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
1
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
Copyright © Amira Melouk All rights reserved 2012
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.
Copyright © Amira Melouk All rights reserved 2012
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.
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
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.
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
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.
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
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
Copyright © Amira Melouk All rights reserved 2012
30
4- Could I Company, in the previous question, be charged with violating American antitrust
laws? Discuss.
Facts:
Same as previous case
Parties:
Same as previous case
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
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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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32
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:
Same as previous case
Parties:
Same as previous case
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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Copyright © Amira Melouk All rights reserved 2012
33
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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34
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
Copyright © Amira Melouk All rights reserved 2012
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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36
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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37
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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38
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.
Copyright © Amira Melouk All rights reserved 2012
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.
Copyright © Amira Melouk All rights reserved 2012
40
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.
Copyright © Amira Melouk All rights reserved 2012
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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43
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.