international commercial transactions fall 2010

8/3/2019 International Commercial Transactions Fall 2010

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International Commercial Transactions Fall 2010

I. Intro:A. Avoiding Conflicts: Choice of Law When the Transaction Goes Bad Is There a Contracty R oot of things is usually trying to figure out if there is a contract But again under whose law?

o For example if there are additional terms in a contract between German and US partiesand the UCC applies then you ve got the whole materially alter question.

If the US party decides not to perform under the assumption that they don thave a contract and the Euro party decides to sue, they re probably going to sueunder German (or EU law).

o So without answering which law applies to the transaction (or even where a suit wouldbe filed) there would have to be a determination of whether there is a contract.

H ave to answer the choice of law threshold question; under whose law will bedetermine whether a contract exists?

y Restatement 2d, Conflicts of Law § 6 Choice of Law Principles(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state onchoice of law. (2) When there is no such directive, the factors relevant to the choice of the applicablerule of law include:

(a) the needs of the interstate and international systems; (b) the relevant policies of the forum; (c)the relevant policies of other interested states and the relative interests of those states in thedetermination of the particular issue; (d) the protection of justified expectations; (e) the basic policiesunderlying the particular field of law; (f) certainty, predictability and uniformity of result; and (g) easein the determination and application of the law to be applied.

** But all those factors don t help in putting things on the side of one law or another.**

y Restatement 2d § 188 Law Governing In Absence of Effective Choice By the Parties(1) The rights and duties of the parties with respect to an issue in contract are determined by the local lawof the state which, with respect to that issue, has the most significant relationship to the transaction andthe parties under the principles stated in § 6. (2) In the absence of an effective choice of law by the parties(see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the lawapplicable to an issue include: (a) the place of contracting, [reference to forum s contract law]; (b) theplace of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. [These contacts are to be evaluated according to their relative importance with respect to theparticular issue.] (3) If the place of negotiating the contract and the place of performance are in the samestate, the local law of this state will usually be applied, except as otherwise provided in §§ 189-199 and203.

**But all of these factors are usually not applicable: there is no one place of negotiation, place of performance, location of the subject of a contract. From a realist point of view the US judge is likely going toapply the familiar law (judge doesn t want to have to deal with German law). Or conversely, the judge might wantGerman law, knowing that it ll be tossed by a motion to dismiss on a forum non-convenies motion. And whatwould a German court do anyway? Would have to know what German choice of law is, what German contract law

says about forming a contract. And so on and so forth. So is there a way around all of this?

i. Harmon izi ng Treat i esy T he UN Convention on the International Sale of Goods

o Applies in two ways: 1. When both States are Contraction parties (signed the CISG) or; 2.When the rules of private international law lead to the application of law of aContracting State.

In the United States, the CISG is considered a self-executing treaty, so nodomestic, federal legislation was enacted, or is necessary.



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It thus has the effect of federal law, preempting all state uniform commercialcodes unless the parties to the contract have agreed otherwise (i.e., parties

opted out ). Parties need to specifically state that contract is not governed by the CISG but

that it is governed by the UCC/State law.o Article 1. This convention applies to contracts of sale of goods between parties whose

places of business are in different states: (a) when the states are contract states; or (b)

when the rules of private international law lead to the application of the law of acontracting state. The United States declared a reservation under Article 95 and therefore is not

bound by Article 1(1)(b) i.e., if action is filed in US, and the choice of law pointsto the US, then the US law applies, not the CISG).

y US basically said that they would not be bound by CISG in the event oneparty is not part of the CISG (sort of forcing other countries to sign theCISG if they want CISG rules to apply in trade).

y But for example Germany doesn t like that the US refuses to be boundby Art.1(1)(b) and therefore refuses to recognize the US as a CISG party.So therefore Germany may use German law.

o Article. 4: This Convention governs only the formation of the contract of sale and therights and obligations of the seller and the buyer arising from such a contract. Inparticular, except as otherwise expressly provided in this Convention, it is not concernedwith: (a) the validity of the contract or of any of its provisions or of any usage; (b) theeffect which the contract may have on the property in the goods sold.

o Article. 6: parties can exclude application by explicit statement. o Article. 7 (2): Questions not settled by UNCISG are settled by the law applicable by

virtue of rules of private international law o Article. 14(1): Proposal is an offer if it indicates intent to be bound, indicates goods,

and expressly or implicitly fixes or makes provision for determining quantity and price ;(2) a proposal other than one addressed to one or more specific persons is to beconsidered merely as an invitation to make offers, unless the contrary is clearlyindicated by the person making the proposal.

o Article. 18: acceptance effective when it reaches offeror o Article. 19 (1): R eply that purports to be acceptance but contains additions, limitations

or modifications is a counter-offer ; (2) if different terms don t materially alter terms of offer, then it s an acceptance (3) material terms relate to price, payment, quality andquantity of goods, place and time of delivery, extent of other party s liability to theother or settlement of dispute.

** So perhaps the solution is to not get into the above mess in the first place. **Spend a lot of time onthe contracting process (drafting your forms, getting confirmation, making sure all parties together tonegotiate and sign forms and everything else). Basically get really anal and make your terms mirror.**

B. The basics of an international transactiony Buyer sends seller a letter asking for a price quote.

o Price of goods, as well as difference costs related to shipping (F.O.B; C.I.F.; F.A.S.; C&F). Parties relying on Incoterms (International Chamber of Commerce)

y Seller sends price quotes in reply; including payment terms (confirmed letter of credit)y Buyer replies with purchase order and indicates that a letter of credit has been opened (with a

bank local to Buyer, who in turn goes through a bank local to Seller; aka Confirmed Letter of Credit).

o Buyer chose C.I.F. and adds a term requiring Seller to purchase insurance for the goods;coverage at a certain level.



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y Is there a contract yet?o Could be. Depends on where the parties interpret an offer and an acceptance to have

taken place. Also we don t know what law governs, so therefore we can t determine whether

offer and acceptance under that law has taken placey So letter of credit shows up (from bank local to Seller, therefore confirmed letter of credit)

stating that letter of credit has been opened up by bank local to Buyer).o Letter of credit instructs Seller that to collect payment on the letter they need to supply

certain documents (bill of lading, packing list, etc.)o Letter of Credit usually subject to UCP (Uniform Customs and Practices for Documentary

Credits; made by the ICC).y Seller contracts with a freight forwarder to get goods to the port.y Freight forwarder arrives at pier and delivers to specified vessel.

o Bill of lading created once goods arrive and are loaded on vessel Carrier will always try to disclaim liability in small print on the Bill of Lading

y So Carrier gives BoL to Seller Seller gives BoL and other documents to local Bank Local bankpays Seller Local Bank sends BoL to Buyer s local bank Buyer s Bank pays the Seller s localbank Buyer s local bank sends BoL to Buyer as asks for payment Buyer pays their bank to

receive BoL Buyer gives BoL to Carrier once goods arrive in order to receive goods.

i. Incoterms 2000

Sh ipment Contracts:

1. ExWorks S places goods at B s disposal at the factory/S s premiseso Buyer is both exporter and importer, responsible for freight, insurance, etc.

2. Free Alongside Ship (FAS) S delivers goods to quay; provides export licenseo this does create export-import contracto R isk passes when goods are placed alongside vesselo so if war breaks out and delivery costs rise, B assumes extra cost

3. Free on Board (FOB) S delivers goods on board vessel and obtains export docso R isk passes when goods pass over ship s railo ONLY applies to sea-going vessels

4. Free Carrier (FCA) exactly like FOB term, but for non-sea transport5. CIF S delivers goods on board vessel, pays freight & insurance

o R isk passes when goods pass over ship s rail; ONLY sea-going vessels



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o So if war breaks out and delivery costs rise, S absorbs extra cost6. Carriage & Insurance Paid (CIP) exactly like CIF, but for non-sea transport

o R isk passes when goods are placed in custody of carrier7. Cost & F reight (CFR ) S delivers goods on board and pays freight; B pays insurance

o R isk passes when goods pass over ship s rail8. Carriage Paid T o (CPT) exactly like CFR , but for non-sea transportDest i nat i on Contracts :

9. D elivered at Frontier (DAF) S places goods at B s disposal at frontiero S responsible for discharging goods from vessel; B handles import docso Designed for rail transport, but appropriate for ships and other forms

10. D elivered Ex Ship (DES) S delivers goods on board and pays freight & insuranceo R isk passes when goods are on board ship when ship reaches usual unloading pointo Only for sea transport

11. D elivered Ex Quay (DEQ) S delivers goods on board, pays freight & insuranceo R isk passes when goods are placed at B s disposal on quay; B is importer

12. D elivered D uty Paid (DDP) S does everything; risk passes when goods are placed at B s disposal

i. Bills of Ladingy Three Functions: 1. Evidence of a contract of carriage 2. Acknowledgement by a carrier that

it has received the goods for shipment (receipt of goods) 3. Controls possession as adocument of title. o Ber i sford Metals Cor p. v . S/S Salvador : Facts Plaintiff Berisford ordered 50 metric tons

of tin ingots from Paranapanema in Brazil for $13,000 per metric ton, F.O.B. vessel atSantos, Brazil. Paranapanema delivered 100 bundles, each weight araound 1,000pounds, to an agent, who put the bundles into four 20-foot containers, locking andsealing them. The agent, acting on behalf of the Master of the S/S Salvador, later placedthe containers on the S/S Salvador and issued a clean bill of lading. The ship arrived butthe containers only contained 30 bundles. Berisford paid Paranapanema as required,and sued the S/S Salvador.

Issue Is the shipper's liability under COGSA limited to only $500 per bundle

$35,000 because of a misstatement on the bill of lading because the shipperdid not make the misstatement intentially or fraudulently?

H eld No, the shipper is liable for the entire price of shipment. The loweredliability after only a rudimentary inspection is present to relieve the shipper of needing experts to verify the actual goods being shipped, and impose a higherliability only if the shipper knew or could readily see that the packages were notin good condition. But here it is the shipper's own conduct that created theliability: shipper's agent placed the items in the containers, didn t verify. C annot escape full liability through COGSA when misstating own conduct on a bill of lading.

ii. F

rustration/F

orce Majeurey Eugenia Case: Facts (P) Ocean Tramp brought claim against (D) for failure to carry their

freight from Genoa to India as contracted. Contract was time-hire. Most direct routethrough Suez Canal was believed to be closed b/c of war but parties failed to make contractprovisions for this. Ship becomes trapped in Canal after D ordered ship to enter eventhough war had broken out. D claims contract is frustrated. P makes new charter to hadgoods travel via longer route. Treated D as repudiated.o Issue: Is contract frustrated when a situation not provided for in contract renders

performance substantially different from that agreed upon?



