Law Cases

Cases

&

Solutions

April 18

2012

Cases From: 1- Chapter 4 (The Multinational Enterprise) , 2- Chapter 5(Foreign Investment) & 3- Egyptian Contract Law.

References: Dr.Yassin El-Shazly Presentations & International Business Law Book 5th Edition –Ray August & Don Mayer IBL Cases

Copyright © Amira Melouk All rights reserved 2012

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Exam Criteria

Subject Chapter Cases

Common enterprise

liability

4 Case 4-8 Touche Ross & Co. v. Bank Intercontinental,

Limited

Unfair competition

( Antitrust)

4 Case 4-2 Metro Industries v. Sammi Corp.

Case 4-3 Airbus Industrie G.I.E. v. Patel

Reading 4-2 F. Hoffman-La Roche Ltd. v. Empagran

Sharp practices 4 Case 4-7 United States v. Blondek, Tull, Castle, and Lowry

Product liability 4 Case 4-4 Dow Jones & Co. Inc. v. Gutnick

Case 4-5 World-Wide Volkswagen v. Woodson

Case 4-6 Asahi Metal Industry Co., Ltd. v. Superior Court

of California, Solano County United States Supreme Court

Vices of Consent

(Mistake, fraud, duress

and unlawful

exploitation

EG3

Offer and contract

formation (formation

of contract + MOU +

letter of Intent)

EG3 + Chapter 5 "Enforcement of Securities Regulation Internationally"

Termination of

contracts

EG3

Company of person’s

dispute

Chapter 4 Doctor Presentation

Approval of foreign

investment application

5 Case in Brief: 5-1 Arab Republic of Egypt v. SPP

Free Zone Agreement 5 Case 5-3 Nissan Motor Mfg. Corp., U.S.A.v. United States


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Exam Possibilities

1- A very serious air crash which occurred at Delhi airport, in India. An Airbus A-320 aircraft crashed when

coming in to land. Many of the passengers died and injured. Among the passengers on board were two families

of Indian origin who were American citizens with homes resident in London. Four of them were killed, and the

remaining four were injured. Following the publication of the Report of a Court of Inquiry in India, in which

the cause of the crash was identified as error on the part of the pilots (both of whom were killed in the crash),

the injured passengers claims were made against Indian Airlines Corporation (―I.A.C.‖), and the employers of

the pilots. Meanwhile the same plaintiffs also commenced proceedings in London, where they sued a number of

parties who might have had some connection with the aircraft or its operation. These included the respondent

company, Airbus Industrie G.I.E. (―Airbus‖), which designed and assembled the aircraft at Toulouse in

France. Similar proceedings were brought in Texas by the heirs of the four American passengers who died in

the same crash. In response to these proceedings in London, Airbus brought proceedings for obtaining an

injunction from the American High Court restraining the appellants, who are American citizens, from

continuing with their action against Airbus in London. Do you think Airbus would succeed in its action?

Explain. : Facts

A very serious air crash occurred at Delhi airport, in India.

An Airbus A-320 aircraft crashed when coming in to land.

Many of the passengers died and injured.

Among the passengers on board were two families of Indian origin who were American citizens with homes

resident in London.

Four of them were killed, and the remaining four were injured.

The cause of the crash was identified as error on the part of the pilots (both of whom were killed in the crash),as

reported by the country of inquiry.

The injured passengers’ claims were made against Indian Airlines Corporation (―I.A.C.‖), the employers of the

pilots.

Meanwhile the same plaintiffs also commenced proceedings in London, where they sued a number of parties who

might have had some connection with the aircraft or its operation. These included the respondent company,

Airbus Industrie G.I.E. (―Airbus‖), which designed and assembled the aircraft at Toulouse in France.

Similar proceedings were brought in Texas by the heirs of the four American passengers who died in the same

crash.

In response to these proceedings in London, Airbus brought proceedings for obtaining an injunction from the

American High Court restraining the appellants, who are American citizens, from continuing with their action

against Airbus in London.

Parties:

Delhi Airport in India.

London.

Texas.

Two families of Indian origin who were American citizens with homes resident in London (Patel).

The injured passengers.

Court of Inquiry in India.

Indian Airlines Corporation (―I.A.C.‖).

The Respondent Company.

Airbus Industries G.I.E. (―Airbus‖).

Heirs of the four American passengers who died in the same crash.

American High Court.

Legal Problem:

Would Airbus succeed in its action?


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Applied Rules:

Forum non conveniens; doctrine that a municipal court will decline to hear a dispute when it can be better or

more conveniently heard in a foreign state. This alternative form must be available, adequate and take into

account private as well as public interest ( this might be used by foreign court)

Anti-suit jurisdiction: court order directing a person not to proceed with litigation in a foreign court . (this might

be used be the litigants home country court)

In most countries, especially civil law and EU, courts has exclusive jurisdiction in certain cases, like real property

located within its territory, the validity of a business firm formed or incorporated within the forum

In personam jurisdiction ; the power of a court or tribunal in determine the rights of a party who appears before it

since the dead and injured passengers were American citizens so the US court is competent to handle the case

In this case the American or Indian governments are the best locations to handle this incident

The American forum have a sufficient interest and connection with the incident and this is more than the English

forums ( the only relevance between the English court and the case is because of the appellants who are residents

in the country )

Conclusion:

Airbus will succeed in the action and American high court will restrain the appellants who are American

citizens from continuing their action against Airbus in London because

The American or Indian courts are the best locations to handle this incident ( not the English one )

Based on the Anti-suit jurisdiction

The American forum have a sufficient interest and connection with the incident and this is more

than the English forums

Meanwhile US courts are competent and has interest in protecting the interests of its individuals

even outside the US


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2- Country R, decided to enter in a contract with the Harvester Company, a US corporation, to harvest

lumber on its land. According to the contract the Harvester Company has the right to harvest lumber

on Country R’s land for 20 years. The two parties agreed that Harvest company has one any dispute to

be resolved by the municipal courts of country R. After two years, country R decided to end its

contract with the Harvester Company and ordered it to cease its operations and leave the country

without being recompensed. The Harvester Company initiated an proceeding in front of the US courts

asking for compensation arguing that the courts of country R are corrupted and might deprive them

from any sorts of remedies in such circumstances. Do you think that the case should be accepted?

Facts:

Country R, decided to enter in a contract with the Harvester Company, a US corporation, to harvest lumber on its

land.

According to the contract the Harvester Company has the right to harvest lumber on Country R’s land for 20

years.

The two parties agreed that Harvest company has one any dispute to be resolved by the municipal courts of

country R.

Country R decided to end its contract with the Harvester Company and ordered it to cease its operations and

leave the country without being recompensed.

The Harvester Company initiated a proceeding in front of the US courts asking for compensation.

Parties:

Country R.

Harvester Company.

Municipal courts of Country R.

US courts.

Legal Problem:

―Forum Selection clause in Personal Jurisdiction‖

Country R decided to end its contract with the Harvester Company and ordered it to cease its operations and

leave the country without being recompensed.

The Harvester Company initiated proceeding in front of the US courts asking for compensation arguing that the

courts of country R corrupted and might deprive them from any sorts of remedies in such circumstances.

Will the US Court accept this?

Applied Rules:

In civil codes, courts can extend their jurisdiction over disputes between parties who appear within the territory of

the forum state, upon of these two bases ;

In personam jurisdiction ; the power of a court or tribunal in determine the rights of a party who appears before it

In rem jurisdiction : the power of a court to determine the ownership rights of persons as to property located

within the form state

A forum selection clause is a provision in a contract designating a particular court or tribunal to resolve any

dispute that may arise concerning the contract. However, there must be enough contact with the selected form

state . Form clause is usually accompanied by a choice of law clause

In this case , the 2 parties agreed to refer to the municipal courts of country R which is the forum selection clause

in this case

Country R could have jurisdiction because of the forum selection clause and because of the ―In rem jurisdiction ―

because the events were on the land of country R

Because of the ―In personam jurisdiction ― , US courts can accept the case because the case involves a US

corporation

A forum selection clause in an international agreement should be enforced unless the plaintiff can clearly show

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The enforcement would be unreasonable or unfair which was the case in here since Harvester argued that the

country R corrupted and might deprive them from any sort of remedies in such circumstances

That the clause would was invalid for reasons such as fraud or overreaching

US has long arm statute laws that can be used in dealing with issues the relate to US citizens outside the US

Conclusion:

The US court will accept the case

This is because of what mentioned above and the fears of unjust treatment that would stimulate the intervention

of US courts in addition to the nature of the American and long arm statute laws when it comes to their citizens or

corporations even those working outside the US


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3- Auto dealership in Canada sold a new brand X automobile to Mr. Y in Toronto. Brand X automobile is

manufactured in Germany by company A in order to avoid application of US taxes law. A year later

Mr. Y and his family decided to move to Mexico. As they drove through the state of Oklahoma in USA,

they were involved in an automobile accident. Mr. and Mrs. Y and their children were severely injured.

They brought a product liability suit in an Oklahoma state court according to US Laws against the

German manufacture of the automobile and the regional distributor of brand X in Canada. Brand X

automobile are not sold or serviced in Oklahoma. Both defendants ask to have the suit against them

dismissed for lack of personal jurisdiction.

Facts:

Auto dealership in Canada sold a new brand X automobile to Mr. Y in Toronto.

Brand X automobile is manufactured in Germany by company A in order to avoid application of US taxes law.

A brand X has its dealer at Toronto, Canada where the dealer sells and serves the X Brand Cars.

Mr. Y and his family lived in Toronto

A year later Mr. Y and his family is traveling to Mexico.

While driving through the state of Oklahoma in the United States, they were involved in an automobile accident.

Mr. and Mrs. Y and their children were severely injured from the accident

They claim that their injuries are due to a defect in the brand X automobile.

Parties:

Auto Dealer.

Mr. Y & his family.

Company A ― Manufacturer of Brand X ‖

Oklahoma State Court.

Legal Problem:

The defendants ask to have the suit against them dismissed for lake of personal jurisdiction.

Would Oklahoma state court accept this case?

