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In action by Michigan resident against successor Canadian corporations, Sixth Circuit declines to enforce Ontario default judgment against predecessor corporation since Ontario law made applicable by contract’s choice-of-law clause requires express agreement by successor company to be bound by such judgment
Manutec Steel Industries, Inc., a Canadian corporation, and John Johnson, a resident of Michigan, entered into a sales representation contract in September 1985. For a 5% commission on all sales, Johnson was to be the exclusive sales representative for Manutec in the United States.
The contract had a two-year termination notice and a choice-of law clause. The latter provided that “[t]his agreement shall be interpreted and governed by the laws of the Province of Ontario.”
In September 1987, Manutec became the wholly owned subsidiary of Ventra Manufacturing, Ltd. Although Johnson claims to have worked up a substantial amount of business with Chrysler and GM, Manutec fired him without notice in April 1988.
Johnson sued Manutec (but not Ventra) in an Ontario court the following month. In February 1990, the Court entered a default judgment for about $1,500,000 in Johnson’s favor.
While Johnson’s suit was pending, ITL Industries Ltd., a Canadian corporation, bought 100% of Ventra Manufacturing’s shares and renamed itself Ventra Group, Inc., with Manutec as wholly owned subsidiary. In December 1989, Manutec’s secured creditors put the company into receivership. A year later, Ventra Group and its new subsidiary, Ventratech, bought certain assets from a Manutec plant in Ontario.
In January 1994, Johnson sued Ventra Group and Ventratech in a Michigan court to enforce his default judgment against Manutec. His transnational theory was that a successor corporation was liable under Michigan law to pay his default judgment. Ventra removed the case to federal court.
Responding to various motions by both sides, the district court ruled that Ontario, not Michigan, law was controlling. Ultimately, the court gave defendants summary judgment on all of Johnson’s claims.
Johnson appealed several rulings on foreign and domestic law and procedure as well as the lower court’s ruling that Ontario law would govern the case. The U.S. Court of Appeals for the Sixth Circuit, however, affirms.
Since the federal court has diversity jurisdiction, it has to apply the choice-of-law principles of its local state. If those rules lead to the application of foreign law, the Court points out, determination of its content is reviewable as a “question of law” under F. R. Civ. P. 44.1.
Michigan generally follows the Restatement of Conflicts (2nd) approach to choice-of-law clauses. Section 187(2) generally allows their enforcement with two exceptions. The first does not pertain here. The second exception operates (1) if applying the law of the chosen state would go contrary to a basic policy of another state that has a materially greater interest than the chosen state and (2) the other state would constitute the state of the applicable law (under the factorial analysis found in Section 188) in the absence of an effective choice of law by the parties.
Plaintiff challenged the validity of the choice-of-law clause. Unlike many boilerplate provisions in contracts of adhesion, the Court notes, plaintiff bargained over, and agreed to, this clause. Thus he cannot sue under the substantive provisions of the contract while rejecting the contract’s selection of Ontario law.
Plaintiff also urged that Michigan’s version of the Uniform Foreign Money Judgment Recognition Act supported the enforcement of his Ontario judgment. The Court disagrees, however, because the Act does not deal with the problems of successor liability, the key issue in this case.
The first exception to Section 187(2) does not apply due to the clear linkages to the Ontario defendants, Ontario also being where plaintiff finalized his contract. The applicability of the second exception, however, is vigorously contested.
In the Court’s view, plaintiff incorrectly argued that Ontario has no law on successor liability. On the other hand, Ontario law does differ from Michigan law on the point.” The fact, however, that a different result might be achieved if the law of the chosen forum is applied does not suffice to show that the foreign law is repugnant to a fundamental policy of the forum state. (Cit.) If the situation were otherwise, and foreign law could automatically be ignored whenever it differed from the law of the forum state, then the entire body of law relating to conflicts would be rendered meaningless.” [Slip op. 5]
Not only is the contract clause broad enough to cover the plaintiff’s causes of action but the Court submits that either the factorial analysis of Restatement Section 188 or Michigan’s lex loci contractus doctrine would, even in the absence of the clause, lead to the application of Ontario law.
“Although Michigan has substantial ties to the instant transaction because it is Johnson’s place of residence and the place where a major part of the performance occurred, Ontario has the more significant relationship because Manutec as well as the present defendants are Ontario corporations, the contract was negotiated and signed in Ontario, and the alleged breach occurred in Ontario. Accordingly, Ontario law would govern under a Section 188 analysis.” [Slip op. 6]
Pursuant to Rule 44.1, both sides called expert witnesses to testify about the Ontario law of successor liability. Defendants presented Colin F. Dodd, an Ontario solicitor. He declared that successor liability does not follow the purchase of corporate assets as under a “mere continuation” approach but only by an express transfer of the obligation at the time of sale.