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o H eld: If a situation arises that parties did not take into account when contracting thatrenders performance substantially different then the contract is frustrated

Court says no frustration here because performance was the same (goods toIndia) and the time delay did not make things substantially different. Also sinceno provision dealing with frustration the court could not make a realdetermination as to what substantially different would mean in this case

o Ideas behind Impossibility: why hold someone to contract that physically cannot be

performed?o Frustration: think about foreseeability, would a result be unjust, who should bear the

loss, who is bearing the risk Court uses comparative test where they look at where theparties are in the new situation and see if it d be unjust to hold them to contract inlight of the change situation then its frustration.

o If it s just more expensive or difficult, then no frustration.**No bright line rule; case by case analysis.**

y CISG Article 79o (1) A party is not liable for a failure to perform any of his obligations if he proves that the failure

was due to an impediment beyond his control and that he could not reasonably be expected tohave taken the impediment into account at the time of the conclusion of the contract or to haveavoided or overcome it or its consequences. (2) If the party's failure is due to the failure by athird person whom he has engaged to perform the whole or a part of the contract, that party isexempt from liability only if: (a) he is exempt under the preceding paragraph; and (b) the personwhom he has so engaged would be so exempt if the provisions of that paragraph were appliedto him. (3) The exemption provided by this article has effect for the period during which theimpediment exists. (4) The party who fails to perform must give notice to the other party of theimpediment and its effect on his ability to perform. If the notice is not received by the otherparty within a reasonable time after the party who fails to perform knew or ought to haveknown of the impediment, he is liable for damages resulting from such non-receipt. (5) Nothingin this article prevents either party from exercising any right other than to claim damages underthis Convention.

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UCC Section 2-615o Except so far as a seller may have assumed a greater obligation . . .: (a) Delay in delivery or non-

delivery in whole or in part by a seller that complies with paragraphs (b) and (c) is not a breachof his duty under a contract for sale if performance as agreed has been made impracticable bythe occurrence of a contingency the non-occurrence of which was a basic assumption on whichthe contract was made or by compliance in good faith with any applicable foreign or domesticgovernmental regulation or order whether or not it later proves to be invalid. . . .

y So how to avoid litigation over non-performance when new situations arise?o Basic insurance; options contracts (agreeing to a good on a certain day at a certain price

to lock in a certain price no matter what the market prices are; or one party could justwalk away if the price drops); Swaps ; Cover, go through with the original contract and

make a new transaction to sell the goods from the original contract.

iii. D ocumenting the T ransaction Bills of Ladingy Haul As v . Ex pert Concrete, Inc .: Facts Jeil in Korea agrees to sell Expert 4 pumps. Expert can

only afford 3 pumps. Jeil receives letter of credit for 3 pumps. Expert agrees to secure a loanand provide a down payment if Jeil ships all 4. Carrier receives pumps and makes 2 b/l s (onefor 3 pumps covered by letter of credit and separate for 4th pump awaiting balance payment).Carrier drops off pumps at a storage warehouse. Warehouse is instructed to release 3 pumpsbased on the b/l and the keep the last until Expert provides the remaining b/l. But warehousereleases all 4 to Expert. Jeil sues the carrier for releasing the last pump, wins, and collects the



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remaining balance. Carrier now has the b/l and sues Expert for possession of the pump (theyown title so its Carrier s).

o Issue: Is recipient of misdelivered goods liable to holder of B/L for the goods? o H eld: Yes. Absent presentation of a B/L a buyer is not entitled to possession of the

goods. A carrier will be liable for releasing goods without a B/L. Expert never paid forthe fourth pump and never gained title to the 4th pump so they were not entitled topossession. The holder of the B/L has title, therefore carrier (who got title after being

sued could sue for wrongful possession of the pump).

y Adel v . Prec i si on : Facts P sold machinery to H ickman. Carrier (D) issues B/L in P s name butsends the b/l to H ickman. H ickman uses typewriter to endorse the B/L indicating that it was P sendorsement. D gives goods to H ickman based on the endorsed B/L; they never paid for them.P never gave authorization for H ickman to endorse; it was a forgery. P sues D for misdelivery.D argues that it was presented with endorsed B/L so had to give up goods

o Issue: Was the unauthorized endorsement a proper endorsement to authorize deliceryand free the carrier from liability; does carrier have to do anything except check B/L forendorsement?

o H olding: Unauthorized typewritten endorsement is not proper to base delivery on. Sothis was misdelivery. Law says the B/L must be properly endorsed . Since the B/L wasnot properly endorsed the carrier is liable.

y Ja i n Irr i gat i on v . C hemcol i t : Facts Plaintiff contracted with D1 for a bunch of PVC resin. D1contracts with D2 to ship the resin from Texas to India. D1 packs the containers and delivers toD2. D2 fills out a B/L based on D1s description. Never actually checks the container but B/Lsays said to contain When goods arrive in India its discovered that it s a bunch of junk andPlaintiff is pissed and sues both D1 and D2. D2 seeks to get out as not being liable becausethey didn t pack the stuff.

o Issue: can a carrier be liable for goods when they do not pack them but only rely on thedescription given to them by the shipper?

o H olding: Under Pomerene Act carrier is not liable for misdescrption in B/L where 1.shipper packed the goods 2. B/L is qualified with phrase said to contain 3. the carrierdoes not know whether any part of the goods was received or conform to thedescription.

All the B/L s stated that D1 is the shipper; therefore as between D1 and D2, D1is the shipper and D2 is the carrier. So since D2 (carrier) had no knowledge of the containers contents except D1 s description; they put the qualifyingphrase; and shipper D1 did all the packing. So the carrier D2 isn t liable.

y Industr i a Nac i onal v. M/V Albert F: Facts Buyer (Dom. R epublic) contacts for 1500 tons of kraftpulp from seller (FL). Seller gives goods to carrier. Seller packed goods and carrier issues B/Lbased on sellers description? B/L said particulars furnished by shipper. Goods arrive in Dom.

R epublic and of course are wrong. Buyer seeks to sue carrier for misdescription.o Issue: Can carrier be liable for wrong goods when they don t pack them but issue a B/L

based on shipper s description?o H olding: H ere carrier is liable even though they did not pack the goods. Court found

that the words particulars furnished by shipper failed to indicate that shipper loadedthe cargo. Carrier did not protect themselves, didn t get specific enough to show thatB/L was based on shipper s description.

iv. Letters of Credity L/C is supposed to solve the how to get paid issue.



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o L/C substitutes the credit worthiness of a bank for the credit worthiness of thebuyer.

Then it all comes down to buying documents (i.e. the bill of lading andinvoices).

y Litigation Issues with L/C:o Wrongful dishonor: documents come in and for whatever reason the bank refuses

to payo Wrongful payment: documents aren t correct but the bank pays anywayo Discrepancies in the documents;

but argument over whether these discrepancies should causepayment/nonpayment.

o Fraudy Governing Laws: UCC Article 5. The US is the only country with an extensive specific

regulation for letters of credit. International practice, as reflected in the UCP, heavilyinfluenced the UCC revisions in 1995.

o Article 5 governs only a limited part of the letter of credit transaction.o Can be a source of illumination particularly on matters involving fraud or forgery.

y § 5-107. Advice of Credit; Confirmation; Error in Statement of Terms.(1) Unless otherwise specified an advising bank by advising a credit issued by another bank does notassume any obligation to honor drafts drawn or demands for payment made under the credit but itdoes assume obligation for the accuracy of its own statement. (2) A confirming bank by confirming acredit becomes directly obligated on the credit to the extent of its confirmation as though it were itsissuer and acquires the rights of an issuer. ( 3) Even though an advising bank incorrectly advises theterms of a credit it has been authorized to advise the credit is established as against the issuer to theextent of its original terms. (4) Unless otherwise specified the customer bears as against the issuer allrisks of transmission and reasonable translation or interpretation of any message relating to a credit.

y Uniform Customs and Practice for Documentary Credits. The UCP is a set of rules based oninternationally accepted banking practices regulating the issuance and use of letters of credit, drafted by the International Chamber of Commerce.

y US courts and arbitration tribunals recognize and enforce the UCP where it is specificallyincorporated into the letter of credit. When incorporated, the UCP is binding upon allparties unless expressly modified or excluded by the letter of credit.

y Virtually every letter of credit incorporates the UCP in today s transactions.

y JH Rayner and Com pany, LT D . v . Hambros Bank LT D: Facts A company in Denmark asked DH ambros Bank to open a line of credit to J H R ayner(P) "against invoice full set straight cleanbills of lading" for "Coromandel groundnuts." P brought and invoice and three bills of ladingdescribing "machine-shelled groundnut kernels . Country of origin, British India." Themargin contained the words, "O.T.C. C. R .S. Aarhus." The bank refused to pay because theinvoice did not match the letter of credit. P claimed that "machine shelled groundnutkernels" are the same as "Coromandel groundnuts," and that "C. R .S." is short for "Coros" or"Coromandels," and everybody in the trade understands that to be so.

o Issue: Where terms don t match, but goods are the same can bank refuse paymenton a L/C?

o H eld The bank doesn't have to honor the invoice and bill of lading, as they differfrom the letter of credit. The bank can only claim indemnity if it accepts documentsthat conform to the letter of credit, and it puts itself at risk if it accepts anything else.The bank is not in the groundnut business, and may not have knowledge of the



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terms of that business.

y Compliance Under UCP 500o Article 13(a) of the old UCP 500 provides that banks must examine all presentation

documents to determine whether they conform, ex facie, to the requirements of the credit.

o The criterion for determining conformity is the international standard banking

practice as reflected in the UCP provisions.o The UCP implicitly prescribes the standard of a reasonably knowledgeable and

diligent bank documents checker. Consistent with this standard is the exercise of commercial common sense, on a case-by-case basis, such that minor deviation of aclerical, typographical nature, will, generally, not justify dishonor.

UCP 500 applied a strict compliance standard!

y Voest-Alpine Trading USA Corp. v. Bank of China: Facts Plaintiff Voest-Alpine contractedwith JFTC for the supply of certain materials. Plaintiff financed the transaction throughdefendant bank. A letter of credit was issued and various misspellings and technical errorswere present on the instrument. After the price of materials changed substantially, plaintiff failed to reduce the price and a dispute arose which involved the entities and the financialinstruments behind the transaction. Plaintiff's bank requested that the defendant bankhonor the letter of credit and pay plaintiff accordingly.

o Issue: Was D s refusal to honor letter of credit proper? Will banks have to honorletter of credit where terms don t match?

o H olding: The court indicated that Uniform Customs and Practices for DocumentaryCredits was on point and that defendant was supposed to file a timely notice of rejection with the reasons set forth therein. The court noted that this was not done.The court also held that the spirit of the agreement was of importance rather thanany technical misspellings or slight errors in the letter of credit. Therefore, the courtheld in favor of the plaintiff.

