INDOSUEZ v. Natl Reserve Bank

• Decision Date: 07 May 2002
• Citation: 98 N.Y.2d 238,774 N.E.2d 696,746 N.Y.S.2d 631
• Parties: INDOSUEZ INTERNATIONAL FINANCE B.V., Respondent, v. NATIONAL RESERVE BANK, Appellant.
• Court: New York Court of Appeals Court of Appeals

98 N.Y.2d 238

774 N.E.2d 696

746 N.Y.S.2d 631

INDOSUEZ INTERNATIONAL FINANCE B.V., Respondent, v. NATIONAL RESERVE BANK, Appellant.

Court of Appeals of the State of New York.

Argued March 12, 2002.

Decided May 7, 2002.

Milbank, Tweed, Hadley & McCloy LLP, New York City (Jeffrey Barist, William R. Spiegelberger and Kylie Davidson of counsel), for appellant.

Dewey Ballantine LLP, New York City (A. Grant McCrea, James P. Smith III, Carol A. Polizzi and Joshua R. Weiss of counsel), for respondent.

Chief Judge KAYE and Judges LEVINE, CIPARICK, WESLEY, ROSENBLATT and GRAFFEO concur.

OPINION OF THE COURT

SMITH, J.

The primary issue on this appeal is whether New York law or Russian law should govern the forward currency exchange transactions entered into between plaintiff Indosuez International Finance B.V. (IIF) and defendant National Reserve Bank (NRB). We hold that New York law applies.

Between 1997 and July 1998, IIF, a Netherlands corporation, and NRB, a Russian bank, entered into 14 nondeliverable forward currency exchange transactions with specified trade dates, settlement dates¹ and forward rates. A forward exchange transaction is an obligation to purchase or sell a specific currency on a future date (settlement date) for a fixed price set on the date of the contract (trade date).² The value of the exchange transactions to IIF and NRB depended on the appreciation or the depreciation of the ruble in relation to the dollar. In the present case, the forward rate is the market-determined exchange rate for exchanging Russian rubles for United States dollars on the settlement date. If on the settlement date, the then-prevailing exchange rate is greater than the forward rate, i.e., if the ruble has depreciated against the dollar, the ruble buyer (NRB) must pay the seller (IIF) in dollars. If, on the other hand, the then-prevailing exchange is less than the forward rate, i.e., the ruble has appreciated, the reverse is true and IIF must pay NRB in dollars.

Seven of the 14 transactions involved payment by IIF to NRB of an "Option Premium." Unlike the nonoption transactions, in the option transactions, if the ruble appreciated, IIF, the ruble seller, would not have to pay NRB anything on the settlement date because NRB gave up its right to receive a settlement amount in return for the earlier payment of the option premium. IIF made option payments to a New York bank under six of the transactions.

Each of the transactions was evidenced by a confirmation, signed on behalf of NRB by its deputy chairperson of the board. Each of the confirmations provided that it was part of a global agreement consisting of both the terms set forth in the International Swap Dealers Association (ISDA) Master Agreement (the ISDA form) as well as the terms set forth in the confirmations. The confirmations incorporated the terms of the ISDA form and stated that they were governed by the ISDA form except where there was an inconsistency between the two, in which case, the confirmation governed. Ten of the 14 confirmations have New York choice of law provisions, and the remaining four have English law choice of law provisions. At least two of the confirmations required that the affected party be paid through Bank of America, New York. The other confirmations required that the affected party be paid through the bank designated by that affected party. Six of the confirmations contained New York forum selection clauses, and the other eight confirmations either contained no forum selection clause or designated the "courts of England or any other courts of competent jurisdiction." All of the confirmations indicate that payments were to be made in United States dollars.

In the summer of 1998, the value of the ruble plummeted. The Russian Central Bank stopped supporting the ruble by ceasing to use its foreign currency reserves to purchase rubles. On August 17, 1998, the Russian government and the Central Bank of Russia declared a 90-day moratorium that, among other things, prohibited Russian residents from making payments to nonresidents under forward currency exchange transactions.