Even plaintiff’s expert admitted that Canadian law had not yet developed to the point of specifically accepting the “mere continuation” doctrine. Finally, plaintiff has failed to show any express assumption of liability at the time of either defendant’s purchase of Ventra Manufacturing’s assets. Hence, summary judgment was appropriate.
Citation: Johnson v. Ventra Group, Inc., 191 F.3d 732, 1999 WL 701176 (6th Cir.(Mich.)).
Filed in: 1999 International Law Update, Issue 11
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In wrongful death litigation by Colombian plaintiff against American Airlines over air crash in Colombia, Eleventh Circuit rules that Warsaw Convention allows domestic forum’s choice-of-law analysis to resolve measure of damages and that Restatement of Conflicts principles leads to application of Florida law
The present litigation arises out of the nighttime crash of American Airlines Flight 965 near Cali, Colombia on December 20, 1995. The wreck killed Maria Constanza Piamba Cortes, a domiciliary of Colombia on her way back from the United States. Doris Cristina Piamba Cortes, a sister of deceased, sued American Airlines in Florida state court.
Both sides agree on the basic facts. The aircraft was in good condition and the Cali airport sits in a valley about 43 miles long and 12 miles wide, surrounded by mountains. There was a tragic confusion in the use of radio navigation beacon frequencies and miscommunications between the flight crew and the Cali Air Traffic Controller. As a result, Flight 965 came down to 8,400 feet causing it to crash on a mountainside 24 miles northeast of the airport.
Defendant removed the case to federal court. The district court held that the suit arose under the Warsaw Convention that caps the amount of damages recoverable for international air crashes except where there was “willful misconduct.” [See also WARSAW CONVENTION, below].
As to damages, the court did a choice-of-law analysis as between the laws of Colombia and Florida. It ruled that Florida’s compensatory damages law applied to plaintiff. Both sides appealed. The U. S. Court of Appeals for the Eleventh Circuit affirms in part, vacates in part, and remands.
Defendant airlines claimed error in the district court’s failure to see plaintiff’s and decedent’s Colombian domicile as dictating the application of that country’s law. Judge Birch, however, disagrees.
Judge Birch first rules that the Warsaw Convention governs plaintiff’s claim “for damage sustained” during an international flight. In Zicherman v. Korean Air Lines Co., 516 U.S. 217 (1996), 1996 Int’l Law Update 15, the U.S. Supreme Court read this general language as authorizing the courts of various member states to apply the damages law that would govern in the absence of the Convention. Since there are links here to both Florida and Colombia, the lower court, without challenge from the parties, analyzed the choice-of-law problem under the “most significant relationship” test found in the Restatement (Second): Conflict of Laws (1971).
In the case of damages for wrongful death, Judge Birch notes, the Restatement provides no rigid rules for solving choice-of-law problems. Each court must examine the interests created by the circumstances of each case under the factors set forth in Sections 6 and 145.
Defendant first pointed out that Florida was not its “principal place of business.” Judge Birch, however, gives little weight to this reading of Section 145(2). “[T]he district court found not only that Miami serves as one of American’s primary transportation hubs, but also that Miami is the site from which American orchestrates its Latin American operations.” [Slip op. 23]. Florida thus has an interest in this litigation under Section 145(2).
To discover which contacts were most “significant” in this case, Judge Birch next turns to Restatement Section 6(2)(b) and (c). The court must (1) identify the rules of law applicable in both Florida and Colombia; (2) identify the underlying purposes of both rules of law; (3) assess the degree to which application of each state’s law would advance its policy interests.
Step (1) posed prodigious problems [see below]. Adopting arguendo defendant’s cap theory, Judge Birch under step (2) sees the goals of such caps as the recompense of domiciliaries for a relative’s wrongful death and the shielding of domiciled defendants from exorbitant damage awards. Florida’s compensation scheme, on the other hand, seeks to shift the losses resulting from wrongful death from the decedent’s survivors to the wrongdoer without overly burdening domiciliary defendants.
As to the policies that would underlie Colombia’s supposedly less generous damages law, Judge Birch agrees with the lower court. “The fact that the decedent was a domiciliary of Colombia, combined with the fact that the primary claimants – including Piamba Cortes – also are Colombian domiciliaries, creates an interest on Colombia’s behalf to ensure proper compensation for these claimants.” [Slip op. 25].
On the other hand, applying Florida law here would not substantially advance its underlying policies. “[T]he purpose underlying Florida law is to provide an adequate remedy for its own domiciliaries. (Cit.) Florida thus possesses no interest in compensating domiciliaries of other jurisdictions more richly than they would receive in their own courts.” [Slip op. 26]
Thus, applying the law of either jurisdiction in this case would further the underlying compensatory policies of both.
Restatement Section 6(2)(e) next urges the courts to consider the policies that underlie the general field of law involved in the particular case.
Tort law stresses (1) compensating injured victims and (2) deterring tortious conduct. “[A]pplication of Colombian law arguably would frustrate these goals by limiting the amount the tortfeasor must pay to compensate the victim and her survivors. Consequently, this factor weighs slightly in favor of applying Florida law.” [Slip op. 27].
