Download Chapter 22: The International Legal Environment of

Chapter 22: The International Legal Environment of Business
Answers to Select Case Questions
ETHOD OF ECONOMICS
2. Seawinds sued Nedlloyd in California state court alleging in essence that Nedlloyd breached
express and implied obligations under the shareholders' agreement. In resolving the dispute,
Nedlloyd contended that the shareholders' agreement required the application of Hong Kong law
to Seawinds' claims. In opposition, Seawinds argued that California law should be applied to its
causes of action.
The supreme court of California held that a valid choice_of_law clause existed in the contract
between the parties. Since the clause is valid, it encompasses all causes of action arising from or
related to their contract regardless of how those causes of action are characterized. The court
applied the Restatement test: first, the court must determine (1) whether the chosen state has a
substantial relationship to the parties or their transaction, or (2) whether there is any other
reasonable basis for the parties' choice of law. If either test is met, then the court must determine
whether the chosen state's law is contrary to a fundamental policy of California. The court found
that Seawinds was incorporated in Hong Kong, thereby satisfying the first part of the test. The
court then determined that it could perceive of "no fundamental policy of California requiring the
application of California law to Seawinds' claims."
4. The Supreme Court held that the act of state doctrine prohibits a foreign judicial body from
ruling on the validity of the acts of a sovereign taken within the sovereign's territory. The Cuban
government had the right to nationalize its sugar industry. Whether or not proper payments were
made to other parties is a separate issue, but those who suffered nationalization could not claim
to have superior legal rights to payments. Those matters would have to go to the International
Court of Justice or other venues. After this case, Congress amended the Foreign Assistance Act
to allow the courts to ignore the act of state doctrine in cases of expropriation.
6. The court rejected the bank's sovereign immunity and act of state arguments. "Foreign states
and their agencies an instrumentalities are generally immune from suit in United States courts.
Neither party disputes that the Bank of Jamaica, wholly owned by the government of Jamaica, is
included within this definition. Plaintiffs contend, however, that the Defendants' activity falls within
the exception to sovereign immunity ... the 'commercial activity' exception.
"No one disputes that the regulation of imports and exports is a sovereign prerogative; or that the
bank has the power to redefine investment priorities; or that the bank, in administering the
Jamaican Economic Recovery Program, must decide with whom it will deal. These are all
governmental acts. The act complained of, however, is not the bank's administration of the
Program, but the breach of its implied contract with Chisholm & Co. entered into in furtherance of
that program. Once the bank decides to contract with someone to obtain financing, it must follow
the rules of the marketplace, and one of those rules is that contracts cannot be breached.
Therefore, the Court holds that the bank's implied contract with Chisholm & Co. and its alleged
misrepresentations constitute commercial activity...."
The next issue was whether the bank's acts in dealing with Chisholm had sufficient jurisdictional
nexus with the U.S. In international commerce, much business is conducted through telephone
calls, telexes, and wire transfers of intangible debits and credits. It can be difficult to determine
exactly where an act such as the formation or breach of a contract takes place. Because the court
found that defendants' acts had a direct effect in the U.S., and, therefore, where the acts actually
occurred was irrelevant.
8. Affirmed. A tort based on negligence is not one of the exceptions allowed under the FSIA.
While the tort, if any, was probably the responsibility of the independent contractor doing the
work, Malaysia is still immune from suit because this does not fall under the commercial activity
exception provided by statute.