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Litigation
MONDay, DECEMBER 12, 2016
Volume 256—NO. 112
When a Court Interprets Foreign Law,
There Is No Secret Password
By Dennis Hranitzky,
John Biancamano
and Lindsay Ray
Dennis Hranitzky is a partner, and John Biancamano and Lindsay Ray are associates, at
Dechert in New York.
iSTOCK
T
he Second Circuit recently issued
a landmark decision concerning
the amount of deference to be
given to a foreign state’s interpretation
of its own laws in U.S. courts. See In
re Vitamin C Antitrust Litigation, No.
13-cv-4791, 2016 WL 5017312 (2d Cir.
Sept. 20, 2016). The case involved
allegations of price fixing by several
Chinese companies, and the court held
that it was “bound” to accept the interpretation of Chinese law regulating the
defendants’ conduct provided in an
amicus brief by a Chinese government
ministry, which led to the case being
dismissed on the grounds of international comity.
The clarity of the opinion, and the
seemingly strong rule of deference it
applies, have led many commenters to
characterize it as a strengthening of the
doctrine of international comity, calling
for courts to give more deference to
the interpretations of foreign states. We
think these commenters are reading
too much into the decision. Vitamin C
can be harmonized with other cases
involving foreign states’ interpretations
of their own laws arising in different
contexts. When read together, these
cases instruct that courts considering
whether to defer to a foreign state’s
interpretation should engage in a task
similar to that performed by courts
considering U.S. federal agencies’
interpretations of federal statutes.
The overall circumstances of each case
are important, and various factors will
direct where along a sliding scale of
deference each case falls.
S econd Circuit’s Decision in
‘Vitamin C’
The plaintiffs in the Vitamin C litigation were purchasers of Vitamin C who
MONDay, DECEMBER 12, 2016
alleged that the defendants illegally
set prices for their exports of V
­ itamin
C from China—a per se violation of
the Sherman Act. The defendants
responded by raising a defense based
on international comity. They claimed
that Chinese law had required them
to agree on their prices, and because
they were unable to comply with both
Chinese law and U.S. law, the district
court should refrain from exercising
jurisdiction over the case. Supporting the defendants was the Chinese
government itself. The Ministry of
Commerce for the People’s Republic
of China, the “highest administrative authority in China authorized to
‘Vitamin C’ already has been
recognized as a “landmark
for comity” and one that has
“boosted international comity.”
regulate foreign trade,” submitted an
amicus brief asserting that Chinese
law mandates the price fixing conduct
at issue in the case. The district court
rejected the comity defense; the plaintiffs then prevailed at trial and were
awarded a judgment of $147 million.
On appeal, the Ministry again asserted, as amicus curiae, that Chinese law
required the defendants to set prices
for their Vitamin C exports. Considering this, the panel believed it was
required to defer to the Ministry’s
interpretation. It held that “when a
foreign government, acting through
counsel or otherwise, directly participates in U.S. court proceedings by
providing a sworn evidentiary proffer
regarding the construction and effect
of its laws and regulations, which is
reasonable under the circumstances presented, a U.S. court is bound to defer to
those statements” (emphasis added).
As a result, the panel concluded that
because of the “true conflict” between
Chinese and U.S. law, the district court
should have declined to exercise jurisdiction over the case.
T he Rule of Deference to Be
Applied
Any decision in which a U.S. court
sets out clear circumstances in which
it is “bound” to accept a particular
interpretation of foreign law out of
comity will no doubt get attention.
Vitamin C already has been recognized as a “landmark for comity” and
one that has “boosted international
comity.” While we agree with these
statements, we question whether the
decision represents the sea change
in the law of comity others describe
it to be.
The Second Circuit’s condition that
the foreign state’s interpretation be
“reasonable under the circumstances presented” indicates that courts
must consider the circumstances
under which a foreign state submits
an interpretation of its own laws in
determining what level of deference
to afford that interpretation. The
Vitamin C panel expressly recognized
that certain circumstances may not
warrant deference, including where
there is no “documentary evidence”
or specific “reference of law” proffered
to support the foreign state’s interpretation. Because of this, we believe the
Vitamin C decision is in harmony with
prior decisions that have scrutinized a
sovereign state’s proffered interpretation and found it to be unreasonable
under the particular circumstances
of the case.