Finally, Section 6(2)(g) asks the courts to take into account the relative ease of determining and applying one or the other competing set of laws.
“Here, two eminent Colombian jurists and scholars expressed profound disagreement whether Colombian law caps non pecuniary damages and restricts the recovery of net accumulations, and the district court’s review of the available legal authorities failed to reconcile this debate.” [id.] This factor weighs heavily in favor of applying Florida’s straightforward measure of damages.
[Editorial Note: F.R.Civ.P. 44.1 governs the proof of foreign law in federal civil actions. While it abolished the "fact approach" of the common law, it put the burden of proof on the party seeking to invoke foreign law.]
Citation: Piamba Cortes v. American Airlines, Inc., 177 F.3d 1272 (11th Cir.1999).
Filed in: 1999 International Law Update, Issue 9
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In civil action against Marcoses over conversion of buried war treasure found by plaintiff, Supreme Court of Hawai’i agrees that Philippine law would govern survival or abatement of suit but declines to “judicially notice” that law for failure of parties to present evidence of its content
[For background facts, see "Act of State" above] An important issue in this case involved the law applicable to the survival of Roxas’ claim against Marcos who died before the court had finally determined the merits. Under Hawai’ian law [HRS § 634-61 (1993)], the death of a defendant does not prevent the continuation of the suit against a properly substituted party. On several substantive issues, the lower court had applied the law of the Philippines as the jurisdiction with the most significant relationship to the parties and the subject matter. It applied HRS § 634-61, however, to the abatement issue. This posed the problem of whether the appellate court could or should “judicially notice” Philippine law on this point.
The Court first points out that acting as forum furnished the only Hawai’ian link to the subject matter of the suit. All other factors invoked the interests of the Philippines. Thus, the lower court had properly applied Philippine law to the substantive claims.
“In light of the foregoing, it would have made sense for the circuit court to have applied Philippine law as to the survival or abatement of those claims for relief. However, as far as we can discern, the parties never addressed Philippine law, if there is any, on the question at trial, and their appellate briefs are silent on the issue. This court may take judicial notice of the law of foreign countries. See Hawai’i Rules of Evidence (HRE) Rule 202(c)(5) (1993). … [On proof of foreign law, see] HRCP Rule 44.1 (1996) …”
“In the present matter, we need not directly address whether it is generally appropriate for courts in this jurisdiction to ascertain foreign law ex officio because reliable sources of Philippine law are not available. Under such conditions, it is eminently sensible to cast the burden of apprising the court regarding foreign law on the parties, and, where they fail to meet their burden, to assume acquiescence in the application of local law. Accordingly, we apply HRS § 634 61 to our analysis.” [Slip op. 22, note 16]
[Editorial Note. Rule 201 of the Federal Rules of Evidence restricts judicial notice to "adjudicative facts." Though a few states, such as Hawai'i, have added a Rule 202 to deal with other matters deemed appropriate for judicial notice, the Advisory Committee's Note to federal Rule 201 specifically characterizes proof of foreign law as "procedural" and thus, within Fed.R.Civ.Pro. 44.1]
Citation: Roxas v. Marcos, No. 20606 (Supreme Court of Hawai’i, November 17, 1998) [See also under Immunity (Head of State), below].
Filed in: 1999 International Law Update, Issue 1
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In securities fraud litigation, Ninth Circuit sitting en banc reverses panel and enforces clauses choosing English forum and law in securities contracts between U.S. investors and Lloyd’s of London despite U.S. statutory ban on advance waivers
In October 1994, Alan Richards and 573 other plaintiffs (the “Names”) sued Lloyd’s of London in California federal court. The suit alleged fraud under U.S. securities laws, violation of the RICO statutes, breach of state “Blue Sky” laws, common law fraud, and breach of fiduciary duty. The plaintiffs are newly recruited members (“Names”) of various Lloyd’s underwriting syndicates. The hundreds of millions of dollars in investment contracts solicited by Lloyd’s in the U.S. allegedly constituted “securities” under U.S. law but Lloyd’s had not registered them with the S.E.C.
Lloyd’s is an insurance market in which more than three hundred Underwriting Agencies or syndicates compete for underwriting business. Under the Lloyd’s Act of 1871-1982, Lloyd’s administers and regulates the competition for underwriting business in the Lloyd’s market. A Managing Agent controls each Underwriting Agency and is accountable for the financial status of its agency. The Managing Agent must bring in not only underwriting business from brokers but also the capital needed to insure the risks.
The Names provide this capital. By a series of agreements, the Names become Members of the Society of Lloyd’s. Names must produce evidence of financial means, and must deposit an irrevocable letter of credit in favor of Lloyd’s. To become a Name, one must travel to England to acknowledge the attendant risks of participating in a syndicate and sign a General Undertaking. Among other things, the Undertaking contains clauses choosing English law as applicable to disputes and the English courts as the only forum for their resolution (the Choice Clauses).
