Topic: POLITICAL RISK

MULTIPLE CHOICE QUESTIONS

I.
Statement I. One of the pledges made by the Philippines and Brazil
include mutual cooperation agreements in the fields of bio-energy and
agriculture.
Statement II. Political risk may occur in host countries or result from
changes in the international environment.
Statement III. Adopting non contractual mitigation strategies like
engagement with local governments, communities, and NGOs, as well
as possible joint ventures with local enterprises could reduce the
impact of political risk.
Statement IV. Non-honoring of sovereign financial obligations is not
an example of political risk.
a) Only statement II is correct.
b) All statements are correct except statement IV.
c) All statements are correct.
d) All Statements are false.

ANSWER: b) All statements are correct except statement IV.

II.
Statement I. As shown in the MIGA WIPR REPORT, PRI is the most
effective means of mitigating political risks.

Statement II. The Philippines trade relation with Brazil is only on

agriculture and bio energy.
Statement III. The insurance industrys narrower definition of political
risk usually includes restrictions on currency convertibility and transfer.
Statement IV. Breach of contract by a host government is not an
example of political risk.
a) Statements I and III are correct
b) Statement I and II are correct
c) All statements are true
d) All Statements are false

ANSWER: a) Statements I and III are correct

III.
A kind of contractual agreement that designates the court and
location where the parties would like to have their legal dispute
decided is known as _____________________.
a)
b)
c)
d)

forum shoppin clause

court selection clause
forum selection clause
court arbitration agreement

Answer: c) forum selection clause

IV.
The insurance industry uses a narrower definition of political risk,
which includes all but one:

a)
b)
c)
d)

restrictions on currency convertibility and transfer

expropriation
switch-trading
breach of contract by a host government

Answer: c) switch-trading

V.
Which is not true about Bilateral Investment Treaties (BITs)?
a) BITs encourage investment in developing countries through the
mitigation of non commercial investment barriers.
b) BITs are another avenue by which countries safeguard foreign
investment from expropriation and other investment risks.
c) BITs provide that a host country must not discriminate against
foreign investors and agree to pay prompt, adequate and
effective compensation case of expropriation.
d) BITs provide for alternative dispute resolution by way of
arbitration.

Answer: a) Encourage investment in developing countries

through the mitigation of non commercial investment barriers

VI.
An entity established as part of World Bank which provides
insurance against expropriation, war, and other noncommercial risks
and offers investment guarantees for foreign direct investments, as
well as licensing, franchising, and transfers or technology.
a)
b)
c)
d)

Foreign Credit Insurance Association (FCIA)

Multilateral Investment Guarantee Agency (MIGA)
Overseas Private Investment Corporation (OPIC)
Political Risk Insurance (PRI)

Answer: b) Multilateral Investment Guarantee Agency (MIGA)

ESSAY QUESTIONS
VII.
Justify the following statement: FDI is often more vulnerable to
political risk than are other types of cross-border capital flows.
Answer:
Political (or noncommercial) risk facing foreign direct
investors is the probability of disruption of Multinational
enterprises (MNEs) operations by political forces or events
originating in either host countries or home countries, or
resulting from changes in the international environment. In
host countries, political risk typically refers not only to
uncertainty over governments and political institutions
actions that affect foreign direct investors, but also to
dynamics that could result in civil disturbance, terrorism, civil
wars, and cross. Because of its longer-term nature and assets
on the ground, FDI is often more vulnerable to political risk
than are other types of cross-border capital flows.
(http://www.ifc.org/wps/wcm/connect/66a39f004f9f2e608e
07ee0098cb14b9/2aWBG_risk+in+FCAS_2010.pdf?
MOD=AJPERES)

VIII.
The management of a Philippine company meets with the
government officials of the foreign country to discuss the companys
intentions of conducting foreign direct investments. After the
negotiation, they eventually came up with a formal concession
agreement outlining the duties of the foreign government and the
rights of the company. With the changes in the political set up in the
host country, particularly the overthrow of the said government, may
the new government of the host country validly nullify unilaterally the
concessions granted by its former government to the Philippine
company?

