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Chapter 15


Conflict of Laws

On November 3, 1975, the U.S. Supreme Court in Day and Zimmermann v. Challoner (No. 75–245; 44 U.S. Law Week 3262) vacated the judgment of the U.S. Court of Appeals for the Fifth Circuit in Challoner v. Day and Zimmermann, Inc., 512 F.2d 77 (1975). An injured U.S. serviceman and the estate of a deceased serviceman had brought a strict liability suit for damages against an ammunition manufacturer, based on the premature explosion of a howitzer round in Cambodia. The Court of Appeals had held that the District Court had properly applied Texas substantive law in finding the manufacturer liable, rather than applying Cambodian law which would be applicable under Texas conflict of law rules.

The Appellate Court considered that it was justified in not applying Cambodian law on the grounds that (1) Cambodia had no interest in the dispute between American litigants, while the policies of all U.S. jurisdictions having an interest would be carried out under Texas substantive law; (2) under international law principles, Cambodia had no right to determine rights or liabilities as between foreign subjects arising out of the military activities of a foreign power, for “a nation is understood to cede a portion of her territorial jurisdiction where she allows the troops of a foreign nation to pass through her dominions"; and (3) the very nature of the Federal Court justified such result. On the final point, the Appeals Court said:

.. We are a Court of the United States, an instrumentality created to effectuate the laws and policies of the United States. We conclude that in this case we have no warrant, legal or moral, to frustrate well established American policies by an application of the local policies of a foreign government.

The Supreme Court, in vacating the judgment and remanding the case for further proceedings, held that in a diversity action a Federal Court must follow the conflict of law rules of the State in which it sits and “is not free to engraft onto those rules exceptions or modifications which may commend themselves to the Federal Court, but which have not commended themselves to the State in which the Federal Court sits."

Multilateral Conventions


The United States participated with other states members of the Organization of American States in the Inter-American Specialized Conference on Private International Law, held in Panama City, January 14_30, 1975, which adopted and opened for signature six inter-American conventions in the field of private international law. These were: (1) the Inter-American Convention on Letters Rogatory; (2) the Inter-American Convention on the Taking of Evidence Abroad; (3) the Inter-American Convention on International Commercial Arbitration; (4) the Inter-American Convention on the Legal Regime of Powers of Attorney to be Used Abroad; (5) the Inter-American Convention on Conflict of Laws concerning Bills of Exchange; Promissory Notes and Invoices; and (6) the Inter-American Convention on Conflict of Laws concerning Checks.

The United States did not sign any of the six conventions at Panama City. On March 14, 1975, it referred the texts to the Secretary of State's Advisory Committee on Private International Law, for consideration with respect to appropriate United States action. Ambassador Richard D. Kearney, United States Member of the International Law Commission and Chairman of the Committee, recommended that the Committee give serious study to the conventions on evidence, letters rogatory, and international commercial arbitration. The convention on powers of attorney was to be referred for further expert views.

Prior to the Conference, the United States had expressed the view that it was not interested in participating in regional conventions dealing with bills of exchange, promissory notes and invoices, and checks. In light of that position, the U.S. delegation did not participate actively in the work of the Conference leading to adoption of the two conventions dealing with those subjects.

Minutes of Meeting of Secretary of State's Advisory Committee on Private International Law, 26th Meeting, Mar. 14, 1975.

Marriage Laws

United States comments concerning a proposed convention on conflict of laws in respect of marriage were transmitted to The Hague on January 17, 1975, for submission to the Permanent Bureau of The Hague Conference on Private International Law, in reply to a questionnaire on the subject. The Twelfth Session of The Hague Conference had decided upon the development of such a convention as the first order of business for the Thirteenth Session.

The U.S. reply, representing as well the views of legal experts whom the U.S. Government had consulted, indicated that no final conclusion had been reached as to whether the convention should be concerned primarily with the law governing marriage as an allpurpose contract or should deal exclusively with the law governing particular issues relating to marriage, such as entitlement of a putative spouse by virtue of survival. It recommended that the Conference consider the extent to which the validity of a marriage may be affected by subsequent events; for example, the effect of a law in the state of celebration that seeks to validate retroactively a marriage that was initially invalid, or the effect of a change of domicile from a state under whose law a marriage is invalid to one whose law would hold the marriage good.

On the matter of scope, the United States recommended that the convention be of universal character, rather than based on reciprocity, and preferred that it not deal with the right to remarriage following a judicial decree or administrative decision of divorce, nullity, or declaration of absence or presumed death.

The United States questioned whether the convention should deal with prospective requirements; it considered the law of the place of celebration applicable. As to retrospective requirements, where the validity of a marriage already contracted is placed in issue, the United States suggested that was a general principle, the law of the place of celebration should be applied in situations where this law would hold the marriage valid except where a contrary result is required by the law of the state which has the greatest interest in the determination of the issue. ...” It added, "Where a marriage fails to meet the requirements of the state of celebration, it should nevertheless be upheld if this result is required by the law of the state of greatest interest.”