In the different but analogous context of determining what deference to
give a U.S. agency’s interpretation of
U.S. law, the landmark case of Chevron,
U.S.A. v. Nat. Res. Def. Council, 467
U.S. 837, 844 (1984), established that
“considerable weight” should be given
to an executive agency’s “construction
of a statutory scheme it is entrusted to
administer.” Generally speaking, Chevron deference applies where Congress
has delegated interpretive authority to
an agency. See United States v. Mead,
533 U.S. 218, 226-28 (2001). But not
every agency interpretation warrants
strong Chevron deference. As the U.S.
Supreme Court recognized in Mead,
“[t]he fair measure of deference to an
agency administering its own statute
has been understood to vary with circumstances, and courts have looked
to the degree of the agency’s care, its
consistency, formality, and relative
expertness, and to the persuasiveness
of the agency’s position.” Id.
That is not unlike the task facing a
court presented with a foreign state’s
interpretation of its own law. When
a court asks whether that interpretation is “reasonable under the circumstances,” we believe it will, as courts
have done in the past, consider various factors that inform the reasonableness of the interpretation and
grant deference accordingly. Relevant
factors here should include, similar
to Mead: the persuasiveness of the
opinion (e.g., whether the state has
MONDay, DECEMBER 12, 2016
proffered ­“documentary evidence”
or a “specific reference of law”); the
relative expertness of the entity submitting the opinion (e.g., the identity
and role of any government entity
submitting an opinion, and whether
the law at issue involves terms of art
within a legal regime vastly different
from our own); the formality of the
opinion (e.g., whether the opinion is
presented through a formal government statement or the opinion of a
private expert); and whether any
concern with bias is present (e.g., the
status of the sovereign as a party or
an amicus curiae).
Vitamin C itself shows how a confluence of factors can lead to the highest degree of deference. That court
essentially deferred on the basis of
the relative expertness of the Ministry
and the formality of its opinion. The
proffered interpretation came from the
entity responsible for the regulation
of foreign trade, and the law at issue
involved terms of art in a legal regime
very different from our own.
Not every case calls for such deference. Take for example the decision
that gave the Vitamin C panel pause,
Karaha Bodas Co. v. Pertamina, 313
F.3d 70, 91-92 (2d Cir. 2002). Karaha
Bodas was a suit against a state-owned
company in Indonesia in which the
Indonesian Ministry of Finance joined
and proffered an interpretation of several aspects of Indonesian law. The
court accepted the Ministry’s interpretation of an “ambiguous” Indonesian
regulation, holding that “[w]here a
choice between two interpretations
of ambiguous foreign law rests finely
balanced, the support of a foreign
sovereign for one interpretation furnishes legitimate assistance in the
resolution of interpretive dilemmas.”
The Vitamin C panel viewed this as
consistent with its holding, and this
makes sense when viewed through the
factors listed above—the proffer came
from an expert ministry and it was persuasive. The court, however, declined
to adopt the Ministry’s interpretation
on another issue in the case because
no specific Indonesian law on the point
had been identified—the Ministry’s
opinion lacked persuasiveness.
We recently litigated a case in which
the circumstances called for substantially less deference and led to a full
rejection of the sovereign’s proffered
interpretation of its laws. In Themis
Capital v. Democratic Republic of Congo, No. 09-cv-1652, Dkt. 213 (S.D.N.Y.),
we represented holders of debt issued
by the Democratic Republic of Congo
(DRC) in a suit seeking to recover $85
million in defaulted debt from the DRC.
At issue was whether the signatories
to an acknowledgment of the debt and
extension of the statute of limitations
had authority under DRC law to bind
their principals, or whether a particular DRC law required that they obtain
prior approval from the DRC’s Council
of Ministers. The DRC presented the
interpretation of its laws not through
any state agency, but through a private DRC attorney, who asserted that
the DRC law required prior approval.
Faced with competing opinions from
private experts, Judge Paul A. Engelmayer declined to accept the DRC’s
interpretation; he found that the DRC’s
explanation simply wasn’t persuasive.
Looking at the circumstances of the
case, we believe this was a very different case from Vitamin C: The DRC
was a party with a great interest in
the outcome; it presented its evidence
through a private expert rather than a
formal state entity; and its interpretation simply was not reasonable. Less
deference was therefore appropriate.
Final Thoughts
While Vitamin C certainly provides
a valuable element of clarity to courts
considering statements from foreign
states regarding the interpretation of
their laws, we do not believe it stands
for a rule of absolute deference in all
cases, as many commentators have
suggested. Instead, the decision fits in
with the cases that preceded it, which
look to the circumstances of the case
and various relevant factors in determining what deference to afford the
state’s interpretation.
Reprinted with permission from the December 12, 2016 edition of the NEW YORK
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