Applied Rules:

―In personam jurisdiction is the power of a court to decide matters relating to a natural or juridical person

physically present within the forum state. Natural persons subject to in personam jurisdiction include nationals of

the forum state, individuals physically present within the state, individuals domiciled in the state, and individuals

who consent to such jurisdiction.

Consent to personal jurisdiction can come about in any of the following ways: by the individual appearing in

court after a suit has commenced, by a party agreeing to the personal jurisdiction of a particular court in a forum

selection clause contained in a contract, or by a party appointing an agent within a state to receive service of

process on his behalf.

Meanwhile Juridical persons are entities, other than natural persons, that have sufficient existence in the eyes of

the law to function legally, sue, be sued, and make decisions through agents. Examples are business entities

governmental and intergovernmental organizations. Juridical persons are subject to the in personam jurisdiction

of a municipal court in much the same way that individuals are. Thus, legal entities created within a state are

nationals of that state called ―domestic entities‖ and they may sue or be sued there.

Foreign entities, however, are amenable to the jurisdiction of another state’s municipal courts only if

o (a) They are recognized in law as juridical persons

o (b) They give their consent.

Governments and intergovernmental organizations, accordingly ,must be formally recognized while other foreign

entities (including business firms) must be created as juridical persons by recognized governments

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According to the above , the brand X manufacturer and distributor are neither a natural nor juridical persons in

this state and meanwhile even even the requirements for bringing a suit against a foreign entity is not met in this

case

Conclusion:

Case will not be accepted and will be dismissed due to lack of personal jurisdiction

This is because the brand X manufacturer and distributor are neither a natural nor juridical persons in this state

and even the requirements for bringing a suit against a foreign entity is not met in this case.


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4- Grano owns a forty-room motel on Highway 100. Tanner is interested in purchasing the motel. During

the course of negotiations, Grano tells Tanner that the motel netted $30,000 during the previous year

and that it will net at least $45,000 the next year. The motel books, which Grano turns over to Tanner

before the purchase clearly show that Grano’s motel netted only $15,000 the previous year. Also,

Grano fails to tell Tanner that a bypass to Highway 100 is being planned that will redirect most traffic

away from the front of the motel. Tanner purchases the motel. During the first year under Tanner’s

operation, the motel nets only $18,000. At this time, Tanner learns of the previous low profitability of

the motel and the planned bypass Tanner wants his money back from Grano. Discuss fully Tanner’s

probable success in getting his money back.

Facts:

Grano owns a forty-room motel on Highway 100.

Tanner is interested in purchasing the motel.

During the course of negotiations, Grano tells Tanner that the motel netted $30,000 during the previous year and

that it will net at least $45,000 the next year.

The motel books, which Grano turns over to Tanner before the purchase clearly show that Grano’s motel netted

only $15,000 the previous year.

Grano fails to tell Tanner that a bypass to Highway 100 is being planned that will redirect most traffic away from

the front of the motel.

Tanner purchases the motel. During the first year under Tanner’s operation, the motel nets only $18,000.

At this time Tanner learns of the previous low profitability of the motel and the planned bypass.

Tanner wants his money back from Grano

Parties:

Tanner.

Grano.

Legal Problem:

Would Tanner’s success in getting his money back from Grano?

Applied Rules:

An actual breach occurs when one party without excuse fails to perform some or all of the obligations required by

a contract.

When the failure to perform happened the injured party may immediately declare the contract ended and sue for

any damages caused by this breach. So the injured party sues the party who broke the contract.

The breaching party may offer one of many defenses for not performing the contract such as claim the contract is

void in lack of vices of consent or the vitiating factors which are: Duress - Misrepresentation – Mistake -

Exploitation

Fraud: Civil code -Elements of Contracts-section I Contracts- Article 125 States: A contract may be declared void

on the grounds of fraudulent misrepresentation, when the artifices practiced by one of the parties, or by his

representative are of such gravity that, but for them, the other party would not have concluded the contract.

Intentional silence on the part of one of the parties as to a fact or as to the accompanying circumstances

constitutes fraudulent misrepresentation if it can be shown that the contract would not have been concluded by

the other party had he had knowledge thereof.

Mistake: Mistake is defined as imagining something not true, or a state of mind that is not in accord with the

facts. The general rule is that the mistake does not affect the validity of a contract.

In law "a party to a contract may demand the avoidance of the contract if he committed an essential mistake, if

the other party committed the same mistake or had knowledge thereof, or could have easily detected the mistake"

Article 120 ECC.

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The mistake is considered essential when its gravity is of such degree that if it hadn’t been committed, the party

who was mistaken would not have been concluded the contract. In particular, the mistake considered essential in

the following cases:

o When it has a bearing on the quality of the thing.

o When it has a bearing on the identity or on one of the qualities of the person with whom the contract is

entered.

Conclusion:

Grano’s statement that the motel would make at least $45,000 next year would probably be treated as a prediction

or opinion; thus one of the elements necessary to prove fraud— misrepresentation of facts—would be missing.

The statement that the motel netted $30,000 last year is a deliberate falsehood (with intent and knowledge)

Grano’s defense will be that the books in Tanner’s possession clearly indicated that the figure stated was untrue,

and therefore Tanner cannot be said to have purchased the motel in reliance on the falsehood.

If the innocent party, Tanner, knew the true facts, or should have known the true facts because they were

available to him, Grano’s argument will prevail.

Finally, the issue centers on Grano’s duty to tell Tanner of the bypass. Ordinarily, neither party in a non-fiduciary

relationship has a duty to disclose facts, even when the information might bear materially on the other’s decision

to enter into the contract.

Exceptions are made, however, when the buyer cannot reasonably be expected to discover the information known

by the seller, in which case fairness imposes a duty to speak on the seller.

Here, the court can go either way. If the court decides there was no duty to disclose, deems the prediction of

future profits to be opinion rather than a statement of fact, and also decides there was no justifiable reliance by

Tanner because the books available to Tanner clearly indicated Grano’s profit statement for the last year to be

false, then Tanner cannot get his money back on the basis of fraud. And If the Court decided that it was Grano’s

duty to tell Tanner about the bypass and consider this action as a Fraud Tanner will get his money back.


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5- In August 2000, in California, Terry Reigelsperger sought treatment for pain in his lower back from

Chiropractor James Siller. Reigelsperger felt better after the treatment and did not intend to return for more,

although he did not mention this to Siller. Before leaving the office, Reigelsperger signed an ―informed

consent‖ form that read, in part, ―I intend this consent form to cover the entire course of treatment for my

present condition and for any future condition(s) for which I seek treatment.‖ He also signed an agreement

that required the parties to submit to arbitration ―any dispute as to medical malpractice. This agreement is

intended to bind the patient and the health care provider who now or in the future treat the patient. Two years

later, Reigelsperger sought treatment from Siller for a different condition relating to his cervical spine and

shoulder. Claiming malpractice with respect to the second treatment, Reigelsperger filed a suit in a California

state court against Siller. Siller asked the court to order that the dispute be submitted to arbitration.

Facts :

In August 2000, in California, Terry Reigelsperger sought treatment for pain in his lower back from chiropractor

James Siller.

Reigelsperger felt better after the treatment and did not intend to return for more, although he did not mention this

to Siller.

Before leaving the office, Reigelsperger signed an ―informed consent‖ form that read, in part, ―I intend this

consent form to cover the entire course of treatment for my present condition and for any future condition(s) for

which I seek treatment.‖

He also signed an agreement that required the parties to submit to arbitration ―any dispute as to medical

malpractice.

This agreement is intended to bind the patient and the health care provider who now or in the future treat the

patient.

Two years later, Reigelsperger sought treatment from Siller for a different condition relating to his cervical spine

and shoulder.

Claiming malpractice with respect to the second treatment, Reigelsperger filed a suit in a California state court

against Siller

Siller asked the court to order that the dispute be submitted to arbitration

Parties:

Terry Reigelsperger

Chiropractor James Siller

Legal Problem:

Would the court submit the dispute to arbitration?

Would the court dismiss the case?

Applied Rules:

An informal contract is the contract which doesn’t require any particular formalities.

Consent is enough to bind the contract.

The informal contract may be oral or written.

If a written element is required for the contract to be binding; it will still be informal because there is no

particular form required.

The informal contract can be proven by oath or witness.

The contract has four essential elements, which are: Agreement (between the parties arrived through offer and

acceptance), Consideration (something of value exchanged by each party), Competent parties (parties have the

legal and mental ability to enter into binding contract), and Cause of contracts (the motive to enter the contract,

which must be lawful).So when these four elements come together, they form a contract.

All of these elements must be present for any agreement to have the status of contract.

If any one of these elements is not present then the contract will be rendered invalid.

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Conclusion:

The court will accept to submit the case to arbitration, this contract has the essential four elements that make it

valid :

Agreement: The offer which is the proposal indicated in the offeror intention to enter into a

contract with the offeree and the acceptance is made when the offeree agrees or accepts the offer

which the offeror made, in this case the first requirement of a valid contract has been satisfied

Consideration-The consideration here is : Obligation to Do In the obligation to do, the object

must have certain conditions which are, the possibility and legality of the object

Competent parties : Both parties are those persons legally and mentally capable of entering into

agreements that are enforceable by law

The Cause: Must be lawful and it must be continued also ―I intend this consent form to cover

the entire course of treatment for my present condition and for any future condition(s)‖

Concerning the informality of the contract we said before that that in order to make an informal to be biding it

has to be written and the consent is enough to bind the contract.

The written arbitration agreement ―any dispute as to medical malpractice. This agreement is intended to bind the

patient and the health care provider who now or in the future treat the patient‖

If Reigelsperger asserted that ―he had not intended to return to Siller for treatment‖, his un-communicated

subjective intent is irrelevant. Mutual consent is gathered from the reasonable meaning of the words and acts of

the parties, and not from their unexpressed intentions or understanding.


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6- First Hartford Corporation (―FHC‖) incorporated in Texas in 1909 to compete in the textile industry.