If the whole of the documents obviously relate to the same transaction(bear a relation with the others on if face) then you should pay out

y L/C and Fraud Documents not looked at for their veracity; just checking for compliance/nodiscrepancies. People like L/C because of the independence principle.

y But what of fraud then which seriously calls into the question the independence principle?When creating a fraud exception where does the fraud need to have occurred? Whatdoes each party need to be aware of?

y UCC 5-109: (a) If a presentation is made that appears on its face strictly to comply with the termsand conditions of the letter of credit, but a required document is forged or materially fraudulent, orhonor of the presentation would facilitate a material fraud by the beneficiary on the issuer orapplicant: (1) the issuer shall honor the presentation, if honor is demanded by (i) a nominated personwho has given value in good faith and without notice of forgery or material fraud, (ii) a confirmer whohas honored its confirmation in good faith, (iii) a holder in due course of a draft drawn under theletter of credit which was taken after acceptance by the issuer or nominated person, or (iv) anassignee of the issuer s or nominated person s deferred obligation that was taken for value andwithout notice of forgery or material fraud after the obligation was incurred by the issuer ornominated person; and (2) the issuer, acting in good faith, may honor or dishonor the presentation inany other case.

y Mi d-Amer i ca T i re, Inc . v . Pt z Trad i ng Ltd : Facts P and D enter into contract for grey markettires. Eventually P realizes that the tires they contracted for cannot be legally imported into



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the US. D refuses to end agreement and seeks to collect on L/C after giving goods to carrierand receiving B/L. P seeks to enjoin their bank from paying D s bank on the L/C due to fraud.

o Issue: Can issuer of L/C be enjoined from honoring L/C on basis of beneficiary smaterial fraudulent activity in underlying transaction?

o H olding: Applying UCC 5-109, because UCP has no fraud provision used as gapfiller there can be an injunction if there is fraud in the either the underlyingtransaction or the L/C.

The fraud must be material (meaning that it s so bad that it has vitiated theentire transaction and the independence of the issuer s obligation can nolonger be served).

o Court finds this is the case and grants the injunction. Seems like the court prettymuch said that the transactions can t really be kept independent (especially in thecase of fraud).

y T hird Party Fraud -- U ni ted C i ty Merc hants v . Royal Bank of Canada : Facts Buyers (Peruviancompany) agreed to buy elements necessary to build and run a glass fibers factory. Buyer sbank opens up L/C with Bank of Continental (Peru) and confirms with the R oyal Bank of Canada. R BC informs seller that if they provide the proper documents then they ll get paid.Goods must be loaded by a certain date or L/C will expire. Contracted for vessel hasproblems and goods are loaded on to substitute vessel. But vessel arrives well after theexpiration date. Vessel provides a B/L with a fraudulent date of loading; bank later saysthey have proof that goods were loaded after date on B/L. Seller is unaware of shippersfraudulent actions. When seller presents the B/L the bank ( R BC) refuses to pay out. Sellersues for wrongful dishonor. Bank says they shouldn t have to pay when they knowdocuments, although matching, are fraudulent.

o Issue: Can banks refuse to honor L/C because of fraudulent actions of third party,unbeknownst to beneficiary?

o H eld: Fraud exception banks shouldn t pay when the seller is trying to get paidfraudulently. So this case doesn t fall within the fraud exception because the sellerisn t aware of the fraudulent nature of the documents.

Court says asking banks to actually check the nature of documents asopposed to just matching documents gums up the independence principle;and the idea that banks deal with documents not goods. General principleis that banks have no obligation to check the veracity of documents (that srelated to the underlying commercial transaction).

Therefore bank cannot dishonor L/C

** But what s the logic behind allowing the dishonor of the note when the seller knows, but not allowingit when the seller doesn t know? Formalities over realities? And doesn t this still all leave the buyeropen to risk (even if they don t get the goods, the seller can get paid if the documents match)**

y Standby L/Co Buyer requires the seller to go to seller s bank to issue a L/C to the buyer (generally via

the buyer s bank). This most often happens when the buyer is a state owned entity and the goods

are for infrastructures goods (airports, manufacturing plants, militaryinstallations, etc.).

o So buyer takes documents to bank (a statement that says that seller is in breach of contract and is entitled to payment of the L/C).



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o Concerns is that buyer might make a unilateral decision that seller has breached(especially since most of the times the buyer is a government and governments canchange).

And once disputes over whether a breach is real (good faith, bad faith, or evenreal) happen things get overly complicated and sort call into question the utilityof the standby L/C in the first place.

y Amer i can Bell v . Islam i c Re publ i c of Iran : Facts American agrees to set up telephoneinfrastructure in what was Imperial Iran. Contract was worth $200 million. American is gettingpaid via L/C. Iran is set to pay a $38 million down payment. Iran in turn makes American Bellget a standby L/C for the amount of the down payment (minus 20%). So Bell goes toManufactures for the L/C in Iran s favor; they in turn go to Iran bank to confirm the L/C. ThenIran revolution happens. Bank of Iran pays out to new Iran gov. and seeks to collect fromManufacture. They refuse and alert American. So American sues Manufacture for an injunction.

o Legal standard: Irreparable Injury and either probably success on the merits, orsufficiently serious questions going to the merits to make them a fair ground forlitigation and a balance of hardships tipping decidedly toward plaintiff.

Court doesn t find irreparable harm because they re just out money and couldsue in Iran or in US

Court also says Bell can t show probable success on the merits of their claim.y No breach under Iranian law (law contract was created under)y No fraud/Court decides not to address the issue of what the

transaction is so as to decide where fraud might have occurred.Instead they say that even on Bell s theory there is no fraud by Iran.Court says that breach of contract is not the same as fraud. So fraudexception to L/C document rule doesn t apply.

y No H ardship; just out money.

y Harr i s v . Nat i onal Iran i an Rad i o and Telev i si on : Facts basically the same as American Bell. H arrisalmost fulfilled terms of contract (138 out of 144) but then revolution breaks out. Due toprohibition against imports into Iran H arris can t complete the transaction. Iran attempts todraw on the standby L/C for breach. H arris seeks to enjoin their bank from paying the Iranianbank. And again H arris tries to use a fraud theory.

o This time the court agrees to rule on the transaction issue. Court says that the fraud exception is flexible (seeing as how the underlying and

bank transactions are intertwined). Court says that fraud could be found in Iran claiming breach.

y But the bank just looked at the documents, saw they were correct andpaid; how can the bank be enjoined?

The court says because the Iranian bank and the buyer are both the Iraniangovernment. Thus Iran is drawing on itself. Since they re the same party the

court finds this distinguishable from American Accord.

II. Regulation of T radeA. GATT /W TO :

i. Intro:

General Agreement on Tariffs and Trade (GATT) Treaty. Negotiated post-WWII and went into effect in1947. Drafted in response to trade freeze of the Great Depression (to promote trade liberalizationpolicies, i.e., reduction of tariffs; tariff is just a tax that creates dead weight losses. Tacking on extrafees to artificially make goods more expensive and reward inefficient producers.). Views international



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law s role as facilitating the coordination and cooperation of trade. Advantageous to economists;distorts efficient allocation of resources. Also skews a country s comparative advantage. GATT wassupposed to be part of the International Trade Organization (ITO), but it never went into effect becauseof changing political climate in the United States. Executive branch still entered into the GATT. GATTbecame a set of core trade rules with no organization to enforce them.

The Core Provisions GATTy

Article I: Article I is the most favored nation status; preferential treatment. Specific commitmentto other countries to give them the same treatment that you give to your most favored nation.Promoted trade liberalization, but creates the free rider problem where everyone benefits fromone favorable treatment.

y Article II: schedule of concessions, focus on reducing trade barriersy Article III: Article III is the national treatment provision, which requires a state to treat foreign

goods in the same manner the state treats domestic goods. Plugs the gap for wily nations who tryto circumvent the MFN requirements by leaving the tariff alone but including a tax on foreign goods.

o Art.III §8 exception for government procurement (so when the government is out buyingstuff)

y Article XI: no quantitative restrictions or quotas

World Trade Organization (WTO): Created in 1994 during the Uruguay round through the WTOAgreement. In order to join the WTO, a state must agree to a wide treatment of treaties. Cannot sue asa private party for a violation of a WTO provision only btw governments. H owever, there is amechanism (§ 301) can force the government to bring an action for the alleged trade violation. Noprivate remedies; and should the offending state refuse to comply with the WTO provision, only remedywould be a sanction by your government on the state s products.

The Core Provisions of the WTO Agreement: Annexes I-IV (IA/B/C set the framework for which yourclient will be operating).Annex IA is the 1947 GATT Treaty along with several other agreements.

y Annex IB is the GATS; general agreement on trade and services.y Annex IC is the T R IPS Agreement; trade related IP rights.y Annex II is the DSU; dispute settlement understanding.y Annex III is the TP R M; trade policy review mechanism.y Annex IV is the Plural-lateral Agreements; for specialized industries.

** But poorer countries said that MFN doesn t really benefit them. Status doesn t increase their marketshare and doesn t allow them to be competitive or help their industries develop. So they needpreferential treatment where their exports will not be subject to heavy tariffs but they will still beallowed to keep high tariffs on imports.So you get a huge exception to the key theory of the GATT that MFN will apply equally. Give countriesthe option of giving preferential treatment to developing countries. So you can have differential tariff rates as long as they favor developing countries.**

The Generalized System of Preferences (GSP) : Formal system of exemption from the more general rulesof the World Trade Organization (WTO/GATT). Specifically, it's a system of exemption from the mostfavored nation principle (MFN). In essence, MFN requires WTO member countries to treat importscoming from all other WTO member countries equally, that is, by imposing equal tariffs on them, etc. GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the leastdeveloped countries (without also doing so for rich countries).

y GSP: 502b lists countries that can t attain preferential treatment (such as all the developedtrading partners aka they re too rich). Also you can graduate onto the list of excludedcountries (getting too rich). You can t be a communist country either. Also there will be an



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examination of how open any countries that wants to be on the beneficiary list are to theimportation of US goods.

y Under GSP 503b in determining where a product is from (for the purposes of determiningwhether it is subject to lowered tariffs under the GSP) last step has to be 35% of the appraisedvalue of the good for the country of that last step to be the Country of Origin ( R ule of Origin-R OO).

y Competitive Needs Considerations: cross a certain sales threshold you show that you don t need

any help being competitive.

ii. Government Procurementy Crosby v . NFTCMA: Facts MA passes a law barring state entities from doing business with

Burma (including doing business with companies that do business in Burma; except fortelecommunications activities or humanitarian purposes). Law was passed as a statement of opposition to Burma s ruling military junta. Congress also passed law on trade with Burma. Inthe US court, foreign trade associate challenges the MA law based on federal preemptiono Issue: Under the supremacy clause the fed. law will preempt the state law if it s impossible

to comply with both laws, or if the state law is an obstacle to the execution of the objectivesof Congress.

Determined by examining the fed. statue as a whole to identify its purposes andintended effects.

o The court sees the MA law as an obstacle because the power to levy such sanctions is in theauthority of the President.

