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The Foreign Sovereign Immunities Act and Public Debt Litigation: Some Fifteen Years Later

  • Georges R. Delaume (a1) (a2)

Extract

The decision of the United States Supreme Court in Republic of Argentina v. Weltover, Inc. is an invitation to reassess the impact of the Foreign Sovereign Immunities Act (FSIA) upon public debt litigation. In contrast with other activities of foreign states, which have been the object of extensive and continuing litigation, barely two dozen cases involving public debt disputes have been reported since the FSIA took effect. Whether this situation is attributable to the care with which transnational loan documents are usually drafted or to some other reasons, including possibly the contemporary tendency to rely on debt rescheduling as a means of remedying difficult situations, is an interesting matter of speculation. Whatever the explanation for the relatively limited number of public debt cases, Weltover can be expected to have a decisive impact upon future litigation.

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1 112 S.Ct. 2160 (1992), 31 ILM 1220 (1992), summarized in 86 AJIL 820 (1992). Another important decision of the U.S. Supreme Court, which does not concern the financial field, is Saudi Arabia v. Nelson, 113 S.Ct. 1471 (1993). For a comment, see Monroe Leigh, 87 AJIL 442 (1993).

2 28 U.S.C. §§1330–1332, 1391, 1441, 1602–1611 (1988).

3 See Georges R. Delaume, Public Debt and Sovereign Immunity: The Foreign Sovereign Immunities Act of 1976, 71 AJIL 399 (1977).

4 Weltover, Inc. v. Republic of Argentina, 753 F.Supp. 1201 (S.D.N.Y. 1991).

5 941 F.2d 145 (2d Cir. 1991).

6 112 S.Ct. 2160 (1992).

7 Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480 (1983).

8 See “Jurisdiction under the commercial exception,” p. 260 infra.

9 112 S.Ct. at 2165.

10 See Georges R. Delaume, Public Debt and Sovereign Immunity: Some Considerations Pertinent to S. 566, 67 AJIL 745 (1973), and Public Debt and Sovereign Immunity Revisited: Some Considerations Pertinent to H.R. 11315, 70 AJIL 529 (1976).

11 This provision was patterned after §3(3) of the United Kingdom State Immunity Act 1978, ch. 33, reprinted in 17 ILM 1123 (1978), which includes in the definition of commercial transaction: “(b) any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation.” See Mark B. Feldman, Amending the Foreign Sovereign Immunities Act: The ABA Position, 20 Int'l Law. 1289, 1290–91 (1986).

12 See Peter D. Trooboff, Foreign State Immunity: Emerging Consensus on Principles, 200 Recueil des Cours 235, 310 (1986 V).

13 Jackson v. People's Republic of China, 596 F.Supp. 386 (N.D. Ala. 1984), aff'd, 794 F.2d 1490 (11th Cir.), rek'gdenied, 801 F.2d 404 (11th Cir. 1986), cert, denied, 480 U.S. 917 (1987). The case concerned an action brought against the PRC by certain holders of bonds issued in 1911 by the Imperial Chinese Government. It was initially held that the issuance of the bonds constituted a commercial activity and that the PRC, as successor Government of China, was not entitled to immunity. However, upon reconsideration, following a statement of interest by the United States, see Memorandum of Opinion (Feb. 27, 1984), 23 ILM 402 (1984), the earlier judgment was set aside and the case dismissed on the ground that the FSIA did not apply retrospectively.

This last conclusion was also reached in the Carl Marks and Oliver cases cited in note 14 infra.

14 Carl Marks & Co. v. Union of Soviet Socialist Republics, 841 F.2d 26 (2d Cir.), cert, denied, 487 U.S. 1219 (1988); Oliver v. Czechoslovak Socialist Republic, 715 F.Supp. 1228 (S.D.N.Y. 1989).

15 Schmidt v. Polish People's Republic, 579 F.Supp. 23 (S.D.N.Y. 1984); Shapiro v. Republic of Bolivia, 930 F.2d 1013 (2d Cir. 1991).

16 Allied Bank Int'l v. Banco Credito Agricola de Cartago, 566 F.Supp. 1440 (S.D.N.Y. 1983), aff'd, 733 F.2d 23 (2d Cir. 1984), vacated and rev'd on rehearing, 757 F.2d 516 (2d Cir.), cert, dismissed, 473 U.S. 934 (1985); Braka v. Bancomer, 762 F.2d 222 (2d Cir. 1985); Callejo v. Bancomer, 764 F.2d 1101 (5th Cir. 1985); West v. Multibanco Comermex, S.A., 807 F.2d 820 (9th Cir.), cert, denied, 482 U.S. 906 (1987).

