hague Rules can be incorporated.”
“In the further alternative it was argued that Israel, by submitting the dispute to a forum (the Beth Din) applying Jewish law, was thereby representing that he would be seeking no more than Jewish law would allow him to recover and should be stopped from recovering anything that was irrecoverable as a matter of Jewish law. The judge [below] ruled against the Defendants on all these points.”
As to the applicable law of the Compromise, the Court notes, “There were, Appellant suggested, four questions (1) could the parties as a matter of English conflict of laws principles choose Jewish law as the applicable law of the Compromise? (2) Did the parties choose Jewish law expressly as the applicable law of the Compromise? (3) If they did not choose Jewish law expressly did they choose Jewish law by necessary implication? (4) If the parties did choose Jewish law, and the answer to (1) is that English conflict of laws will not allow for the choice of Jewish law as the applicable law, is there any other way in which effect could be given to the parties’ choice?”
“Posing the questions in this way … risks raising points in an academic way, when what the court should be concentrating on is what the parties agreed in this case, first in relation to the applicable law of the contract and second as to the applicability of Jewish law and the extent to which effect, depending on what they agreed, can be given to that agreement.”
The Court decides to approach the matter by considering the true nature of the Compromise Agreement and its applicable law, applying English conflict of laws principles. In the course of so doing, it can address the answer to the questions posed by [Appellant] in their context. The Court first asks what have the parties agreed expressly or by implication as to the applicable law to govern their contract?
“This question must be answered by reference to English conflict of laws principles. The Contracts (Applicable Law ) Act 1990, as its preamble states, makes provision as to ‘the law applicable to contractual obligations in the case of conflict of laws’. It provides by Section 2 ‘subject to subsections (2) and (3) below, the Conventions shall have the force of law in the United Kingdom.’ In the Act the Conventions mean the Rome Convention, the Luxembourg Convention and the Brussels Protocol, all of which are set out in schedules to the Act. Section 3 provides guidance as to interpretation allowing reference in relation to the Rome Convention to the reports on that convention by Professors Gillian and Lagarde.”
“By Article 1 of the Rome Convention , the rules of the Convention apply ‘to contractual obligations in any situation involving a choice between the laws of different countries’. … First [the Court does] not accept Appellant’s submission that the Rome Convention does not apply because the dispute as to which law applies relates to a law other than one of a country. That argument would be hopeless in my view, even if the choice was simply between Jewish law and English law, for the reasons I shall express below but in fact the contest in this case is between English law, Swiss Law and Jewish law in other words the situation does involve a choice between the laws of different countries.”
“But the fundamental reason why the argument is hopeless is because the starting point for the Rome Convention was a point accepted by all countries party to that Convention, that laws could not exist in a vacuum; by ‘laws’ were meant laws enforceable in the courts of countries whether parties to the Convention or other states. Paragraph 32 081 of the 14th Edition of Dicey, Morris and Collins puts the matter succinctly and … correctly: ‘… Article 1(1) of the Rome Convention makes it clear that the reference to the parties’ choice of ‘the law’ to govern a contract is a reference to the law of a country. It does not sanction the choice or application of a non national system of law, such as the lex mercatoria or general principles of law.’”
“It is suggested that a choice of lex mercatoria or general principles of law is not an express choice of law under the Rome Convention . So also in Shamil Bank of Bahrain EC v. Beximico Pharmaceuticals Ltd., the Court of Appeal held that a choice of the principles of Sharia law was not a choice of law of a country for the purposes of the Rome Convention.” “Further support for the view that the Convention had in mind the laws of a country, and that it was not intended that persons should be able to contract out of the Convention, is gained from other provisions of the Convention e.g. Article 3(3) the inability to derogate from mandatory rules of a particular country and Article 7 applying mandatory rules of another country ‘when applying under this convention the law of a country’.”
“However it would seem that a compromise of an arbitration dealing with a dispute as to whether assets outside an estate should be brought into account in order that one party should gain his fair share could not be termed a contract relating to ‘wills and succession’.”
“Fourth, and finally, the use being made of Shari’a law, strict or modified by Saudi law, was to interpret the obligations under the agreement to arbitrate, which … is a legitimate use of a body of law or rules which do not have the force of law of a country or state.” [ ¶¶ 16 22].
The Court thus concludes that the rules of the Convention do apply to the Compromise Agreement. “That being so a choice has to be made as to which is the applicable law, and the choice can only be between the laws of different countries. Article 3(1) provides: ‘A contract shall be governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice, the parties can select the law applicable to the whole or a part only of the contract.’”
“Three points should be noted (1) the choice may be express; (2) if it is to be implied, the implication must be demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case; and (3) the choice can relate to the whole contract or part of a contract.”
“The Compromise makes no express choice of the law of any country or indeed any express choice of law at all. Furthermore it cannot … be said that any implication of a choice of law of any country can be demonstrated with any certainty. … [thus] Article 4 [is] applicable in the absence of choice.”
“The material parts of Article 4 provide as follows: ‘1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may, by way of exception, be governed by the law of that other country.’”
“The choice lies between Swiss and English law and, since no one has suggested that Swiss law is any different from English law, a decision as to which law is the applicable law is actually unnecessary. But if the issue did arise, Article 4(2) would seem to indicate that since Mordecai and the executor brothers resided in England that English law should be the applicable law. Again … different laws may apply to different parts of the contract.”
“It follows that, as a matter of English conflict of laws principles, there can be no question of Jewish law being agreed either expressly or by implication as the applicable law of the contract. The applicable law is English law.”
The next question is whether Jewish law has any relevance here? “It seems to me that the answer is that it may have. By Article 10 of the Convention the applicable law, English law, will govern ‘(a) interpretation, (b) performance, (c) within the limits of the powers conferred on the court by its procedural law, the consequences of breach, including the assessment of damages, insofar as it is governed by rules of law; (d) the various ways of extinguishing obligations, and prescription and limitation of actions.’ …”
English law does make it possible to incorporate some provisions of foreign law as a term or terms of the contract. It was this aspect which the Court addressed in some detail in Shamil. That Court reasoned as follows: “49. [Counsel] thus opts for a construction that the wording is apt, and intended, to incorporate into English law for the purposes of its application to the contract, the ‘principles of … Sharia’. In this respect, and no doubt to avoid the difficulty that the principles of Sharia, generally stated, are of broad nature and application …, [Counsel] argues that the clause should be read as incorporating simply those specific rules of Sharia which relate to interest and to the nature of Morabaha and Ijarah contracts, thus qualifying the choice of English law as the governing law only to that extent.” [¶¶ 25 31].
“Points which are said to arise outside questions of interpretation e.g. duress, mistake, frustration and the consequences thereof will be a matter of English law as the applicable law of the contract. But as an aid to interpretation … , the context of the Compromise, including the fact that it was settling disputes, the subject of an arbitration, which was applying Jewish law, could make Jewish law material. [The Court says] ‘could’ only because apart from two matters the interpretation of Clause 4 and the question whether the executor brothers were taking on personal responsibility no question of interpretation has been identified as arising and even in those areas there has not been any evidence or pleading suggesting that Jewish law would dictate any different interpretation than English law.”
“This solution under which matters of interpretation can be assisted by rules or a law different from the applicable law of the contract, but matters affecting the contract as a whole must be dealt with by the applicable law is, as it seems to me, consistent with the Convention. … If the applicable law of the contract is A but law B is expressed to cover some aspect of the contract, there has to be only one law which can cover matters such as mistake, repudiation of the whole contract etc and that must be the applicable law of the contract as a whole. The different law can only apply to that part of the contract. …” [¶¶ 34 35]
“Thus, if parties wish some form of rules or law not of a country to apply to their contract, then it is open to them to so agree, provided that there is an arbitration clause. The court will give effect to the parties’ agreement in that way.” [¶ 38].
“In that respect, [Appellant] seeks to rely upon the passage in Dicey & Morris at paragraph 32 086, which expounds the distinction between reference to a foreign law as a choice of law to govern the contract (or part of a contract) on the one hand and incorporation of some provisions of a foreign law as a term or terms of the contract in question. While observing that it is sometimes difficult to draw the distinction in practice, it is there stated that: ‘… it is open to the parties to an English contract to agree, e.g., that the liability of an agent to his principal shall be determined in accordance with the relevant articles of the French Civil Code.”