The United States recommended that the convention not deal with recognition of foreign decisions as to marital status, but considered that a separate convention on the subject might be desirable.

The Hague Conference questionnaire and a report by Adair Dyer, Jr., on the conflict of laws in respect of marriage and recognition abroad of decisions in respect of the existence or validity of marriages are contained in Marriage, Preliminary Doc. No. 1, July 1974, Perm. Bureau of The Hague Conference on Private International Law, The Hague. See also Dept. of State airgram to The Hague A-342, Jan. 17, 1975.

International Commercial Arbitration

Foreign Arbitral Awards

In Parsons & Whittemore Overseas Co., Inc. v. Société Générale de L'Industrie du Papier, 508 F.2d 969 (1974), the U.S. Court of Appeals for the Second Circuit, on December 23, 1974, affirmed the decision of the U.S. District Court for the Southern District of New York, granting summary judgment to the defendant Egyptian corporation, confirming a foreign arbitral award holding the plaintiff American corporation liable for breach of contract.

The American corporation, Parsons & Whittemore Overseas Co., Inc. (Overseas), had contracted with Société Générale (RAKTA) in 1962 to construct a paperboard mill in Egypt and to supervise it for a year. The Agency for International Development (AID) was to finance the project by supplying RAKTA with funds to purchase letters of credit in Overseas' favor. The contract contained an arbitration clause and a force majeure clause. Before completion of the work, the Egyptian hostility to Americans that accompanied the Arab-Israeli Six-Day War in 1967 caused the majority of the Overseas' work crew to leave Egypt. On June 6, 1967, the Egyptian Government broke diplomatic ties with the United States and expelled all Americans except those who applied and qualified for a special visa.

Overseas notified RAKTA that it regarded the force majeure clause as covering its suspension of the project. RAKTA disagreed and sought damages for breach of contract. Overseas refused to settle, and RAKTA invoked the arbitration clause. An arbitral tribunal governed by the rules of the International Chamber of Commerce issued a preliminary award for RAKTA on the ground that the force majeure defense was only good during the period from May 28 to June 30, 1967. It noted that Overseas had made only perfunctory efforts to obtain special visas and stated that AID's withdrawal of financial backing did not justify Overseas' abandoning the project. In its final award the Arbitral Tribunal held Overseas liable to RAKTA for $312,507.45 in damages for breach of contract and $30,000 for RAKTA's costs. It also held Overseas responsible for three-fourths of the arbitrators' compensation, set at $49,000.

Overseas filed an action to prevent RAKTA from enforcing the arbitral award for breach of contract and sought a declaratory judgment to prevent RAKTA from collecting the award out of a letter of credit that had been issued in RAKTA's favor by Bank of America at Overseas' request to satisfy any penalties which an arbitral tribunal might assess against Overseas in the future for breach of contract. RAKTA counterclaimed to confirm and enter judgment on the foreign arbitral award.

The District Court rejected Overseas' defenses to the counterclaim and granted summary judgment to the defendant on enforcement of the award, but it denied RAKTA's entitlement to recover the amount out of the letter of credit issued by Bank of America. The principal issues for review on appeal were derived principally from the language of the applicable U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (TIAS 6997; 21 UST 2517; entered into force for the United States December 29, 1970, subject to a declaration). Plaintiff argued, inter alia, that enforcement of the award would violate the public policy of the United States and thus contravene Article V(2Xb) of the Convention, which allows a court to refuse enforcement of a foreign arbitral award if enforcement would be contrary to the public policy of the country. In rejecting the public policy argument, the Court of Appeals looked to the history of the Convention, concluded that its basic effort was to remove obstacles to enforcement, and took note of considerations of reciprocity. The Court stated:

We conclude, therefore, that the Convention's public policy defense should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum state's most basic notions of morality and justice. Cf. 1 Restatement Second of the Conflict of Laws 117, comment c, at 340 (1971); Loucks v. Standard Oil Co., 224 N.Y. 99, 111, 120 N.E. 198 (1918).

Under this view of the public policy provision in the Convention, Overseas' public policy defense may easily be dismissed. Overseas argues that various actions by United States officials subsequent to the severance of American-Egyptian relationsmost particularly, AID's withdrawal of financial support for the Overseas-RAKTA contract-required Overseas, as a loyal American citizen, to abandon the project. Enforcement of an award predicated on the feasibility of Overseas' returning to work in defiance of these expressions of national policy would therefore allegedly contravene United States public policy. In equating "national” policy with United States “public” policy, the appellant quite plainly misses the mark. To read the public policy defense as a parochial device protective of national political interests would seriously undermine the Convention's utility. This provision was not meant to enshrine the vagaries of international politics under the rubric of “public policy." Rather, a circumscribed public policy doctrine was contemplated by the

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