As textiles declined, FHC focused on buying, developing and managing of real estate. During the 1980’s

and 1990’s FHC struggled to stay in business. The company went through bankruptcy downsized from

143 employees to 21. It held no official board or shareholder meetings and issued no audited financial

statements. During this time Ned Ellis managed FHC, he had been a director since 1966 and president

since 1968 he owned about 43% of FHC stock. Ellis also owned and operated Green Manor

Corporation, which owned still other companies, often documents both companies are filled together,

which included interest free loans, property exchanges, forgiveness of debts and other deals totaling

millions of dollars. By 2000, Ellis nursed FHC back to profitability, there was a market for FHC

shares; the stock price since then has trended upward, FHC planned its first shareholders meeting. In

2005 Kaplan bought a defective textile shipment from Green Manor Corp. , Kaplan filled a suit in a

federal district court against FHC and Ellis could such an action succeed ?

Facts :

First Hartford Corporation (―FHC‖) incorporated in Texas in 1909 to compete in the textile industry.

As textiles declined, FHC focused on buying, developing and managing of real estate.

During the 1980’s and 1990’s FHC struggled to stay in business

The company went through bankruptcy downsized from 143 employees to 21

It held no official board or shareholder meetings and issued no audited financial statements.

During this time Ned Ellis managed FHC, he had been a director since 1966 and president since 1968 he owned

about 43% of FHC stock

Ellis also owned and operated Green Manor Corporation, which owned still other companies, often documents

both companies are filled together, which included interest free loans, property exchanges, forgiveness of debts

and other deals totaling millions of dollars

By 2000 , Ellis nursed FHC back to profitability, there was a market for FHC shares; the stock price since then

has trended upward, FHC planned its first shareholders meeting

In 2005 Kaplan bought a defective textile shipment from Green Manor Corp.

Kaplan filled a suit in a federal district court against FHC and Ellis

Parties:

First Hartford Corporation (―FHC‖)

Ned Ellis

Green Manor Corporation

Kaplan

Legal Problem:

Could Kaplan sue FHC and Ned Ellis?

Applied Rules:

Joint Venture: An association of persons or companies collaborating in a business venture for more than a

transitory time period.

Common enterprise liability

o When individuals or companies (including related subsidiary companies of a multinational firm)

function as part of a common enterprise, courts will treat them as if they were members of a joint

venture or partnership, with each of them having joint or joint and several liability for the obligations of

the entire enterprise. In determining whether persons or firms are members of a common enterprise,

courts look at the intent of the parties.

o If the parties have not entered into a formal agreement creating a partnership or joint venture, the courts

will consider several factors in determining intent, including :

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Sharing of profits or losses.

Sharing in the management.

Joint ownership of the business

Peirce the company veil: An expression indicating that the company is a separate legal entity that will be set aside

and the shareholders of the company will be held liable for its conduct as if they were partners in a partnership.

o There are four circumstances under which courts will pierce the corporate veil:

The controlled company.

The alter ego company

Undercapitalization.

Personal assumption of liability

The Controlled Company: the corporate status of a controlled company will be ignored if :

Its financing and management are so closely connected to its parent that it does not

have any independent decision-making authority

It is induced to enter into a transaction beneficial to the parent but detrimental to it and

to third parties

Conclusion:

Kaplan suitcase will be succeed as according to the common enterprise liability and Peirce of the company veil

because as stated in the facts above Ellis owned and operated Green Manor Corporation, which owned still other

companies, often documents both companies are filled together, which included interest free loans, property

exchanges, forgiveness of debts and other deals totaling millions of dollars ( Shared Management)


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7- Kazaa BV, is a limited liability company organized under the laws of The Netherlands with a

representative office in California, Kazaa distributed an application software program entitled the

―KaZaA Media Desktop‖ which enabled users to exchange digital media with unfair prices, including

movies and music via peer to peer transfer network. Kazaa also operated the kazaa.com website,

through which is distributed the KMD software to millions of California residents and other users.

Metro- Goldwyn-Mayer studios, Inc. and other parties in the entertainment industries in California

filed a suit in a federal district court against Kazaa and others, alleging copyright infringement. Kazaa

filed a counterclaim but while legal action was bending the firm passed its assets and its website to one

of its subsidiary named Sharman Networks, LTD. A company incorporated in the South Pacific Island

of Vanuatu, but operating out of Australia. Sharman explicitly disclaimed the assumptions of any of

Kazaa liabilities. The plaintiffs subsequently amended their complaints to name Sharman as a

defendant. In response, Sharman filed motion to dismiss the case, principally arguing that the court

lacked jurisdiction over it. Would be legally correct to subject Sharman to the suit in this case?

Explain

Facts:

Kazaa BV, is a limited liability company organized under the laws of The Netherlands with a representative

office in California,

Kazaa distributed an application software program entitled the ―KaZaA Media Desktop‖ which enabled users to

exchange digital media with unfair prices, including movies and music via peer to peer transfer network.

Kazaa also operated the kazaa.com website, through which is distributed the KMD software to millions of

California residents and other users.

Metro- Goldwyn-Mayer studios, Inc. and other parties in the entertainment industries in California filed a suit in

a federal district court against Kazaa and others, alleging copyright infringement.

Kazaa filed a counterclaim but while legal action was bending the firm passed its assets and its website to one of

its subsidiary named Sharman Networks, LTD

Sharman is a company incorporated in the South Pacific Island of Vanuatu, but operating out of Australia.

Sharman explicitly disclaimed the assumptions of any of Kazaa liabilities.

The plaintiffs subsequently amended their complaints to name Sharman as a defendant.

Sharman filed motion to dismiss the case principally arguing that the court lacked jurisdiction over it.

Parties:

Kazaa BV

Metro- Goldwyn-Mayer studios, Inc. and other parties

Sharman

Legal Problem:

Would be legally correct to subject Sharman to the suit in this case?

Applied Rules:

Choice of Law Rule: In order to decide which court has subject matter jurisdiction, in defamation proceedings the

place of defamation (=place of the infliction of the damage) has to be identified.

Personal Jurisdiction: It refers to the power of a court to enter a binding judgment against a person or other legal

entity. A court must be able to exercise personal jurisdiction over a party in order for that party to be bound by an

order of the court.

Long arm statute: A law defining the conduct of a foreign person within a state that will subject that person to the

jurisdiction of the state.

United States minimum contacts tests: A jurisdictional test required by due process that looks to see if a person

had such contacts with a state that it could reasonably have anticipated that it would have to defend itself there.

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Subject Matter Jurisdiction: Jurisdiction of a court over the subject-matter of the case: As the assets transferred

to Sharman include the Kazaa.com website and domain does Kazaa BV's has any liability?

Forum non conveniens: Doctrine that a municipal court will decline to hear a dispute when it can be better or

more conveniently settled in a foreign forum.

This allows courts applying this device to determine if the forum state has enough interest in the outcome of the

dispute to take jurisdiction.

The factors considered are:

o The private interests of the parties (i.e., the ease and cost of access to documents and witnesses)

o The public interest factors (i.e., the interest of the forum state, the burden on the courts and notions of

judicial comity).

Conclusion:

Sharma is an Australian company that is not registered or licensed to do business in California, nor does it appear

to have any substantial presence there , US court have does not have a jurisdiction over this case.


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Company of Persons dispute Cases

General Rules in resolving company of persons disputes

First , Company's liability for acts of Director :

Second , The New Partner (optional):

Third , The withdrawing Partner (mandatory):

Fourth , The concessioner partner of his share (optional):

Fifth , The limited partner converted into General partner :

Sixth , The General partner by contribution of services :

First , Company's liability for acts of Director :

- In the case of contract on behalf of the company and in its name the company is liable.

- In the case of contract on behalf of the company and in the name of the director the company is

liable.

- In the case of contract on behalf of the director and in the name of the company two solutions

Second , The New Partner (optional):

- The new partner is responsible since the date of his joining the company for all prior and

subsequent debits unless there is an agreement exempted him from prior debits.

Third , The withdrawing Partner (mandatory):

- Prior debits liable for 5 years since the date of his withdrawal published.

- New debits he is not liable if he finished the withdrawal publicity and his name was deleted

from the company title in case it exist.

- Debits before deleting the name from the company title the withdrawal partner is liable and

the five years limitation only apply from the deleting date of the partner name from the title.

Fourth , The concessioner partner of his share (optional):

- The partner is liable for debits prior to the concessions till the end of five years from date of the

publicity of the concession, unless there is an agreement to exempt him from that liability.

Fifth , The limited partner converted into General partner :

- His name is mentioned in the title of the company with his permission or without his objection.

- Interference in external affairs of the company.

- Unlimited Joint personal liability.

Sixth , The General partner by contribution of services :

- The rule is any general partner is personally and jointly liable disregarding the kind of his

contribution.

- An agreement could be settled to exempt the loss liability without considering that one of the

lionen conditions that leads to absolute invalidity. we have to differentiate between :

This agreement is valid between the partners.

This agreement is not valid towards third parties and the partner still personally and

joint liable.

• Company liable Good faith of third party

• Company not liable Bad faith of the third party


17

The General Characteristics Partnership

1. The name - All legal acts performed by a partnership should be made

under its name.

- This name should be composed of the name of one or more

of its partners.

- If the company uses the names of some of its partners, their

names should be followed by the words (and cy).

- The name of the partnership cannot include the name of a

person who is not a partner (third party) - This rule is of public

policy.

2. The unlimited liability of all partners - First, every partner is personally liable for all debts of

partnership, as if they were his own debts. This liability

unlimited.

- This unlimited liability is of public policy. It cannot be

excluded by a clause in the partnership contract.

- Secondly, all the partners are jointly liable for all the debts

of the partnership.

- This joint liability cannot be excluded by a contractual

clause. - Consequently any creditor of the partnership

can claim the payment of the totality of his debt against any

partner of his choice.

3. A partner is considered a merchant - A partner in a partnership is considered a merchant; Hence

he should have the commercial capacity.

- A minor cannot be admitted as a partner.

- As a merchant, a partner can be declared bankrupt if he stops

paying his commercial debts. But such bankruptcy does not

lead to the bankruptcy of the partnership, but it may lead to its

dissolution.