“In such a case, the foreign law becomes a source of law upon which the governing law may draw. The effect is not to make French law the governing law of the contract but rather to incorporate the French articles as contractual terms into an English contract. This is a convenient ‘shorthand’ alternative to setting out the French articles verbatim. The court will then have to construe the English contract, ‘reading into it as if they were written into it the words’ of the French statute. 32 087.”
“It often happens that statutes governing the liability of a sea carrier, such as the former Harter Act in the United States, or statutes implementing the Hague Rules … are thus ‘incorporated’ in a contract governed by a law other than that of which the statute forms part. The statute then operates not as a statute but as a set of contractual terms agreed upon between the parties. The parties may make an express choice of one law (e.g. English law) and then incorporate the terms of a foreign statute. In such a case the incorporation of the foreign statute would only have effect as a matter of contract.”
“[The Court] cannot …see why, in a context such as exists in this case, compromising disputes between Orthodox Jews under Jewish law, where it seems to be common ground [that] there is a distinct body of law, Jewish law may not be relied on as part of the contractual framework.” [¶ 50].
Citation: Halpern v. Halpern, 2007 WL 919472. [2007] E. W. C. A. Civ. 291 (Ct. App. (Civ. Div.) April 3, 1007).
Filed in: 2007 International Law Update, Issue4
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In civil action over alleged rape that occurred in Brazil involving New York residents, New York Appellate Court finds that New York law applicable because New York has a stronger interest in regulating the conduct of its residents and such application of law would not threaten the policies underlying Brazil’s law
In 2002, K.T. (Plaintiff), a female New York resident, attended a New Year’s Eve party on an island off the coast of Brazil. There she met Damon Dash, a well-known music entrepreneur and hip hop music producer in New York. According to news reports, Dash drives a $400,000 car and owns 1,300 pairs of sneakers.
Plaintiff alleges that Defendant made several sexual advances which she rejected. She left the party around 4.30 a.m. and returned to a guest house where she passed out. Plaintiff brought action in state court upon her return to New York, contending that Dash raped her while she was unconscious, and seeking money damages. Defendant moved to dismiss based on forum non conveniens, or for a ruling that Brazilian substantive law apply to this action. The court denied the forum non conveniens motion and refused to rule on the choice of law issue. Defendant appealed.
The New York Supreme Court, Appellate Division, affirms with modifications.
First, the Court reviews the issue of forum non conveniens. It notes that both parties, as well as many witnesses, live and work in New York. This case involves a personal interaction between New York residents that occurred in a foreign locale. The Brazilian law enforcement and hospital personnel did not gain any first-hand knowledge of the events but only heard Plaintiff’s statements. Their records have been translated and made part of this record. It is unlikely that they have knowledge beyond their written reports. Considering the Defendant’s financial resources, it should not be a problem to transport any relevant witnesses from Brazil to New York. Therefore, Defendant did not carry his burden of proof to warrant dismissal based on forum non conveniens.
The Court then turns to the choice of law issue. With Babcock v. Jackson, 12 N.Y.2d. 473, 477 (1963), New York adopted a flexible approach in this regard, giving “controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation. 12 N.Y.2d at 481.”
“The first step in choice of law analysis is determining whether an actual conflict exists between the jurisdictions involved (see Matter of Allstate Ins. Co. [Stolarz], 81 NY2d 219, 223 [1993]). Once an actual conflict is established, the court must turn to consideration of which jurisdiction, ‘because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation’ (Babcock v Jackson, supra), an analysis often called ‘interest analysis’ (see Cooney v Osgood Mach., 81 NY2d 66, 72 [1993]). The framework of this analysis raises two inquiries: ‘(1) what are the significant contacts and in which jurisdiction are they located; and (2) whether the purpose of the law is to regulate conduct or allocate loss’ (see Padula v Lilarn Props. Corp., 84 NY2d 519, 521 [1994] … If the purpose of the competing laws is to allocate loss and the parties are both New Yorkers, ‘there is often little reason to apply another jurisdiction’s loss allocation rules’ (see Cooney v Osgood Mach., 81 NY2d at 73); if their purpose is to regulate conduct, ‘the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders’ …” [Slip op. 4]
Here, to show an actual conflict between Brazilian and New York law, Defendant presented an affidavit from a Brazilian attorney, asserting that Plaintiff would have a cause of action in Brazil and may actually receive money damages. Brazilian law would require Plaintiff to prove that her honor or image was damaged by the assault.
This affidavit does not establish a sufficient conflict of laws. Even if there were a real conflict, it is New York law that should apply. Under the interest analysis, only New York has significant contacts with both parties. The parties essentially have no contacts with Brazil except for a few vacation days. As for loss allocation, where both parties are New Yorkers, there is no compelling reason to apply the foreign jurisdiction’s law. The Court’s analysis framework is as follows:
“The law of intentional assault applicable here … includes components of loss allocation as well as of conduct regulation. However, it is not useful in this instance to embark upon what must necessarily be an arbitrary weighing process to decide whether such a rule should be deemed ‘primarily’ conduct-regulating or loss-allocating … Even where a law is conduct-regulating, we do not blindly follow the lex loci rule. Rather, we must still decide whether the foreign jurisdiction has the greater interest in addressing the alleged conduct. [...]”
“However, in other types of situations the analysis is less one-sided, and the competing concerns of the two jurisdictions must be considered. When we consider the question of whether the alleged facts establish a tortious and compensable assault by one individual against another, it is apparent that there are other interests at stake besides Brazil’s interest in enforcing its standards for the conduct of citizens and non-citizens within its border. New York has a strong interest in seeing that its aggrieved citizens obtain redress for wrongs committed upon them by other citizens of New York, regardless of where the act took place.”
“The discussion in [Schultz v. Boy Scouts of Am., Inc., 65 NY2d 189, 197 (1985)], is helpful for framing our analysis here, although the case is not directly analogous to this one and the ruling is not controlling. …. The Schultz Court explained:”
“‘[k]ey, however, was New York’s interest in requiring a tort-feasor to compensate his guest for injuries caused by his negligence. That concern would have been completely thwarted if [the foreign jurisdiction's] laws were applied to the action, whereas the application of New York’s law would not threaten the policy underlying [the foreign jurisdiction's] statute …’” [...]
“Accordingly, it is useful in our analysis to consider whether the application of the law of Brazil would thwart or threaten an important policy underlying New York’s law, or, on the other hand, whether the application of New York law would frustrate any policies underlying Brazil’s applicable rule of law.” [Slip op. 7-8]
Defendant argues that Brazil has a strong interest in regulating conduct within its borders. The present litigation, however, does not protect anybody in Brazil. In fact, the outcome of this litigation will have no impact upon Brazil or its citizens. Conversely, if Brazil’s law applies, requiring victims of sexual assault to show that their “honor” or “image” was damaged, it could thwart New York’s strong interest in compensating its resident for sexual assault perpetrated by another resident. Thus, the general rule that the law of the jurisdiction where the tort occurred should apply does not lend itself to this case. New York’s interest in addressing the misconduct is stronger than Brazil’s. Consequently, New York law must govern this action.
Citation: K.T. v. Dash, No. 9245 (N.Y. App. Div. December 14, 2006).
Filed in: 2006 International Law Update, Issue12
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In negligence action filed in English court over accident in which Plaintiff passenger was left quadriplegic when Respondent driver lost control of car on Australian track, House of Lords applies English law on quantum of damages as procedural matter rather than Australian law which sets cap on non-economic damages and higher discount rate
On February 3, 2002, a serious auto accident took place on a dirt track near Huskisson in New South Wales, Australia. Ms. Wealand (Respondent) lost control of the vehicle she was driving, causing it to turn over. Respondent admits negligence. Mr. Harding (Appellant) was a passenger. The rollover left him quadriplegic. [Respondent owned the vehicle in question and she had insured it with an Australian insurance company.]
Respondent is from Australia while Appellant is English. When the Appellant had gone to Australia in March 2001, he had formed a relationship with Respondent. A few months later, Respondent had come to England to live with Appellant. The accident had occurred on holiday together in Australia. Afterwards, Appellant and Respondent went back to England.