17 112 S.Ct. at 2167–68 (citation omitted). The Court also said:

The commercial character of the Bonods is confirmed by the fact that they are in almost all respects garden-variety debt instruments: they may be held by private parties; they are negotiable and may be traded on the international market (except in Argentina); and they promise a future stream of cash income.

Id. at 2166.

18 Section-by-Section Analysis, comment on §1603(d), 15 ILM 102, 105 (1976).

19 Shapiro v. Republic of Bolivia, 930 F.2d 1013 (2d Cir. 1991). The notes had been issued to finance the purchase of military aircraft in the United States. The agent had undertaken to return the notes in the event that the transaction could not be completed, which was the case since the U.S. authorities refused to approve the sale. However, the agent failed to return certain notes, which found their way to the United States. Having placed no restriction on the negotiability of the notes, Bolivia was subject to the jurisdiction of U.S. courts for the purpose of enforcing the notes.

20 Wolf v. Banco Nacional de Mexico, S.A., 739 F.2d 1458 (9th Cir. 1984), cert, denied, 469 U.S. 1108 (1985); West v. Multibanco Comermex, S.A., 807 F.2d 820 (9th Cir. 1987).

21 See notes 13 and 14 supra.

22 See Callejo v. Bancomer, S.A., 764 F.2d 1101 (5th Cir. 1985); Braka v. Bancomer, 762 F.2d 222 (2d Cir. 1985).

23 579 F.Supp. 23 (S.D.N.Y.), aff'd, 742 F.2d 67 (2d Cir. 1984). Note that, notwithstanding the fact that jurisdiction was upheld, the action failed on the ground that it was barred by the statute of limitations.

24 Clearly, the court was not convinced that the plaintiffs' concession regarding the nonapplication of clause 1 was correct. Said the court:

Despite plaintiffs' concession, it appears to the Court that in light of FSIA's definition of “commercial activity”, defendant has carried on commercial activity in the United States within the meaning of clause [1], Commercial activity is defined as “either a regular course of commercial conduct or a particular commercial transaction or act …” 28 U.S.C. §1603(d). Thus, the financial “transaction” which took place in the United States is itself “commercial activity” in the United States. In fact, given the Act's expansive definition, which deems a single commercial act to be “commercial activity”, it would seem that in the great majority of cases in which there was an act within the United States sufficient to meet the requirements of clause [2], that same act would qualify as “commercial activity carried on in the United States” under clause [1]. The House Report noted that the drafters of FSIA were aware that most clause [2] cases might also satisfy clause [1]. House Report at 6618.

579 F.Supp. at 27 n.10.

The court also referred to Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 311 n.30 (2d Cir. 1981), where it was noted that,

[g]iven Congress's broad approach in the language of § 1605(a)(2), it is not at all improbable that a suit could be brought under more than one clause. See House Report at 6618 (stating that all cases covered by second clause might also come within first clause), 1973 Hearings at 42 (State Dep't Section-by-Section Analysis) (stating that § 1605(a)(2) covers all cases with an act or direct effect in United States).

25 579 F.Supp. at 27. The court referred again to Texas Trading, 647 F.2d 300 (2d Cir. 1981), to support this conclusion.

26 Section-by-Section Analysis, supra note 18, comment on §§1330(b), 1605(a)(2), 15 ILM at 103, 107.

27 Restatement (Second) of the Foreign Relations Law of the United States §18(b)(ii) and (iii) (1965).

28 Texas Trading, 647 F.2d at 311.

29 112 S.Ct. at 2168.

30 Texas Trading, 647 F.2d at 311.

31 L'Europeenne de Banque v. La Republica de Venezuela, 700 F.Supp. 114 (S.D.N.Y. 1988). Jurisdiction was denied, however, for lack of personal jurisdiction over Venezuela.

32 As in Weltover.

33 See the Schmidt case, 579 F.Supp. 23 (S.D.N.Y. 1984) (action dismissed because barred by the statute of limitations); the Shapiro case, 930 F.2d 1013 (2d Cir. 1991).

34 See the Allied Bank, Braka, Callejo and West cases, all cited in note 16 supra.

35 941 F.2dat 153.