But if the partnership is declared bankrupt, every partner will

be automatically declared bankrupted.

4. The capital contributions made by

partners are represented by interests.

- Contributions are not negotiable

- A partner cannot sell his interests to a third party without the

prior acceptance of all the other partners unless the contract

decides otherwise

The limited partnership (Civil Law States Ex. France):

At least one partner must be a general partner (with personal unlimited liability) and one must be a

limited partner.

Limited partners have limited liability of the kind that investors in stock companies have.

They may only invest cash or property in France, but in Germany, services may be fixed and

recognized as a contribution.

In both countries, persons can be either a general or a limited partner, but they cannot be both.

In France, limited partners may participate in the internal administration of the partnership but

may not deal with third parties.

In Germany, they can participate in internal administration and be given powers to deal with third

parties on behalf of the partnership.

The limited partnership (Common Law States Ex. USA and Egypt):

This is a partnership consisting of one or more general partners who manage the business and who

are jointly and severally responsible as ordinary partners for its obligations and one or more lim-

ited partners who contribute a specific sum to the capital account and share in the profits.


18

A limited partner does not participate in the management of the firm and does not have liability

for the debts of the partnership beyond the funds he or she contributed.

Although a limited partnership can be formed only upon registration with the state, it is regarded,

like an ordinary partnership, as an aggregate of its general partners and not as a separate juridical

entity.


19

1- There are six partners in a limited partnership, General partners Adam, Baher, Christine and

Dalia and Limited Partners Essam and Fady. Under the LP agreement Essam and Fady are each

entitled to 20% of the profits and each of them contributed 20,000 $. Adam, Baher, Christine and

Dalia are each entitled to 15% of the profits each having contributed 2,500$ and also having

assumed managerial duties. Christine assigns her interest in money receivable from the LP to

Caroline on January 1. On February 1, Essam sells his partnership interest to CIB Bank. On

March 1, Ghada is added as a new general as a new general partner she has made no capital

contribution. On April 1, Baher dies , Assets and Liabilities are as follows :

January 1 to February 14 : 95000$ in assets and no liabilities

February 15 and thereafter : 95000$ in assets (minus a new liability – Judgment of

20000$ against the LP)

The LP is now dissolved, it made no profits this year, but the previous year profits were 60000$,

which has not been divided among the partners. A) Discuss the partners Liability, and B)

Distribution of the remaining 75000$

Facts:

There are six partners in a limited partnership, General partners Adam, Baher, Christine and Dalia and Limited

Partners Essam and Fady.

Under the LP agreement Essam and Fady are each entitled to 20% of the profits and each of them contributed

20,000 $.

Adam, Baher, Christine and Dalia are each entitled to 15% of the profits each having contributed 2,500$ and also

having assumed managerial duties.

Christine assigns her interest in money receivable from the LP to Caroline on January 1.

On February 1, Essam sells his partnership interest to CIB Bank.

On March 1, Ghada is added as a new general as a new general partner she has made no capital contribution.

On April 1, Baher dies.

Assets and Liabilities are as follows :

o January 1 to February 14 : 95000$ in assets and no liabilities

o February 15 and thereafter : 95000$ in assets (minus a new liability – Judgment of 20000$ against the

LP)

The LP is now dissolved, it made no profits this year, but the previous year profits were 60000$, which has not

been divided among the partners.

Parties:

Adam

Baher.

Christine

Dalia

Essam

Fady

Caroline

Ghada

Legal Problem:

What are the partners’ liabilities in Limited Partnership Company?

What are their shares in the remaining profit?

Applied Rules:

Look at pages 14 , 15 and 16


20

Conclusion:

Partner Liabilities:

- Ghada: (A General Partner by contribution – Rule 6) the rule is any general partner is personally

and jointly liable disregarding the kind of his contribution. An agreement could be settled to

exempt the loss liability without considering that one of the lionen conditions that leads to

absolute invalidity. we have to differentiate between :

This agreement is valid between the partners.

This agreement is not valid towards third parties and the partner still personally and

joint liable.

- Adam, Baher and Dalia (General Managers with managerial duties – Rule 1) In the case of

contract on behalf of the company and in its name the company is liable. In the case of contract

on behalf of the company and in the name of the director the company is liable. In the case of

contract on behalf of the director and in the name of the company two solutions (Good

Faith(Company Liable) – Bad Faith(Company not liable))

- Baher April 1: (General Manager – Died) Duration of a limited partnership terminated by death

of a general partner in unless the other general partners agreed to continue the partnership. - Christine : (The concessioner partner- Rule 4) The partner is liable for debits prior to the

concessions till the end of five years from date of the publicity of the concession, unless there is an

agreement to exempt him from that liability

- Essam (Withdrawing Partner - Rule 3) Prior debits liable for 5 years since the date of his

withdrawal published.

New debits he is not liable if he finished the withdrawal publicity and his name was deleted

from the company title in case it exist. Debits before deleting the name from the company title

the withdrawal partner is liable and the five years limitation only apply from the deleting date

of the partner name from the title.

- Caroline: (New Partner- Rule 2): The new partner is responsible since the date of his joining the

company for all prior and subsequent debits unless there is an agreement exempted him from prior

debits.

- Fady (Limited Partner) : Contributes a specific sum to the capital account and share in the profits.

A limited partner does not participate in the management of the firm and does not have liability for

the debts of the partnership beyond the funds he or she contributed. Although a limited

partnership can be formed only upon registration with the state, it is regarded, like an ordinary

partnership, as an aggregate of its general partners and not as a separate juridical entity

Distribution of 75000$:

- Rule Distribution of Assets on Liquidation— Order of Priorities

o 1. Outside creditors and partner creditors.

o 2. Partners and former partners entitled to distributions of partnership assets.

o 3. Unless otherwise agreed, return of capital contributions and distribution of profit to

partners.

- Essam and Fady are each entitled to 20% of the profits (60000) and and the contribution of

20,000 $ each. Adam, Baher, Caroline and Dalia are each entitled to 15% of profits (60000) and

the contribution of 2500$ each. Ghada’s Share in the profits (60000) will be decided by the other

partners.


21

2- In January 1989, Limited Partnership Company was established between Ahmed and Mohammed

(as General partners) and Ibrahim and Aly as (Limited partners). The Company has entered into

long negotiations with the National Bank of Egypt (NBE) for a loan, Ahmed and Mohammed and

Ibrahim participated in loan negotiations, and ended with the conclusion of the loan contract in

early June 1989, Ahmed has signed the contract that contains the name of Aly as part of the

company name. In August 1989, Saeed joined the company as General Partner, and in January

the bank raise the claim in order to claim the rest of the loan is 200,000. Partners defending the

following: Aly: His name was mentioned in the title without his knowledge or permission. Ahmed:

His share in the company is 20.000 . Mohammed: the invalidity of the company's contract because

it was not released. Ibrahim: Limited partner with limited liability .Saeed: joined the company

after the loan. If Ibrahim fulfilled the entire value of the loan, has he the right to return to other

partners?

Facts:

In January 1989, Limited Partnership Company was established between Ahmed and Mohammed (as General

partners) and Ibrahim and Aly as (Limited partners)

The Company has entered into long negotiations with the National Bank of Egypt (NBE) for a loan, Ahmed and

Mohammed and Ibrahim participated in loan negotiations, and ended with the conclusion of the loan contract in

early June 1989,

Ahmed has signed the contract that contains the name of Aly as part of the company name.

In August 1989, Saeed joined the company as General Partner

In January the bank raise the claim in order to claim the rest of the loan is 200,000.

Partners defending the following:

o Aly: His name was mentioned in the title without his knowledge or permission.

o Ahmed: His share in the company is 20.000.

o Mohammed: the invalidity of the company's contract because it was not released.

o Ibrahim: Limited partner with limited liability.

o Saeed: joined the company after the loan.

Parties:

Aly.

Ahmed.

Mohammed.

Ibrahim.

Saeed.

NBE

Legal Problem:

If Ibrahim fulfilled the entire value of the loan, has he the right to return to other partners?

Applied Rules:

Look at pages 14 ,15 and 16

Conclusion:

Ibrahim as a limited partner does not participate in the management of the firm and does not have liability for the

debts of the partnership beyond the funds he contributed. So if he fulfilled the entire value of the loan, he has the

right to return to other partners each should pay according to his role as a partner (General or Limited)

Next


22

3- In January 1980, a limited partnership company was established between Khalid,

Mohsen and Farid (as limited partner). The company was titled (Khaled, Mohsen & Co.). In

1982 the company entered into a loan with Banque Misr (BM) based on Farid advice. In

1983, Khalid withdrew from the company, this withdrawal was proclaimed in January 1984. In

July 1985, the company entered into a loan contract with the National Bank of Egypt (NBE) that

Farid took part in signature. In October 1986, Khalid deleted his name from the company’s title.

In November 1968, the company entered into another loan contract with Alex bank. In 1989, BM

claimed the payment of his debt against Khaled + Farid. In 1990, NBE claimed the payment of his

debt against Khalid + Farid. In 1987, Alex Bank claimed the payment of his debt against Khaled.

Show the extent of liability for both Khaled and Farid in each of the above cases.

Facts:

In January 1980, a limited partnership company was established between Khalid, Mohsen and Farid (as

limited partner).

The company was titled (Khaled, Mohsen & Co.).

In 1982 the company entered into a loan with Banque Misr (BM) based on Farid advice.

In 1983, Khalid withdrew from the company, this withdrawal was proclaimed in January 1984.

In July 1985, the company entered into a loan contract with the National Bank of Egypt (NBE) that Farid took

part in signature

In October 1986, Khalid deleted his name from the company’s title.

In November 1968, the company entered into another loan contract with Alex bank.

In 1989, BM claimed the payment of his debt against Khaled + Farid.

In 1990, NBE claimed the payment of his debt against Khalid + Farid.

In 1987, Alex Bank claimed the payment of his debt against Khaled

Parties:

Khalid

Mohsen.

Farid.