Appellant sued Respondent in an English court where the trial judge applied English law to the assessment of damages for two reasons. The first was because the assessment of damages was a matter of “procedure” governed by the lex fori. Under the second rationale, even if it were a matter of “substantive” law, it was, in this particular case, “substantially more appropriate” to apply English law.
The Court of Appeal (Civil Division) allowed the appeal. The House of Lords granted review on the following issue: whether the English courts should calculate the amount of damages for personal injury caused by negligent driving in New South Wales according to the applicable law chosen in accordance with Part III of the Private International Law (Miscellaneous Provisions) Act of 1995 (hereafter “Part III”) or whether it is a question of procedure which falls to be determined in accordance with English law. The House of Lords unanimously allows the appeal.
As in England, personal injury caused by negligence is an actionable wrong in Australian common law as reinstated by the Motor Accidents Act of 1988 (NSW). Subject to several exceptions and refinements, Chapter 5 of the Motor Accidents Compensation Act of 1999 (MACA), which was in force in Australia at the time of the accident, sets the maximum amount recoverable for non-economic losses (i.e. pain and suffering, loss of amenities of life, loss of expectation of life, or disfigurement) at Aust. $309,000 subject to indexation.
Additionally, MACA prescribes the discount rate for calculating the present value of future economic loss as 5 percent whereas, in England, it is 2.5 percent . Nothing like the Australian provisions forms part of English law. The Appellant claims that, under the provisions of MACA, he would recover about 30 percent less than he would under the English law of damages.
In tort actions, “the [English] courts have distinguished between (1) the kind of damage which constitutes an actionable injury and (2) the assessment of compensation (i.e. damages) for the injury which has been held to be actionable. The identification of actionable damage is an integral part of the rules which determine liability. … [I]t makes no sense simply to say that someone is liable in tort. He must be liable for something and the rules which determine what he is liable for are inseparable from the rules which determine the conduct which gives rise to liability.”
“Thus, the rules which exclude damage from the scope of liability on the grounds that it does not fall within the ambit of the liability rule, or does not have the prescribed causal connection with the wrongful act, or which require that the damage should have been reasonably foreseeable, are all rules which determine whether there is liability for the damage in question. On the other hand, whether the claimant is awarded money damages (and if so, how much) or, for example, restitution in kind, is a question of remedy.” [¶ 24]
The next question is whether Part III affects the distinction between questions of liability and questions of remedy or procedure. “Section 10 abolishes the Phillips v. Eyre (1870) LR 6 QB 1 requirement of double actionability ‘for the purpose of determining whether a tort or delict is actionable’ and the common law exceptions to that rule created by cases like Boys v. Chaplin [1971] AC 356. …”
“Section 11 substitutes a ‘general rule’ that the applicable law is the ‘law of the country in which the events constituting the tort or delict in question occur.’ Section 12 provides for displacement of the general rule in certain cases in which it is ‘substantially more appropriate’ for the applicable law to be different.”
“But section 14 provides (in part) that: ‘(2) Nothing in this Part affects any rules of law (including rules of private international law) except those abolished by section 10 above. (3) Without prejudice to the generality of subsection (2) above, nothing in this Part … (b) affects any rules of evidence, pleading or practice or authorises questions of procedure in any proceedings to be determined otherwise than in accordance with the law of the forum.’” [¶ 31]
“The conclusion that the amount of damages for an injury actionable by the lex causae must be determined according to the lex fori was to be left untouched is confirmed by the [1990] Report of the Law Commission and the Scottish Law Commission … Paragraph 3.38 dealt with damages: ‘Accordingly, the applicable law in tort or delict determines the question of the availability of particular heads of damages whereas the measure or quantification of damages under those heads is governed by the lex fori.’ [¶ 34].”
“Lord Howie declared an interest on behalf of Cape Industries plc, which had a few years earlier been sued in Texas for asbestos-related injuries (see Adams v Cape Industries plc [1990] Ch. 433) and was anxious that Part III should not import American scales of compensation into English courts.”
“It follows from this that the kind of awards … of damages made in certain states, in particular in parts of the United States, will not become a feature of our legal system by virtue of Part III. Our courts will continue to apply our own rules on quantum of damages even in the context of a tort case where the court decides that the ‘applicable law’ should be some foreign system of law so far as concerns the merits of the claim.”
“Some aspects of the law of damages are not regarded as procedural and, … Part III does not alter this. These aspects concern so-called ‘heads of damages’ — the basic matter which is being compensated for — such as special damage relating to direct financial loss. Whether a particular legal system permits such a head of damage is not regarded as procedural but substantive and therefore not automatically subject to the law of the forum.” [¶ 37].
“In principle, therefore, I think that the relevant provisions of MACA should be characterised as procedural and therefore inapplicable by an English court.” [¶ 42].
“There is accordingly in my opinion no English authority to cast any doubt upon the conclusion of the Australian High Court in Stevens v Head (1993) 176 CLR 433 that, for the purposes of the traditional distinction between substance and procedure which treats remedy as a matter of procedure, all the provisions of MACA, including limitations on quantum, should be characterised as procedural.” [¶ 48].
“In my opinion, therefore, [the trial judge] was right to treat the MACA restrictions as entirely inapplicable. In the circumstances, it is unnecessary to decide whether, if they had been properly characterised as substantive, it was open to the Court of Appeal to reverse his judgment that it was substantially more appropriate to apply English law. … [M]ost of the reasons why it may be more appropriate to apply English law are the reasons why the assessment of damages is traditionally characterised as a matter for the lex fori. I would therefore prefer not to express a view on this question. In my opinion the appeal should be allowed and the judgment of [the trial judge] restored.” [¶ 53].
The concurring opinion of another Lord of Appeal stresses the Parliament’s desire to enact statutes worded in such a way as to preclude the English courts from having to apply the damages law of other nations. “The particular problem raised by Lord Howie related to the high level of damages in the United States which he was anxious should not be replicated here.”
“But it would be equally unacceptable if, say, United Kingdom courts had to award damages according to a statutory scale which, while adequate in another country because of the relatively low cost of services etc. there, would be wholly inadequate in this country, having regard to the cost of the corresponding items here. … Section 14(3)(b) guards against such eventualities.” [¶ 70].
Citation: Harding v. Wealands, 2006 WL 1783207 (HL), [2006] 4 All E.R. 1, [2006] UKHL 32 (July 5).
Filed in: 2006 International Law Update, Issue10
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Applying choice-of-law principles of Restatement Second and governmental interest analysis in admiralty contract case, Eleventh Circuit rules that district court erred in applying United States law rather than law of Greece
Dresdner Bank AG in Hamburg, Kreditandstalt fuer Wiederaufbau, and Norddeutsche Landesbank Girozentrale (the Banks) filed a complaint in a Florida federal court in rem against the M/V OLYMPIA VOYAGER a 157.90 meter Blohm Voss GmbH motor vessel, Hull No. 961, her engines, tackle equipment, rigging, dinghies, furniture, appurtenances, etc., (the Vessel), a Greek flagged passenger cruise vessel, to foreclose a preferred ship mortgage on a foreign vessel. The Banks also filed an in personam suit against Olympic World Cruises (OWC), the Vessel’s owner.
The district court entered a default judgment of foreclosure against the Vessel and ordered it sold. The court also signed an order to require the Banks to provide security for any claims found to be superior in priority to the preferred ship mortgage. Many parties later filed claims or motions to intervene to assert claims against the Vessel or the proceeds of its sale. In response, the court allowed the Banks to stand in the shoes of the Vessel to defend against all claimants asserting priority in claims.
Aktina Travel, S.A. (Aktina) is a Greek travel agency, which orally contracted with the operators of the Vessel to provide airline tickets for its crew members. They would use the tickets to travel to and from the United States, either before boarding or after disembarking the Vessel. The parties entered into the agreement in Greece, and Aktina provided the travel arrangements from Greece by telephone and other electronic means.
Having successfully moved to intervene in this action, Aktina claimed that it was entitled to a maritime lien under the Commercial Instruments and Maritime Liens Act (CIMLA), 46 U.S.C. Section 31301 et seq. CIMLA grants priority to creditors holding maritime liens for necessaries provided in the U.S. over those holding preferred mortgages on foreign vessels. See 46 U.S.C. Section 31326.
