February 19 -- March 3,
2000 Developments in international law, prepared by the Attorney-Editors ofInternational Legal Materials The American Society of International Law
Due to a temporary staffing shortage the International
Law In Brief will now be issued on a biweekly basis.
If you have any questions, please contact Peter C. Hansen,
ILM Editor, at phansen@asil.org
European Court of Justice: Omer
Nazli, Caglar Nazli and Melike Nazli v. Stadt Nurnberg,
Case C-340/97 (February 10, 2000)
Omer Nazli, a Turkish national, was permitted to enter
Germany in 1978, and from 1979 to June 1989 was continuously
employed. Para. 6. In May 1989 Nazli obtained a work
permit of "unlimited duration and entirely unconditional."
Para. 7. Between 1992 and 1994, however, Nazli was detained
pending trial for drug trafficking, and in April 1994
received a suspended 21-month prison term for being
an accomplice. Paras. 9-11.
Although Nazli's residence permit expired at the end
of 1994, Nazli was permanently employed from January
1995. Paras. 13-14. Nazli's attempt to extend his residence
permit was rejected in October 1995 by the Municipality
of Nuremberg, which ordered Nazli and his two minor
children,Caglar and Melike, to be expelled
from Germany on the basis of his narcotics conviction.
Paras. 2, 16. The Bavarian Administrative Court in Ansbach
held on appeal that the expulsion order was consistent
with German law, (Para. 17), but stayed the proceedings
to request the European Court of Justice ("Court") to
interpret Decision No. 1/80 of the Association Council
set up between the European Economic Community and Turkey
("Decision No. 1/80") as to: 1) whether a Turkish worker
having "free access in that Member State to any paid
employment of his choice" under Article 6(1) of Decision
No. 1/80 forfeits that status if detained, convicted
and given a suspended prison sentence; and 2) if not,
whether the worker's expulsion in such circumstances
is compatible with Article 14(1) of Decision No. 1/80
on deterrence grounds. Para. 23.
The Court determined that a right of residence corresponds
to a right to work under Article 6(1), (Para. 28), and
that while Nazli did not work during his detention,
this period of unemployment was not permanent, "provided
that he finds a new job within a reasonable period after
his release." Para. 41.
The Court also determined that expelling an alien on
general preventive grounds following a conviction for
a specific offense is incompatible with Article 14(1)
of Decision No. 1/80. Para. 63. While the Court stated
that Turkish nationals could be justifiably expelled
when "personal conduct indicates a specific risk of
new and serious prejudice to the requirements of public
policy," (Para. 61), the Court also noted that Community
law precludes the expulsion of Member State nationals
to deter other aliens, especially when the measure automatically
follows a criminal conviction. Para. 59. SZ
U.S. Second Circuit Court of Appeals:
Enron International C.V. v. Smith Cogeneration International,
Inc., 99-7101 (December 8, 1999)
In July 1993 Smith Cogeneration International, Inc.
(SCI) signed a Power Purchase Agreement with a state-owned
utility in the Dominican Republic to construct, finance
and manage the utility's power plant. During negotiations
leading up to the agreement, Enron International made
competing offers to the Dominican government, and Enron
and SCI ultimately agreed to establish a joint venture
("Agreement"). This agreement was implemented through
a complex series of subsequent agreements between their
affiliates. An integral part of each agreement was an
arbitration clause providing for the arbitration of
any dispute under the Agreement to take place in New
York under Texas law and the Federal Arbitration Act
(FAA).
The joint venture began to deteriorate in 1996 when
SCI became unable to meet its financial obligations
to the project. In July 1998 SCI filed suit in a Dominican
court, alleging that: 1) SCI had been coerced into the
partnership by Enron; 2) all of the subsequent Agreements
had been fraudulently induced; and 3) Enron had tortiously
interfered in SCI's negotiations with the Dominican
government. SCI demanded recission of the Agreement
and requested approximately $159 million in damages.
In response, Enron and its affiliates ("Enron") filed
a petition in federal district court to: 1) enjoin SCI
from prosecuting the Dominican lawsuit; and 2) compel
arbitration according to the Agreement. The U.S. district
court granted Enron's motion. The U.S. Second Circuit
Court of Appeals ("court") affirmed the decision.
The court rejected SCI's contention that the court
lacked subject matter jurisdiction because the Agreement
was not "centered" in a state signatory to the Convention
("Contracting State"), in that neither SCI, the joint
venture company, nor the power plant were incorporated
in a Contracting State. The Court found that Chapter
II of the FAA does not require that the location of
a dispute be "centered" in, or involve parties subject
to the jurisdiction of, a Contracting State. The Court
held that the dispute met the four requirements necessary
to enforce arbitration agreements under the Convention:
1) the agreement was written; 2) arbitration was to
be provided in the territory of a signatory to the Convention;
3) the subject matter was commercial; and 4) the subject
matter was not entirely domestic in scope.