Bank Misr

Legal Problem:

What is the extent of liability for both Khaled and Farid in each of the above cases?

Applied Rules:

Look at pages 14,15, and 16

Conclusion:

Case 1: In 1989, BM claimed the payment of his debt against Khaled + Farid:

o Khaled as (a Withdrawing partner): Prior debits liable for 5 years since the date of his withdrawal

published.

o Farid as a limited partner does not participate in the management of the firm and does not have liability

for the debts of the partnership beyond the funds he or she contributed

Case 2: In 1990, NBE claimed the payment of his debt against Khalid + Farid.

o Khaled as (a Withdrawing partner): Debits before deleting the name from the company title the

withdrawal partner is liable and the five years limitation only apply from the deleting date of the partner

name from the title.

o Farid will be treated as a General partner because a limited partner who participates in management

(signing the contract) will be just as liable as a general partner to any creditor who transacts business

Next


23

with the limited partnership and believes, based on the limited partner’s conduct, that the limited partner

is a general partner.

The limited partner converted into General partner :

- His name is mentioned in the title of the company with his permission or without

his objection.

- Interference in external affairs of the company.

- Unlimited Joint personal liability.

Case 3: In 1987, Alex Bank claimed the payment of his debt against Khaled

o Khaled as (a Withdrawing partner): New debits he is not liable if he finished the withdrawal

publicity and his name was deleted from the company title in case it exist


24

4- In October 10th 2003, Limited Partnership Company was established between Ahmed, Ibrahim

and Aly (as General partners) and Kamal as (Limited partner). They are all agreed that the

company operates under the name Ahmed, Kamal & Co. Then Ibrahim appointed as sole manager

of the company. In January 10th 2004, Ibrahim entered into a loan contract with the Bank Misr

in the name of the company but used the borrowed loan in his own personal affairs. On April 10th

2004 Ahmed sold his interest in the company to Zeid. The manager of the company refused to pay

back the loan to the bank at the maturity date the bank sued Ahmed, Aly, Kamal and Zeid for

payment of the loan. Aly refused the bank claim as the company is not liable for such payment

since the manager used the load for his own personal affairs. Kamal argued that hi is not liable for

this as he is a limited partner with a limited liability and he already paid his share in the capital of

the company. Ahmed argued that he is not a partner anymore since he sold his interest to Zeid.

Zeid refused the bank claim since he was not a partner when the loan was contracted. Discuss

Facts:

In October 10th 2003, Limited Partnership Company was established between Ahmed, Ibrahim and Aly (as

General partners) and Kamal as (Limited partner)

They are all agreed that the company operates under the name Ahmed, Kamal & Co

Ibrahim appointed as sole manager of the company

In January 10th 2004, Ibrahim entered into a loan contract with the Bank Misr in the name of the company but

used the borrowed loan in his own personal affairs

On April 10th 2004 Ahmed sold his interest in the company to Zeid.

The manager of the company refused to pay back the loan to the bank at the maturity date the bank sued Ahmed,

Aly, Kamal and Zeid for payment of the loan

Aly refused the bank claim as the company is not liable for such payment since the manager used the load for his

own personal affairs.

Kamal argued that hi is not liable for this as he is a limited partner with a limited liability and he already paid his

share in the capital of the company. Ahmed argued that he is not a partner anymore since he sold his interest to Zeid. Zeid refused the bank claim since he was not a partner when the loan was contracted.

Parties:

Ahmed.

Kamal.

Aly.

Ibrahim.

Zeid.

Bank Misr

Legal Problem:

What are partners’ responsibilities in Limited Partnership Company?

Applied Rules:

Look at pages 14 , 15 and 16

Conclusion:

Ibrahim as a General Partner and the director of the company (Rule 1) o In the case of contract on behalf of the director and in the name of the company two solutions (Good

Faith(Company Liable) – Bad Faith(Company not liable)) o As for our case Ibrahim conducted a contract with the bank on behalf of him and in the name of the

company but he had a bad faith as he refused to pay back the loan to the bank so the company is not

liable as well as all the partners.

Next


25

Book Chapter 4 – Related Exercises

1- Goliath, Inc., a U.S. producer of gem-quality sapphires, set up a subsidiary holding company

in the Cayman Islands (Junior, Ltd.) to control all of Goliath's non-US. Subsidiaries. Junior

then entered into a cartel agreement with producers of sapphires in those countries (other than

the United States) where sapphires are found. The cartel agreement allocated markets and set

prices for all sapphires sold outside of the United States. The U.S. government has now

brought suit against both Goliath and Junior for violating the U.S. Sherman Antitrust Act.

Goliath answers that it was not a party to the cartel agreement and that the agreement does

not affect the U.S. market for sapphires. Junior answers that it is not subject to the jurisdiction

of the U.S. courts. Are Goliath and Junior correct?

Facts:

Goliath, Inc., a United States producer of gem quality sapphires, set up a subsidiary holding company in the

Cayman Islands (Junior, Ltd.) to control all of Goliath's non-United States subsidiaries.

Junior then entered into a cartel agreement with producers of sapphires in those countries (other than the US)

where sapphires are found

The cartel agreement allocated markets and set prices for all sapphires sold outside of the United States.

The United States government has now brought suit against both Goliath and Junior for violating the US

Sherman Antitrust Act

Goliath answers that it was not a party to the cartel agreement and that the agreement does not affect the US

market for sapphires

Junior answers that it is not subject to the jurisdiction of the US courts

Parties:

Goliath, Inc.

Junior

United States government

Legal Problem:

Do Goliath and Junior Violate US Sherman Antitrust Act?

Applied Rules:

Sherman Antitrust Act Section 1: Forbids combinations and conspiracies in restraint of interstate and

international trade.

, Personal jurisdiction or in personam jurisdiction, refers to the power of a court to enter a binding judgment

against a person or other legal entity. A court must be able to exercise personal jurisdiction over a party in order

for that party to be bound by an order of the court.

o Long arm statute: A law defining the conduct of a foreign person within a state that will subject that

person to the jurisdiction of the state.

United States o minimum contacts tests a jurisdictional test required by due process that looks to see if a

person had such contacts with a state that it could reasonably have anticipated that it would have to

defend itself there.

o In other words the defendant (Person or Company) must have minimum contacts with USA (An office, a

bank account or even related business property in the United States)

Subject Matter Jurisdiction: Two tests are used to determine whether a court has subject matter jurisdiction in

an American antitrust case:

o United States effects test: A jurisdictional test that subjects foreign businesses to U.S. antitrust laws if

their activities were intended to affect U.S. commerce and the effect was other than minimal.

o U.S. jurisdictional rule of reason test: A jurisdictional test that allows U.S. courts to assume jurisdiction

over a foreign business for violation of US- antitrust, laws if:

The alleged conduct was intended to affect the foreign commerce of the United States.

It was of such a type and magnitude as to violate the Sherman Act


26

As a matter of international comity and fairness, a U.S. court ought to assume extraterritorial

jurisdiction over the matter.

o Jurisdictional rule of reason:

Was the conduct intended to affect the foreign commerce of USA?

Did it violate the Sherman Act?

Matter of international comity

Clayton Act: Expands the enforcement provisions of the Sherman Antitrust Act.

o Define exclusive dealing and trying clauses, mergers that result in monopolies and interlocking

directorates as being unfair business practice.

Conclusion:

The Goliath company has violated the Sherman Act section 1 the two conditions of the Extraterritorially

application of the US antitrust laws can be applied (Both Personal Jurisdiction and Subject Jurisdiction)

The court should rule in the favor of The US Government.


27

2- The Buena Banana Co., a U.S. corporation, has several subsidiaries in Central America that

purchase bananas from local producers. Buena then sells the bananas under its trademark to

wholesalers in the United States. The Compania del Platano Puro, SA (Puro), an Argentine

corporation that markets bananas throughout South America, recently set up several

subsidiaries in Central America in direct competition with those of Buena. Puro's subsidiaries

have offered the Central American producers an arrangement that is remarkably generous by

international standards. It will give them a guaranteed ten-year contract to purchase their

entire production at 10 percent above world market prices. (Buena, by comparison, has never

agreed to a long-term contract and only pays the going world prices.) Puro's sales are

presently limited to South America, but it hopes to begin selling throughout the United States

soon. In preparation for this, it has set up a small branch in Miami, Florida, and it is testing

the local market with sales to several upscale market chains.

In the meantime, Buena has brought suit against Puro in a U.S. federal court in Miami. It

claims that Puro is attempting to monopolize the banana trade in Central America (there is

only one other large banana-exporting company in competition with Buena and Puro). Buena

claims that Puro's activities in Central America will force Buena to raise its prices and that this

will affect American consumers. Does the US, court have jurisdiction to hear the case? Discuss.

Facts:

The Buena Banana Co., a U.S corporation, has several subsidiaries in Central America that purchase bananas

from local producers

Buena then sells the bananas under its trademark to wholesalers in the United States

Puro, an Argentine corporation that markets bananas throughout South America, recently set up several

subsidiaries in Central America in direct competition with those of Buena

Puro’s subsidiaries have offered the Central American producers an arrangement that is remarkably generous by

international standards.

It will give them a guaranteed 10-year contract to purchase their entire production at 10 percent above world

market price

Puro’s sales are now limited to South America, but it hopes to sell throughout the US soon. so it has set up a

branch in Miami, Florida, and it is testing the local market with sales.

Buena has brought suit against Puro in a U.S. federal court in Miami. It claims that Puro is attempting to

monopolize the banana trade in Central America

There is only one other large banana exporting company in competition with Buena and Puro

Buena claims that Puro’s activities in Central America will force Buena to raise its prices and that this will affect

American consumers

Parties:

Buena Banana Co.

Puro.

U.S. federal court in Miami.

Legal Problem:

Does Buena have the right to sue Puro for monopolistic activity?

Does the U.S court have jurisdiction to hear the case?

Applied Rules:

• Sherman Antitrust Act Section 2: Forbids monopolies and attempts to monopolize interstate and

international trade.

