South-Western Legal Studies in Business

Current Governments Bound by Actions of Predecessor Government Agencies
Description Appeals court held that under international law, governments are generally bound by contracts, including those requiring binding arbitration of disputes that were lawfully signed by agencies of the governments that controlled the country prior to the current government.
Topic International Law
Key Words Foreign Arbitral Awards; Recognition; Enforcement
C A S E   S U M M A R Y
Facts Noga, a French company, sold hundreds of millions of dollars worth of goods, much of it on credit, to various agencies of the Russian government. The first deals were made with the Union of Soviet Socialist Republics (USSR), then, after the collapse of that government in 1991, with the Federative Socialist Soviet Republic of Russia (RSFSR), the successor government. The agreements called for binding arbitration of any disputes at the Chamber of Commerce of Stockholm, Sweden, under Swiss law, and subject to enforcement in court in New York. Following failure to make payments, the arbitrator awarded Noga $275 million, which Russia refused to pay. Noga brought suit in federal court in New York to enforce the arbitration award. The district court agreed with the Russians that the current government of Russia was not bound by the agreement signed by an agency of the previous government of Russia. Noga appealed.
Decision

Vacated and remanded. The party opposing confirmation of a foreign arbitral award bears the burden of establishing that award should not be honored under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. No meaningful legal distinction can be drawn between a sovereign, the government of Russia today, and one of its political organs that signed the loan agreements under the previous government of Russia. Under international law, the conduct of any state agency shall be considered an act of that state. The purpose of the loan was to allow the government to buy needed food for the Russian people. Paying for such necessities is a proper function of government.

Citation Compagnie Noga D’Importation et D’Exportation S.A. v. The Russian Federation

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