36 Id.

37 In Allied Bank, 757 F.2d at 521–22, the court said:

The United States has an interest in maintaining New York's status as one of the foremost commercial centers in the world. Further, New York is the international clearing center for United States dollars. In addition to other international activities, United States banks lend billions of dollars to foreign debtors each year. The United States has an interest in ensuring that creditors entitled to payment in the United States in United States dollars under contracts subject to the jurisdiction of United States courts may assume that, except under the most extraordinary circumstances, their rights will be determined in accordance with recognized principles of contract law.

See also Shapiro v. Republic of Bolivia, 930 F.2d 1013, 1019 (2d Cir. 1991).

38 941 F.2d at 153 (citing Allied Bank, 757 F.2d at 521–22).

39 112 S.Ct. at 2168.

40 Id. (quoting 941 F.2d at 152).

41 Id. at 2169 (quoting 461 U.S. at 489).

42 As stated in Texas Trading, 647 F.2d at 313:

Subsequent to the determination of subject matter jurisdiction is the issue of personal jurisdiction. The statutory aspects of the analysis are quite simple. Subsection 1330(b) provides for personal jurisdiction over the foreign state as to any claim the district court has power to hear under § 1330(a), so long as service has been made under §1608.

Or, in other words, for the purposes of the FSIA: “subject matter jurisdiction plus service of process equals personal jurisdiction.” Id. at 308.

43 Id. at 308. Note that in Weltover, the Supreme Court, while finding that the due process requirements were satisfied, “assumed” but did not “decide” that a foreign state is a “person” for purposes of the Due Process Clause. See 112 S.Ct. at 2169.

44 In the absence of any other jurisdictional contact, the place of payment may not be sufficient to confer personal jurisdiction. See L'Europeenne de Banque v. La Republica de Venezuela, 700 F.Supp. 114 (S.D.N.Y. 1988), and the cases cited at 125. Compare International Hous. Ltd. v. Rafidain Bank Iraq, 715 F.Supp. 1112 (S.D.N.Y. 1989), appeal dismissed, 893 F.2d (2d Cir. 1989), in which an action brought against an Iraqi government-owned bank by a Cayman Island corporation was dismissed when it was shown that the only contact of the defendant with New York was the payment by a New York bank of an overdraft guarantee, and payment in New York was not contractually required and had been made as a matter of convenience.

45 That was the case in Weltover, Schmidt, 579 F.Supp. 23 (S.D.N.Y. 1984), Callejo v. Bancomer, 764 F.2d 1101 (5th Cir. 1985), and Shapiro, 930 F.2d 1013 (2d Cir. 1991).

46 700 F.Supp. 114 (S.D.N.Y. 1988).

47 Most of the banks were incorporated outside the United States. One American bank had succeeded one of the original alien corporations as a member of the consortium.

48 Under this agreement, the consortium deposited U.S. dollars in the bank, creating in effect a revolving credit.

49 Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 490 (1983).

50 See, e.g., Texas Trading, 647 F.2d at 315, where the court found that a U.S. forum was “not duly inconvenient for the defendants”; Gibbons v. Udaras na Gaeltachta, 549 F.Supp. 1094 (S.D.N.Y. 1982). See also Proyecfin de Venezuela, S.A. v. Banco Industrial de Venezuela, 760 F.2d 390 (2d Cir. 1985), and Blanco v. Banco Industrial de Venezuela, 997 F.2d 974 (2d Cir. 1993), which are discussed below in another context. See text at and notes 97–105 infra.

51 616 F.Supp. 301 (S.D.N.Y. 1985).

52 Id. at 305.

53 Act of July 19, 1984, ch. 421 (codified in N.Y. Gen. Oblig. Law §§5-1401, 5-1402, and in N.Y. Civ. Prac. L. & R., Rule 327(b)).

54 By way of examples, it may be recalled that this was the case in Banco Metropolitano, 616 F.Supp. 301 (S.D.N.Y. 1985) (two promissory notes totaling close to $2 million) and Proyecfin, 760 F.2d 390 (2d Cir. 1985) ($43 million loan).

55 See George Weisz, Nancy Schwarzkopf & Mimi Panitch, Selected Issues in Sovereign Debt Litigation, 12 U. Pa. J. Int'l Bus. L. 1, 22–25 (1991).

56 28 U.S.C. § 1605(a)(6) (1988). See George Kahale III, New Legislation in the United States Facilitates Enforcement of Arbitral Agreements and Awards against Foreign States, J. Int'l Arb., No. 2, 1989, at 57.