Takes away from any of the intended effects of anything relating to tariff adjustments or sanctions that the President may choose to do.

The court says the MA law takes away discretion and flexibility from the President ininternational trade dealing.

o K SB v . Nort h Jersey : Facts State of NJ passed a law stating that only domestic materials could beused in state government contracts for public works. But law stated that if it s unreasonable ortoo costly then foreign materials were okay. The law gets challenged by a US based Germancompany as being unconstitutional. H owever, there was no fed. law in conflict in this case. Thelaw was challenged generally as an impediment on the foreign affairs powers of the fed.government.y But the court says that the NJ statute had enough discretion built in ( unless inconsistent

with public interest, or the cost to be unreasonable ) that it doesn t actually impede on thefed. s powers of foreign trade.

o Also the NJ statute was in-line with the fed. Buy America Act. BAA stated that companies should buy American products unless it would be

impractical or the cost unreasonable. So the NJ statute is not deemed unconstitutional.

y All i s-C halmers v . Fr i edk i n : Facts Complaint that in a bid between a domestic and a foreign bid, theforeign company was not given the proper disadvantage (extra 6% duty put on foreign firms) asthey were supposed to be given under the Buy American Act. The Foreign firm had used US goodsas part of its bid. Those US materials were not subject to the 6% add on. The losing US firm saysthis is unbalanced bidding and in violation of the BAA.

y The court says it doesn t see a violation of the BAA.o The overall goal of the Buy American Act is satisfied since US goods were used.o The whole point of the Buy America Act was to benefit US workers which a foreign

firm using US goods does.



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y KNOW TH E GPA

Self-Powered L i gh t i ng v . US: Facts US corp. alleges that US military violated Buy America Act by notbeing allowed to bid on a defense contract which was given to a United Kingdom firm. The US and UKhad an agreement in regard to government procurement for the purpose of greater interoperabilitybetween the countries weapon systems.

y The court says that the Buy America Act is not absolute, especially when following it would

be against the public interest.o Based on the President and the UK PM signing on it, interoperability of weapon

systems was in the public interest.y Also §2511 of Art.III President can waive the Buy American Act and choose to not

discriminate against foreign countries.o Pres. may do this only if a country is part of NAFTA and gives the US the same

preferential treatment; oro under (b)(2)(A)(B) reciprocity if you open up your system we ll open up ours.

iii. Non-Tariff Barriers-Trade and the Environmenty Non-Tariff Barriers can be: Labeling requirements and product safety standards; Subsidizing

domestic industries or artificially reducing cost of production; Customs requirements; discreterestrictions through logistics.y Laws designed to give a domestic industry an advantage; or protectionist in the sense that these

are laws designed to protect/benefit the citizens of that country?o Example: Europe s ban on battle injected with Bovine Growth H ormones: Is it a ban

created to protect European citizens from chemicals with unknown effects (protecthealth and safety of citizens); or a ban designed to protect the European cattle industryfrom having to compete with the larger more efficient US industry.

y GATT Article XX--General exceptionso Subject to the requirement that such measures are not applied in a manner which would

constitute a means of arbitrary or unjustifiable discrimination between countries where the

same conditions prevail, or a disguised restriction on international trade, nothing in thisAgreement shall be construed to prevent the adoption or enforcement by any contracting partyof measures: (b) necessary to protect human, animal or plant life or health; (d) necessary tosecure compliance with laws or regulations which are not inconsistent with the provisions of thisAgreement, including ...; (g) relating to the conservation of exhaustible natural resources if suchmeasures are made effective in conjunction with restrictions on domestic production orconsumption

y Tuna Dol ph i n Case : Facts Dispute arose when the US imposed an embargo against Mexicantuna imports because Mexico's tuna was caught using methods in violation of the U.S. MarineMammal Protection Act. Mexico brought claim to GATT dispute resolution panel

o Mexico claims that under article XI: you can t impose a quanative restriction (a quota)on imports of foreign goods.

Mexico says that the US has set a quota of 0.o The US says it s an article III case (national treatment)

US says there is no problem because everyone is getting the same treatment;no discrimination.

o A GATT panel held that the GATT rules, which do allow for national product standardsfor imported goods, did not apply to this case because it was the process by which tunawas produced rather than the tuna itself that was rejected by the US.



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The panel based its ruling on the assumption that the environmental exceptionspermitted by GATT only pertained to the environment within domestic bordersor jurisdiction.

Because the embargo was imposed unilaterally rather than through aninternational treaty, the US action was viewed as an attempt to inflict itsenvironmental laws on another sovereign country.

o But US policy of requiring tuna products to be labeled dolphin-safe was okay (leaving

to consumers the choice of whether to buy the product). Designed to prevent deceptive advertising practices on all tuna products,whether imported or domestically produced, so no GATT violation.

y Shr i m p Turtle Case : Facts Dispute arose after a prohibition imposed by the United States on theimportation of certain shrimp and shrimp products. US prohibited importation to the U.S. of shrimp harvested with commercial fishing technology that may adversely affect sea turtles. Therelevant portion of this exception, applicable where sea turtles are otherwise threatened,permits certification if the exporting state adopts a regulatory program governing the incidentaltaking of sea turtles comparable to that of the U.S. The regulatory program required turtleexcluder devices to be used by commercial shrimp trawling vessels operating in areas whereturtles are likely to be found ( ). Developing countries claimed their fisherman could not affordthe devices so the prohibition amounted to protectionism in violation of the WTO

o Under WTO rules, countries have the right to take trade action to protect theenvironment (in particular, human, animal or plant life and health) and endangeredspecies and exhaustible resources).

o It also said measures to protect sea turtles would be legitimate under GATT Article XXwhich deals with various exceptions to the WTO s trade rules, provided certain criteriasuch as non-discrimination were met.

Specifically XX(g) relating to conservation of a natural resources. Appellate Body says that sea turtles are natural resources

y Animals can go extinct; reads beyond the literal reading of the articleand looks to the contemporary concerns of contracting parties inregards to natural resources.

o The US lost the case, not because it sought to protect the environment but because itdiscriminated between WTO members; did not follow the chapeau of the XX.

It provided countries in the western hemisphere mainly in the Caribbean technical and financial assistance and longer transition periods for theirfishermen to start using turtle-excluder devices.

It did not give the same advantages, however, to the four Asian countries (India,Malaysia, Pakistan and Thailand) that filed the complaint with the WTO.

y So regulation and requirements were okay, but implementation wasdiscriminatory and that was the problem.

**Note panel allows regulation of the process (as long as it s not implemented discriminatorily) whereas

this was a violation in the Tuna-Dolphin case, where only the product could be regulated** H ard toharmonize the two.

B. United States Trade Lawsi. Controlling Exports Export Administration Acty Export Administration Act of 1949 : authorizes export controls for purposes of national security,

foreign policy, short supply (often extended by Pres through IEEPA)o Extraterritorial effect: Sections 5-7 cover re-exports of goods of US origin President

can prohibit or curtail the export of any goods or technology subject to the



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jurisdiction of the United States or exported by any person subject to the jurisdictionof the United States.

Bases of prescriptive jurisdiction:y Territoriality principle: extended through effects test y Nationality principley Protective principle protects espionage, counterfeitingy Passive personality principley Universality principle

y What s subject to the EA R ? 734.3(1) says all items in the US. 734.3(2) says all U.S. originitems wherever located (so anything made in the U.S. that has already made its way toanother country). What Congress is saying is that they can require you to get a license toexport pretty much anything, if they wanted to.

y Export licensing process : R egulations revised in 1993 so that not every export needs a licenseo Administered by Bureau of Export Administration of Dept commerceo Commerce Control List: is the product controlled? If so, look to . . .o Country Chart: if export (or re-export) to this country needs a license, license is

required Very little multilateral cooperation or agreement on export control

Most everyday stuff doesn t require a license; NLR

(No LicenseR

equired).y R esponsibility of importer to file customs documentation. Until filing documentation,

authorization by Customs Officials and duties paid then good are not in the country. Allhappens under the US H armonized Tariff Schedule ( H TS).

y 3 basic questions: What s the good classified as? Where is the good from? What s thevaluation of the good?

y Up to exporter to figure out if a license is needed. Must be documented on shipping forms.y Who do you apply to for exporter licenses? Split between D.of Commerce and D.of State. D.of

Commerce stuff is handled by the Bureau of Industry and Security (BIS) who operates underthe Office of Export Licensing (OEL) and creates the Commerce Control List (CCL) and ExportControl Classification Number (ECCN) system

y If D.of State then you re under the Directorate of Defense Trade Controls (DDTC) who useArms Export Control Act (ACEA which includes the International Traffic in Arms R egulations[ITAR ] and United States Munitions List [USML]).

o Other departments and agencies have their own regulations and lists and whatnot.y So the exporter questions are: What s the good? Where is it going? Who are you selling it to?

What s the end use?o Goods broken down with one of ten categories and then further by group.

First number (ECCN) in a goods listing is the category it belongs to. Second marker is a letter that indicates what sub-division (5 groups) the item

belongs to. Third (and remaining?) number is the reason why the item is being controlled

(five categories).y Even if a license is required, there still might be an exception available (these all have three

letter markers Civilian End User = CIV).y Denied Person List: persons/companies you cannot sell to. Also Unverified Persons list

(people/companies who once received goods and then never verified that they used the goodsfor a specified reason). Can t sell to them either.

y So what s problematic is the scope of the EA R in that it s not just the good the exporter isresponsible for, but also the end use by the buyer.



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o Or if the buyer re-exports the goods, the exporter is in theory also responsible. SoCongress is basically saying know you re buyer. EA R appears to be a strict liabilitystatute.

ii. Boycotts H elms Burton Acty Behind back drop of Cuban revolution and the expropriation of the US assets in Cuba US

imposes economic embargo on Cuba; done through executive order (subsequent presidents aremore strict, less strict, etc).

y Congress passes the H elm-Burton Act and codifies the scope of the economic embargo on Cuba.Now only Congressional action can change the scope of the embargo.

o Initially Clinton wasn t going to sign the bill, but relented after Cuba shoots a couple of US light aircraft down in international waters killing 4 Cuban-Americans.

y Act has four titles:o 1. Stricter bans on Cuban sugar; prohibits re-exportation. Affects Cuban gov., US

businesses, foreign businesses and the US representatives in international regulatorybodies.

o 2. Provides a framework for aid during a transition to a democratic government. Directappeal to the Cuban people to change the government.

o 3. Allows American citizens (true owners) to sue individuals (employees of foreigncompanies) who invests (buys or sells) in the expropriated assets of the US citizens.Protects US assets taken during the revolution from being bought by foreign investors.Forces other countries to follow US policy on Cuba in a way.

o 4. Prohibits visas for employees (and their families) of certain foreign businesses thathave invested in the expropriated assets of the US that the Cuban government took. USgovernment worried about re-establishing control over said assets if/when Cubabecome democratic.

y Foreign countries don t like the H elms-Burton Act, obviously. They claim the US is trying toenforce their laws extra-territorially.

o So they challenged the US law in the WTO. First they turn to the US agency of the Organization of the American States

judicial committee (the Juridical Committee) to rule on whether the H elms-Burton law violates international law.

y They say that Cuba s expropriation of US assets was unlawful (nocompensation, discriminatory, etc.).

y But they also say that the US cannot make claims against private parties(such as foreign firms) except where the US assets itself is in questionand it s in the US.

y Also 3rd party use of products/property that isn t the asset itself doesn tviolate international law.

o The US claims that the WTO is a trade body and this a matter of foreign policy so theWTO is an inappropriate venue for this dispute.