The court first determined that a conflict existed between U.S. law, which would afford Aktina a maritime lien, and Greek law, which would not. After doing a choice-of-law analysis, the court applied U. S. rather than Greek law. The court essentially rested this ruling on two factual findings: (1) that the U.S. was the place of contract performance and (2) that the subject matter of the contract consisted of airline tickets located in the U.S.
On January 13, 2005, the court entered a final judgment in favor of Aktina on its claim against the Vessel. The court found that Aktina was entitled to a maritime lien under CIMLA, and that this lien prevailed over the Banks’ preferred ship mortgage. The court fixed the dollar amount of the lien at $146,787.52. The Banks noted an appeal. The U.S. Court of Appeal for the Eleventh Circuit reverses and remands.
Since the lower court correctly noted the conflict between U.S. and Greek law, the Circuit Court focuses on which law to apply here. “Generally, to determine which law to apply in an admiralty [tort] case, courts examine several factors, as outlined in Lauritzen v. Larsen, 345 U.S. 571, 583 92 (1953), and Romero v. Int’l Terminal Operating Co., 358 U.S. 354, 382 (1959). These factors include: (1) the situs of the claim; (2) the law of the flag of the vessel; (3) the allegiance of the seamen; (4) the allegiance of the shipowner; (5) the place of the contract; (6) the access to a foreign forum; and (7) the law of the forum making the choice of law. In Hellenic Lines Ltd. v. Rhoditis, 398 U.S. 306, 309 (1970), the Supreme Court added the additional factor of the shipowner’s base of operations.”
The Supreme Court, however, has not yet specifically adopted a choice-of-law approach in maritime contract cases. “Like the district court, we think that the Fifth Circuit’s opinion in Gulf Trading & Transport Co. v. The Vessel Hoegh Shield, 658 F.2d 363, 366 68 (5th Cir.1981) (Unit A), provides the proper analysis for choice of law problems in maritime contract cases like this one, and we adopt it today as this circuit’s approach.”
“In Hoegh Shield, the Fifth Circuit distinguished Lauritzen and applied the Second Restatement of Conflicts of Law, Sections 6 (Choice of Law Principles) and 188 (Validity of Contracts and Rights Created Thereby), as well as governmental interest analysis, to hold that the proper choice of law in the contract dispute before it was the United States.”
“To conduct a choice of law analysis based on the Restatement, the court must determine which sovereign entity has the ‘most significant relationship’ with the transaction at issue. [Cite]. Section 6 of the Restatement outlines several general principles to be considered when making this determination. For a contract dispute such as this one, however, the Restatement provides more specific factors in Section 188 to effectuate the general choice of law principles outlined in Section 6. See Restatement (Second) Conflicts of Law Section 188(2). These factors are: (a) the place of contracting; (b) the place of negotiation; (c) the place of performance; (d) the locus of the subject matter of the contract; and (e) the domicile of the parties.” [Slip op. 3]
“Here, the district court found that both the place of contracting (factor (a)), and the place of negotiation (factor (b)) were Greece, and this finding is not challenged on appeal. In addition, factor (e), the domicile of the parties, also points to Greek law because the domicile of Aktina is Greece, the domicile of OWC, the owner of the Vessel, is Liberia, and the domicile of the sole shareholder of OWC, Royal Olympic Cruises, is Greece. The Vessel also flew a Greek flag. None of these facts are in dispute, probably because the district court placed little importance on them. Instead, the court found that the most important factors were (c), the place of performance, and (d), the locus of the subject matter of the contract.”
“As to the place of performance, the district court concluded that the services were ‘for the physical transport of crew members to and from the United States.’ This factual conclusion is clearly erroneous, and it is the principal conclusion upon which the district court’s ruling rests. The services provided by Aktina did not include the physical transport of any crew members. Aktina is not an airline it is a travel agent. The service that it provided was the purchasing of plane tickets. This service was entirely performed in Greece.”
“And, the district court left out of its analysis other important aspects of performance, such as payment and breach. Aktina invoiced the cost of the tickets to OWC in Greece. OWC was to pay the invoices in euro, and OWC breached the contract in Greece by not paying the invoices. Thus, these aspects of performance bolster the conclusion that the place of performance was Greece.”
“The district court’s conclusion based on factor (d), the locus of the subject matter of the contract, is also questionable. The court characterized the subject matter of the contract as tickets, and said that these tickets were uniformly located in the United States. But it is clear from the record that roughly half of the tickets were not picked up in the United States, but in airports around the world primarily in Greece. This is because roughly half of the arrangements were made to ensure that crew members could travel to the United States and make arrangements on their own to join the Vessel there.”
“The district court correctly found that each of the tickets was in the United States either at the beginning of a flight or at the end of it, but each ticket was also in another country most often Greece at the other end of each flight. To conclude, then, that the locus of the subject matter of the contract was solely the United States was erroneous.”
“Once this error and the erroneous factual determination that the place of performance was the United States are corrected, the Section 188 factors point overwhelmingly to Greece. And, the Restatement states that, when one state is both the place of negotiation and the place of performance of a contract, that state’s law should usually govern the contract. Restatement (Second) Conflicts of Law Section 188(3). In this case, Greece was both the place of negotiation and the place of performance, and in the absence of other significant factors pointing toward United States law, Greece’s law should apply.” [Slip op. 4].
“Section 6 of the Second Restatement of Conflicts of Law contains the general factors that courts should consider in any choice of law analysis. The parties have not briefed the application of these factors, and the district court did not rely on them. However, we briefly review them to determine whether they establish that the United States has a more significant relationship than Greece to the transaction at issue, despite our conclusion based on the Section 188 factors.”
“The Section 6 factors are: (a) the needs of the international system; (b) the relevant policies of the forum (here, CIMLA); (c) the relevant policies of other interested states (here, Greece’s maritime law that does not provide maritime liens for necessaries); (d) the protection of justified expectations; (e) the policy underlying the field of law in question; (f) the interest in predictability and uniformity; and (g) the ease in determining and applying the relevant law.”
“Of these factors, three (a), (e), and (f) do not favor either nation’s laws. Two (b) and (g) favor the application of United States law. The remaining two (c) and (d) favor the application of Greek law. Thus, after reviewing the Section 6 factors, we conclude that they do not establish that the United States has a more significant relationship than Greece to the transaction at issue here.”
“In this case, as with the Section 6 Restatement factors, the parties have not argued that governmental interest analysis resolves the choice of law issue, and the district court did not conduct a governmental interest analysis. Nevertheless, consistent with Hoegh Shield, we review the competing interests of the United States and Greece as to the application of their laws to this transaction. We conclude from this review that Greece’s interests outweigh those of the United States.”
“The United States has an interest in ensuring that United States suppliers, and those supplying goods and services to ships in United States ports, are protected from the defaults of vessels after receiving their supplies or services. CIMLA supports this policy. However, similar to the United States’s interest as to maritime transactions in its territory, Greece has a strong interest in ensuring that those who negotiate contracts in Greece will receive the benefit of their bargains. Greece also has an interest in determining the proper protections and priorities for Greek corporations and foreign vessel operators when they deal with each other.”
“To apply United States law to what is almost completely a Greek transaction would violate Greece’s interests in governing transactions within its borders, while it would do little to serve the United States’s interests under CIMLA. Thus, governmental interest analysis favors the application of Greek law.”
“[W]e hold that Greek law is the proper law to apply to the transaction between Aktina and the Vessel. The district court erred in applying United States law.”[Slip op. 5]
“Once the proper choice of law is made, it becomes clear that Aktina is not entitled to a maritime lien superior to the Banks’ preferred mortgage lien. No provision of Greek law provides for such a lien. Greek law establishes a statutory lien system, but statutory lien rights do not carry priority over preferred ship mortgages on foreign vessels. See 46 U.S.C. Section 31326. … Accordingly, we reverse the district court’s judgment as to Aktina and remand for entry of judgment in favor of the Banks on Aktina’s claim.” [Slip op. 6].
Citation: Dresdner Bank AG v. M/V OLYMPIA VOYAGER, 2006 WL 1133879 (11th Cir. May 1, 2006).