57 507 F.Supp. 311 (D.D.C. 1980).

58 659 F.Supp. 606 (D.D.C. 1987).

59 Apr. 18, 1961, 23 UST 3227, 500 UNTS 95.

60 659 F.Supp. at 610.

61 Id.

62 See, e.g., in (1) Germany, Judgment of Dec. 13, 1977, Const. Ct., 46 Bundesverfassungsgericht 342, 65 I.L.R. 146, in the case of the Philippine Embassy bank account; (2) the United Kingdom, Alcorn Ltd. v. Republic of Colombia, [1984] 2 All E.R. 6, [1984] 2 W.L.R. 750 (H.L.); (3) Austria, Judgment of Apr. 3, 1986, Sup. Ct., Republic of “A” Embassy bank account case, 77 I.L.R. 489; and (4) Italy, Judgment of May 4, 1989, Cass. (Banamar Capizzi v. Ambasciata della Republica Democra-tica Popolare di Algeria), 72 Rivista di Diritto Internazionale 416 (1989), summarized in 84 AJIL 573 (1990).

See also the Draft Articles on Jurisdictional Immunities of States and Their Property, adopted by the International Law Commission in 1991, in Report of the International Law Commission on the work of its forty-third session, UN GAOR, 46th Sess., Supp. No. 10, at 11, UN Doc. A/46/10 (1991), 30 ILM 1563 (1991). Article 19(l)(a) provides that bank accounts used or intended to be used for the purposes of a diplomatic or other mission shall be deemed to be used for noncommercial purposes.

63 See “Measures of execution,” p. 269 infra.

64 See note 56 supra.

65 See Morgan Guaranty Trust Co. of N.Y. v. Republic of Palau, 657 F.Supp. 1475 (S.D.N.Y. 1987), 693 F.Supp. 1479 (S.D.N.Y.),. 702 F.Supp. 60 (S.D.N.Y. 1988), 924 F.2d 1237 (2d Cir. 1991), discussed in text at and notes 89–96 infra.

66 As to Europe, see cases cited in Georges R. Delaume, Transnational Contracts, ch. XI, at 55–56 (1990).

67 Such is the case with the United States and most Western European countries.

68 729 F.Supp. 936 (S.D.N.Y. 1989).

69 Id. at 940.

70 28 U.S.C. §§1330(a), 1605(a)(1) (1988). In this connection, the court referred to Proyecfin de Venezuela, S.A. v. Banco Industrial de Venezuela, 760 F.2d 390 (2d Cir. 1985), as to which see text at note 97 infra. However, there is a significant difference between the two cases. In Proyecfin, the contractual waiver made specific reference to the state and federal courts in New York and to the FSIA. No such reference appeared in the instant case. Therefore, the question might have been raised whether a broad waiver of jurisdictional immunity, of potential worldwide application, would be sufficient to found the jurisdiction of “any court,” including a U.S. court, in which action might be brought. This is an issue that the court did not have to decide since Congo did not dispute its waiver of immunity.

71 Among other grounds for nonrecognition, §5304 of the N.Y. CPLR, which enacts §4 of the Uniform Money-Judgments Recognition Act, 13 U.L.A. 261 (1986), refers to the cases in which:

(b)2. The defendant in the proceedings in the foreign court did not receive notice of the proceedings in sufficient time to enable him to defend.

3. The judgment was obtained by fraud.

4. The cause of action on which the judgment is based is repugnant to the public policy of this state.

72 28 U.S.C. §1610(a), (b) (1988). It should be recalled that, aside from issues of immunity, the American courts are not in agreement on the question whether pre-award conservatory measures, including attachment, are permissible under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 UST 2517, 330 UNTS 3; see DELAUME, supra note 66, ch. XIII, at 77–81 (1990). A waiver of immunity would solve both the jurisdictional issue and the issue of prejudgment attachment under the FSIA.

73 See Atwood Turnkey Drilling, Inc. v. Petroleo Brasileiro, 875 F.2d 1174 (5th Cir. 1989). An American company had been employed by Petrobras, the national oil company of Brazil, to drill oil wells off the coast of Brazil. As security for the sums due to the contractor, Petrobras furnished a letter of credit issued by an American bank and guaranteed by the Export-Import Bank of the United States. The letter of credit provided:

The Borrower … expressly and irrevocably waives any such right of immunity (including any immunity from the jurisdiction of any court or from any execution or attachment in aid of execution prior to judgment or otherwise) or claim thereto which may now or hereafter exist, and agrees not to assert any such right or claim in any such action or proceeding, whether in the United States or otherwise.