And there is a national security exception for unilateral restrictions on trade.

R eal danger in invoking the national security exception: who decides onwhether a national security threat exists?

y If it s self-judging, then presumably every count y might try to invoke itwhen they want to restrict trade.

y US and EU eventually settle out of court. The deal is: US suspends enforcement of title III andthe EU suspends their WTO action and the parties continue to work stuff out.

y Final deal gets made that says: the US will create a registry of troubled properties to warnpotential investors that they may have future problems if they buy certain properties (thisregistry does not actually exist).



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o Indicates an EU acknowledgment that Cuba s taking of US properties was in violation of international law.

o The US does not waive title IV. But the EU doesn t proceed with their WTO claim.y T he c h i cken war : US mechanizes chicken farming in the 60 s.

o Increases efficiency, lowers costs.o Chicken exports to Europe increases.o European countries enact series of anti-competition regulations to level the playing

field between US imported and domestic European chickens.o US chicken farmers lean on the US government who in turn raises a claim in the GATT

with the dispute settlement committee.y But GATT decisions must be made by consensus. So the losing party in a dispute could choose

to veto the adoption of a GATT report ruling against them. [oddly enough this doesn t happentoo often].

o This is exactly what the Europeans did.o US decides to retaliate by keep out certain European good(s):

Increases tariffs on trucks, brandy and potato starch. Doesn t directly help the original complaining chicken farmers.

y The US creates the 1962 Trade Act which allows the President act to retaliate when othercountries through enacting laws negatively impact US foreign trade/commerce.

o This statute is then amended (made more severe) by the Trade Act of 1974, in particular§301.

y Some retaliatory actions under the Act are mandatory.o The US may target any goods/services of any country that it feels has

unreasonable/unfair/discriminatory policies (even if they don t actually violate any tradeagreements/policies;

o Or just follow the same polices that US already imposes on other countries: importtargeting, restriction foreign enterprise, etc.).

y Intention of §301 appears to be coercing other countries to change their practices so as toconform follow US ideas.

o Paradoxically this is done in the name of free trade (getting rid of restrictions andliberalizing international commerce).

Basically it s aggressive unilateralism.y Solution is to incorporate meaningful sanction into the (new then) WTO, and make dispute

settlements free of consensus requirements.o Essentially an international §301, but requiring multi-lateral dispute resolution.

y In a dispute ruling, if the complaining party prevails they may be authorized to imposerestrictions on the defendant party if they don t change their policies.

iii. Bribery of Foreign Officals Corrupt Practices Acty Companies must keep good accounting records of their expenditures (no slush funds)y Anti-bribery provisions apply to:

o § 78dd-1: issuers (companies required to register securities SEC has jurisdiction)o § 78dd-2: domestic concerns (US citizens, US businesses & employees/agents)o § 78dd-3: persons other than issuers or domestic concernso §78mb: requires public companies to maintain accurate accounting records. R ecords will

help disclose payments which might violate the other provision of the FCPA. Not dealingwith bribes themselves.

y § 78(a)(1)-(2): It shall be unlawful to:1) make use of interstate commerce2) corruptly



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3) in furtherance of an offer of anything of value4) to a foreign official or foreign political party5) for the purpose of influencing any act or decision, inducing an act or omission, or

securing any improper advantage6) in order to obtain or retain business

y § 78(a)(3) same thing, but (4) says to any person, while knowing it will be given to foreign officialy § 78(b) Exception : facilitating or expediting payment . . . to expedite or to secure the performance

of a routine governmental actiony § 78(c) Affirmative D efenses :

1) Payment was lawful under the written laws of the foreign official s country (this is never likely tohappen)

2) Payment was a reasonable, bona fide expenditure, such as travel and lodging expenses,incurred . . . and directly related to promotion, demonstration or explanation of products orservices or execution or performance of a contract

y D efinitions : 1)(A) The term fore i gn off i ci al means any officer or employee of a foreign government orany department, agency, or instrumentality thereof, or of a public international organization, or anyperson acting in an official capacity for or on behalf of any such government or department, agency, orinstrumentality, or for or on behalf of any such public international organization.

y (3)(A) The term rout i ne governmental act i on means only an action which is ordinarily and commonlyperformed by a foreign official in: (i) obtaining permits, licenses, or other official documents to qualify aperson to do business in a foreign country; (ii) processing governmental papers, such as visas and workorders; (iii) providing police protection, mail pick-up and delivery, or scheduling inspections associatedwith contract performance or inspections related to transit of goods across country; (iv) providing phoneservice, power and water supply, loading and unloading cargo, or protecting perishable products orcommodities from deterioration; or (v) actions of a similar nature. §78dd-1(f)

y Knowledge requirement for vicarious liabilityy Employees can be prosecuted individually even if company isn ty Penalties: up to $2 million for corporation, $100k for individual plus 5 years in prison

o Potential bans on further exports of your product or on contracts with US governmenty No private right of action enforced by SEC and DOJ

Bribing private officials is OKAY** What s the US interest in stopping corruption abroad? What does the US government care if aprivate company is buying off a foreign government official? US firms are competing with foreign firms,and if other countries don t care about bribes and the US does, the US is going to lose (?). Policy of corruption drives up the cost of foreign trade (?). If a US firm is found to be bribing foreign officials itwill reflect badly on the US as a whole hurt the US s relations with other countries.**

y U ni ted States v . K ay : Facts Defendant ( R ice Company doing business in H aiti) were bribing officialsto accept false B/Ls to reduce the amount of customs duties and sales taxes they had to pay

o Issue: Are payments made to get lower taxes (on customs duties and sales taxes in this case)in violation of the FCPA?

D says only those payments that directly go to obtaining business (government

contracts) are in violation. The plaintiff says even those payments that indirectly assist with obtaining businesswill violate the statute.

y All came down to what the statute means by the word assist in regards toobtaining and retaining business.

y The court notices that Congress created exceptions for the cost of doing business transactions.o But the court sees getting lower tax payments decreases a company s operating costs at the

expense of the foreign government and encourages a distorted market (not real



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competition where more efficient company or company with best product gets the contract; just the company who gives the bigger bribe).

Basically payments to foreign officials may not create an improper advantage thatwill ultimately assist in obtaining or retaining business.

y But if only the US had and enforced a law like this, US business would be a big disadvantage.o So the US tried to get the rest of world to adopt their practices.o Leads to the creation of OECD Convention; with 37 members.

Of course how do you know that signatory states are actually enacting andenforcing the treaty (Mexico is a signatory state for example).

y OECD Convention on Combating Bribery of Foreign Public Officials in IBT, 1997o 37 parties, the source of most of the competition for business in countries where bribes are

an issueo Art. 1(1): each party shall make it a crime for any person intentionally to offer, promise, or

give any undue pecuniary or other advantage . . . to a foreign public official . . . in order thatthe official act or refrain from acting in relation to the performance of official duties, inorder to obtain or retain business or other improper advantage . . .

o Art. 1(2) complicity, conspiracy and attempt should also be criminalizedy Red F lags which require extra attention :y General R ed Flags:

o Company has received an improper payment audit in the past 5 yearso Payment in a country with a history of widespread corruption, such as some Middle Eastern

and Asian countries, former Soviet Union countrieso Widespread news reports of bribes, etc.o Bad industry reputation oil, defense, aircraft, construction

y Transaction-Specific R ed Flags:o Agent refuses to provide confirmation that he ll adhere to FCPAo Family or business ties with a govt officialo Bad reputation of agento Agent doesn t want identity to be disclosedo Foreign govt customer recommends the agent (possibly payoff scheme)o Agent lacks facilities and staff to perform the serviceso Agent is new to the businesso Any other odd request by agent (invoices backdated or altered)

y Payment requests:o Excessive commissiono Convoluted payment (through Bahamas, etc)o Over-invoicing (check for more than actual expenses)o Check made out to cash or bearer , cash payments, other anonymous paymento Payment made to third countryo Agent requests large credit lineo R equests for unusual bonuseso R equests for unorthodox or substantial up-front payment

III. International Transfer of Technology IP and Counterfeiting Issuesi. Protecting Intellectual Property

y Counterfeit Goods--> to the company its lost sales (commercial interest).o Also loss of incentive to create/invent/research (social interest).o Loss of tax revenue (underground economy)(government interest).



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o Pirate goods have no quality control and may harm/burden consumers.y Problems with traditional IP infringement remedies: hard to enforce an injunction against a

foreign based infringer.o Could let Customs seize pirated goods before they even enter the US market.

But that doesn't stop pirated goods from being distributed outside of the US. Additionally how is Customs going to tell the difference between real good and

pirated goods?y Romless Com puters exam ple : Computer shells being imported into the US. Computers were

otherwise indistinguishable from Apple computers, except they contained no R OM motherboards. Purchasers would buy the shells and install their own. Apple tried to rely on theCopyright Act (ban on importing pirated copies) to stop imporation.

o Why weren't these computers barred from entry into the US? The computers didn't contain any infringing material.

o So what was the manufacturer, Apple Inc., arguing? Contributory infringement. The romless computers encourage others to buy blackmarket

software/hardware to make the romless computers function. The romless computer had no other function.

o Court doesn't buy it. Says that Customs statute should be interpreted narrowly.Because customs regulations concerning pirated (copyright infringement in this case)works must be read in the context of the Copyright Act.

Because there was no underlying violation of the Copyright Act, Customscouldn t stop the import of the romless computers.

y So laws like the DMCA get created that bans the trafficking of counterfeit goods (or productsthat aid in counterfeiting).

y U ni versal v . Reme i dres : Facts Guy invents DeCSS to decrpyt DVDs. D posts the DeCSS code andlinks to other sites with the codes on his website. P (movie studios) bring suit against thewebsite authors for violating DMCA Section 1201 ban on trafficking.

o Defs. arguedt that DeCSS was not created to pirate movies, but was just intended toplay DVD's on Linux computer DVD players (which had not been licensed by theDVDCCA).

o Court says that motive is irrelevant. That statute just proscribes conduct.

o Since DeCSS can decrypt protected content without authorization, making the codeavailable is a violation of the DMCA; strict liability.

y A.T . Cross v . Sun i l: Facts Pen company sues another company for importing knock-off pens(made in Taiwan) into the NY free trade zone and then shipping them to the Canary Islands.

o Knock-offs were re-packaged and stamped "made in NY" before being re-shipped.o For Customs purposes the knock-offs never entered into the US market.o Company had to find the Taiwan manufacturer themselves to find out who the

infringing trading company, and then inform Customs.o Defendant argues that the courts have no jurisdiction because the pens never entered

into the US; only remained in a free trade zone.o Court rejects this saying that nothing in any statute, the Lanham Act or the commerce

clause that would preclude the jurisdictional reach of goods in the free trade zoneswithin the US.