Filed in: 2006 International Law Update, Issue 5
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In response to motions by administrators of financially challenged makers of asbestos products, English Chancery Court provides preliminary guidance on whether U.S. or English law, in either common or statutory regimes may apply to asbestos injury claims against U. K. companies which arose in U.S.
For many years, T&N and its subsidiaries were making and selling asbestos-based products. Federal Mogul Corporation (FMC) took them over in 1998 and since then the T&N group has been part of the FMC group. T&N and its subsidiaries have other viable businesses, mainly in making automotive parts.
In October 2001, confronted by a storm of asbestos-related claims, T&N and 132 subsidiaries applied to the English Court of Chancery for administration orders. On the same day, those companies together with FMC and 22 U.S. affiliates filed in U.S. federal court for Chapter 11 relief under the U.S. Bankruptcy Code.
In asbestos-related diseases, a substantial time passes between an individual’s exposure to asbestos and the onset of any disease. The mean latency period for mesothelioma, for example, is 40 years and the first damage, which is the development of the first malignant cell, takes place about 10 years before the first appearance of symptoms.
Thus, under English law, no cause of action in negligence may accrue until many years after both the exposure to asbestos and any causative acts or omissions of T&N. In the great majority of cases of exposure to asbestos, no ailment of any sort develops.
T&N is vulnerable to a substantial number of personal injury claims in the United Kingdom. Thus, U.K. claims pending on 1 October 2001 have a value of £ 14 million and estimated future claims, have a current discounted value of about £ 229 million. On the other hand, the U.S. District Court, after a contested hearing involving expert evidence, has put the current discounted value of all pending and future claims before it at $9 billion.
Many claims in the U.K. are by former employees, whereas almost all the U.S. claims are, or will be, product liability tort claims. The legal basis upon which successful U.S. claims have rested turned on a failure to warn, either under strict products liability law or under the law of negligence.
The administrators have filed the present application on the assumption that there are, or may be, material differences in the substantive tort laws of England and the U.S. applicable to the U.S. Asbestos Claims (USACs).
The administrators’ application seeks to have this court rule on four issues of conflicts of law, as they would apply to asbestos-related personal injury claims against T&N with respect to USACs.
The first point assumes that the relevant act or omission giving rise to a particular USAC took place before May 1, 1996 but that the resulting damage did not come about until after that date. The issue that arises first is: will the choice of law applicable to the claims in England be governed by the common law or by the Private International Law (Miscellaneous Provisions) Act (the 1995 Act). The answer depends on the meaning of section 14 of the Act. One of the main purposes of the Act was to do away with the English law of “double actionability.”
The second issue postulates that the common law would control the choice of law applicable to a claim. The question then arises as to whether the court should apply English law to the claim, unless and to the extent that U.S. law was applied by way of the exception confirmed by the Privy Council in Red Sea Insurance Ltd v Bouygues SA [1995] 1 AC 190.
Thirdly, if by way of the Red Sea exception, the court should apply only U.S. law to the claim, should this court regard the quantification of damages as a matter of “procedure” and therefore governed by English law as the lex fori? Finally, the same question comes up on the assumption that the 1995 Act should govern the choice of law applicable to the USACs.
The Chancery justice first points out that, in any event, “[T]he law of torts in the United States relevant to the [USACs] would not be federal law, but the laws of individual States. For the sake of convenience only, I refer in this judgment to U.S. law.” [¶ 17].
The Court then addresses the questions of timing bound up in the first issue. “The principal assumption on which this issue arises is that the claimants’ exposure to asbestos occurred before 1 May 1996, but the damage, i.e. any injury or loss recognised as being capable of compensation by an award of damages, occurred after that date.”
“It follows inevitably that the acts or omissions of T&N or its subsidiaries alleged to give rise to the claims would also have occurred before 1 May 1996. In view of the extended latency period for asbestos-related conditions, it is highly likely that there are, and will be, a significant number of claims in this category.”
“The issue turns on the construction of section 14(1) [of the Act, which provides: ‘Nothing in this Part applies to acts or omissions giving rise to a claim which occur before the commencement of this Part.' The commencement date was 1 May 1996.” [¶¶ 25-26].
“In my judgment it is clear that section 14(1) is directed at the acts and omissions of the defendant, not the damage resulting from them…. Part III of the 1995 Act made a very substantial change in this part of English law and one would not expect it to have the effect of making actionable in England acts or omissions abroad which were not actionable in England or under English law when they occurred. … [T]he difficulty of pinpointing the date of damages provides a sound basis for the administrators’ construction.” [¶ 28]
“I therefore conclude that, provided the acts or omissions of the defendant occurred before 1 May 1996, the 1995 Act will not apply, irrespective of the date of the resulting damage. Accordingly, the choice of law will be governed by the common law, not by the 1995 Act.” [¶ 31]
“The issue, in effect, in Red Sea Insurance v Bouygues SA was whether the reformulated rule in Dicey & Morris is a correct statement of English [common] law.”
“The treatise version reads as follows: ‘(1) As a general rule, an act done in a foreign country is a tort and actionable as such in England, only if it is both (a) actionable as a tort according to English law, or in other words is an act which, if done in England, would be a tort; and (b) actionable according to the law of the foreign country where it was done. (2) But a particular issue between the parties may be governed by the law of the country which, with respect to that issue, has the most significant relationship with the occurrence and the parties.’”
“The Privy Council held that it was. The only refinement was that under paragraph 2 it was open, in an appropriate case, to apply the foreign law to the whole case, rather than to a particular issue only.”
“Although Red Sea Insurance v. Bouygues was a decision of the Privy Council on appeal from Hong Kong, English law applied in Hong Kong to the issues raised and I take it as an authoritative statement of English law.”
“In view of the position established by Red Sea Insurance v Bouygues SA, I questioned [counsel] as to the purpose of the determination sought in paragraphs 4(1) and (2) of the application. [Counsel] accepted that, without descending into facts, it was difficult to point to particular matters on which the direction or declaration would assist, but it was important to establish the foundation of the approach taken by a liquidator or the court when dealing with the claims.”
“I am unable to see any advantage in making a declaration, at a very high level of generality, that the court would be applying the substantive law of England or of the United States or of both.”
“In my view, it is a question to be answered, if at all, in the context of a real issue whose resolution makes it necessary or desirable. [Counsel] agreed that, on each claim to which the double actionability rule applied, a liquidator would have to be satisfied on the facts of the claim that it would succeed in England and in the United States. At present I do not see that the administrators need any further guidance than that.”
“As regards the exception established or confirmed by the Privy Council in Red Sea Insurance v Bouygues SA, the liquidator or the court would have to decide whether the circumstances of a particular case made it appropriate, either as regards the whole case or as regards any particular issue or issues, to apply English law to the exclusion of U.S. law or vice versa.”
“Unless it was appropriate to apply the exception, the double actionability rule would apply. That, as it seems to me, is clear from the authorities and I hardly see the need for a declaration to that effect. I have therefore concluded that at present it is neither useful nor necessary to make declarations under paragraph 4(1) or (2) of the application.” [¶¶ 38-43]
“Equally, however, the 1995 Act does not provide, nor in my view was it intended to produce the result, that there could be no development in the common law on these issues after 1 May 1996. The common law is by its nature dynamic, and I see no hint in the 1995 Act that it set in stone the common law as understood at that time. The effect of the 1995 Act, in my view, is that these issues are left to be governed by the common law, as developed from time to time.”
“Development of the common law does not take place in a vacuum. Account can properly be taken of other developments, for example legislative changes. There is no reason why regard should not be had to the changes made by the 1995 Act, [cites]. I would, however, with respect, doubt whether it is right to look closely at the precise drafting of section 14(3), if the issue is not one of statutory construction.” [¶¶ 71-72].
“No specific issue of U.S. law has been put before me. As mentioned above, [counsel] gave as an example that there might be a range of damages with a fixed minimum and maximum for, say, pain and suffering established by authoritative decisions of the U.S. courts. This was put forward on a hypothetical basis only. …”
“Moreover, treating as substantive a foreign law rule requiring a minimum level of awards raises serious issues which have not yet been considered by the courts. One issue is what does the court do if the minimum under the foreign law exceeds the amount which, on its own assessment, would be awarded by the English court? The mechanistic answer would be to award the minimum set by the foreign law but that may involve a result which is unjust according to both systems of law: too much by the standards of one and too little by the standards of the other.”