Next


28

• Personal Jurisdiction: It refers to the power of a court to enter a binding judgment against a person or

other legal entity. A court must be able to exercise personal jurisdiction over a party in order for that party

to be bound by an order of the court.

• Long arm statute: A law defining the conduct of a foreign person within a state that will subject

that person to the jurisdiction of the state.

• United States minimum contacts tests a jurisdictional test required by due process that looks to

see if a person had such contacts with a state that it could reasonably have anticipated that it

would have to defend itself there.

• In other words the defendant (Person or Company) must have minimum contacts with USA (An

office, a bank account or even related business property in the United States)

• Subject Matter Jurisdiction :Two tests are used to determine whether a court has subject matter

jurisdiction in an American antitrust case:

• United States effects test: A jurisdictional test that subjects foreign businesses to U.S. antitrust

laws if their activities were intended to affect U.S. commerce and the effect was other than

minimal.

• U.S. jurisdictional rule of reason test: A jurisdictional test that allows U.S. courts to assume

jurisdiction over a foreign business for violation of US- antitrust, laws if (1) the alleged conduct

was intended to affect the foreign commerce of the United States, (2) it was of such a type and

magnitude as to violate the Sherman Act, and (3) as a matter of international comity and fairness,

a U.S. court ought to assume extraterritorial jurisdiction over the matter.

• Jurisdictional rule of reason:

• Was the conduct intended to affect the foreign commerce of USA?

• Did it violate the Sherman Act?

• Matter of international comity

• Robinson – Patman Act : Prohibits price discrimination

• It mandates that two or more purchasers of a commodity from the same seller must be charged

identical prices

Conclusion:

Puro Company has violated the Sherman Act section 2.

The two conditions of the Extraterritorially application of the US antitrust laws can be applied (Both Personal

Jurisdiction and Subject Jurisdiction)

The court should rule in the favor of Buena Banana Company


29

3- I Company is a large American manufacturer of computers. It controls approximately 65

percent of the market in the European Community. It refuses to share the patents and

copyrights it owns for the operating system software that controls its computers, thus not

allowing other manufacturers to make computers that are compatible with I's computers (i.e.,

other manufacturers cannot make and sell computers that will run the same programs as I

Company's computers). Is this a violation of Article 81 or 82 of the European Community

Treaty? Discuss.

Facts:

I Company is a large American manufacturer of computers

It controls approximately 65 percent of the market in the European Community

It refuses to share the patents and copyrights it owns for the operating system software that controls its

computers, thus not allowing other manufacturers to make computers that are compatible with I's computers

Other manufacturers cannot make and sell computers that will run the same programs as I Company's computers.

Parties:

I Company.

Other manufacturers.

Aly.

Ibrahim.

Zeid.

Bank Misr

Legal Problem:

Is this a violation of Article 81 or 82 of the European Community Treaty?

Applied Rules:

The European Union has two provisions under the European Community Treaty:

o Article 81: Prohibits normal arm’s-length competitors from entering into agreements or carrying on

concerted practices that prevent, restrain or distort trade.

Ex., Price fixing, limiting or controlling production, markets, technical development, or

investment

Paragraph 3 of Article 81 also sets out an exception in case of (1) contribute to improvement

and (2) do not prevent competition in a substantial part of the market --> exempted from the

application of the basic rule

o Article 82: Forbids businesses with a dominant position in their marketplace to take improper advantage

of their position to the detriment of consumers.

There are 4 specific prohibitions listed:

Directly or indirectly imposing unfair prices or trading conditions.

Limiting production, markets, or technical developments to the prejudice of

consumers.

Applying unequal conditions to equivalent transactions with different trading partners.

Imposing unrelated tying clauses.

Unlike Article 81, there is no exception clause.

Conclusion:

The refusal of ―I‖ Company to share the patents and copyrights it owns and NOT allowing other

manufacturers to make computers compatible with I’s computers is a prohibited practice according

to Home state regulation – EU Model article 82 and incompatible with the Common Market.

Next


30

4- Could I Company, in the previous question, be charged with violating American antitrust

laws? Discuss.

Facts:

Same as previous case

Parties:


Legal Problem:

Could I Company be charged with violating American antitrust laws?

Applied Rules:

Extraterritorial Application of U.S. Anti-trust:

o If defendant is subject to the personal jurisdiction of the court

o If the court has subject matter jurisdiction

Extraterritorial Application of U.S. Anti-trust

o Personal Jurisdiction Requirements of U.S. Antitrust Laws:

Anti-trust defendant who transacts business in the forum jurisdiction

An applicable state long arm statue: ―A law defining a conduct of a foreign person within a

state that will subject that person to the jurisdiction of the state‖

o Subject Matter Jurisdiction Requirements of U.S. Antitrust Laws:

Effects test: Foreign businesses are subject to U.S. Antitrust laws if there activities are intended

to affect U.S. commerce and effect was other than minimal [trifles/of little importance]

Sherman act:

o Section 1: prohibits contracts, agreements, and conspiracies that restrain interstate or international trade

o Section 2: forbids monopolies and attempts to monopolize commerce or trade either between the states

of the U.S. or in international commerce affecting the U.S.

Conclusion:

Concerning the American Antitrust Laws:

• Personal Jurisdiction requirements are fulfilled since it is an American company.

• The Jurisdictional rule of reason test also fulfilled since :

• The company conduct intended to affect foreign commerce of the US as it may

affect other US firms

• It was of such a type and magnitude to violate Sherman act [sort of monopolize

trades]

• International fairness

Next


31

5- The Mighty Motor Car Co. and the Novel Automobile Corp. manufacture cars and trucks in

Country J. They recently entered into a noncompetition agreement with the approval of the

Country J Ministry of Trade. The agreement provides (a) that Mighty will sell its vehicles in

the United States and that Novel will not and (b) that Novel will sell its vehicle in the EU and

that Mighty will not, Since the signing of this agreement, the Foreign Car and Truck Import

Co., a U.S. importer of Novel ears and light trucks, is unable to obtain vehicles to import to the

United States. As a consequence, it has brought suit against Novel in a U.S. court alleging that

the agreement between Mighty and Novel violated the U.S. Sherman Antitrust Act. Novel has

asked the court to dismiss the case for lack of subject matter jurisdiction. Should it do so?

Discuss.

Facts:

Mighty, & Novel both are vehicles manufacturers in country (J).

Mighty, & Novel signed an agreement by which mighty will sell its vehicles in the US market, while Novel will

sell its vehicles in the EU market both on exclusive bases.

(J)’s Ministry of trade approval was granted

Foreign Car and Truck Importer Co., unable to obtain, & import vehicles from Novel to US.

Foreign Car and Truck Importer Co., brought a suit against Novel in a U.S. court alleging that the agreement

between Mighty, & Novel violated the U.S. Sherman Antitrust Act.

Novel asked the court to dismiss the case for lack of subject matter jurisdiction.

Parties:

Car Manufacturers In Country (j)

Mighty Motors Car Co.

Novel Automobile Corp.

Country (J)’s ministry of trade.

Foreign Car and Truck Importer Co., Novel US importer.

Legal Problem:

Validity of the US Sherman Antitrust Act.

The US court power to have jurisdiction over this case.

Competition Law & Jurisdiction Rule of Reason

Does the US Court has the jurisdiction to investigate the case or it should dismiss the case because of the lack of

the subject matter?

Applied Rules:

Sherman Antitrust Act

o Case-by-case (rule of reason)

While cases appeared to be similar, but circumstances of each case are varied.

Case circumstances are the scale by which we can measure applicability of Sherman Act.

Rule of reason distinguish between real antitrust violation & restrict competition.

o Court perception

Classifying the practice whether it negatively affected the foreign commerce of the US, or not.

o Subject matter : Should the extraterritorial jurisdiction of the US be :

Asserted to cover this matter or not.

Type and magnitude of violation.

Fairness and international comity.

Conclusion:

US court has the power of jurisdiction

Novel request to dismiss the case will be rejected

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6- Assume the same facts as in the preceding question. Does the arrangement between Mighty

and Novel violate either Article 81 or 82 of the European Community Treaty? Can the EU

Commission take action against either Mighty or Novel? If it can, what action can it take?

Discuss.

Facts:


Parties:


Legal Problem:

Violation of article 81 of free competition in the European Economic Area's common market.

Applied Rules:

Article 81:

o The following shall be prohibited as incompatible with the common market:

All agreements between undertakings,

Decisions by associations of undertakings concerted practices which may affect trade between

Member States and which have as their object or effect the prevention, restriction or distortion

of competition within the common market, and in particular those which Limit or control

production, markets, technical development, or investment;

This treaty of EU community prohibits Cartels, and all other agreements that could dispute

competition in EU economic area’s common market.

Conclusion:

The Agreement between Mighty and Novel violate article 81 of the European Community treaty.

European commission can impose substantial fines.

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http://eur-lex.europa.eu/Notice.do?val=262491:cs&lang=en&list=262491:cs,262487:cs,&pos=1&page=1&nbl=2&pgs=10&hwords=article%2081~&checktexte=checkbox&visu=


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7- A Brand X auto dealership in Toronto, Ontario, Canada, sold a new Brand X automobile

(manufactured in Germany) to Mr. Y in Toronto. A year later, Mr. Y and his family decided to

move to Mexico. As they drove through the state of Oklahoma in the United States, they were

involved in an automobile accident. Mr. and Mrs. Y and his children were severely injured.

They claim that her injuries are due to a defect in the Brand X automobile. They have brought

a product liability suit in an Oklahoma state court against the German manufacturer of the

automobile and the regional distributor of Brand X automobiles in eastern Canada even

though Brand X automobiles are not sold or serviced in Oklahoma. Both defendants ask to

have the suit against them dis missed for lack of personal jurisdiction. The case is assigned to

your court for a decision. Should the case be dismissed? Explain.

Facts:

A Brand X auto dealership in Toronto, Ontario, Canada, sold a new Brand X automobile (manufactured in

Germany) to Mr. Y in Toronto

A year later, Mr. Y and his family decided to move to Mexico

As they drove through the state of Oklahoma in the United States, they were involved in an automobile accident.