Plaintiffs complained that Lloyd’s Managing Agents had concealed their exposure to pre existing high liability claims such as those based on asbestos and toxic waste matters. As part of the alleged fraud, the Names’ listed the Choice Clauses.
After Lloyd’s failed to answer the complaint, the Names moved for a default judgment. Lloyd’s then countered with a motion for dismissal on grounds of improper venue, forum non conveniens, and res judicata. In April 1995, the district court dismissed the complaint, holding that the remedies available in the English courts were enough to protect American investors.
A panel of the U.S. Court of Appeals for the Ninth Circuit reversed, holding that the Choice Clauses constituted an impermissible prospective waiver of rights and remedies guaranteed by the Securities Acts of 1933 and 1934. [Richards v. Lloyd's of London, 107 F.3d 1422 (9th Cir. 1997), 1997 International Law Update 39]. Upon rehearing en banc, however, the Ninth Circuit votes 8 to 3 to have the former opinion withdrawn and affirms the district court.
The Names made three main contentions. They argued (1) that the anti-waiver provisions of the federal securities laws invalidated the Choice Clauses; (2) that the Choice Clauses are void because they violate the strong U.S. public policy of sustaining an investor’s remedies under federal and state securities law and RICO and (3) that defendants had inserted the Choice Clauses as part of their scheme to deceive investors.
The Securities Act of 1933 (the “’33 Act”) provides at 15 U.S.C. § 77n that: “Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.” The 1934 S.E.C. Act contains a substantially similar provision in 15 U.S.C. § 78cc(a).
Assuming without deciding that the investments here constituted unregistered “securities,” the majority rejected the applicability of the statutes to void the Choice Clauses. It mainly relies upon Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) and Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974).
The majority concludes that Bremen applies to international securities contracts. “Indeed, were we to find that Bremen did not apply, the reach of United States securities laws would be unbounded. The Names simply prove too much when they assert that ‘Bremen ‘s judicially-created policy analysis under federal common law is not controlling when Congress has expressed its will in a statute.’ This assertion, if true, expands the reach of federal securities law to any and all such transactions, no matter how remote from the United States.” [slip op., 3]
The majority next rules that the instant arrangements constituted “international” contracts. Plaintiffs disparaged the visits to England as a legally insignificant ritual and stressed the extensive nature of defendants’ solicitations within the U.S. The majority disagrees. “Lloyd’s insistence that individuals travel to England to become a Name does not strike us as mere ritual. Lloyd’s likely requires this precisely so that those who choose to be the Names understand that English law governs the transaction. Entering into the Lloyd’s market in the manner described is plainly an international transaction.” [slip op., 4]
Turning to Scherk, the majority sees it as applying Bremen to international securities contracts. The former echoes Bremen’s point that choice-of-forum clauses and their implicit choice-of-law effect are almost indispensable to the effectiveness of international contractual dealings. Their vital role is to provide the orderliness and predictability needed for the stability of international business arrangements.
Citing Bremen, the plaintiffs claimed unenforceability (1) because the Choice Clauses came about via fraud or overreaching and (2) because they collided with a strong public policy of the forum.
Addressing (2), the majority rely upon Scherk as upholding a similar choice clause. It stresses that U.S. litigants cannot parochially expect that they can count upon American law
to govern all international transactions. This is particularly true where the U.S. party has solemnly agreed otherwise.
Nor is English law gravely inadequate to address and remedy plaintiffs’ claims. “The Names have recourse against both the Member and Managing Agents for fraud, breach of fiduciary duty, or negligent misrepresentation. Indeed, English courts have already awarded substantial judgments to some of the other Names.” [slip op., 7] The majority concludes that, whatever may be the situation as to the contracts as a whole, plaintiffs have shown no fraud specifically directed at including the Choice Clauses.
Three judges file a thoughtful dissent. “The majority espouses a reasonable foreign policy, but one which emanates from the wrong branch of government. Congress has already explicitly resolved the question at hand. In the Securities Act of 1933 and the Securities Exchange Act of 1934 (the “Acts”), Congress expressly provided that investors cannot contractually agree to disregard United States securities law. Thus, in applying the ‘reasonableness’ policy-weighing approach of Bremen, the majority displaces Congress’ specific statutory directive. Furthermore, even assuming that the Bremen analysis applies here, the circumstances surrounding this dispute compel the conclusion that enforcement of the choice clauses would be unreasonable.” [slip op., 8]
In the dissenters’ view, Congress did more than merely lay the foundation for a generalized “strong public policy” inference, it specifically voided these Choice Clauses in the securities area. “Courts should not employ amorphous public policy to emasculate plain statutory language.” [slip op., 9] The dissenters also point out that plaintiffs ultimately cannot obtain the unfettered protection of the U.S. securities law without having to prove at some point that these arrangements actually constituted “securities.” Moreover, plaintiffs do not rely on some evanescent and passing brush between defendants and the U.S. “Lloyd’s recruited the plaintiffs, residents of the United States, in the United States, often using United States brokerage firms and recruiters, and availed itself of the United States mails to disseminate information about becoming a Name.” [slip op., 10] Plaintiffs’ one contact with England was their committee meeting in London that the new Names attended.