Id. at 1177.

The American contractor sued Petrobras for breach of contract and sought an injunction to maintain the letter of credit and the guarantee. The injunction was granted on the ground that the waiver applied and Petrobras was precluded from asserting sovereign immunity as a defense.

74 Section-by-Section Analysis, supra note 18, 15 ILM at 116.

75 See John R. Stevenson, Jeffrey F. Browne & Lori Fisler Damrosch, United States Law of Sovereign Immunity 69–70 (1983); Ernest T. Patrikis, Foreign Central Bank Property: Immunity from Attachment in the United States, 1982 U. III. L. Rev. 265, 273, 277.

76 Charles N. Brower, F. Walter Bistline, Jr., & George W. Loomis, Jr., The Foreign Sovereign Immunities Act of 1976 in Practice, 73 AJIL 200, 209 (1979); Christoph Schreuer, State Immunity: Some Recent Developments 165 (1988).

77 The issue was not discussed in Libra Bank v. Banco Nacional de Costa Rica, 676 F.2d 47 (2d Cir. 1982), which is discussed in the text at notes 106-09. This case was squarely decided on the basis of 11610(d).

The issue was raised, but avoided, in Banque Compafina v. Banco de Guatemala, 583 F.Supp. 320 (S.D.N.Y. 1984). In that case, Compafina, a Swiss banking corporation, holder of notes issued by instrumentalities of Guatemala and guaranteed by the Central Bank of Guatemala, sought to attach Banco's property in a number of New York banking institutions. Banco pleaded immunity, arguing that under §1611(b)(1) it could not waive immunity from prejudgment attachment. Plaintiff argued that Banco had explicitly waived its immunity. The court held that it need not decide the “difficult question” of the proper construction of §1611(b)(1), since the waivers of immunity in the notes guaranteed by Banco related only to immunity from jurisdiction. In the circumstances of this case, this appears to have been the correct result since the waiver read as follows:

The Borrower, the Government of the Republic of Guatemala and Banco de Guatemala expressly. waive any presentation, protest and notification of failure to pay or notice of refusal for payment of this promissory note; similarly, they hereby waive any right or immunity barring claims against same, and the Borrower and Banco de Guatemala waive competent jurisdiction corresponding to same and submit to the non-exclusive jurisdiction of any State or Federal Court of New York, sitting in New York, relative to any action or proceeding deriving from this promissory note or related to same, or to the jurisdiction of the courts of the Republic of Guatemala, at the sole discretion of the beneficiary. This promissory note shall be governed and interpreted pursuant to the laws of the State of New York.

Id. at 324.

78 823 F.Supp. 1106 (S.D.N.Y. 1993).

79 This, however, was not the end of the matter since the court found that, although certain accounts were clearly held by the bank for its own account, other accounts were “mixed” in the sense that they also included funds held by the bank for the account of its customers. This factor raised the question whether the court should follow the reasoning of the Birch court, 507 F.Supp. 311 (D.D.C. 1980), and hold the accounts subject to attachment, or whether it should take the restrictive approach adopted by the Liberian Eastern Timber court, 659 F.Supp. 606 (D.D.C. 1987), and immunize such funds from attachment.

The court refused to follow these “precedents” because it was faced with the unusual situation where the parties were able to present information enabling the court to distinguish between funds held in connection with central bank activities and funds not so used. The court held that the “better course … [was] to apply the distinction, instead of finding the account either entirely immune or entirely not immune.” 823 F.Supp. at 1114.

80 Weston Compagnie de Finance et d'Investissement, S.A. v. Republica del Ecuador, 1993 U.S. Dist. lexis 9531, at *2 (S.D.N.Y. July 14, 1993). Compare the Libra Bank case, 676 F.2d 47 (2d Cir. 1982).

81 See, e.g., the following provision:

To the extent the Bank may in any jurisdiction claim for itself or its assets immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or legal process or to the extent that in any such jurisdiction there may be attributed to it or its assets such immunity (whether or not claimed) the Bank hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction and, in particular, to the extent, inter alia, that in any proceedings taken in New York the foregoing waiver of immunity shall have irrevocable effect for the purposes of the United States Foreign Sovereign Immunities Act in any proceedings to which such Act is applicable.