But really all they did was take care of one importer. Still needed a remedy for taking down the factory in Taiwan (relying on US law

probably not going to work).y So try to get other countries to adopt laws like the US has to protect intellectual property.



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y Take unilateral action (like in terms of how US defines most favored nation, etc.).y Or try multi-lateral action like get countries to be a member of T R IPS/WTO:

o This requires certain levels of IP protection and adequate legal remedies forinternational IP infringement.

o ACTA (anti-counterfeiting trade act: purports to be an anti-counterfeiting treaty, otherssay it goes much further-->radical re-working of other countries' IP laws, drafted insecret).

y The Agreement on Trade R elated Aspects of Intellectual Property R ights (TR IPS) is aninternational agreement administered by the World Trade Organization (WTO) that sets downminimum standards for many forms of IP as applied to nationals of other WTO Members.

y TR IPS specifies enforcement procedures, remedies, and dispute resolution procedures.o Protection and enforcement of all intellectual property rights shall meet the objectives

to contribute to the promotion of technological innovation and to the transfer anddissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare,and to a balance of rights and obligations.

o Basically sets high, uniform standard international protection of IP.y Since TR IPS came into force it has received a growing level of criticism from developing

countries, academics, and Non-governmental organizations.y Many advocates of trade liberalization regard T R IPS as bad policy; giving unfair comparative

advantage to developed countries over developing ones.o TR IPS' wealth redistribution effects (moving money from people in developing countries

to copyright and patent owners in developed countries) and its imposition of artificialscarcity on the citizens of countries that would otherwise have had weaker intellectualproperty laws are a common basis for such criticisms.

ii. Franchising Before venturing into another country for franchising you have to explore:

o The new countries IP law (how they assign rights for Copyrights, Trademarks, etc.; whatcopyrights/trademarks have already been registered; how IP is protected under theforeign country s law);

o Foreign tax law;o Foreign Labor laws; Anti-trust law;o H ealth law (if your franchise is a restaurant);o Zoning ordinances; and so on and so on.

Under the franchise agreement in the book (page 929) Company has to keep up their reputation,license their intellectual property to the franchise, and generally assist them getting started. Inreturn the franchisee agrees to run the business in accordance with Company policy and pay avariety of fees.

o Contractual agreement. Advisable to create a master franchise agreement with a local entity (investor group usually)

who has expert knowledge of the foreign market and laws and.o The local entity would then have the power to create franchisee agreements with other

local businessmen based off the original, master franchise agreement, but withmodifications to suit the foreign market.

o This allows for a degree of discretion but also maintains the basic semblance of uniformity.

Since there s now a middle-man (investor group), the traditional up-frontpayments found in franchise agreements need to be modified.



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Example: Company agrees to waive up-front fee from the intermediary in returnfor a percentage of up-front fees the intermediary receives from the sub-franchisees.

Nightmare scenario is, what if intermediary gets the all the IP/Trade Secrets from Company andthen severs all ties and keeps all the fees from the sub-franchisors.

o H ow can Company protect itself from the foreign intermediary screwing them over? Also there can be problems with exchanging and transferring dollars from the foreign country

(government regulates foreign currency leaving the country, the foreign country doesn t haveenough dollars on hand, etc.).o H ow can Company mitigate these risks? Insurance will cover some risks, but no

everything. Company could try to deal with the Central Bank of the foreign country.

o And in return for approval to deal with the Central (and guarantee payment in dollars)the Company agrees to contract with local suppliers in the foreign country.

Potential problems with accounting standards: whose do you use?o Can the company understand the accounting procedures of the foreign country?o Can they recognize accounting fraud if they re dealing with a foreign system.

Legal problems: slip and fall in a restaurant in a foreign country and they sue the main Company.o Company could require foreign franchisees to have liability insurance.o But of course the Company would need to understand how foreign insurance policies

work. H ow are disputes between the Company and the franchisee handled?

o Can the Company invoke American arbitration companies?o Does the Company know anything about foreign dispute systems (arbitration/courts)?

iii. Gray Market Goodsy Gray Market Goods: a good produced in one country with authorization that ends up being sold in

another country without authorization.o Ex. a watch company based in US, licenses trademark to manufacturer in a foreign country.

Watches made in foreign country are sold to a distributor who then ships them into

the US where they compete with company s watches manufactured in the US.y Gray Markey Goods are cheaper because:

o third party gets to avoid advertising costs,o trademark fees,o gets to take advantage of differing acquisition prices in different markets (face cream s

wholesale cost was significantly less in France than in US),o fluctuating exchange rates (depending on buying power of dollar, buying products abroad

may be very cheap).y A simple case concerning gray market goods usually follow a fact pattern such as:

o A US company enters into trademark agreement with French cosmetic company to be theexclusive distributor of face cream.

o Third party buys a lot of the face cream from manufacturer in France and ships it to the USwhere it is sold for less in direct competition with US company s licensed product.o So the US company sues the third party company for trademark violations.

Initially the US company would always losey Congress then passes a law as part of Fordney-McCumber Tariff Act.

o §526 says that it s illegal to import to goods manufacturer abroad that bear a USrecognized/registered trademark unless there is authorization from the trademark owner.

y K mart : S.Court identifies 3 main fact patterns concerning grey market goods:o 1. The pattern described above.



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o Three variations to the second: 2a)Foreign firm creates a US subsidiary. Subsidiary registers trademark in US. But a

third party buys directly from foreign firm who imports goods into the US. 2b) US company creates a foreign subsidiary. Third party buys from subsidiary and

imports the goods into the US. 2c) Essentially the same a 2b except it s an unincorporated division of the US

company based in a foreign company.o 3. The US company is the trademark owner and authorizes independent foreignmanufacturer to use its mark. Foreign manufacturer or third party imports the goods in to

the US. In the case Customs looked at §526 and only saw the need to ban goods that appear

in fact patterns similar to pattern 1. Customs allows for exceptions to grey market goods that appear under fact pattern

2a (common control exception) and for goods coming in under fact pattern 3(authorized use exception).

o Court finds that authorized use exception is inconsistent with §526. Common Control is okay because statute is sufficiently ambiguous so up to agency

to interpret. But language pertaining authorized use exception is not ambiguous, and Customs

allowing the importation of goods is inconsistent with the statutory language so theexception must be invalidated.

y Q ual i ty K i ng ( shampoo case): Q ual i ty K i ng L anza manufactured and marketed its products inthe US. It sold them abroad at a 30 to 40 % discount and did not market there. The exportedproducts found their way back into the US. L anza seeks an injunction.

o The court denies the injunction. § 602(a) of the Copyright Act provides that importation of a copyright materials

acquired outside the US does infringe a copyright s owner s exclusive right todistribute

But the right is limited by § 109(a), which provides that a reseller, who is a

lawful owner, is entitled without the authority of the copyright owner to sell theitem.

y Despite 602(a) the first-sale doctrine (109) does apply to goodsmanufactured in the U.S., shipped overseas, and then sold back in theStates.

o The decision left open the question of whether the same reasoning applies to goods notmanufactured in the U.S.

To muddy the waters even further, Justice R uth Bader Ginsberg, in signing off on thedecision, said she didn t think it applied to foreign-manufactured goods since thatwould mean U.S. copyright law had extraterritorial powers.

y Lever Bros. v. United States: Facts US corporation (Lever Bros.)had wholly owned subsidiary in theUK (Lever UK). Produced products under the same brand names. But products had differentqualities and packaging in the US and the UK. UK versions of the products were imported and soldin the US causing some consumer confusion. Because the US corp. owned all the rights in thetrademarks Customs officials refused to stop the importation of the UK versions. Lever then sues.

o Lever argued this violated § 42 of the Lanham Act no article of imported merchandisethat copies the name of any domestic manufacture, or copies a trademark, shall beadmitted.

Customs was allowing the goods in under the common control exception.



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o H owever, the court concludes that § 42 precludes the application of the common controlexception with respect to physically, materially different goods. Just because there iscommon control does not mean the goods are genuine, especially when they are different.

The court's holding in Lever Brothers distinguished between goods produced abroadand then imported into the United States under the affiliate exception rule whichwere identical to those intended for sale in the United States and goods producedabroad which were materially different.

y The latter infringed the trademark owner's rights.

y Seeking to reconcile its rules with the Lever Brothers holding, U.S. Customs' new rule allows for theimportation of "physically and materially" different gray market goods, provided that a label isaffixed to the goods until the first point of sale to a retail consumer in the United States which statesthat "[t]his product is not the product authorized by the U.S. trademark owner for importation andis physically and materially different from the authorized product".

y U.S. Customs views such a disclaimer as a "specifically differentiating feature", which satisfies theLever Brothers court's holding.

y In order to secure Lever Brothers -rule protection, a U.S. trademark owner must submit anapplication to U.S. Customs describing any physical and material differences between the authorized

articles and the gray market goods.o Once processed, U.S. Customs will publish in the Customs Bulletin a notice indicating thosetrademarks that will receive Lever -rule protection.

o Thereafter, "physically and materially" different gray market goods will only be allowedentry by U.S. Customs if such goods bear the appropriate disclaimer label.

o If no such label is affixed to the goods, these goods will be temporarily detained, and theburden will be on the importer to demonstrate that the goods are identical and as such falloutside the Lever Brothers -rule.