Finally, the majority seriously overstates the adequacy of English remedies vis-a-vis the U.S. statutes. “For instance, English law recognizes no remedy for the failure to register securities as required by section 12(1) of the Securities Act of 1933. Nor is there any English remedy against Lloyd’s for negligent misrepresentation as provided by section 12(2) of the Securities Act of 1933, because the 1982 Lloyd’s Act expressly immunizes Lloyd’s from any claim for ‘negligence or other tort’ unless bad faith was involved. Third, no ‘controlling person’ liability exists in England, whereas section 15 of the Securities Act of 1933 and section 20(a) of the 1934 Securities Exchange Act impose such liability. Thus, the choice clauses should not be enforced, because they afford a level of protection far lower than the remedies the Acts provide.” [slip op., 11]
Citation: Richards v. Lloyd’s of London, Nos. 95-55747, 95-56467 (9th Cir. February 3, 1998) (en banc).
Filed in: 1998 International Law Update, Issue 2
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In litigation over Saskatchewan accident, British Columbia Court of Appeal retrospectively applies later Canadian Supreme Court ruling that statutes of limitations were no longer “procedural” for choice-of-law purposes
In Saskatchewan, Ms. Stewart, a resident of British Columbia was injured in May 1993 while riding as a passenger with her father, Daniel Stewart, in a company car. Fifteen months later, she sued her father and the corporate owner in a B.C. court. Both defendants “resided” in Saskatchewan.
Saskatchewan law provided for a one year limitation period in tort cases, but B.C. law had a two year period. As the law stood in May 1993 and in October, 1994, when plaintiff filed her suit, the B.C. courts were entitled to apply their longer limitation period. The theory was that the statute constituted a “procedural” matter in which the forum can apply its own law.
In December, 1994, however, the Supreme Court of Canada handed down Tolofson v. Jensen, [1994] 3 S.C.R. 1022, 100 B.C.L.R. (2d) 1, 120 D.L.R. (4th) 289. Tolofson held (1) that, in multijurisdictional tort cases, the substantive law of the place of the wrong (lex loci delicti) governed, and (2) that courts should classify limitation periods as “substantive.”
Plaintiff, however, relied upon § 13 of the B.C. Limitation Act. It said that, if the law of a jurisdiction other than B.C. is applicable and if private international law would classify the limitation law of that jurisdiction as procedural, the B.C. court has two options. It may apply its own limitation law or it may apply the limitation law of the other jurisdiction if this produces a more just result. After unsuccessfully moving to dismiss the action on the ground that Saskatchewan law barred the action, defendants took an appeal.
The British Columbia Court of Appeal allows the appeal. In the Court’s view, § 13 did not apply. In light of Tolofson, the B.C. courts could no longer characterize the Saskatchewan limitation law as “procedural.” In Canadian jurisprudence, judicial decisions are usually retrospective in effect. The theory is that when a court overrules prior decisions, it does not change the law. Rather, it merely reveals the true law as it always existed and corrects past errors. As Blackstone indicates, it is not that the overturned law was bad; it was not law at all. Thus, the Saskatchewan limitation period barred the action although plaintiff had filed her suit relying upon the legal regime that existed before Tolofson.
Citation: Stewart v. Stewart, 145 D.L.R.4th 228 (B.C.C.A. 1997).
Filed in: 1998 International Law Update, Issue 1
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Singapore Court of Appeal upholds judgment against defendants for role in converting millions of dollars worth of jewelry belonging to New York company and others
Ralph Esmerian, Inc. (Esmerian) and Rima Investors Corporation (Rima) consigned millions of dollars worth of jewelry to Corvina Securities Inc. (Corvina), who then consigned them to Wolfers Trading AG (Wolfers). Wolfers, in turn, consigned the jewelry, together with some of their own and some from Totah & Horowitz to a mercantile agent named Fakhreddin. The purpose of all of the consignments was to sell the jewelry to rich buyers in the Middle East. [See 1995 Int'l Law Update 7 (October)].
Wolfers turned the jewelry over to Fakhreddin in Geneva. Fakhreddin, however, embezzled the jewels and sold them to Diamond Center Pte. Ltd. (Diamond Center) in Singapore and to Teo, its director. When they found this out, Esmerian and Corvina filed three consolidated conversion suits against Fakhreddin, Diamond Center and Teo (defendants) in the Singapore courts.
Defendants claimed that they had bought the recovered jewelry in good faith from Fakhreddin. They supposedly thought he was a mercantile agent in possession of them with the owners’ consent. They also asserted that, under Swiss law, they had gotten good title to the jewelry.