82 Judgment of June 16, 1955, Trib. civ. Seine (Passelaigues v. Banque de Norvège), reprinted in 1957 ICJ Pleadings (1 Certain Norwegian Loans) 81–84; and Judgment of Mar. 8, 1956, Trib. civ. Seine, reprinted in id. at 205 (validating attachments, made by holders of bonds issued by the Mortgage Bank of Norway, of funds held in France by that bank).

83 Judgment of Dec. 2, 1975, Dist. Ct. Frankfurt (Non-resident Petitioner v. Central Bank of Nigeria), 1976 Neue Juristische Wochenschrift [N.J.W.] 1004, 16 ILM 501 (1977) (validating the attachment of funds held in Germany by the Central Bank of Nigeria in connection with commercial operations (issuance of, and refusal to honor, letters of credit)).

84 Judgment of Nov. 15, 1978, Trib. fed. (Banque Centrale de la République de Turquie v. Weston Compagnie de Finance et dTnvestissement), ATF 104 la 367, 1980 JdT 108 (validating the attachment made by a creditor of the Turkish central bank, following nonpayment of monies due under a financial arrangement, of funds held in Switzerland by the central bank).

85 Before the Act, the English rule was the same as those obtaining on the continent. See Trendtex Trading Corp. Ltd. v. Central Bank of Nigeria, [1977] 2 W.L.R. 356, [1977] 1 All E.R. 881, reprintedin 16 ILM 471 (1977). Section 14(4) of the SIA, supra note 11, now provides that the property of a state's central bank should not be regarded “as used or intended for use for commercial purposes.” This wording may imply that, in all cases, a central bank's assets would be protected against execution. See F. A. Mann, The State Immunity Act of 1978, 50 Brit. Y.B. Int'l L. 43, 60–62 (1979).

However, the answer to the problem may reside in express waivers of immunity since, under the SIA (§14(4), referring to §13(1)–(3)), central banks may make such waivers.

86 See, e.g., the following provision:

Waiver of Immunity. To the extent that the Central Bank of the Guarantor may be entitled, in any jurisdiction in which any suit, action or proceedings may at any time be commenced with respect to this Agreement or any judgment based on its obligations hereunder, to claim for itself or its Assets or the Assets of any Government Agency immunity from suit, from the jurisdiction of any court (including without limitation any court of the United States of America, the State of New York or the United Kingdom), from attachment prior to judgment, from execution on a judgment or from the giving of any other relief or issue of any process or to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), each of the Central Bank and the Guarantor irrevocably agrees not to claim and irrevocably waives any and all such immunity to the fullest extent now or hereafter permitted under the laws of the jurisdiction in which any such suit, action or proceeding may be commenced and (without limiting the generality of the foregoing) consents generally for the purposes of the State Immunity Act of 1978 of the United Kingdom to the giving of any relief or the issue of any process.

87 28 U.S.C. §§1605(a)(1), 1610(a)(i) (1988). See Atwood case, 875 F.2d 1174 (5th Cir. 1989), and note 73 supra.

88 See George Kahale III, State Loan Transactions: Foreign Law Restrictions on Waivers of Immunity and Submission to Jurisdiction, 37 Bus. Law. 1549 (1982).

89 Morgan Guaranty Trust Co. of N.Y. v. Republic of Palau, 657 F.Supp. 1475 (S.D.N.Y. 1987), 693 F.Supp. 1479 (S.D.N.Y.), 702 F.Supp. 60 (S.D.N.Y. 1988), vacated and remanded, 924 F.2d 1237 (2d Cir. 1991).

90 702 F.Supp. at 63.

91 The ground for this suspension was that the waiver of immunity would expose United States aid funds to diversion from the purposes for which they were granted.

92 However, whether it could be argued that “Congress has legislatively negated the potential relevance of foreign law by affirmatively providing that a waiver is possible” is debatable in the context of a contractual waiver of immunity with regard to which “a conventional analysis of the authority issue” seems appropriate. See Kahale, supra note 88, at 1561 & n.70.

93 See 675 F.Supp. at 1478, 693 F.Supp. at 1494, and 702 F.Supp. at 63.

94 924 F.2d 1237 (2d Cir. 1991).

95 877 F.2d 189 (2d Cir. 1989).

96 Note that unlike the FSIA, the British State Immunity Act 1978, supra note 11, contains a specific provision regarding the issue of authority to consent to a waiver of immunity or otherwise submit to the jurisdiction of the British courts. Section 2(7) provides that the head of a state's diplomatic mission in the United Kingdom (or the person performing his functions) “shall be deemed to have authority to submit on behalf of the state in respect of any proceedings.” This provision neatly disposes of the issue of “apparent” authority raised in the Antigua case.