Mr. and Mrs. Y and his children were severely injured.

They claim that her injuries are due to a defect in the Brand X automobile.

They have brought a product liability suit in an Oklahoma state court against the German manufacturer of the

automobile and the regional distributor of Brand X automobiles in eastern Canada even though Brand X

automobiles are not sold or serviced in Oklahoma.

Both defendants ask to have the suit against them dis missed for lack of personal jurisdiction.

Parties:

Mr. Y and his Family ( the buyer )

German Manufacturer of Automobile X

Regional Distributor of Automobile X in eastern Canada.

Oklahoma court in the United States

Legal Problem:

Shall the suit against the defendants dismissed for lack of personal jurisdiction?

Applied Rules:

Product Liability Regulations:

o Product liability means; liability of a manufacturer for injuries caused by its defective products

o Three theories are known in this regard:

Breach of contract

Negligence

Strict liability (principally in EU countries)

US courts require two conditions for the extraterritorial application of product liability laws

o First condition : personal jurisdiction

Should be found in individual sates X not federal law (in this condition, Long arm statutes are

normally enough)

o Second condition : forum non convenience

Case should be declined when it is appropriate to hear in in municipal court of another state

(private and public interests factors)

Extraterritorial application of US antitrust law

o Long arm statue :

A law defining the conduct of a foreign person within a state that will subject that person to the

jurisdiction of the state

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Based on unfair competition law, the US court applies the long arm statute that allows the court

to apply its rules (including the Product liability law) Outside of its territory.

Personal jurisdiction

o Based on personal jurisdiction defendant must have a contact with US jurisdiction

o The defendant must transact business in the forum jurisdiction. This is given a broad interpretation (

office, bank account, property or even subsidiary managed by non-American parent corporation)

o The principal limitation is the constitutional respect of due process. This forbids courts to hear cases

unless the defendant has a minimum contact with the forum.

Forum non conveniens: This allows courts applying this device to determine if the forum state has enough

interest in the outcome of the dispute to take jurisdiction

o The factors considered are

The private interests of the parties (i.e., the ease and cost of access to documents and witnesses)

The public interest factors (i.e., interest of the forum state, the burden on the courts and notions

of judicial comity).

Conclusion:

Oklahoma does not have personal jurisdiction over the Brand X (Auto dealership) Manufactured in Germany and

Eastern Canada ,The facts of this case don’t establish minimum contacts


35

8- The dictator of State X lets it be known that a certain lucrative contract will be granted only to

the foreign company that gives the most expensive "Birthday present" to the dictator's seven-

year-old son. An American, Japanese, and a European company are all vying for the contract.

With what legal and ethical limitations must they comply? Discuss.

Facts:

The dictator of State X lets it be known that a certain lucrative contract will be granted only to the foreign

company that gives the most expensive "Birthday present" to the dictator's seven-year-old son.

An American, Japanese, and a European company are all vying for the contract.

Parties:

The dictator of State X

The dictator's.

An American company

Japanese company

European company

Legal Problem:

With what legal and ethical limitations must they comply?

Applied Rules:

Sharp Practices: Business dealings meant to obtain a benefit for a person or firm regardless of the means used.

With the adoption of the OECD (Organization for Economic Co-operation and Development ) Convention on

Combating Bribery of Foreign Public Officials in International Business transactions

OECD's member states are the wealthiest countries including Japan, Germany, France, Italy, the United

Kingdom, and the United States

Applied at American companies and foreign companies registered in the US, knowingly bribe a foreign

government, officials or political parties or a candidate for foreign political office

According to FCPA (Foreign Corrupt Practices Act ) the bribery is not only money but anything of value to

influence a foreign official to conduct new business or continue existing business

Conclusion:

All three companies are in breach of the FCP Act , all three companies are liable and subject to OECD

Convention , if they give, or give a promise to give a bribe

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9- Good, Better & Best (GBB) is the name used by several firms of business consultants located in

many different countries, including countries in Western Europe, North America, South

America, and the Orient. Depending on local laws, the firms are organized either as

partnerships or as limited liability stock companies. The senior partners or presidents of the

several firms meet on a regular basis to coordinate worldwide advertising and standardize the

policies and practices of the several firms. The firms exchange information, and they share

employees as the need may arise. Multinational clients are assured that they will be served by

the local GBB firm in any country where the client does business. One of the GBB firms in

Country X (GBB-X) provided marketing information to Local Company. The information had

been negligently prepared by GBB-X, and it contained gross errors. Relying on that

information, Local made several disastrous investments, and it lost most of its net worth. Local

wants to sue CxBB-X, but it knows that GBB-X has few assets. Will Local be successful if it

asks the court in which it is suing the GBB-X firm to join others of the GBB firms as

codefendants? Would the choice of the court in which GBB brings its suit be important in

deciding this? Discuss.

Facts:

Good, Better & Best (GBB) is the name used by several firms of business consultants located in many different

countries, including countries in Western Europe, North America, South America, and the Orient.

One of the GBB firms in Country X (GBB-X) provided marketing information to Local Company.

The information had been negligently prepared by GBB-X, and it contained gross errors.

Relying on that information, Local made several disastrous investments, and it lost most of its net worth.

Parties:

Good, Better & Best (GBB).

Country X (GBB-X).

Local Company.

Legal Problem:

Will Local be successful if it asks the court in which it is suing the GBB-X firm to join others of the GBB firms

as codefendants?

Would the choice of the court in which GBB brings its suit be important in deciding this?

Applied Rules:

Common Enterprise Liability: When individuals or companies function as part of a common enterprise, courts

will treat them as if they were members of a joint venture or partnership with each of them having joint or joint

and several liability for the obligations of the entire enterprise.

There are several factors that courts consider in determining whether persons or firms are members of a common

enterprise:

o Sharing of profits and losses

o Sharing in management

o Joint ownership of the business

When a firm is deemed to be part of a common enterprise, all firms in the enterprise have joint liability for the

obligations of each other.

But any particular court may not have personal jurisdiction over many of the foreign firms that form the common

enterprise.

Thus, plaintiffs would well be served to bring suit in a state where at least one firm has plentiful assets.

Conclusion:

All firms in the enterprise of GBB consultancy will have joint liability for the obligations of GBB -X however

―Local Company‖ will have to choose a court with plentiful assets as there are few assets in GBB - X

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10- Big Shipping Lines is a transoceanic freight company incorporated in Country Z. To avoid

potential liability from shipping crude oil from the Persian Gulf to Europe in the antiquated

single-hull ships that it owns, it set up 14 different companies (including the Small Shipping

Co.) and transferred ownership of one ship to each of them. Each company then purchased

insurance to cover the losses of the ship and the ship's cargo, but nothing else. The SS Small,

which belonged to the Small Shipping Co., negligently ran aground on a shoal in the eastern

Mediterranean Sea, spilling its entire load of some 5 million barrels of crude oil. The oil has

washed ashore in Greece, Turkey, Cyprus, Syria, Lebanon, Israel, Egypt, and Libya. Each of

these countries has brought suit in Country Z against the Small Shipping Co., its sister

companies, and Big Shipping Lines, the sister companies and Big Shipping Lines have asked

the court to dismiss the complaints against them. They contend that the Small Shipping Co. is

a separate company and is solely liable for its own torts. How should the court rule? Discuss.

Facts:

Big Shipping Lines is a transoceanic freight company incorporated in Country Z.

To avoid potential liability from shipping crude oil from the Persian Gulf to Europe in the antiquated single-hull

ships that it owns, it set up 14 different companies (including the Small Shipping Co.) and transferred ownership

of one ship to each of them.

Each company then purchased insurance to cover the losses of the ship and the ship's cargo, but nothing else.

The SS Small, which belonged to the Small Shipping Co., negligently ran aground on a shoal in the eastern

Mediterranean Sea, spilling its entire load of some 5 million barrels of crude oil.

The oil has washed ashore in Greece, Turkey, Cyprus, Syria, Lebanon, Israel, Egypt, and Libya

Each of these countries has brought suit in Country Z against the Small Shipping Co., its sister companies, and

Big Shipping Lines.

The sister companies and Big Shipping Lines have asked the court to dismiss the complaints against them.

They contend that the Small Shipping Co. is a separate company and is solely liable for its own torts

Parties:

Big Shipping Lines.

Country Z.

Small Shipping Co. and Others

Greece, Turkey, Cyprus, Syria, Lebanon, Israel, Egypt, and Libya

Legal Problem:

Is Small Shipping Co. a separate company and is solely liable from its parent company (Big Shipping lines ) and

its sister companies?

Applied Rules:

Peirce the company veil: An expression indicating that the company is a separate legal entity that will be set

aside and the shareholders of the company will be held liable for its conduct as if they were partners in a

partnership.

o There are four circumstances under which courts will pierce the corporate veil:

(1) The controlled company.

(2) The alter ego company

(3) Undercapitalization.

(4) Personal assumption of liability

o The Controlled Company: the corporate status of a controlled company will be ignored if :

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Its financing and management are so closely connected to its parent that it does not have any

independent decision-making authority

It is induced to enter into a transaction beneficial to the parent but detrimental to it and to third

parties.

o The Alter Ego Company: the company veil will be pierced if the company is not treated by its

shareholders as a separate juridical entity—that is, if it is treated as the alter ego of the shareholders.

Examples of such conduct include the commingling of corporate and personal assets, the use of

company assets by shareholders for their personal benefit, and the failure to hold and record minutes of

board of directors meetings.

o Undercapitalization: When a company has insufficient capital at the time it is formed to meet its

prospective debts or potential liabilities, the courts will sometimes set aside the corporate veil. This is

especially so if the corporation later fails to obtain the amount of insurance that any reasonable business

would be expected to have as a matter of public responsibility.

o Personal Assumption of Liability: Shareholders can, of course, personally assume liability for the

obligations of a company.

This is especially common if a company is new, small, or marginally successful. Creditors will seldom

lend money to such a company unless the shareholders personally guarantee the performance of the

company.

Conclusion:

In this case: Subsidiary is a ―An Alter Ego Company’ so, the court will not dismiss the complaints against the sister

companies and the Big Shipping Lines, who will be considered liable for the occurred loses.