The trial judge ruled that defendants had not proved that they had bought the jewels in good faith. He found, inter alia, that defendants had procured the jewels at substantially undervalued prices and that Fakhreddin’s invoices had many irregularities. In the judge’s view, Teo was not a believable witness. He also held that, under Swiss law, good title had not passed to defendants.
Defendants appealed. The Court of Appeal of Singapore, however, dismisses the appeal. In the Court of Appeal’s view, Swiss law had no application at all. The jewelry was physically in Singapore when Fakhreddin had sold them to Teo. Thus the lex situs was Singapore law.
The peculiar fact is that Fakhreddin marketed high priced goods in a place like Singapore where there is a limited market for them. There he sold them at a much lower price than he could have gotten elsewhere. In the Court’s view, these suspicious circumstances would have put any prudent businessman on notice. It was inconceivable that Teo, who allegedly did a substantial quantity of jewelry business, would not have known that the prices commanded by such items in other more established markets would be much higher than what he paid for them. When he bought the jewelry at bargain-basement prices, he was at best taking a calculated business risk.
When a merchant consigns jewelry, laboratory certificates are not necessary. According to the expert evidence, however, when someone sells jewelry of this quality to retail customers, they would normally ask for laboratory certificates. Far from being a consignee, Teo was a buyer who in turn would sell to retail customers. Thus, there was good reason to ask for a certificate. Certificates, however, were presumably not important to Teo because of the bargain prices of the jewelry.
Furthermore, Teo got a copy of the laboratory certificate when he bought the Wolfers sapphire ring. According to the evidence, while the seller would show a copy of the laboratory certificate to a potential buyer, the seller customarily furnished the original upon purchase. According to Teo, he asked for the original certificate on the ring. Fakhreddin’s failure to deliver the original surely should have put Teo on notice.
The defense of bona fide purchase from a mercantile agent under § 2(1) of the Factors Act was based entirely on Teo’s evidence. On the facts, however, the trial judge was entitled to conclude that Teo was not a credible witness. His testimony was full of contradictions and he switched his ground often. The Court of Appeal concurs in the trial judge’s findings.
Citation: Diamond Centre Pte. Ltd. v. R. Esmerian, Inc., 1996-3 S.L.R. 377 (Sing. Ct. App. 1996). [For additional background on the trial judge's ruling, see Singapore Straits Times, Sunday, Jan. 21, 1996].
Filed in: 1997 International Law Update, Issue 11
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Where Vermont residents got into automobile accident in Quebec, Vermont Supreme Court applies its own negligence law rather than Quebec’s no-fault scheme
In April 1994, Wade Miller and Steven White, both Vermont residents, plus a group of friends, decided to drive from Burlington, Vermont to the Frontier Bar in Quebec. White was driving his car which had a Vermont registry. While still in Canada and soon after leaving the bar, White drove off the side of the road. As a result, Miller suffered head injuries and fractured vertebrae. He filed a personal injury suit in Vermont court.
Plaintiff claimed that Vermont law should govern the action. It has retained a fault based compensation system for automobile negligence claims. Defendant, however, moved to dismiss claiming that Quebec’s law of no-fault compensation applied. It also bars negligence actions for auto personal injuries.
With no factual dispute, both parties moved for summary judgment on the choice of law issue. The trial court applied the “most significant relationship” test from the Restatement (Second) of Conflict of Laws, and determined that Vermont law should control. It then denied defendant’s motion.
Defendant then filed an interlocutory appeal where he argued that the trial court had erred in refusing to apply Quebec law. In an opinion by Justice Dooley, however, the Supreme Court of Vermont affirms.
The Court first points out that, earlier in 1997, the Court had adopted the “most significant relationship” test of the Restatement (Second) of Conflicts of Laws as to tort actions that involve other states or nations. [See Amiot v. Ames, 693 A.2d 675, 677 (Vermont, 1997)]. This appeal raises contending policies that allocate postevent losses. Both the Restatement (Second) and relevant precedents suggest that the common domicile of the parties is the most significant contact bearing on the choice of law.
Under Quebec’s Automobile Insurance Act (Act), the Société de l’Assurance du Quebec (Société) compensates Quebec residents injured in automobile accidents on a no fault basis, regardless of where the accident occurred. Quebec law also sets caps upon various elements of damages. Finally, the Act did away with the right of an automobile accident victim to bring a personal injury claim in Quebec. As with other no fault systems, the Quebec Automobile Insurance Act seeks to speed up the recovery of damages by victims of automobile accidents, to reduce the number of tort cases in Quebec courts, and to assure comparatively low rates for automobile insurance.
Vermont, on the other hand, has kept the traditional tort system of recovery for automobile accidents. This approach tends to compensate victims at higher levels than no fault systems. In addition, it tries to magnify the level of risky activity in society, to lower the incidence and seriousness of injurious events, and to produce comparatively clear norms of behavior.