97 760 F.2d 390 (2d Cir. 1985).

98 The waiver read as follows:

30. Jurisdiction

… .

(C) To the extent that any Borrower or the Guarantor may in any jurisdiction claim for itself or its assets immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to itself or its assets the immunity (whether or not claimed) such Borrower and such Guarantor as the case may be hereby waives such immunity to the full extent permitted by the laws of such jurisdiction and, in particular, to the extent that in any proceedings taken in New York the foregoing waiver of immunity shall have effect under and be construed in accordance with the United States Foreign Sovereign Immunities Act [of] 1976.

Id. at 393.

99 Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480 (1983).

100 The provision read as follows:

30. Jurisdiction

(A) Each Borrower and the Guarantor agrees that any legal action or proceedings arising out of or in connection with this Agreement may be brought in the High Court of Justice in England, the Courts of the State of New York, the Courts of the United States of America in New York or the Courts of the City of Caracas, Venezuela, irrevocably submits to the jurisdiction of each such court and agrees that any writ, judgment or other notice of legal process shall be sufficiently served on it (i) in connection with proceedings in England, if delivered to the Law Debenture Corporation, [sic] Limited at Estates House, 66 Gresham Street. London EC2V 7HX or other its registered office for the time being and (ii) in connection with proceedings in New York, if delivered to CT Corporation System at 277 Park Avenue, New York, N.Y. 10017. U.S.A. or other its principal place of business in New York for the time being.

760 F.2d at 395.

101 That provision read as follows: “For all the purposes that are derived from the present Agreement, there is selected as the special and exclusive domicile the City of Caracas, Venezuela to whose Court the parties specifically declare are subject.” Id.

102 Proyecfin was distinguished in Zernicek v. Brown & Root Inc., 826 F.2d 415 (5th Cir. 1987), cert. denied sub nom. Zernicek v. Petroleos Mexicanos, 484 U.S. 1043 (1988), because of lack of an effective incorporation of choice-of-forum provisions stipulated in one contract into another contract.

103 141 B.R. 25 (S.D.N.Y. 1992), aff'd, 997 F.2d 974 (2d Cir. 1993).

104 The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).

105 997 F.2d at 985 (Oakes, J., dissenting).

106 676 F.2d 47 (2d Cir. 1982).

107 Id. at 49.

108 Id.

109 570 F.Supp. 870, 885 (S.D.N.Y. 1983).

110 See §3(3)(6) of the SIA, quoted in note 11 supra.

111 Such is the case in Belgium, Judgment of May 24, 1933, Cass. (Mahieu, Brasseur v. République Hellénique), 1935 Journal de Droit International [J.D.I.] 1934; and in Switzerland, Judgment of Mar. 18, 1930, Trib. fed. (République Hellénique v. Walder), ATF 65 I 237; Judgment of June 6, 1956, Trib. fed. (Royaume de Grèce v. Banque Julius Bar et Cie.), ATF 82 I 75, 23 I.L.R. 195.

The situation in France is not as clear as in Belgium, although it seems that the commercial characterization would prevail. See Judgment of Feb. 10, 1965, Ct. app. Rouen (Société Bauer-Marchal v. Ministre des Finances de Turquie), 1965 J.D.I. 655 (holding that the guarantee given by Turkey to bonds issued by the City of Constantinople should be regarded as partaking of the commercial nature of the city's borrowing).

112 See J.-F. Lalive, Swiss Law and Practice in Relation to Measures of Execution against the Property of a Foreign State, 10 Neth. Y.B. Int'l L. 153 (1979); and by the same author, Quelques Observations sur I'immunité d'éxecution des Etats et I'arbitrage international, in International Law at a Time of Perplexity 369 (Y. Dinstein ed., 1989).

113 See, e.g., République Hellénique v. Walder and Royaume de Grèce v. Banque Julius Bär et Cie., note 111 supra.

114 See, e.g., Judgment of June 19, 1980, Trib. fed. (République Populaire Arabe Libyenne Jamahiriya v. Libyan American Oil Co. (LIAMCO)), ATF 106 la 142, 20 ILM 151 (1981).

115 This was the case in regard to loan disputes relating to transactions that from the outset had no connection with Switzerland (see the Walder case, note 111 supra), even when an attempt might subsequently have been made to create jurisdiction by assigning the claim to a Swiss national (see the Bär case, id.).

