Deck 54: International and World Trade Law

Question 1

Foreign Sovereign Immunity In an attempt to stabilize its currency, Argentina and its central bank, Banco Central (collectively Argentina), issued bonds called Bonods. The bonds, which were sold to investors worldwide, provided for repayment in U.S. dollars through transfers on the London, Frankfurt, Zurich, and New York markets at the bondholder's election. Argentina lacked sufficient foreign exchange to pay the bonds when they matured. Argentina unilaterally extended the time for payment and offered bondholders substitute instruments as a means of rescheduling the debts. Two Panamanian corporations and a Swiss bank refused the rescheduling and insisted that full payment be made in New York. When Argentina did not pay, the Panamanian corporations brought a breach of contract action against Argentina in U.S. District Court in New York. Argentina moved to dismiss, alleging that it was not subject to suit in U.S. courts, under the federal Foreign Sovereign Immunities Act (FSIA). The plaintiffs asserted that the commercial activity exception to the FSIA applied that subjected Argentina to lawsuit in U.S. court. Is Argentina subject to the lawsuit in the United States? Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 112 S.Ct. 2160, 1992 U.S. Lexis 3542 (Supreme Court of the United States)

Answer 1

Foreign Sovereign Immunities Act, 1976:
The Act offers immunity for a country's operations of interference from other country's governments or courts. This is to protect the interests of other governments from being tried in the courts of the U.S. However, FSIA is exempt from commercial activities.
Facts:
Government of the country A sold bonds to raise money and it offered the repayment in the U.S Dollars after maturity. It did not have enough financial reserves to fulfill the financial obligations and it extended the time limit. However, a P Corporation brought a suit against the A Government in the courts of New York.
Outcome:
The country A is subject to the lawsuit in the U.S. It is because the activity is a commercial activity and thus is exempt from the Foreign Sovereign Immunities Act, 1976. The A Government sold bonds to raise money for stabilizing its economy. Thus, the action has to be treated as a commercial activity. All commercial activities are exempt from the FSIA provisions and thus can be tried in U.S. Courts.

Question 2

Act of State Doctrine Prior to 1918, the Petrograd Metal Works, a Russian corporation, deposited a large sum of money with August Belmont, a private banker doing business in New York City under the name August Belmont Co. (Belmont). In 1918, the Soviet government nationalized the corporation and appropriated all its property and assets wherever situated, including the deposit account with Belmont. As a result, the deposit became the property of the Soviet government. In 1933, the Soviet government and the United States entered into an agreement to settle claims and counterclaims between them. As part of the settlement, it was agreed that the Soviet government would take no steps to enforce claims against American nationals (including Belmont) and assigned all such claims to the United States. The United States brought an action against the executors of Belmont's estate to recover the money originally deposited with Belmont by Petrograd Metal Works. Who owns the money? United States v. Belmont, 301 U.S. 324, 57 S.Ct. 758, 81 L.Ed. 1134, Web 1937 U.S. Lexis 293 (Supreme Court of the United States)

Answer 2

10209-8-1CP AID: 1112 | 30/09/2013
RID: 4764 | 06/12/2013
The general principal of international law is that "country has absolute authority over what has emerged within its own territory" , therefore the United States has authority to take an action against Company as it is located in New York City.
Further, the soviet government has an agreement with United States in settlement of claims and counterclaims. Therefore, in this case United States has right to recover that money from company B who has executed the property expropriation.
Thus, US own the money , as its action against company B is in line with the general principal of international law.

Question 3

Act of State Doctrine Banco Nacional de Costa Rica is a bank wholly owned by the government of Costa Rica. It is subject to the rules and regulations adopted by the minister of finance and the central bank of Costa Rica. The bank borrowed $40 million from a consortium of private banks located in the United Kingdom and the United States. The bank signed promissory notes, agreeing to repay the principal plus interest on the loan in four equal installments, due on July 30, August 30, September 30, and October 30 of the following year. The money was to be used to provide export financing of sugar and sugar products from Costa Rica. The loan agreements and promissory notes were signed in New York City, and the loan proceeds were tendered to the bank there.
The bank paid the first installment on the loan. The bank did not, however, make the other three installment payments and defaulted on the loan. The lending banks sued the bank in U.S. District Court in New York to recover the unpaid principal and interest. The bank alleged in defense that the minister of finance and the central bank of Costa Rica had issued a decree forbidding the repayment of loans by the bank to private lenders, including the lending banks in this case. The action was taken because Costa Rica was having trouble servicing debts to foreign creditors. The bank alleged that the act of state doctrine prevented the plaintiffs from recovering on their loans to the bank. Who wins? Libra Bank Limited v. Banco Nacional de Costa Rica, 570 F.Supp. 870, Web 1983 U.S. Dist. Lexis 14677 (United States District Court for the Southern District of New York)

Answer 3

10209-8-2CP AID: 1112 | 30/09/2013
RID: 4764 | 06/12/2013
The Act of state doctrine states that "judge of one country cannot question the validity of an act committed in another country's borders". It is based on the principle that a country has absolute authority over what transpire within its own territory. Therefore, this act invalidates US banks suits against the bank of CR in US district court.
The minister of finance and Central bank of CR wins appeal in defense against suits of defaulting on loan repayment.