As Justice Dooley declares: “Given its [tort] policies, we conclude that Quebec has little interest in the determination of whether its Automobile Insurance Act precludes the rights of action of a United States citizen against another United States citizen in an United States court. Pursuit of this claim will not raise insurance rates in Quebec nor hinder the administration of its courts. Quebec does not seek to deter negligent conduct by a fault based determination of liability. Indeed, Quebec may even prefer application of Vermont law to this case because the Société does not have to serve as an intermediary, paying benefits to plaintiff and collecting from defendant’s insurance carrier.” [slip op., 4]
Quebec’s choice of law rules also intimates its weak interest in this type of action. Where both tortfeasor and victim have their domiciles or residences in the same country, Quebec would say that the law of that country would ordinarily apply. On the other hand, the common domicile of the parties is strongly concerned with applying its law to this case. Plaintiff’s domicile, for example, has a significant interest in assuring proper compensation to the victim. This is because the “social and economic repercussions of personal injury” will impact on plaintiff’s domicile.
The needs of the international system also point to the law of the common domicile. In the international arena, it is usually acceptable to apply the laws of the domiciliary forum to tort claims that affect the residents of a single country, no matter where the tort took place. See Hague Convention on the Law Applicable to Traffic Accidents, Art. 4(a),(b) (1961).
Citation: Miller v. White, No. 96-310, A.2d (Vermont, August 8, 1997).
Filed in: 1997 International Law Update, Issue 11
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In federal patent infringement action, D.C. District Court declines to recognize British statutory privilege for communications between patent applicant and patent agent
Augusto Odone, who was a U.S. citizen at the time he developed the disputed technology, brought a federal patent infringement action against Croda International PLC. The matter apparently deals with “LCFA’s” which in turn in some unclarified way seem to involve pediatric neuroscience.
Through an interrogatory and by deposing C. P. Wain, defendant’s U.K. patent agent, plaintiff sought discovery of written communications between defendant and its patent agent dealing with whether defendant should name plaintiff as an inventor in the original British patent filings.
Defendant failed to answer the interrogatory and, at the deposition of Mr. Wain, raised an “attorney-client” privilege objection as to the documents sought.
It relied on § 280 of the British Copyright, Designs and Patents Act of 1988. The section provides in pertinent part that “any such [patent-related] communication … between a person and his [duly registered] patent agent … is privileged from disclosure in legal proceedings in England, Wales or Northern Ireland in the same way as a communication between a person and his solicitor…” Defendant argued that the district court should apply British privilege law because the communications did not “touch base” with the United States.
When plaintiff filed a motion to compel production pursuant to F.R.Civ. P. 37(a), the matter came before Magistrate Judge Patrick Attridge in the U.S. District Court for the District of Columbia. Judge Attridge grants the motion to compel.
In Judge Attridge’s view, federal discovery is broad and liberal in its search for the true facts. Evidentiary privileges derogate from this vital function and thus courts should strictly construe even domestic privileges. Defendant argued that international comity should lead the judge to apply the British statute in this case. Judge Attridge, however, points out that comity is not a matter of obligation for a court with personal jurisdiction over the party resisting discovery.
While federal courts have from to time deferred to foreign privilege law, Judge Attridge notes, the common feature of those cases was that the communications in question dealt solely with activities that took place within a foreign country or related to transactions between parties from several countries other than the U.S. Even in these cases, the courts often deny comity to foreign privileges that, as in this case, go counter to U.S. public policy. Unfortunately for defendant, it relies solely on its own conclusory assertions; it has failed to meet its burden of showing a lack of nexus with the U.S. by any competent evidence or affidavits.
In fact, the indications are quite otherwise. When he developed the patent, plaintiff was a U.S. citizen. Moreover, the priority of defendant’s patent-in-suit admittedly rests on the prior British patent pursuant to the International Patent Cooperation Treaty. Finally, this suit is all about defendant’s right to protection under letters patent from the U.S. Patent and Trademark Office. Judge Attridge finds that neither the federal common law attorney-client privilege nor any other federal privilege stands in the way of ordering production of defendant’s communications with its British patent agent.
Citation: Odone v. Croda Int’l, PLC, 950 F.Supp. 10 (D.D.C. 1997).
Filed in: 1997 International Law Update, Issue 6
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In insurance litigation over sinking of fishing vessel, Ninth Circuit holds that Norwegian law governs the insurance contract but that Washington state law applies to tort allegations of bad faith
Fireman’s Fund (Insurer) was the carrier for the “Alaskan Pride,” a fishing vessel owned by Alaskan Pride Partnership (The Partnership). In February 1993, the vessel began to take on water, for no apparent reason, and then sank. Insurer denied coverage and filed an action in a Washington federal court that sought a declaratory judgment that its policy did not cover this type of loss. The Partnership counterclaimed, asserting coverage and bad faith on Insurer’s part for failure to conduct a reasonable investigation into the cause of the sinking.