Pursuant to the terms of the ISDA form, the moratorium constituted an "Illegality," allowing IIF to declare an "Early Termination Date" as to the transactions having settlement dates falling during the moratorium period (the affected transactions). IIF gave NRB notice of the affected transactions, statements as to the amounts due and instructions to pay into an account in New York. As each of the successive settlement dates of September 15, October 5, November 16 and December 15, 1998 passed without payment, IIF notified NRB, instructed it as to the amount due and directed it to pay said amounts into an account in New York. NRB made no payments under the forward currency agreements, resulting in a debt of more than $110 million.

IIF brought an action in Supreme Court, alleging breach of the currency exchange agreements. NRB filed an answer, with 11 affirmative defenses. Supreme Court granted partial summary judgment to IIF as to liability. In so deciding, the court construed the confirmations under both New York law and English law and found that NRB was in breach under either law. In addition, Supreme Court found unavailing NRB's argument that because the confirmations were not executed by NRB's accountant general, they were null and void under Russian law. The court reasoned that none of the confirmations selected Russian law as the applicable law. The court also denied NRB's cross motion to dismiss on its affirmative defenses for insufficiency of service of process, lack of subject matter jurisdiction, lack of personal jurisdiction and unconstitutionality, and referred the matter to a referee for calculation of damages. Supreme Court thereafter accepted the referee's recommendations on damages and entered judgment. NRB appealed.

The Appellate Division unanimously affirmed, reasoning that while the parties would not be bound by choice of law or forum provisions if the agreements were otherwise invalid, under traditional choice of law principles, New York law was the appropriate law to be applied, as payments were to be made in United States dollars at a New York bank, and New York had a "paramount interest, as an international clearinghouse and market place for a plethora of international transactions denominated in United States dollars, in ensuring orderly dollar currency transactions * * *" (279 AD2d 408, 408-409 [2001] [citations and quotation marks omitted]). The Court additionally found that under New York law, the agreements were valid based on apparent authority and ratification. Finally, the Court found that New York had personal jurisdiction over NRB because New York "bore a rational relationship to the transactions from the outset," as six of the confirmations made a New York forum selection; in all instances, payments were to be made in New York by virtue of either an express provision or subsequent designation; and, in all instances, payments were to be made in United States dollars on a business day defined as any day on which New York banks were open (see id. at 409).

We granted NRB leave to appeal, and we now affirm.

Choice of Law

On this appeal, NRB contends, as it did below, that there is a threshold question of whether the agreements are valid even though they were not signed by the accountant general, who is, according to NRB, the only corporate officer with authority to bind the bank.³ NRB reasons, therefore, that a threshold choice of law analysis must be made as to this agency question. NRB argues that Russian law should be applied because it is the state with the most significant relationship to the transaction.

New York choice of law principles require a court to apply the law of the state with the most significant relationship with the particular issue in conflict (see Zeevi & Sons v Grindlays Bank, 37 NY2d 220, 226-227 [1975], cert denied 423 US 866 ["(T)he rule which has evolved clearly in our most recent decisions is that the law of the jurisdiction having the greatest interest in the litigation will be applied and that the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict" (internal citations and quotations omitted)]; Restatement [Second] of Conflict of Laws § 188 [1]; § 292 [1]).

NRB is a Russian bank with offices in Moscow, and NRB's agent faxed the confirmations from Russia to IIF in the Netherlands. But New York has the paramount interest because of the nature of the confirmation contracts. We note that parties such as IIF and NRB enter into forward currency exchanges to hedge against their exposure, in the event of a ruble devaluation, on investments in Russian domestic debt or in other investments involving future payments in rubles. Because the essence of the contract is an exchange pegged to the value of the United States dollar, the parties agreed that any...