The Court also rejected SCI's assertion that no valid
and enforceable arbitration agreement bound the parties.
While SCI claimed that Enron lacked the right to compel
arbitration for having assigned interests to affiliates
not party to the present suit, the court held that the
assignment of rights to an affiliate does not abrogate
an arbitration contract between the original parties.
The court additionally found that SCI had treated Enron
and its affiliates as a single unit in its own pleadings
before the Dominican courts, and consequently estopped
SCI from attempting to distinguish between them.
The court also disagreed with SCI's assertion that
the Convention did not apply because Enron's alleged
misconduct had occurred prior to the signing of the
Agreement, finding that the arbitration clause did not
contain a temporal limitation. The court noted the "strong"
federal policy in favor of arbitration, and stated that
a broad agreement to arbitrate creates a presumption
of arbitrability which is overcome only on "positive
assurance" that the agreement may be otherwise interpreted.
The court also asserted that claims must be arbitrated
if the allegations underlying the claims touch matters
covered by an arbitration agreement. MB
U.S. District Court for the Southern
District of New York: In Re Austrian and German Bank
Holocaust Litigation, 98 Civ. 3938 (January 2000)
Beginning in or about October 1998 a number of individual
and class actions against Austrian and German banks
were filed in the U.S. District Court for the Southern
District of New York ("court") by plaintiffs alleging
various torts and international law violations arising
out of Nazi activity during and after World War II.
In February 1999, the suits were consolidated and the
parties entered into settlement negotiations presided
over by U.S. Senator Alfonse D'Amato and Professor Viet
D. Dinh acting as Special Masters.
On March 15, 1999, the plaintiff class and the Austrian
banks reached a $40 million preliminary partial settlement
for which the parties sought the court's approval as
well as the dismissal of all settled claims. In June,
the court granted preliminary certification to the settlement
class and gave preliminary approval to the settlement.
Three days before a November fairness hearing, however,
purported class member Peter Georgi filed an intervention
motion under Federal Rule of Civil Procedure (FRCP)
24 to have the court reject the settlement. Georgi's
motion expressed disapproval with the amount and sought
to add defendants to the existing class of claimants.
At the hearing, after receiving testimony from six objectors,
the court announced that it would reserve judgment on
whether to approve the settlement.
In considering Georgi's motion, the court noted that
under FRCP 24(a) an intervenor must: 1) file timely;
2) demonstrate an interest in the action; 3) show an
impairment of that interest arising from an unfavorable
disposition; and 4) have an interest not otherwise adequately
protected. The court noted that failure to satisfy any
one of these requirements would suffice to deny the
application.
The court denied Georgi's motion for untimeliness because
it was filed approximately one year after the action
was commenced, three months after the notice was given
to class members, and three days before the fairness
hearing. The court also concluded that Georgi's intervention
would cause "intolerable delay" to elderly claimants.
The court noted that the settlement enjoyed a presumption
of fairness, as it was produced through arms-length
negotiations conducted by experienced counsel. The court
found that the terms of the settlement were "fair, reasonable,
and adequate" after weighing, inter alia:1) the complexity, expense and likely duration of
litigation; 2) the risks of establishing liability;
and 3) the reasonableness of the settlement in light
of the best possible recovery from litigation. The court
determined that prolonged litigation would mean that
elderly members of the class would never see the case
resolved. The court also noted the evidentiary problem
that only partial bank records remain from the period
in question.
The court concluded that the balance of factors weighed
in favor of a settlement. The court accordingly certified
the class, approved the settlement, and dismissed any
further claims against the Austrian banks. JJ
WTO Appellate Body Report: United
States -- Tax Treatment for "Foreign Sales Corporations",
AB-1999-9 (February 24, 2000)
The United States appealed the October 8, 1999 Panel
Report finding (see ILIB Vol. 2, No. 11, p. 5,
http://www.asil.org/ilib0234.htm#05)
that the U.S. Foreign Sales Corporations (FSC) tax measure
constitutes a prohibited export subsidy under Article
3.1(a) of the Agreement on Subsidies and Countervailing
Measures (SCM). The U.S. argued inter alia that
the Panel had failed to base its analysis under footnote
59 to the Illustrative List of Export Subsidies ("Illustrative
List") in Annex I of the SCM. Paras. 23-26.