“More important perhaps is the issue which would arise if T&N were in liquidation and proofs of debt for general damages were submitted. It can be assumed that proofs would be submitted by claimants from a number of jurisdictions, including the United Kingdom and the United States. The claimants would be suffering from the same conditions – asbestosis, lung cancer, mesothelioma and so on. Their pain and suffering will, subject to individual variations, be the same, or at any rate it will not differ on grounds of nationality or residence. If [counsel] is right, these claimants may be admitted to proof in substantially different amounts for substantially the same loss. It would be seen by many as an unjust result. At common law, this result could perhaps be avoided by not displacing the double actionability rule as regards damages or this aspect of damages.”
“Under the 1995 Act, if the applicable law under section 11 was U.S. law, it could not be displaced under section 12 in favour of English law on this issue. … In valuing proofs, the liquidator must apply English law, but that includes English choice-of-law rules, resulting in the application of foreign law in appropriate cases: [cites].”
“In the result therefore, I decline to make a declaration in the terms proposed by the administrators, which would treat all issues as to the quantification of damages in relation to USACs as governed by English law. Equally, however, I do not accept [opposing counsel's] alternative formulations.” [¶¶ 78-81]
“It follows that, leaving aside questions concerning any specific non-discretionary U.S. rules (such as minimum or maximum amounts), the liquidator or the court, in assessing [USACs,] would not be concerned to assess the level of damages which might be awarded in the United States, but would be exercising their own judgment in accordance with English law.”
“Paragraphs 5(1) and (2) of the application notice raise issues, on the assumption that the 1995 Act applied to any [USACs]. Paragraph 5(1) raises as an issue whether, on a true construction of section 11, the substantive law to be applied would be the law of the state in the United States in which the claimant was when he sustained the injury for which he claims. In view of the agreed construction of ‘country’ in section 11 as meaning, in a federal system, the relevant individual state, the answer to paragraphs 5(1) is clearly affirmative, as all parties agree.”
“Paragraph 5(2) raises the issue as to whether the quantification of damages would be governed by English law, if the 1995 Act applied to the claim and U.S. law was the applicable law for substantive issues. For the reasons already given, I do not consider that the 1995 Act gives to the word ‘procedure’ in section 14(3) any different meaning from its meaning at common law; it follows that I would answer the issue raised in paragraph 5(2) in the same way as the issue at paragraph 4(3).”
“However, it is right to note that, as [counsel] informed me, the administrators envisage that the overwhelming majority of [USACs] will result from the alleged acts or omissions of T&N prior to 1 May 1996 and will therefore be claims to which the 1995 Act does not apply.” [¶¶ 84-87]
Citation: Re T & N and other companies, [2005] EWHC 2990 (Ch), [2005] All ER (D) 338 (Dec), (Approved judgment)(Chanc. Div. December 21).
Filed in: 2006 International Law Update, Issue 1
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In deciding whether to enforce $4.2 billion judgment against various Turkish parties, Second Circuit concludes that Swiss law applies and that it does not allow defendants who had not signed loan contracts to invoke their arbitration clauses
The Uzan family controls several Turkish telecommunications companies, including Telsim and Rumeli Telefon (TRT). In 1998, Motorola lent TRT $360 million to buy cellular infrastructure and equipment from Motorola, and $200 million for TRT to acquire a 25-year nationwide cellular license in Turkey. The collateral was 51 percent of TRT’s outstanding shares.
Motorola eventually raised the loans to about $2 billion, and the collateral to 66 percent of TRT’s shares. The Motorola loan documents specified that Swiss law applied and that parties would arbitrate any disputes before a three-person panel in Switzerland according to the International Arbitration Rules of the Zurich Chamber of Commerce.
In addition, Nokia lent TRT about $800 million secured with 7.5 percent of TRT’s outstanding shares. The choice-of-law and arbitration clauses of the Nokia loan documents closely tracked the Motorola clauses.
TRT, however, repaid a total of only about $205 million of the total loans of $2.8 billion. Motorola and Nokia (plaintiffs) filed suit in a New York district court against several Uzan family members and associates, as well as against several of their companies (defendants). The complaint charged violations of RICO, Illinois state law, the U.S. Computer Fraud and Abuse Act, and the Electronic Communications Privacy Act. It did not, however, include as defendants the signatories of the loan agreements.
The district court found that the defendants had defrauded Motorola and Nokia by making false statements and by diluting the value of the collateral. The total award was about $4 billion in compensatory and punitive damages. The defendants duly noted an appeal. The U.S. Court of Appeals for the Second Circuit affirms in part, vacates in part, and remands in part.
One of defendants’ arguments concerns the choice of law. Below, they had unsuccessfully moved the district court to compel arbitration under 9 U.S.C. Section 206, part 2 of the Federal Arbitration Act (FAA), which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards [June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3] (New York Convention). Section 206 provides that a court “may direct [that] arbitration be held in accordance with the agreement at any place provided for …”
The Second Circuit then explains its analysis. “We have applied a choice-of-law clause to determine which laws govern the validity of an agreement to arbitrate. … More generally, a choice-of-law clause in a contract will apply to disputes about the existence or validity of that contract. …”
“Defendants claim that a choice-of-law clause does not govern questions of contract validity where the ultimate issue is one of arbitrability. They rely principally on decisions that apply federal law to the question of arbitrability despite the presence of a choice-of-law clause designating another forum’s laws. … However, these authorities do not hold that a court must set aside a choice-of-law clause in determining arbitrability; instead, they appear to be cases where neither party raised the choice-of-law issue. …”
“Defendants also argue that applying federal law to the interpretation of arbitration agreements is required to further the purposes of the FAA and to create a uniform body of federal law on arbitrability. Their uniformity argument has some force where the parties have not selected the governing law. But where the parties have chosen the governing body of law, honoring their choice is necessary to ensure uniform interpretation and enforcement of that agreement and to avoid forum shopping.”
“This is especially true of contracts between transnational parties, where applying the parties’ choice of law is the only way to ensure uniform application of arbitration clauses within the numerous countries that have signed the New York Convention.”
“Furthermore, respecting the parties’ choice of law is fully consistent with the purposes of the FAA. In short, if defendants wish to invoke the arbitration clauses in the agreements at issue, they must also accept the Swiss choice-of-law clauses that govern those agreements.” [Slip op. 29-32]
The Court then turns to the issue of whether, under Swiss law, the defendants (as non-signatories to the loan agreements) may invoke their arbitration clauses. (The parties briefed these issues for the Second Circuit and provided affidavits from preeminent scholars of Swiss law.)
Plaintiffs’ “Karrer Declaration” concludes that, under Swiss law, a director, shareholder or employee of [TRT] could not invoke the arbitration clauses unless such third party was a successor. Swiss jurisprudence apparently has not dealt with a situation where a non-signatory tried to compel arbitration against a signatory to an agreement.
Defendant’s affidavit from Dr. Phillipe Schweizer does not materially advance their case. Dr. Schweizer explains that a non-signatory may be required to arbitrate under certain circumstances where it acts in bad faith. He does not, however, support the theory that, under Swiss law, a non-signatory can invoke an arbitration clause.
The Court concludes that Swiss law would not allow the non-signatory defendants to invoke the loan agreements. Thus, the lower court had correctly denied defendants’ motion to compel arbitration.
Citation: Motorola Credit Corp. v. Uzan, 2004 WL 2367827; Nos. 03-7792(L), 03-7794(CON), 03-7878(XAP) (2d Cir. October 22).
Filed in: 2004 International Law Update, Issue10
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In litigation by Nicaraguan seaman against U.S. vessel owners for injuries suffered during shrimp harvesting in Nicaraguan territorial waters, Fifth Circuit rejects district court’s weighing of Lauritzen-Rhoditis factors and holds that “stationary” nature of operations requires different weighing of choice-of-law elements
Unrelated accidents injured ten Nicaraguan seaman while they were working on the shrimp-harvesting vessels of the U.S. defendants (jointly “Gulf King”) in Nicaraguan territorial waters. The seaman filed an action under the Jones Act [46 U.S.C. Section 688] and the general maritime laws of the U.S.