IV. International Investmenti. Project Finance Project Finance Not used in sale of goods, used in foreign investment

o Basically when a bank makes a loan for a specific project and looks to obtain repaymentfrom the economic activity of that project itself rather than the other assets the buyer has

o Used for projects that will generate income and are (normally) export related W .R. Grace Case : Facts H uge multinational corp., sell among other things fertilizer. R eally good at

making fertilizer out of natural gas. Trinidad has tons of natural gas Say Grace wants the naturalgas from Trinidad, both parties enter into joint venture (make a new Joint Venture called Tringen)

o Let s say 100 million dollars, 49% to Grace, and 51% to Trinidad, Grace needs 49 milliondollars

o Where do they get the money from? We re going to look to get the money to Tringenfrom the bank ( R isk allocation), Grace wants to keep the money off its books

Bank will still ask whether they can get repaid? Bank would get nervous b/c

there s no track record for this new corp., no assets besides this particular project Market risk? Political situation? Shipping? Natural disaster? Conflict of interests?Completion risk? Currency risk? Etc.

o H ow does bank mitigate this risk? Insurance? Or a Project Completion Agreement?

y Project Completion Agreement Agreement b/w sponsor and bank (Bankwill look to sponsor until the project is up and running)

o 2 elements: 1. Physical Completion Guarantee; 2.OperationCompletion Guarantee



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y Bank wants to get paid every month for the loan, (maybe put a stipulationin that every month/amount that s made every month they write a checkfor 100,000 dollars until the amount is paid off)

Do a Take or Pay provision if you don t take anything you pay (Grace s risk is thatthey don t produce the amount)

y Take and Pay if you produce 100,000 tons, we ll pay you for that price(Money from Bank)

o Still need to determine what the market is for fertilizer Currency risk?y This depends on the country, what happens when bank runs out of

money? (Passive Blockage)y Or the bank says that they don t have much more money left for the deal,

they want to spend it on other things (Active Blockage)y Or, the gov t doesn t want the money to go out of the country (Transfer

R isk)o Get around this whole thing w/ the bank through an offshore escrow account

Indirect payment system OPIC Documents

o Includes a Project Completion Form and Loan Document OPIC is a gov t agency that can give loans and provide insurance (why is the gov t

doing this and not a private bank?) Way too risky for private insurance companies?

o Loan Agreement Document Art. II Bank will lend the money, this is staged financing here b/c buyer doesn t

want to pay interest on money they can t use yet 2.02 Borrower will have to pay a fee on difference (Buyer doesn t want the 100

million right away, wants it in stages, so basically this provision is saying they ll payinterest on the first 10 million they get, but pay a fee on the 90 million difference)

y There s an opportunity cost for the bank (bank is leaving that money asidefor the project)

2.03 If you don t use the full amount of the loan, still have to pay interest on themoney not used. This is because of lost opportunity to the bank to try and lend itto someone else

y Art. II is full of different fees that you have to pay for all kinds of scenarios Art. III Company representations (Company is saying to OPIC lender that we ve

made sure everything is a go/in order)y If one of these things is not true, then you can t sign the agreement this

agreement gives bank power to sue if co. was inaccurate and get info. Art. IV Bank needs to make sure that they have the docs. necessary to complete

the agreement (including Project Completion Agreement), basically saying thesethings need to be in order before going through

Art. VI H ow can bank monitory what happens over the life of the loan(affirmative covenants)

Art. VII Bank doesn t want to be in line behind a bunch of creditors, wants tomake sure they get paid

Art. VIII Default rules (co. didn t pay at end of month), 8.01(b) you failed to pay some other loan, you re in default of this loan (Cross-

Default Clause)



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y This loan agreement is a bunch of promises and agreements by the buyer,if there s a problem (Even w/ a different loan), bank needs to know, wantsto see that they ll be paid and aren t behind in line)

ii. Expropriationy Expropriation is the seizing of foreign owned private assets by a local government

o Example: Cuba nationalizing the sugar industry and seizing all sugar producing lands,

even those owned by foreign companiesy H ull D octrine (1915) no government is entitled to expropriate private property, for whatever

purpose, without provision for prom pt, adequate, and effect i ve payment therefor.o This was the old standard for seeking remedies for expropriated assets in the US

y 1962 UN resolution: countries have the right to property/resources/wealth of their country, andtherefore have the right to expropriate foreign owned domestic property.

o But only in circumstances such as for public utility, security or national interests. The expropriating country must compensate the owners of the property they

take. Compensation under this UN resolution is calculated under domestic law, but in

accordance with international law. This standard widely adopted at the time.y

1974 UN resolution (Declaration on the Establishment of a New International Economic Order--NIEO).o Declares full sovereignty not over just property/natural resources, but also economic

activities.o Explicitly declares that countries have the right to nationalize/transfer ownership of

resources.o Also under this resolution compensation does not run to the former owners, but runs to

the expropriating countries (as damages for past exploitation).y 1974 Charter of Economic R ights and Duties of States.

o Basically the same as the NIEO, but states that any controversy over compensation forexpropriated resources shall be settled under the domestic law of the expropriatingcountry.

o But declaration says that expropriating country should give compensation, if they find itappropriate under domestic state law.

y Parties who have had their assets expropriated can turn to:o The courts of the expropriating country?

Not likely to find a remedy there.o The US courts (assuming it s a US company that had their property expropriated)

y Could work, but;o In the US you d run into the problem of the sovereign immunity

doctrine: US has waived its jurisdiction over acts by a sovereign

state because in theory sovereign states are equal and

judgment should not be passed on co-equal sisterstates.

But if a state was acting as a private party (i.e. in acommercial capacity) then it can be sued as a privateparty.

y Foreign Sovereign Immunity Act now codified as US lawo Now courts decide whether a statutory exception applies to an

action by a sovereign state making them able to be sued in UScourts.



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o Most used exception is an exception for commercial activity(but what is commercial activity?).

o US law also contains an expropriation exception, but otherrequirements must be met before a court will subject a state toliability.

y Act of State Doctrine: courts will not pass judgment of acts of another state done in that state sterritories.

o Act of state doctrine is not compelled by US Constitution or international law. But act of state has constitutional underpinnings.y It s all about separation of powers.

Judicial Branch should not be making foreign policy decisions; therefore UScourts should not pass on the legality of acts by a foreign government in its ownterritory.

o But if court doesn t have to decide the legality of an act by a foreign state, then there isno Act of State and they will feel free to pass judgment.

ExK i rk patr i ck where Supreme Court found that they did not have to pass judgment on the legality of a contract between a US company and the Nigeriangovernment that turned on the payments of a bribe.

y They only had to rule on whether the company violated the US foreigncorrupt practices law.

iii. State-Investor Arbitrationsy BIT (bi-lateral investment treaties) Designed to establish a secure environment for investors by

providing detailed rules for treatment of foreign investment and establishing effective means of dispute resolution.

o Usually have provisions against discrimination (similar to Most Favored Nation).o And fair and equitable treatment provisions which prohibit things like performance

requirements.o And expropriation clauses which usually contain a standard similar to the H ull standard

(Prompt Adequate Effective compensation).y When a foreign investor has a problem they can usually sue a foreign country directly in an

international arbitral tribunal.o Dispute resolutions provisions are contained in the treaties.

This gets around things like the foreign sovereign immunity doctrine.

y Argent i na i n Turmo i l Example: Facts Argentina so is having a lot of economic problems anddecides to privatize several state owned enterprises and liberalizes foreign investment and tradepolicies (and currency policies). This works for a while but then the economy tanks again (really,really tanks). So the government passes all these laws which pretty much all the result of diminishing the value of foreign investments. So the foreign investors sue the Argentinegovernment for violating bi-lateral investment treaties (even though all the Argentine

government was trying to do was keep the government from melting down).y Investors claiming that Argentine government expropriated their property.

o Not the old fashioned expropriation where a foreign government takes over a foreignowned factory.

R ather the modern version (creeping expropriation) where the governmentthrough a series of laws (taxes, tariffs, regulatory laws, etc.) which constrainsthe foreign property to the point where they can t do business any more defacto forces them out.



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y But Argentine government counters that all the laws they passed were necessary acts for thepublic interest.

y A means/ends analysis? Were the ends in balance with the actions that were undertaken?o Basically a balancing test: the degree of the measure s interference with the right of

ownership and the power of the State to adopt its policies.o In evaluating the degree of the measure s interference with the investor s right of

ownership, one must analyze the measure s economic impact its interference with the

investor s reasonable expectations and the measure s duration.y In general expropriation claims aren t too successful:

o More often a party will be successful if they bring a claim under a breach of a fair andequitable provision.

These are often evaluated on a case by case basis; no set standard for what willbe found to be fair/equitable.

Also interpretation can be totally dependent on where and which body is tryingthe case.

y In the Argentine cases the plaintiffs were said have been seduced bypromises and it was a violation of the fair and equitable treatmentwhen their expectations were not met.

y But just because you can prove that a rule has been broken does not mean that you areguaranteed compensation.

o Necessity safe harbor Argentina claiming that everything it did was done purely out of necessity considering the unstable condition of the country

Of course how do you figure out necessity? And how much does what the country did or didn t in creating the factors that

made their later actions supposedly necessary?y As a control mechanism (if a party thinks the arbitrators got it completely wrong like here) in these

BIT there is a provision for an annulment committee. These are like an appeals court, but they havea very limited scope of review.

iv. Alien Tort Act and Multinational Corporationsy The Alien Tort Statute ( AT S ) (28 U.S.C. §1350 ) provides that the "district courts shall have

original jurisdiction of any civil action by an alien for a tort only, committed in violation of thelaw of nations or of a treaty of the United States."

o This law was almost never used between the time it was enacted in 1789, and the 1980s.o H istorically to give foreign ambassadors a remedy for torts that they are victim to while

on US soil. It was thought as a means to keep international relations calm in the eventof a tort committed against ambassadors or diplomats.

y F i lart i ga v . Pena-Irala : Facts Filartiga was a Paraguayan dissident. H is son was tortured andmurdered by a Paraguayan official named Pena-Irala in Paraguay. It was a politically-motivatedkilling. Filartigia tried to get justice in Paraguay, but was unsuccessful. Pena-Irala happened tocome to the US on a vacation, and was sued by Filartiga (who was living in the US) under the ATS

y The Trial Court dismissed the claim. Filartiga appealed.y The Appellate Court looked to The Paquette H abana (175 U.S. 677 (1900)), and found that "the

law of nations" should be interpreted as customary i nternat i onal law .o The Court found that under customary i nternat i onal law , there is a set of "human rights

and fundamental freedoms." The Court noted that the extent of those rights and freedoms is debatable, but

surely includes the right not to be tortured and killed. Therefore, official torture is prohibited by the law of nations.



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o The Court found that Filartigia had a claim under the ATS since Pena-Iralia was accusedof violating the law of nations.

o The Pena case was a new application of the ATS.

y Sosa v . Alvare z-Mac h i an : Facts A U.S. Drug Enforcement Agency (DEA) special agent waskidnapped and murdered by a Mexican drug cartel in 1985. After an investigation, the DEAconcluded that H umberto Alvarez-Machain had participated in the murder. A warrant for his

arrest was issued by a federal district court. The DEA, however, was unable to convince Mexicoto extradite Alvarez-Machain, so they hired several Mexican nationals to capture him and bringhim back to the United States. H is subsequent trial went all the way to the Supreme Court,which found that the government could try a person who had been forcibly abducted, but thatthe abduction itself might violate international and provide grounds for a civil suit.

o When the case went back to the district court for trial, Alvarez-Machain was found notguilty for lack of evidence.

y Alvarez-Machain then filed a group of civil suits in federal court against the United States andthe Mexican nationals who had captured him under the Federal Tort Claims Act (FTCA), whichallows the federal government to be sued on tort claims, and the Alien Tort Statute (ATS)

o Issue was does the Alien Tort Statute permit private individuals to bring suit againstforeign citizens for crimes committed in other countries in violation of the law of nationsor treaties of the United States?