The U.S. argued that footnote 59 permits tax exemptions
for foreign-source income relating to exports, and moreover
represents a "controlling legal provision" justifying
the FSC tax exemption preventing double-taxation of
foreign-source income. Id. While the U.S. did
not generally disagree with the Panel's interpretation
of the term "otherwise due" as establishing a "but for"
test, the U.S. posited that this test was precludedby the specific standard established under Article
1.1 and footnote 59 that "taxation of foreign-source
income is deemed not to be revenue that is 'otherwise
due'." Para. 24.
The U.S. further requested the Appellate Body to reverse
the Panel's finding that the U.S. was in violation of
the Agreement on Agriculture ("Agreement"). Para. 32.
The U.S. alleged that the Panel had misinterpreted the
phrase "to reduce the costs of marketing" in Agreement
Article 9.1(d), and had consequently found the FSC tax
exemption to be an Article 9.1(d) export subsidy. Para.
32. The U.S. additionally argued that in regard to the
Panel's ruling that the mere availability of the FSC
tax exemption for unscheduled products violates Article
3.3 of the Agreement, the Panel's reasoning was inconsistent
with both established principles of treaty interpretation
and the meaning of the term "provide." Para. 34.
The European Communities responded inter alia
that the Panel was correct in finding that the FSC measure
was an export subsidy under Agreement Article 9.1(d)
and in violation of Agreement Articles 3.3 and 8. Para.
51. In the alternative, the EC argued that even if the
FSC measure was not an export subsidy under Article
9.1(d), it nevertheless violated Articles 10.1 and 8
of the Agreement. Para. 51.
The Appellate Body rejected the U.S. argument that
the Panel's analysis should have been conducted under
the meaning of footnote 59, reasoning that the outcome
of the EC claim under Article 3.1(a) would be the same
under footnote 59 as under Article 1.1 of the SCM because
"[t]he appropriate meaning of both provisions can be
established and can be given effect . . . ." Para. 89.
The Appellate Body also rejected the U.S. argument over
the inapplicability of the "but for" test, holding that
neither Article 1.1 nor footnote 59 qualify the general
interpretation of the term "otherwise due" in order
to justify the FSC tax exemption. Paras. 93-94. The
Appellate Body found that Article 1.1 generally defines
the term "subsidy" under the SCM, while footnote 59
relates to one item in the Illustrative List, so that
no exception to the general definition of a subsidy
is established. Para. 93.
The Appellate Body, however, reversed the Panel's finding
that the U.S. had violated the Agreement, holding that
the income tax liability arising from export sales was
not part of the "costs of marketing" a product. The
Appellate Body concluded that income tax liability under
the FSC measure arises only "when goods are actually
sold for export, that is, when they have been the
subject of successful marketing . . . and not as
part of the process of marketing them." (emphasis
in original) Paras. 131-32. Having thus reversed the
Panel's findings, the Appellate Body declined to examine
that part of the U.S. appeal alleging misinterpretation
of the word "provide" in Article 3.3 of the Agreement.
Para. 132.
The Appellate Body accepted the EC's alternative claim,
holding that the FSC subsidies were applied in a manner
that "at very least, threatens to lead to, circumvention
of the export subsidy commitments made by the United
States, under the first clause of Article 3.3, with
respect to scheduled agricultural products" (emphasis
in original). Paras. 153-54. The Appellate Body accordingly
held that FSC measure violated Articles 10.1 and 8 of
the Agreement of Agriculture. Id. BM
Thomas Buergenthal has been elected by the U.N. General
Assembly and Security Council as a Member of the International
Court of Justice. Mr. Buergenthal, a U.S. citizen, succeeds
with immediate effect Judge Stephen M. Schwebel (also
of the U.S.), who resigned as a Member of the Court
as of February 29, 2000. Mr. Buergenthal will complete
Judge Schwebel's term, which expires on February 5,
2006.
The Canada/United States Law Institute will be holding
its annual Conference on April 14 - 16, 2000, which
will be hosted by Case Western Reserve University School
of Law. This year's theme is "The Management and Resolution
of Cross Border Disputes as Canada/U.S. Enter the 21st
Century". For further information, please contact Phyllis
E. Banks, Conference Coordinator, at (216) 368-3018
(e-mail: peb@po.cwru.edu)
or Henry T. King,Jr. at (216) 368-2096.
International Law In Brief - Copyright 2000 - The American
Society of International Law Editor: Peter C. Hansen, Esq. Interns: Matthew Brinton, Matthew Casebolt,
Jae Jo, Branislav A. Maric, Adv., Sam Zengotitabengoa
To comment on this publication, send an e.mail message
to Peter C. Hansen, Editor of International Legal Materials,
at phansen@asil.org
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