39

Book Chapter 5 - Exercises

1- Overseas Investment Co. (OIC), a multinational enterprise with its headquarters in State

W, entered into a joint venture with Investment Promotions Facility, Ltd. (IPF), a state-

owned company whose board of directors and principal officers had been appointed by the

minister of finance of State X. The joint venture agreement provided that, in the event of

any dispute, the dispute would be resolved by arbitration. Additionally, because the law of

State X says that all foreign investment agreements must be approved by the minister of

finance, the minister was present at the signing of the agreement; and after representatives

of the two parties put their signatures on the document, the foreign minister added the

words "approved and ratified" and his own signature. Unfortunately, a dispute did arise,

and OIC initiated an arbitration proceeding according to the procedures set out in the

joint venture agreement, naming both IPF and State X as parties. State X responded by

arguing that the arbitration tribunal has no jurisdiction over it. Should State X be excused

from participating in the suit? Discuss.

Facts:

Overseas Investment Co. (OIC), a multinational enterprise with its headquarters in State W, entered into a joint

venture with Investment Promotions Facility, Ltd. (IPF), a state-owned company whose board of directors and

principal officers had been appointed by the minister of finance of State X.

The joint venture agreement provided that, in the event of any dispute, the dispute would be resolved by

arbitration.

because the law of State X says that all foreign investment agreements must be approved by the minister of

finance, the minister was present at the signing of the agreement

After representatives of the two parties put their signatures on the document, the foreign minister added the words

"approved and ratified" and his own signature.

A dispute did arise, and OIC initiated an arbitration proceeding according to the procedures set out in the joint

venture agreement, naming both IPF and State X as parties.

State X responded by arguing that the arbitration tribunal has no jurisdiction over it.

Parties:

Overseas Investment Co. (OIC),

State W.

Investment Promotions Facility, Ltd. (IPF).

State X.

State X minister of finance.

Legal Problem:

Should State X be excused from participating in the suit?

Applied Rules:

Joint Venture Law of State X says that all foreign investment agreements must be approved by the minister of

finance

The host state will approve or disapprove a foreign investor's proposal.

If the proposal did not ask for the host to grant any incentives, and if the host state does not insist upon any

concessions from the investor, the approval will often be in the form of a letter from the appropriate agency.

If the host state grants an incentive or the investor agrees to some concession, the arrangement will be set out in a

formal investment agreement. Such an agreement will be governed by the host state's contract laws, and any

disputes will be resolved in that state's courts unless the parties agree otherwise.

The burden for ensuring that the proper approval has been granted rests with the investor.

Conclusion:

By endorsing the contract, the minister of finance was giving the endorsement required by law.

He was not making the government a party to the contract and accordingly, the arbitration tribunal had no power

over State X.


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2- The Video Assembly Co. (VAC), a company organized in State Z, entered into an

agreement with the U.S. Government to assemble video cassette recorders from foreign

manufactured parts inside a U.S. FTZ. Before this could be done, however, VAC had to set

up an assembly plant. Rather than using an American facility, it imported a completely

prefabricated plant. The plant consisted of the building, all of the assembly and packaging

equipment, and all of the ancillary tools. The U.S. Customs Service claims that the plant

itself did not qualify for exemption from customs duties at the time it came into the FTZ

because it was not "merchandise" for assembly, as required by U.S. law, and the Customs

Service levied duties on the plant. VAC has appealed to the U.S. Court of International

Trade, asking for an order compelling the Customs Service to return the duties it

collected. How should the court rule? Discuss.

Facts:

The Video Assembly Co. (VAC), a company organized in State Z, entered into an agreement with the U.S.

Government to assemble video cassette recorders from foreign manufactured parts inside a U.S FTZ.

Before this could be done, however, VAC had to set up an assembly plant

Rather than using an American facility, it imported a completely prefabricated plant.

The plant consisted of the building, all of the assembly and packaging equipment, and all of the ancillary tools.

The U.S. Customs Service claims that the plant itself did not qualify for exemption from customs duties at the

time it came into the FTZ because it was not "merchandise" for assembly, as required by U.S. law, and the

Customs Service levied duties on the plant.

VAC has appealed to the U.S. Court of International Trade, asking for an order compelling the Customs Service

to return the duties it collected.

Parties:

Video Assembly Co Kamal.

U.S. Government.

The U.S. Customs Service.

U.S. Court of International Trade

Legal Problem:

The issue that the Appeal Court must decide is: Whether the equipment imported by VAC qualified for

exemption from customs duties or not?

Applied Rules:

The Foreign Trade Zones Act (FTZA):

o Authorizes the establishment of foreign trade zones within the United States.

o The Act is administered by a Board which has authority to grant to corporations the privilege of

establishing, operating, and maintaining foreign trade zones in or adjacent to ports of entry under the

jurisdiction of the United States.

o Merchandise may be brought into a foreign trade zone for the purposes set forth in the statute "without

being subject to the customs laws of the United States."

o In 1952 title 19, § 81h States "zones for specialized purposes" or "subzones" in areas separate from

existing free trade zones "for one or more of the specialized purposes of storing, manipulating, manufac-

turing, or exhibiting goods" when the Board finds that existing or authorized zones will not serve

adequately the convenience of commerce with respect to the proposed purposes.

o In contrast to general purpose zones where a municipal corporation leases a portion of the zone to firms

that subsequently locate within that zone, subzones are generally used by a single firm.

Foreign Trade Zones Act of 1934 In 1950, section 3 of the Act was amended to provide:

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• Foreign and domestic merchandise of every description, except such as is prohibited by law, may, without

being subject to the customs laws of the United States, except as otherwise provided in this chapter, be

brought into a zone and may. be stored, sold, exhibited,, broken up, repacked, assembled, distributed,

sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be

manufactured except as otherwise provided in this chapter, and be exported, destroyed, or sent into

customs territory of the United States therefrom, in the original package or otherwise.

• But when foreign merchandise is so sent, from a zone into customs territory of the United States it shall

be; subject to the laws and regulations of the United States affecting imported merchandise.

• Section 81c States: ''imports used or intended to be used to produce motor vehicles" are not within the

activities enumerated in FTZA. Section 81c provides that merchandise brought into a foreign trade zone

may be "Stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned,

mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured"

The 1984 amendments to the Foreign Trade Act, described the "current law" as providing that the "exemption

does not apply to machinery and equipment that is imported for use (for manufacturing or the like) within a

foreign trade zone."

Conclusion:

• The Court will determine that the importation by VAC of the building, all of the assembly and packaging

equipment, and all of the ancillary tools The plant consisted of at issue into the FTZ because it was a

"merchandise" for assembly, as required by U.S. law

• Under the 1950 amendment to the Act and the legislative history of that amendment, such a use does

entitle the equipment to exemption from Customs duties.

• Accordingly, VAC will win the appeal.


42

3- The Modern Exploration Co. (MEC), a firm organized in State P, entered into an

investment contract with State Q to explore for and harvest magnesium nodules from the

seabed of State Q's continental shelf. MEC agreed to pay State Q U.S. $100 million in

advance for this privilege. State Q, however, did not inform MEC that it would be

promulgating certain environmental protection laws within days after signing this contract

that would make the endeavor so expensive that it would be effectively impossible for

MEC to perform. When MEC discovered this, it asked State Q to either modify the

environmental laws or give MEC back its money. State Q refused. MEC then initiated an

arbitration proceeding under the auspices of the ICSID in accordance with the terms of

the investment agreement and State Q law. How should the tribunal rule? Discuss.

Facts:

The Modern Exploration Co. (MEC), a firm organized in State P, entered into an investment contract with State

Q to explore for and harvest magnesium nodules from the seabed of State Q's continental shelf

MEC agreed to pay State Q U.S. $100 million in advance for this privilege.

State Q, did not inform MEC that it would be promulgating certain environmental protection laws within days

after signing this contract that would make the endeavor so expensive that it would be effectively impossible for

MEC to perform

When MEC discovered this, it asked State Q to either modify the environmental laws or give MEC back its

money

State Q refused

MEC then initiated an arbitration proceeding under the auspices of the ICSID in accordance with the terms of the

investment agreement and State Q law

Parties:

The Modern Exploration Co

State P

State Q

Legal Problem:

How should the tribunal rule?

Applied Rules:

Host countries provide a variety of guarantees to foreign investors to make investment in their territories

more attractive. The most important guarantees relate to the following:

• Compensation in the event of nationalization of a foreign-owned enterprise and repatriation of the

payments made.

• Repatriation of the proceeds upon the sale of the enterprise.

• Repatriation of profits and dividends.

• Repatriation of other forms of current income (such as royalties, licensing fees, and fees for managerial

and other services).

• Repatriation of the principal and interest from loans.

• Non-discriminatory treatment.

• Stabilization of taxes and other regulations.

• Convertibility of local currency.

Guarantees are granted either:

• Automatically when an investment application is approved or certified by the appropriate host state

agency or

• On an ad hoc basis.

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Modification of foreign investment agreements: Investment laws usually provide that any modification to an

investment agreement, including an increase or decrease in the size or scope of a project, has to be approved by

the host state.

Sudan's Encouragement of Investment Act of 1980, provided that any change in the size or purpose of a

project has to be approved by the minister of finance and national economy and any transfer of ownership of all

or any part of a project also needs the minister's approval.

o Investment laws and investment agreements usually require the host state to act in good faith on requests

for modification.

o This is also the rule applied by courts and tribunals in cases where an investment law or agreement sets

no standard.

Conclusion:

State Q has a duty to negotiate in good faith on the joint investment to explore for and harvest magnesium

nodules from the seabed of State continental shelf.

The tribunal found that State Q had negotiated in bad faith did not inform MEC that it would be promulgating

certain environmental protection laws within days after signing this contract that would make the endeavor so

expensive that it would be effectively impossible for MEC to perform

So of the ICSID in accordance with the terms of the investment agreement and State Q law will determine that If

State Q did not modify the environmental laws then it should give MEC back their money.

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