Question 4

Forum-Selection Clause Zapata Off-Shore Company (Zapata) was a Houston, Texas-based American corporation that engaged in drilling oil wells throughout the world. Unterweser Reederei, GMBH (Unterweser), was a German corporation that provided ocean shipping and towing services. Zapata requested bids from companies to tow its self-elevating drilling rig Chaparral from Louisiana to a point off Ravenna, Italy, in the Adriatic Sea, where Zapata had agreed to drill certain wells. Unterweser submitted the lowest bid and was requested to submit a proposed contract to Zapata, which it did. The contract submitted by Unterweser contained the following provision: "Any dispute arising must be treated before the London Court of Justice." Zapata executed the contract without deleting or modifying this provision.
Unterweser's deep sea tug Bremen departed Venice, Louisiana, with the Chaparral in tow, bound for Italy. While the flotilla was in international waters in the middle of the Gulf of Mexico, a severe storm arose. The sharp roll of the Chaparral in Gulf waters caused portions of it to break off and fall into the sea, seriously damaging the Chaparral. Zapata instructed the Bremen to tow the Chaparral to Tampa, Florida, the nearest port of refuge, which it did. Zapata filed suit against Unterweser and the Bremen in U.S. District Court in Florida, alleging negligent towing and breach of contract. The defendants asserted that suit could be brought only in the London Court of Justice. Who is correct? M/S Bremen and Unterweser Reederei, GMBH v. Zapata Off-Shore Company, 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513, Web 1972 U.S. Lexis 114 (Supreme Court of the United States)

Question 5

Ethics Nigeria, an African nation, while in the midst of a boom period due to oil exports, entered into $1 billion of contracts with companies in various countries to purchase huge quantities of Portland cement. Nigeria was going to use the cement to build and improve the country's infrastructure. Several of the contracts were with American companies, including Texas Trading Milling Corporation (Texas Trading). Nigeria substantially overbought cement, and the country's docks and harbors became clogged with ships waiting to unload. Unable to accept delivery of the cement it had bought, Nigeria repudiated many of its contracts, including the one with Texas Trading. When Texas Trading sued Nigeria in U.S. District Court to recover damages for breach of contract, Nigeria asserted in defense that the doctrine of sovereign immunity protected it from liability. Texas Trading Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, Web 1981 U.S. App. Lexis 14231 (United States Court of Appeals for the Second Circuit)
1. What does the commercial activity exception to the doctrine of sovereign immunity provide?
2. Did Nigeria act ethically in trying to avoid the contract obligations it owed to Texas Trading Milling Corporation?
3. Does the doctrine of sovereign immunity protect Nigeria from liability? Why or why not?

Question 6

FEDERAL COURT CASE Act of State Doctrine
Glen v. Club Mediterranee, S.A.
450 F.3d 1251, 2006 U.S. App. Lexis 13400 (2006)
United States Court of Appeals for the Eleventh District
"The doctrine prevents any court in the United States from declaring that an official act of a foreign sovereign performed within its own territory is invalid."
-Cox, Circuit Judge
Facts
Prior to the Communist revolution in Cuba, Elvira de la Vega Glen and her sister, Ana Maria de la Vega Glen, were Cuban citizens and residents who jointly owned beachfront property on the Peninsula de Hicacos in Varadero, Cuba. On or about January 1, 1959, in conjunction with Fidel Castro's Communist revolution, the Cuban government expropriated the property without paying the Glens. Also in 1959, the sisters fled Cuba. Ana Maria de la Vega Glen died and passed any interest she had in the Varadero beach property to her nephew, Robert M. Glen.
Approximately 40 years after the property was taken by Cuba, Club Mediterranee, S.A., and Club Mediterranee Group (Club Med) entered into a joint venture with the Cuban government to develop the property. Club Med constructed and operated a five-star luxury hotel on the property that the Glens had owned. The Glens sued Club Med in a U.S. district court located in the state of Florida. The Glens alleged that the original expropriation of their property by the Cuban government was illegal and that Club Med had trespassed on their property and had been unduly enriched by its joint venture with the Cuban government to operate a hotel on their expropriated property. The Glens sought to recover the millions of dollars in profits earned by Club Med from its alleged wrongful occupation and use of the Glens' expropriated property. The U.S. district court held that the act of state doctrine barred recovery by the Glens and dismissed the Glens' claims against Club Med. The Glens appealed.
Issue
Does the act of state doctrine bar recovery by the Glens?
Language of the Court
The doctrine prevents any court in the United States from declaring that an official act of a foreign sovereign performed within its own territory is invalid. It requires that the acts of foreign sovereigns taken within their own jurisdictions shall be deemed valid. Because the act of state doctrine requires the courts deem valid the Cuban government's expropriation of the real property at issue in this case, the Glens cannot maintain their claims for trespass and unjust enrichment against Club Med.
Decision
The U.S. court of appeals applied the act of state doctrine and affirmed the judgment of the U.S. district court that dismissed the Glens' claim against Club Med.
Did the Cuban government act ethically when it expropriated the Glens' property? Did Club Med act ethically when it entered into a joint venture with the Cuban government to develop the property that had been expropriated from the Glens?