At the trial before a jury, issues arose about the admissibility of evidence and the propriety of jury instructions. As to jury instructions, instruction #14 told the jury that, under the Norwegian Insurance Plan, if insurer showed that the Alaskan Pride had sprung a leak while afloat, this would create a presumption of unseaworthiness. The Partnership would then assume the burden of proving coverage. Insurer, however, unsuccessfully tried to add to this instruction a similar shifting of burdens as to the bad faith claim.
From a judgment for the Partnership, Insurer appealed. The U.S. Court of Appeals for the Ninth Circuit affirms.
The Court sees no merit in Insurer’s claim of error in denying its modification of Instruction #14. Judge Wright concedes that Norwegian law governed the insurance contract and hence did apply to the shifting burdens on seaworthiness. Nevertheless, Washington law governs the alleged tort of bad faith. Insurer implicitly acknowledged this when it based its trial arguments about bad faith entirely on Washington law. Moreover, Insurer’s theory would have been incorrect under the Washington law of insurance. That law imposes a strict duty on insurers to hold a reasonable investigation into claims made and requires that courts construe insurance contracts in favor of the insured. The fact that the cause of the sinking was unknown does not relieve insurers of the duty to investigate in good faith.
Citation: Fireman’s Fund Insurance Companies v. Alaskan Pride Partnership, 106 F.3d 1465 (9th Cir. 1997).
Filed in: 1997 International Law Update, Issue 6
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In securities fraud litigation, Ninth Circuit declines to enforce English choice of law and forum clauses in contracts between U.S. underwriters and Lloyd’s of London as advance waiver of rights prohibited by U.S. securities laws
In October 1994, Alan Richards and 573 other plaintiffs (the “Names”) sued Lloyd’s of London in California federal court. The suit alleged fraud under United States securities laws, violation of the RICO statutes, breach of state “Blue Sky” laws, common law fraud, and breach of fiduciary duty. The plaintiffs are newly-recruited members of various Lloyd’s underwriting syndicates. The investment contracts solicited by Lloyd’s in the U.S. allegedly constituted “securities” under U.S. law but Lloyd’s had not registered them with the S.E.C.
Plaintiffs complained that Lloyd’s had concealed their exposure to pre-existing high liability claims such as those based on asbestos and toxic waste matters. As part of the alleged fraud, the Names’ agreements with Lloyd’s included choice of law and choice of forum clauses (Choice Clauses) naming the laws and courts of England as binding upon all disputes arising under the agreements.
After Lloyd’s failed to answer the complaint, the Names moved for a default judgment. Lloyd’s then countered with a motion for dismissal on grounds of improper venue, forum non conveniens, and res judicata. In April 1995, the district court dismissed the complaint, holding that the remedies available in the English courts were enough to protect American investors.
The U.S. Court of Appeals for the Ninth Circuit reverses, holding that the Choice Clauses constituted an impermissible prospective waiver of rights and remedies guaranteed by the Securities Acts of 1933 and 1934. Richards v. Lloyd’s of London, No. 95-55757 (9th Cir. March 6, 1997).
As the Court first points out, Section 14 of the 1933 Act and Section 29a of the 1934 Act provide in substantially the same terms that any provision or stipulation that requires any security buyer to waive compliance with the statutes or SEC Rules is void. The test is thus not one of mere reasonableness. Here, a federal statute that invalidates the Choice Clauses has formally and precisely declared U.S. public policy
The Court next distinguishes the Supreme Court’s opinion in Scherck v. Alberto-Culver Co., 417 U.S. 506 (1974). First, in Scherck, the parties’ contacts with the United States were minimal. In the present case, however, the Names have very strong connections to the United States. Lloyd’s knew this when it carried on its extensive U.S. campaign to recruit plaintiffs.
Second, and equally important, the Scherck Court had to choose which of two U.S. statutes to apply to the dispute, the Arbitration Act or the securities laws. In the present case, however, the court faced a choice between a specific U.S. statute, on the one hand, and a general judicial “policy” favoring Choice Clauses, on the other. The courts must defer to the specific policy choices of the political branches.
Finally, the Court writes that the plaintiffs would not be able to receive adequate remedies in England, largely because of the privileged position that Lloyd’s enjoys in English law. For, example, English law does not provide a remedy for failing to register securities. Moreover, 1982 U.K. legislation has immunized Lloyd’s from claims based on negligence or breach of duty unless the complainants can show its bad faith. Finally, English law does not allow for the liability of controlling persons.
The dissenting judge agrees with recent decisions in the Second, Fourth, Sixth, Seventh and Tenth Circuits which have upheld Choice Clauses in contracts with Lloyd’s in securities cases. The judge concludes that the Choice Clauses enable Lloyd’s to write insurance against world wide risks at reasonable rates and that the majority decision will have an adverse effect on international commerce. “Our decision means that Americans betting on chicken fights in Zamboanga could sue for breach of American securities law.” [slip op., 31]
Filed in: 1997 International Law Update, Issue 4
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