647 F.2d 300 (2nd Cir. 1981), 80-7773, Texas Trading & Mill. Corp. v. Federal Republic of Nigeria

Docket Nº:80-7773, 80-7783,80-7803, 80-7811 and 80-7813.
Citation:647 F.2d 300
Party Name:TEXAS TRADING & MILLING CORP., Plaintiff-Appellant, v. FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Defendants-Appellees. DECOR BY NIKKEI INTERNATIONAL, INC., d/b/a Nikkei International, Inc., Plaintiff-Appellee-Cross-Appellant, v. FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Defendants-Appellants-Cross-Appellees. CHENAX MAJ
Case Date:April 16, 1981
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 300

647 F.2d 300 (2nd Cir. 1981)

TEXAS TRADING & MILLING CORP., Plaintiff-Appellant,

v.

FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria,

Defendants-Appellees.

DECOR BY NIKKEI INTERNATIONAL, INC., d/b/a Nikkei

International, Inc., Plaintiff-Appellee-Cross-Appellant,

v.

FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria,

Defendants-Appellants-Cross-Appellees.

CHENAX MAJESTY, INC., Plaintiff-Appellant-Cross-Appellee,

v.

FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria,

Defendants-Appellees-Cross-Appellants.

EAST EUROPE IMPORT-EXPORT, INC., Plaintiff-Appellee-Cross-Appellant,

v.

FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria,

Defendants-Appellants-Cross-Appellees.

Nos. 644 to 647 and 1369 to 1371, Dockets 80-7703, 80-7771,

80-7773, 80-7783,80-7803, 80-7811 and 80-7813.

United States Court of Appeals, Second Circuit

April 16, 1981

Argued March 6, 1981.

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Page 302

Abram Chayes, Cambridge, Mass., for all plaintiffs.

Richard H. Webber, New York City (Peter W. Flanagan, Hill, Rivkins, Carey, Loesberg, O'Brien & Mulroy, New York City, of counsel), for plaintiff-appellant Texas Trading & Milling Corp.

Lewis S. Sandler, New York City, for plaintiff-appellee-cross-appellant Decor by Nikkei International, Inc.

Robert Layton, New York City (Daniel J. Brooks, Thomas L. Abrams, Layton & Sherman, New York City, of counsel), for plaintiff-appellant-cross-appellee Chenax Majesty, Inc.

Berthold H. Hoeniger, New York City, for plaintiff-appellee-cross-appellant East Europe Import-Export, Inc.

James G. Simms, New York City (Craig P. Murphy, Peter J. Dranginis, Jr., Kissam, Halpin & Genovese, New York City, of counsel), for defendants-appellees.

Before KAUFMAN and TIMBERS, Circuit Judges, and WARD, District Judge. [*]

IRVING R. KAUFMAN, Circuit Judge:

These four appeals grow out of one of the most enormous commercial disputes in history, and present questions which strike to the very heart of the modern international economic order. An African nation, developing at breakneck speed by virtue of huge exports of high-grade oil, contracted to buy huge quantities of Portland cement, a commodity crucial to the construction of its infrastructure. It overbought, and the country's docks and harbors became clogged with ships waiting to unload. Imports of other goods ground to a halt. More vessels carrying cement arrived daily; still others were steaming toward the port. Unable to accept delivery of the cement it had bought, the nation repudiated its contracts. In response to suits brought by disgruntled suppliers, it now seeks to invoke an ancient maxim of sovereign immunity par in parem imperium non habet 1 to insulate itself from liability. But Latin phrases speak with a hoary simplicity inappropriate to the modern financial world. For the ruling principles here, we must look instead to a new and vaguely-worded statute, the Foreign Sovereign Immunities Act of 1976 ("FSIA" or "Act") 2 a law described by its draftsmen as providing only "very modest guidance" on issues of preeminent importance. 3 For answers to those most difficult questions, the authors of the law "decided

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to put (their) faith in the U.S. courts." 4 Guided by reason, precedent, and equity, we have attempted to give form and substance to the legislative intent. Accordingly, we find that the defense of sovereign immunity is not available in any of these four cases. 5

I.

The facts of the four appeals are remarkably parallel, and can be stated in somewhat consolidated form. 6 Early in 1975, the Federal Military Government of the Federal Republic of Nigeria ("Nigeria") embarked on an ambitious program to purchase immense amounts of cement. We have already had occasion in another case to call the program "incredible," see National American Corp. v. Federal Republic of Nigeria, 597 F.2d 314, 316 (2d Cir. 1979), but the statistics speak for themselves. Nigeria executed 109 contracts, with 68 suppliers. It purchased, in all, over sixteen million metric tons of cement. The price was close to one billion dollars.

A.