The defendants filed a consolidated motion for summary judgment, arguing that Nicaraguan law governed the claims. Although the district court denied this motion, it did certify the choice-of-law question for consolidated interlocutory appeal.
The U.S. Court of Appeals for the Fifth Circuit reverses. The Court notes that the vessels were licensed by the Nicaraguan government, and the seamen were managed from Nicaragua. The vessels were not subject to the U.S. Coast Guard safety requirements. The U.S. defendants, however, operate the vessels with loans from the Small Business Administration and the U.S. Department of Commerce.
The question of whether the Jones Act and the general maritime law of the U.S. apply or Nicaraguan law applies to these maritime injury claims hinges on the Supreme Court trilogy of cases Lauritzen v. Larsen, 345 U.S. 571 (1953), Romero v. Int’l Terminal Operating Co., 358 U.S. 354 (1959), and Hellenic Lines Ltd. v. Rhoditis, 398 U.S. 306 (1970). In these cases, the Supreme Court had articulated eight non-exhaustive factors for such choice of law questions: (1) the place of the wrongful act, (2) the law of the flag, (3) the allegiance or domicile of the injured, (4) the allegiance of the defendant shipowner, (5) the place of the contract, (6) the inaccessibility of the foreign forum, (7) the law of the forum, and (8) the shipowner’s base of operations (“Lauritzen-Rhoditis factors”).
The district court had relied mostly on the fact that the vessels flew the American flag. The Court notes that the Supreme Court developed these “Lauritzen-Rhoditis factors” in the context of maritime commerce on the high seas. This case, however, resembles those cases where accidents occurred on drilling platforms. Therefore, the courts should weigh the factors differently.
“We conclude that the facts of this case are more analogous to an injury occurring on a fixed drilling platform than on a vessel in traditional maritime commerce. For that reason, we find that the district court erred in the weight it accorded to the Lauritzen-Rhoditis factors in this case. When we discount the law of the flag and allegiance of the defendants factors which favor application of United States law, and accord more weight to the Plaintiffs’ citizenship and residence, the place of the employment contracts and the place of injury, all of which were in Nicaragua, it is clear that the calculus ultimately dictates application of Nicaraguan law. We note, further, that the district court’s assumption that the application of United States law would allow the Plaintiffs a more generous recovery, while almost certainly correct, was not a valid consideration in its choice-of-law analysis. ‘The fact that the law of another forum may be more or less favorable to a plaintiff, however, does not determine choice of law.’ …” [Slip op. 11-12]
Citation: Solano v. Gulf King 55, Inc., 212 F.3d 902 (5th Cir. 2000).
Filed in: 2000 International Law Update, Issue7
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In international patent litigation, Illinois district court rules that, based on comity, U.S. courts should apply attorney-client privilege law of nations where confidential communications with foreign patent attorneys and agents were made
McCook Metals L.L.C. sued Alcoa, Inc., in an Illinois federal court on contract and antitrust claims, as well as on a claim that two of Alcoa’s patents were invalid. During discovery, McCook asked for production of 2,478 pages of documents which Alcoa refused to disclose on grounds of attorney-client privilege, work product doctrine, or both. The U.S. Magistrate Judge grants in part and denies in part McCook’s motion to compel.
According to one school of thought, the attorney-client privilege was historically less protective in the patent area than in other areas of the law. In 1963, however, the Supreme Court found that several aspects of the preparation and prosecution of patent applications constituted the practice of law. Sperry v. Florida, 373 U.S. 379 (1963). Later cases hesitated to grant patent attorneys the full scope of the privilege, typically treating the patent attorney as a mere “conduit” between the inventor and the Patent Office.
The Knogo Corp. v. U.S., 1980 U.S. Ct. Cl. LEXIS 1262 (1980) line of cases, on the other hand, privileges almost all confidential communications between a client and his or her patent attorney because their relationship is a cooperative effort. The Federal Circuit has expressly accepted Knogo. Since the issue is open in the Seventh Circuit, the Magistrate Judge concludes that the Knogo line of cases is more persuasive.
Here, Alcoa claims the attorney-client privilege for communications between its in-house counsel and foreign patent attorneys and patent agents pertaining to patent prosecutions in foreign patent offices. The countries include Canada, France, Germany, Japan, and the United Kingdom.
In Burroughs Wellcome Co. v. Barr Laboratories, Inc., 143 F.R.D. 611, 616 (E.D.N.C. 1992), the court declared that generally “no communications from patent agents, whether American or Foreign, are subject to the attorney-client privilege in the United States … [T]he privilege may extend to communications with foreign patent agents related to the foreign patent activities if the privilege would apply under the law of the foreign country and that law is not contrary to the law of this forum.” In other words, if the attorney-client privilege applies in a foreign country, then comity requires the U.S. court to apply that country’s law to the documents at issue.”
“Regarding communications for the French patent prosecution, Alcoa used the French firm of Cabinet Lavoix. French law provides that ‘communications between patent agents and clients are confidential,’ however, communications between foreign attorneys and the French Patent Office are not confidential. …”
“Regarding the prosecution of the German patents, Alcoa used [a] German patent attorney firm…. Under German law, attorney-client privilege protects ‘all communications between a German patent attorney and his client which occur in the rendition of legal services for the client, the client and the attorney may refuse to disclose such communications in a court proceeding.’ … [H]owever, communications from the attorney to the German Patent Office are not privileged.” [Slip op. 34]
Alcoa has the burden of persuading the court that the documents are privileged. Thus, Alcoa must disclose all requested documents unless it (1) provides the Court with English translations of the documents (if applicable) and (2) furnishes an affidavit of a licensed attorney learned in the laws of the country at issue that explains the attorney-client privilege law of that country and shows why the privilege applies to each document. [Editorial Note: Fed. R. Civ. P. 44.1 governs the proof of foreign law in federal courts.]
Citation: McCook Metals L.L.C. v. Alcoa, Inc., 99 C 3856 (N.D. Ill. March 2, 2000).
Filed in: 2000 International Law Update, Issue 4
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In complex litigation over Texas company’s provision of telephone services to Mexican customers, Fifth Circuit, using Texas choice-of-law doctrines based on Restatement of Conflicts, applies internal law of Texas to contract and tort issues
Telmex, the Mexican telephone company, had a monopoly on Mexican telephone services until 1996. During 1993 and 1994, Access Telecom, Inc. (ATI), a Texas corporation, was also providing telephone services to Mexican customers. The customer would first call ATI in Texas which then would connect the call to the intended destination. Telmex supplied phone service only within Mexico while ATI afforded it in the U.S. and to the new destination.
The Mexican leg of each call came through toll-free numbers that MCI had leased from Telmex and made available to ATI. ATI’s services generally lessened the cost of international telephone calls to and from Mexico.
ATI also provided “call-back” service where the customer called ATI. ATI did not answer these calls but instead used a kind of “caller-ID” to call the customer back and then connect the call to the desired number. [Editors' Note: "call back" telephone services are still common in Latin American countries because of the high cost of telephone services charged by the provider companies].
In 1993, the Mexican Secretary of Communications and Transportation (SCT) requested MCI to stop supplying “call-back services.” Shortly thereafter, Telmex demanded a list of MCI’s customers that provided these services. MCI eventually stopped affording telephone services to ATI, and AT&T refused to offer services alternative to ATI. As a result of the Mexican crack down, ATI, along with approximately 80 similar companies, soon collapsed.
Two years later, MCI obtained an arbitration award of $1.2 million from ATI covering ATI’s unpaid phone bill. A few weeks later, ATI sued MCI, Telmex, and SBC, a related company, in Texas state court for tortious interference and contracts claims. Upon removal, the Texas federal court dismissed the claims against Telmex for lack of personal jurisdiction. The district court also denied ATI’s motion for partial summary judgment that would uphold the lawfulness of its activities, and granted the motion of MCI and SBC for summary judgment on all of ATI’s claims.
ATI appealed the rulings adverse to it. The U.S. Court of Appeals for the Fifth Circuit reverses and remands. [See also JURISDICTION (PERSONAL) below.]
