Unit 12 - Agrobusiness

Agrobusiness, Inc. ("Agrobusiness") is an American company with worldwide interests in the production, processing and sale of fresh fruit and vegetables. In 1983, Agrobusiness decided to establish a cantaloupe growing operation in the small Central American nation of Rien for export of fruit to the United States. To facilitate matters, Agrobusiness decided to enter into a joint venture with a Rien landowner ("Landowner") to grow cantaloupes on a thousand acre plantation ("Plantation") located in the poor and backward Rien province of Arme. After receiving all necessary foreign investment approvals from the Rien Ministry of Development, the joint venture was incorporated in the form of Cantalopa S.A., a limited liability company created under Rien Law.

Landowner then contributed the Plantation and Agrobusiness contributed working capital to the newly formed entity in exchange for its stock, so that they each had a 50% equity interest in Cantalopa S.A. Unfortunately, the export market was not ripe for such cantaloupe production and over the course of the next several years Cantalopa S.A. lost money.

By 1986, things were so bad that the joint venture ceased planting and harvesting the cantaloupe crop. Landowner wanted out of the joint venture. Agrobusiness had decided separately to start over again by growing pineapples on a larger plantation elsewhere in Rien. Agrobusiness had already invested a small amount of money in planning the new venture and had approached the Rien Ministry of Development about its pineapple farming plans ("Pineapple Project"), but as yet the Pineapple Project had not received requisite ministerial approvals under applicable Rien foreign investment regulations.

Landowner pressed Agrobusiness to buy out his interest in Cantalopa S.A. at what Agrobusiness considered an excessive price. Eventually, the negotiations broke down due to the parties' differing views of an acceptable price for Landowner's interest in the joint venture. At this point, Landowner went to the Rien government to lobby for help in dealing with the oppressive gringo multinational corporation.

As luck would have it, Landowner was distantly related to Rien's president ("El Presidente"; much as in Charleston, everyone is distantly related in such a small country). At El Presidente's urging, in 1988 the Rien legislature enacted a law providing for the uncompensated taking of idle land parcels of more than 900 and less than 1200 acres located in Arme province for distribution to landless peasants in one-acre lots as part of an agrarian reform program ("Land Redistribution Act"). The law was neutral on its face and not directed against foreign investment, but it just so happened that by its terms only the Plantation would qualify for taking under the Land Redistribution Act.

Through its local managers in Rien, Agrobusiness got wind of the Land Redistribution Act and its background in Landowner's contacts with El Presidente. One month ago, Agrobusiness' American executives contacted El Presidente to explore Rien's intentions, but El Presidente said he could not talk about "whether the Plantation will be taken under the Land Redistribution Act" (as a governmental matter under current consideration) and besides "Agrobusiness should first get its own house in order by working things out with Landowner." Further, if Agrobusiness cannot work things out with Landowner, El Presidente expresses doubts that Agrobusiness "has the proper cooperative spirit" that would ensure ministerial approvals of the Pineapple Project.
Between the lines, Agrobusiness has gotten the message that if they do not reach agreement with Landowner: (1) the Plantation will be seized under the Land Distribution Act, and (2) they can forget about receiving governmental approval for the Pineapple Project.

You are Agrobusiness' legal counsel and have been asked to explain their options and the international law background for the decisions facing them in Rien in connection with whether they should buy out Landowner's interest in Cantalopa S.A. In particular, please address the issues (1) whether seizure of the Plantation under the Land Distribution Act would violate international law, and (2) whether refusal to issue governmental approvals for the Pineapple Project would violate international law (assuming, of course, for purposes of "(1)" and "(2)" that Agrobusiness does not reach agreement with Landowner about buying him out).