Four of the 109 contracts were made with American companies that were plaintiffs below in the cases now before us: Texas Trading & Milling Corp. ("Texas Trading"), Decor by Nikkei International, Inc. ("Nikkei"), East Europe Import-Export, Inc. ("East Europe"), and Chenax Majesty, Inc. ("Chenax"). The four plaintiffs are not industrial corporations; they are, instead, "trading companies," which buy from one person and sell to another in hopes of making a profit on the differential. Each of the plaintiffs is a New York corporation.

The contracts at issue were signed early in 1975. Each is substantially similar; indeed, Nigeria seems to have mimeographed them in blank, and filled in details with individual suppliers. Overall, each contract called for the sale by the supplier to Nigeria of 240,000 metric tons of Portland cement. 7 Specifically, the contracts required Nigeria, within a time certain after execution, 8 to establish in the seller's favor "an Irrevocable, Transferable abroad, Divisible and Confirmed letter of credit" for the total amount due under the particular contract, slightly over $14 million in each case. 9 The contract also named the bank through which the letter of credit was to be made payable. Nikkei and East Europe named First National City Bank in New York, and Texas Trading specified Fidelity International Bank, also in New York. Chenax denominated Schroeder, Muenchmeyer, Hengst & Co. of Hamburg, West Germany. Drafts under the letters of credit were to be "payable at sight, on presentation" of certain documents to the specified bank.

Within a time certain after establishment and receipt of the letter of credit, 10 each

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seller was to start shipping cement to Nigeria. The cement was to be bagged, and was to meet certain chemical specifications. Shipments were to be from ports named in the contracts, mostly Spanish, and were to proceed at approximately 20,000 tons per month. Delivery was to the port of Lagos/Apapa, Nigeria, and the seller was obligated to insure the freight to the Nigerian quay. Each contract also provided for demurrage. 11 The Nikkei and East Europe contracts provided they were to be governed by the laws of the United States. The Chenax contract specified the law of Switzerland, and the Texas Trading contract named the law of Nigeria.

In short, performance under the contracts was to proceed as follows. Nigeria was to establish letters of credit. The suppliers were to ship cement. Each time a supplier had loaded a ship and insured its cargo to Lagos/Apapa, the supplier could take documents so proving to the bank named in the contract and, "at sight," be paid for the amount of cement it shipped. The ship might sink on the way to Nigeria, or it might never leave the Spanish port at all, but on presentation of proper documents showing a loaded ship and an insured cargo the supplier had a right to be paid. Demurrage was to operate in the same manner: if a ship was detained in Nigerian waters, the supplier would receive certain documents. It could present the documents to the bank, and receive payment.

The actual financial arrangements differed from those set forth in the cement contracts. Instead of establishing "confirmed" letters of credit with the banks named, Nigeria established what it called "irrevocable" letters of credit with the Central Bank of Nigeria ("Central Bank"), an instrumentality of the Nigerian government, 12 and advised those letters of credit through the Morgan Guaranty Trust Company ("Morgan") of New York. That is, under the letters of credit as established, each seller was to present appropriate documents not to the named bank, but to Morgan. And, since the letters were not "confirmed," Morgan did not promise to pay "on sight"; it assumed no independent liability. 13 Each of the letters of credit provided it was to be governed by the Uniform Customs and Practice for Documentary Credits ("UCP") (1962 Revision), as set forth in Brochure No. 222 of the International Chamber of Commerce.

Nigeria's choice of Morgan as the bank to which suppliers presented documents and from which suppliers secured payments came in the course of a longstanding relationship between Nigeria and Morgan. Central Bank used Morgan as its correspondent bank in the United States, and Morgan conducted myriad transactions on Nigeria's behalf. Employees of Central Bank regularly came to Morgan for training seminars. On Nigeria's request, Morgan made payments to Nigerian students in the United States, to American corporations to which Nigeria owed money, and to the Nigerian embassy and consulates in the United States. Indeed, Nigeria used Morgan to make payments (for salaries, operating expenses, and the like) to Nigerian embassies in other countries as well. Until 1974, Morgan had the right to draw up to $1 million per day from Nigeria's account at the Federal Reserve Bank of New York to satisfy Nigeria's obligations. Nigeria raised the limit to $3 million per day in 1974, and

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Morgan enjoyed unlimited drawing rights on Nigeria's funds beginning in November 1975. Central Bank kept over $200 million of securities in a custody account at Morgan. Morgan advised as much as $200 million in letters of credit established by Nigeria, and confirmed, in addition, letters of credit totalling at least $70 million more.

After receiving notice that the letters of credit had been established, the suppliers set out to secure subcontracts to procure the cement, and shipping contracts to transport it. 14 They, through their subcontractors, began to bag the cement and load it on ships, as suppliers across the globe were doing the same. Hundreds of ships arrived in Lagos/Apapa in the summer of 1975, and most were carrying cement....

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