116 Such is the case in the following countries.

(1) The United Kingdom in regard to commercial activities that are not based on a contractual relationship. See SIA, supra note 11, §3(1)(a) providing that a state is not immune in regard to proceedings relating to “a commercial transaction entered into by the State.”

(2) Germany, Judgment of Dec. 2, 1975, Dist. Ct. Frankfurt (Non-resident Petitioner v. Central Bank of Nigeria), 16 ILM 501 (1977).

(3) The Netherlands, Judgment of Oct. 26, 1973, Sup. Ct. (Société Européenne d'Etudes et d'Entreprises v. Socialist Federal Republic of Yugoslavia), 65 I.L.R. 356, 14 ILM 71 (1975).

117 SIA, supra note 11, §3(1)(6) providing that a state is not immune in regard to proceedings relating to “an obligation of the State which by virtue of a contract (whether a commercial transaction or not) falls to be performed wholly or partly in the United Kingdom.”

Section 3(3)(6) includes in the definition of “commercial transactions” “any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation.”

118 In continental countries, the place of performance is a common basis of jurisdiction, sometimes supplemented by additional bases relating to the making of a contract and/or the place of payment. See Delaume, note 66 supra, ch. VIII, at 30–31 (1990).

In the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, Sept. 27, 1968 (text, as modified and consolidated, in 29 ILM 1413 (1990)) and the Lugano Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters, Sept. 16, 1988 (28 ILM 620 (1989)), Article 5(1) refers only to the place of performance as a jurisdictional basis. Delaume, supra, at 30–31, 51–54.

119 See, e.g., in Belgium, the Mahieu case, and in France, the Société Bauer-Marchal case, note 111 supra, and in the case of bonds issued by a political subdivision of Brazil, Judgment of June 27, 1928, Ct. App. Colmar, 1929 J.D.I. 1040.

120 Exorbitant rules have been relied upon to found jurisdiction in sovereign immunity cases concerning commercial transactions other than loans. See, e.g., in France, Judgment of Mar. 19, 1979, Cass. (Société Nationals des Transports Routiers v. Compagnie Algérienne de Transit et d'Affrètement Serres et Pilaire), 1980 Annuaire Français de Droit International 858; in the Netherlands, Judgment of Nov. 8, 1968, Hague Ct. App. (N.V. Cabolent v. NIOC), 9 ILM 159; and in Germany, Judgment of Dec. 2, 1975, Dist. Ct. Frankfurt (Non-resident Petitioner v. Central Bank of Nigeria), 16 ILM 501 (1977).

These exorbitant rules no longer apply in the context of the Brussels and Lugano Conventions, supra note 118, Art. 3. The elimination, however, is limited to relations between contracting states, whose rules remain applicable to the rest of the world.

Note also that in Germany the highest (Supreme) Court recently deprived Article 23 of the Zivilpro-zessordnung (ZPO, Code of Civil Procedure) of much of its original significance. The Court now holds that this provision should not be an incentive to forum shopping and should apply only when the dispute bears a sufficient connection to Germany beyond the mere presence of the defendant's property in that country. See the decision of the Bundesgerichtshof of July 2, 1991, 1991 N.J.W. 3092. Christopher B. Kuner, Personal Jurisdiction Based on the Presence of Property in German Law: Past, Present and Future, 5 Transnat'l Law. 691, 705–07 (1992).

English law knows an exorbitant rule of jurisdiction based on the fact that a contract “is by its terms, or by implication, governed by English law.” UK: Rules of the Supreme Court, Order 11, Rule 1(1)(d)(iii). However, section 2(2) of the SIA, supra note 11, makes it clear that this exorbitant rule cannot be relied upon in suits against foreign states.

121 11 ILM 470 (1972).

122 Austria, Belgium, Cyprus and the United Kingdom.

123 Supra note 62.

124 This conclusion brings to the fore an interesting matter of statistics. If one excludes the decisions relating to the nonretrospective application of the FSIA, it becomes apparent that half of the reported cases do not concern matters of statutory construction, but rather issues that arose as a result of ambiguous or defective waivers of immunity. The lesson is clear.

* The author is indebted to his colleague, Joseph D. Pizzurro of Curtis, Mallet-Prevost, for his useful comments on the manuscript of this article.

The Foreign Sovereign Immunities Act and Public Debt Litigation: Some Fifteen Years Later

  • Georges R. Delaume (a1) (a2)

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