A threshold aspect of this case is how to characterize ATI’s business. The Court classifies ATI as an “exporter of U.S. phone services” who incidentally and indirectly resold Mexican telecommunication services. MCI was the reseller under a contract with Telmex.
As between Texas and Mexico, the Court then had to decide (1) which law governs ATI’s tort claim; (2) which law governs the validity of the contracts and prospective business relations that form the basis of the tortious interference claims; and (3) whether, if applicable, Mexican law invalidates the contracts for other reasons.
The Court first notes that Texas uses the “most significant relationship” test of the Restatement (Second) of Conflict of Laws, Section 145 as to choice of law in torts. Section 145 focuses on the following factors: (1) the place where the injury occurred, (2) the place where the conduct causing the injury occurred, (3) the domicile, residence, nationality, place of incorporation, and place of business of the parties, and (4) the place where the relationship between the parties, if any, is centered. Under these criteria, the Court rules, it would be reasonable to apply Texas tort law in this case.
As for contract choice of law, the Court notes that the contracts at issue include ATI’s contracts with its Mexican customers, ATI’s contracts with MCI, and ATI’s prospective contracts with AT&T. Considering the conflicts with Mexican authorities, there is also the question of whether these contracts were valid under the internal law that governed the contract.
Here, the contracts with Mexican customers had choice-of-law provisions that made Texas law applicable and specified Texas as the place of contract formation. Texas ordinarily enforces choice-of-law provisions if the chosen forum has a substantial relationship with the parties and the transaction. See Restatement (Second) of Conflict of Laws, Section 187.
Following Section 187, however, Texas courts will not honor a choice-of-law provision if another jurisdiction has a materially greater interest than the chosen state and if application of the chosen law would contravene that jurisdiction’s fundamental policy. In the Court’s analysis, Texas law determines the validity of the contracts and of the prospective contracts at issue.
“Mexico would not have a fundamental policy contravened by the application of Texas law in this case. The export of U.S. telecommunication services and even the resale of Mexican services does not contravene Mexico’s legitimate monopoly over its domestic lines. Telmex can charge whatever it likes for incoming and outgoing calls on its lines. The resale of the Mexican leg either directly by MCI or indirectly by ATI is only profitable if Telmex allows it to be. If Telmex sets a monopoly price for its initial service, Telmex recoups all potential monopoly revenues from that fee. … [...] Texas, on the other hand, would have a fundamental policy contravened by the choice of Mexican law (assuming Mexican law is different on the question on contract validity), namely the ability of Texas companies to make valid export contracts in Texas for the sale of U.S. services. [Slip op. 17-18]
Under Texas law, a contract made with a view toward violating the laws of another country is illegal. Texas courts will not enforce it even if it does not otherwise offend either the laws of the forum or of the place where the parties made their contract.
In applying the rule to this case, the Court declares: “There are at least two reasons to defer to foreign law … even if that law would not be chosen to govern the contract. First, a contract legal in the U.S. and illegal in Mexico may place parties in a dilemma. They can either perform the contract and face Mexican liability (Mexico, after all, may have personal jurisdiction over the parties). On the other hand, the parties can breach the contract, but then face U.S. liability for contract damages. … [...] A second, but more important, reason to defer to foreign law even if it does not apply to the contract is the mentioned principle of comity, which suggests that the U.S. should respect Mexican law on a kind of ‘golden rule’ basis.” [Slip op. 22-23]
In this case, however, there is no “dilemma.” These facts do not serve as a defense to a claim of tortiously interfering with such contracts because the alleged tortfeasor does not have to choose between violating foreign law or suffering U.S. liability.
“… Mexican law at the time was sufficiently unclear and capable of multiple interpretations as to what was or was not legal. Such difficulty in interpreting foreign law makes it unreasonable to conclude [that] any contract was entered with a view to violate foreign law. … While the content of foreign law is a legal question, the question of ATI’s intention is not, and there is sufficient evidence to permit a jury to conclude ATI was acting with the view that their services were legal; as such, summary judgment against ATI on the tortious interference claims would be improper unless ATI’s activities were illegal under U.S. law or subject to another defence [sic] …” [Slip op. 27-28]
Citation: Access Telecom, Inc. v. MCI Telecommunication Corp., No. 98-50881 (5th Cir. December 1, 1999).
Filed in: 2000 International Law Update, Issue 1
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In litigation between foreign parties over enforcement of arbitration clauses brought in New York federal court, Second Circuit rules that federal common law developed under Federal Arbitration Act governs interpretation of disputed contracts, not state law
In July 1993, Smith Cogeneration International, Inc. (SCI) entered into a Power Purchase Agreement (PPA) with Compania Dominicana de Electricidad (CDE), a utility owned by the Dominican Republic. SCI was to build, finance and run the plant. Enron, a competitor in this enterprise, set up a joint venture with SCI called the Project Agreement (PA) in November 1993.
Two weeks later, Smith Cogeneration Dominicana (SCD), an affiliate of SCI, formed a limited partnership with Travamark Two B.V., an Enron affiliate (1993 Agreement). This agreement set up SECLP, a limited partnership organized under the laws of the Turks and Caicos Islands, and required SCI to assign its interest in the PPA to SECLP. Thus, the latter was to take over the building and running of the power plant.
Under a 1994 Agreement, SCD assigned part of its interest in SECLP to Enron affiliates, Atlantic Commercial Finance B.V. (ACF) and Enron Reserve I (ER).
The PPA, the 1994 Agreement and the PA all provided for the arbitration of “any dispute…arising under or relating to any obligation or claimed obligation under the provisions of this Agreement.” In addition, they all stipulated that the arbitration take place in New York under the Federal Arbitration Act (FAA) and Texas law.
During 1995, ER assigned its general partnership interest to Enron Dominican Republic Operations (EDRO) and ACF assigned its limited partnership interest to Enron Dominican Republic (EDR). The assignees are all Enron affiliates under common control.
It turned out by 1996 that SCI could not meet its financial duties to SECLP. This led to an amendment of the 1994 Agreement to include the Smith Dominicana Holding Limited Partnership (SDHLP) to increase the funds available to SECLP.
In July 1998, SCI filed a suit in the Dominican courts against SECLP, Enron International C.V., Enron Development Corp., ER, ACF, and Travamark. The following month, SECLP and Euron petitioned a New York federal court to compel arbitration of the dispute with SCI and to enjoin SCI from prosecuting the Dominican lawsuit. The district court granted the petition and an appeal ensued. The U. S. Court of Appeals for the Second Circuit affirms. [On the issue of jurisdiction, see JURISDICTION, below.]
SCI contended on appeal that the lower court should have applied the choice-of-law doctrines of New York to find out which contract law governs the construction of the Agreements in question. Moreover, they argued that New York law points toward applying the law of Turks and Caicos. Stressing that this is a federal question case, not one based on diversity jurisdiction, the Court sees no convincing reason to apply New York substantive law merely because it is the forum. Moreover, the Agreements themselves invoke federal law, i.e., the FAA, as to the issues of enforcing arbitration.
“When we exercise jurisdiction under Chapter Two of the FAA, we have compelling reasons to apply federal law, which is already well developed, to the question of whether an agreement to arbitrate is enforceable. (Cits.) Under the circumstances here, where there is little connection to the forum and the Agreements between the parties state an intention to be governed by the FAA, proceeding otherwise would introduce a degree of parochialism and uncertainty into international arbitration that would subvert the goal of simplifying and unifying international arbitration law.” [Slip op. 8]
In addition, there is the question of what contract law applies to the interpretation of the Agreements. On this point, the 1994 Agreement declares that “matters of interpretation of the provisions of this Agreement shall be governed by Texas law in any such arbitration.” [id.]
“It is thus clear that neither party intended New York law, procedural or otherwise, to govern any aspect of their dispute. As no party is domiciled in New York, and no transactions have taken place here, New York has no connection to this litigation other than it is the location of the arbitration. While the language quoted immediately above might justify looking to Texas law on assignments, neither party argued that it applied. Thus, we will apply the body of federal [common] law under the FAA.” [id.]
Citation: Smith/Enron Cogeneration Limited Partnership, Inc. v. Smith Cogeneration International, Inc., 1999 WL 1114706 (2nd Cir.(N.Y.)).
Filed in: 1999 International Law Update, Issue 12
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