May an individual bring suit under the Federal Tort Claims Act for a false arrestthat was planned in the United States but carried out in a foreign country?

y Court unanimously ruled that the ATS did not create a separate ground of suit for violations of the law of nations.

o ATS was part of the Judiciary Act which is only concerned with jurisdictiono Instead, it was intended only to give courts jurisdiction over traditional law of nations

cases - those involving ambassadors and piracy. Because Alvarez-Machain's claim did not fall into one of these traditional

categories, it was not permitted by the ATS.o Court says US courts should not recognize private claims under federal common law for

violations of international law norms unless they are as well established as the norm of having a claim against piracy (back when the ATS was first established)

Kidnapping a foreign national was not so well established as a violation of international law

y Court points out that any international covenants the US belongs toaren t self-executing non-binding

o On the FTCA claim, the Court ruled that the arrest had taken place outside the UnitedStates and therefore was exempted from the Act.

It rejected Alvarez-Machain's argument that the exemption should not applybecause the arrest had been planned in the United States.

**So have to figure out whether action is bad enough/well established enough in international law to

there to be a cause of action under ATS. Also now have to ask who can be liable for doing theactions?**

y Doe v . U nocal Cor p.: Facts In September 1997, 13 Burmese villagers filed suit against Unocal andtheir parent company, the Union Oil Company of California under the Alien Tort Claims Act. The suitwas filed for alleged human rights violations, including forced labor, in the construction of theYadana gas pipeline project in Myanmar.

y In 1997, a U.S. federal district court in Los Angeles agreed to hear Doe v. Unocal.



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o The Court ruled that corporations and their executive officers can be held legally responsibleunder the Alien Tort Claims Act for violations of international human rights norms in foreigncountries, and that U.S. courts have the authority to adjudicate such claims. The Court dismissed the case on the grounds that Unocal could not be held liable unless

Unocal wanted the military to commit abuses, and that plaintiffs had not made this showing.o Plaintiffs appealed this decision, and on September 18, 2002, the United States Court of Appeals

for the Ninth Circuit reversed the District Court s decision allowing the lawsuit against Unocal togo forward. The Court said that for some wrongs even private parties should be held liable; don t need

state action, such as slavery. Court reasoned that forced labor, such as the plaintiffs were made to do, is the modern

version of slavery.y Also Unocal aided and abetted the commission of the crime by the state.

y But later the 2 nd Circuit said that no corporations can be criminally liable for human rights.o They came to this conclusion by looking at State law in the rest of the world and saw that

nowhere else was there anything like the ATS. Also everything that is remotely similar, like Nuremburg, did not involve corporations. So

you ve got a circuit split.

V. Dispute Settlementi. Forum Selection Clauses

y To ensure a contract dispute is litigated in the forum of your choosing, add a forum selectionclause to your contract ( any dispute arising under and in relation to this contract will belitigated before the courts of xxx ).

y Problems with forum selection clauses:o Exclusive or non-exclusive; scope of clause (all disputes, only disputes arising under the

contract, only disputes over payment, etc.);o Enforceability of the clause

y M /S Bremen v . Za pata : Facts Petitioner sought review by certiorari of the judgment entered bythe United States Court of Appeals for the Fifth Circuit in which a forum-selection clause in acontract between petitioner German corporation and respondent United States corporation washeld invalid.

o Petitioner, a German corporation contracted with the respondent, an United Statescorporation to transport an oil rig from Louisiana to Italy.

o During transportation, the rig was damaged and was towed to Tampa, Florida (at therespondent's request), where the United States corporation filed suit.

o The German corporation, however, asked the district court to enforce the forum-selection clause that was in their contract, providing for the litigation of any dispute tohave jurisdiction in England.

o The district court refused to enforce the clause and the lower appellate court affirmed.y Issue: was the District court of Florida correct to refuse to enforce the forum- selection clause

created between a US company and a German Corporation?y H olding: The court held that the forum-selection clause was valid and the case was remanded

for a determination of whether enforcement was unreasonable.y R ule: "It is settled that parties to a contract may agree in advance to submit to the jurisdiction

of a given court , to permit notice to be served by the opposing party, or even to waive noticealtogether."



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y R easoning: The rig would have traveled over many jurisdictions, and it would be veryinconvenient for both parties if a suit could have jurisdiction wherever an accident occurs.

o That is why the forum-selection clause was established in this contract. It eliminates those uncertainties, and helps international trade, commerce and

contracting. Parties can by private agreement create jurisdiction where it otherwise would

not exist, creates a mutual forum (helps international commerce).

y Carn i val Cru i se v . Shute : Facts Form contract contained forum selection clause. Plaintiff claimsno arm s length dealing so forum selection clause should be unenforceable.

y Supreme Court doesn t care and holds forum selection clause enforceable.o Looks like there is no limit to the enforceability of forum selection clauses; will the

clauses always be enforced?

y Bonny v . Soc i ety of Lloyds : Facts US parties who invested in British insurance syndicates endup losing a lot of money. Plaintiffs claim that investments were made based on fraudulentinformation. False statements that made plaintiffs invest violated US SEC laws. Plaintiffs seek tosue defendants in US courts. Defendants claim that contracts between parties had forum

selection clause (all disputes will be litigated in England) so plaintiffs cannot bring suit in the US.y Plaintiffs claim that since violating SEC is violating federal law, forum cannot be waived.o Sending case to England would take away plaintiff s remedies under the SEC (take away

plaintiffs rights under federal law) and therefore suit in the US should be allowed. **Anydifference between this case and Bremen?** Well not really. Both brought up issues of public policy.

y H ere court says that if remedies available in England would not subvert the public policies of theUS then dismissing case to England wouldn t be a problem.

o Although plaintiffs would run into procedural and substantive obstacles to gettingremedies in England, the court says that in principle remedies are available.

o Therefore US policy would not be subverted and sending the case to England would beok.

o So basically what is supposed to be non-waive-able is waive-able when a forumselection clause is used.

y **But this is only in the US. Other countries may not be so eager to enforce forum selectionclauses. So this causes all sorts of problems.

o So why not make a treaty (choice of forum treaty): signors must enforce forum selectionclauses and enforce the decisions of the foreign jurisdiction (well with this treaty so faronly Mexico has ratified the treaty so had no effect yet).

ii. Enforcing Arbitral Awardsy The Convention on the R ecognition and Enforcement of Foreign Arbitral Awards, also known as

the New York Convention requires courts of contracting states to give effect to private

agreements to arbitrate and to recognize and enforce arbitration awards made in othercontracting states.

o Widely considered the foundational instrument for international arbitration, it appliesto arbitrations which are not considered as domestic awards in the state whererecognition and enforcement is sought.

o Under the Convention, an arbitration award issued in any other state can generally befreely enforced in any other contracting state (save that some contracting states mayelect to enforce only awards from other contracting states - the "reciprocity"reservation), only subject to certain, limited defenses.



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o Defenses all found in Article V: 1. a party to the arbitration agreement was, under the law applicable to him, under

some incapacity; 2. the arbitration agreement was not valid under its governing law; 3. a party was not given proper notice of the appointment of the arbitrator or of the

arbitration proceedings, or was otherwise unable to present its case; 4. the award deals with an issue not contemplated by or not falling within the terms of

the submission to arbitration, or contains matters beyond the scope of the arbitration(subject to the proviso that an award which contains decisions on such matters may beenforced to the extent that it contains decisions on matters submitted to arbitrationwhich can be separated from those matters not so submitted);

5. the composition of the arbitral tribunal was not in accordance with the agreement of the parties or, failing such agreement, with the law of the place where the hearing tookplace (the "lex loci arbitri");

6. the award has not yet become binding upon the parties, or has been set aside orsuspended by a competent authority, either in the country where the arbitration tookplace, or pursuant to the law of the arbitration agreement;

7. the subject matter of the award was not capable of resolution by arbitration; 8. enforcement would be contrary to "public policy".

y Parson and W h i ttemore : Facts Case dealt with a contract to build a paper mill in Egypt butconstruction was halted by the Arab-Israeli Six Day War. The employees left Egypt due to the War.Parsons said they were entitled to stop construction due to Force Majeure. The Egyptian companydidn t want this and initiated arbitration.

o Occurred under the International Chamber of Commerce.o They found that Parson wasn t justified in abandoning the project.o Parsons claimed that arbitration was against the public policy of the United States when

Egypt sought to enforce the judgment in the US.y Issue: When may a US court refuse to enforce a foreign arbitral awarded under the New York

Convention?y 2nd Circuit said that the public policy defense was to be construed narrowly.

o T he defense of public policy is available only if recognizing and enforcing this award wouldviolate the most basic notions of moral and justice in the United States .

Court then said that it would not be inconsistent with our basic notions of moralityand justice if this arbitration award in favor of the Egyptian company was recognizedand enforced.

There is a difference between public policy and national policyo Parsons raised the issue that one of their witnesses was unable to appear at arbitration so

the proceeding was unfair. The court is not very hospitable to this argument. The inability to produce your own

witnesses is a risk you take when you submit to arbitration.

y Soler v . Mi tsub i sh i : Facts Mitsubishi and Soler entered into a dealership agreement to distributeMitsubishi cars outside of the continental US through Chrysler dealerships. Their agreementcontained an arbitration clause stating that all disputes would go to arbitration in Japan. After adispute Mitsubishi initiated arbitration proceedings and filed a complaint in the US to compel Solerto arbitrate. Soler counter claimed that the agreement violated US anti-trust laws and should beterminated. The court ordered Soler to arbitrate its anti-trust defense and Soler appealed.

o Issue: Can a US court compel arbitration of an anti-trust claim?o Majority Opinion



The court upheld the agreement to arbitrate and did not allow Soler to bring asuit. They said Soler had to go arbitrate its problems as specified in theagreement.

Conclude that international concerns for comity and respect for tribunals, andrespect for the international community system for the foreseeability of commercial disputes, we must enforce the agreement.y There is a strong presumption on the validity on voluntary contracts which

were freely negotiated upono Minority Opinion Justice Stevens

Calls the majority opinion obtuse Says that arbitration is really not suitable for anti-trust claims

y Li byan Sun O i l : Facts There was an agreement between a subsidiary of Sun Oil (DE corp.) and aLibyan Company. The subsidiary claimed that there was an event of Force Majeure because of State Dept. order prohibiting use if US passports for travel to Libya, and later ban on exports of oiltechnology to Libya. Libyan company then sought arbitration for breach of contract.

o The Libyan Company won an arbitration awardso The DE Court said that public policy defense should be construed narrowly and that

confirmation of a foreign award should be denied on this basis only where enforcementwould violate the forum states most basic notions of fairness and morality.

Again US foreign policy isn t the same thing as public policy