Answer:
No. The new government of the host country cannot
unilaterally nullify the concessions granted by the former
government without being in breach of contract which would
entitle the Philippine company compensation for the loss or
damage it may or might have suffered. State is bound by
engagements entered into by government that have ceased to
exist in consonance with the principle of continuity of states.

IX.
Pamelawan Express is a new company in Cebu engaged in the
business of conversion of fuelled engines to water-fuelled cars. After a
short span of time, it has become a successful company and has
opened several branches in the Philippines. Soon thereafter, it became
an international business company and has expanded its operation
worldwide. Having been aware of the political risks involved in foreign
investments, it obtained an insurance contract with XYZ, a private
insurance company, which offers political risk insurance coverage.
Years later, the New Zealand government cancelled its bidding contract
with Pamelawan Express due to alleged overpricing.
XYZ indemnified Pamelawan Express for the losses in accordance
with their insurance contract, however, Pamelawan Express still seeks
compensation from the New Zealand government. Can Pamelawan
Express still collect from the New Zealand government after receiving
indemnification from XYZ?
Answer:
No. Pamelawan Express cannot anymore collect from the
New Zealand government having been indemnified by XYZ for
the losses in accordance with their insurance contract. Doing
otherwise would constitute double compensation, which would

in effect would profit Pamelawan Express from the loss or

injury, an act contrary to the purpose of insurance contracts.

X.
Management Computer Controls, Inc. (known as "MC 2"), is a
Tennessee corporation in the business of selling software. Charles Perry
Construction, Inc., a Florida corporation, entered into two contracts
with MC 2 to buy software designed to perform estimating and
accounting functions for construction firms.
Each contract was printed on a standard order form containing a
paragraph that referred to a license agreement. The license agreement
included a choice-of-forum and choice-of-law provision: "Agreement is
to be interpreted and construed according to the laws of the State of
Tennessee. Any action, either by you or MC 2, arising out of this
Agreement shall be initiated and prosecuted in the Court of Shelby
County, Tennessee, and nowhere else." Each of the software packages
arrived with the license agreement affixed to the outside of the box.
Additionally, the boxes were sealed with an orange sticker bearing the
following warning: "By opening this packet, you indicate your
acceptance of the MC 2 license agreement."
Alleging that the software was not suitable for use with Windows
NT, Perry filed a suit against MC 2 in a Florida state court. MC 2 filed a
motion to dismiss the complaint on the ground that the suit should be
heard in Tennessee. [Management Computer Controls, Inc. v. Charles
Perry Construction, Inc., 743 So.2d 627 (Fla.App. 1 Dist. 1999)]
How should the court rule? Why?

Answer :
The parties to a contract may include a provision that
establishes venue in a particular forum in the event of a
contract dispute. (See Mercedes Homes, Inc. v. Osborne ).

Whether a venue clause is binding on the parties depends on

its language. If the clause merely authorizes the filing of the
suit in a particular forum it is said to be permissive and it is
not binding. (See Granados Quinones v. Swiss Bank Corp.
(Overseas)).A permissive forum selection clause may provide
an alternative to the statutory choices of venue but it does not
require the plaintiff to file the suit in the forum referred to in
the agreement. In contrast, a venue clause is said to be
mandatory if it states that any litigation must be initiated in a
specified forum. (See Granados Quinones,). If the venue clause
is phrased in mandatory terms, each party has a contractual
right to demand that the case be litigated in the forum
referred to in the contract.
We have no doubt that the forum selection clause at issue
in this case is mandatory. The license agreement states in
material part, "Any action, either by you or MC2, arising out of
this Agreement shall be initiated and prosecuted in the Court
of Shelby County, Tennessee, and nowhere else." (emphasis
supplied). By these terms, the parties have expressed their
intent to limit venue to one particular location. The sales
contracts were executed on an order form that refers to the
license agreement and plainly expresses the parties' intent to
be bound by its terms. Moreover, Perry agreed to the terms of
the license agreement by breaking the seal on the software."

GROUP NO. 3
Bilocura, Cristine
Colipano, Joey Ann
Mantos, John Dexter
Sarausad, Gammycel
Sinugbuhan, Hans Daniel

Yballe, Nichole Angeli