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Public Debt and Sovereign Immunity Revisited: Some Considerations Pertinent to H.R. 11315

  • G. R. Delaume

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1 94th Cong. 1st Sess. The bill was introduced by Mr. Robins (for himself and Mr. Hutchinson) and has been referred to the Committee of the Judiciary. For the text of the bill, see 70 AJIL 313 (1976); 15 ILM 90 (1976).

2 Delaume, , Public Debt and Sovereign Immunity: Some Considerations Pertinent to S.566, 67 AJIL 745 (1973) [hereinafter cited as Public Debt]. See also Delaume, Transnational Contracts (2 vol. 1975) paras. 11.06 and 11.07, and paras. 12.04 to 12.06, [hereinafter cited as Contracts].

3 Section 1330 provides in effect a federal “long-arm” statute over foreign states, which is patterned after the District of Columbia statute. Pub. L. 91–358, §132(a), Title I, 84 Stat. 549. In short, district courts have personal jurisdiction over foreign states when (i) the foreign state is not entitled to immunity, and (ii) proper service of process has been made in accordance with the provisions of §1608 of the bill.

4 The provisions of §1608 are made “subject to existing and future international agreements to which the United States is a party.”

As stated in the Section-by-Section Analysis:

… this language contemplates the possibility of a future international convention on sovereign immunity, and in particular on procedures to be used in litigation against foreign states. An “existing” international agreement which is applicable is the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents, 20 UST 361, TIAS 6638 (1965).

The Section-by-Section Analysis is reprinted at 15 ILM 102 (1976).

5 The proposed §1603(a), like its predecessor, provides generally that the expression “foreign state” includes a political subdivision or an agency, or instrumentality of a foreign state. Paragraph (b) defines “agency or instrumentality” as “any entity (1) which is a separate legal person, corporate or otherwise, and (2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and (3) which is neither a citizen of a State in the United States … nor created under the laws of any third country.” The first and second requirements are self-explanatory. The third requirement is intended to exclude entities which are either created in the United States, although owned by a foreign state or are created under the laws of third countries, since in this last case it is to be presumed that the agency’s activities are either commercial or private in nature.

6 See §1603(d) and (e), which are reminiscent of long-arm statutory language and of the rules of adjudicatory jurisdiction based on the “transacting” or “doing business” within the jurisdiction. See generally Werntraub, Commentary on the Conflict of Laws 103–13 (1971).

Specifically, Section 1603(d) (like its predecessor in S.566) provides that:

A “commercial activity” means either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.

Section 1603 (e) adds:

A “commercial activity” carried on in the United States by a foreign state means commercial activity carried on by such state and having substantial contact with the United States.

7 See Delaume Public Debt, supra note 2, at 748 n. 17.

8 Ibid. Provisions in bonds issued in the American market are now much the same as those found in direct loan agreements. See note 45 infra and accompanying text.

9 “Obligations” is a word currently used in French-speaking countries to refer to “bonds.” Another current expression is “dette obligataire,” meaning bonded debt. The bill, however, is drafted in English, not French.

10 See §1603(d) quoted in note 6 supra.

11 Section 1606(a)(2) of S.566 referred also to the “agencies” or “instrumentalities” of a political subdivision. This reference has disappeared from the new section. While this may raise some questions, it would appear that such agencies or instrumentalities would not be in a position to claim better treatment than the agencies or instrumentalities of a “state” and that the nonimmunity rule applicable to the latter should also apply to them.

12 Delaume, Contracts, supra note 2, at paras. 11.02 and 11.06.

13 Ibid.

14 See note 7 supra and accompanying text.

15 Delaume, Public Dept, supra note 2, at 748–49, 752–53.

16 See text, supra p. 531.

17 Delaume, Public Debt, supra note 2, at 749–50.

18 Id. 752–56. See also note 45 infra and accompanying text.

19 Delaume, Public Debt, supra note 2, at 752–56.

20 The Section-by-Section Analysis indicates that:

In determining whether the period has been reasonable, the courts should take into account procedures, including legislation, that may be necessary for payment of a judgment by a foreign state, which may take several months. Courts should also take into account representations by the foreign state of steps being taken to satisfy the judgment.

2l Cass. November 2, 1971. Clerget v. Banque Commerciale pour l’Europe du Nord, 61 Revue Critique De Droit International Prtvé 310 (1972); 99 Journal Du Droit International (Clunet) 269 (1972).

22 T. F. February 10, 1960, République Arabe Unie v. Dame X …, R.O. 86.1.23; 55 AJIL 167 (1961).

23 Delaume, Contracts, supra note 2, at para. 12.02, n.4—n.6 and accompanying text; para. 12.03, n.2-n.7 and accompanying text.

24 Section 1606(b). See text at note 14 supra.

25 Delaume, Public Debt, supra note 2, at 751.

26 Delacmb, Contracts, supra note 2, at para. 11.02, n.22 and n.23 and accompanying text.

27 Art. 23.

28 See supra note 25 and accompanying text.

29 The obligation is subject to limitations regarding public policy, Us pendens, etc. See Delaume, Contracts, supra note 2, at para. 12.04, n. 7.

30 See e.g., National City Bank of New York v. Republic of China, 348 U.S. 356, 75 S. Ct. 423, 99 L. Ed. 389 (1955); Delaume, Contracts, supra note 2, at para. 11.08, n.4 and n.5 and accompanying text.

31 Section 1611(b), which is substantially the same as the corresponding Section in S.566, except that under §1611(b) (i) immunity can be waived not only by the central bank or monetary authority involved, but also by “its parent government.“

32 22 U.S.C., §288 et seq.

33 Delaume, Contracts, supra note 2, at para. 12.04, n.13 to n.15 and accompanying text.

34 See e.g., International Bank for Reconstruction and Development, Articles of Agreement, 60 Stat. 1440, Tias No. 1502, 3 Bevans 1390, 2 UNTS 134, Art. VII, Section 3. Interamerican Development Bank, Articles of Agreement 10 UST 3029, TIAS No. 4397, 389 UNTS 69, Art. XI, Section 3. Asian Development Bank Agreement 17 UST 1418, TIAS No. 6103, 571 UNTS 123, Art. 50.

35 There are variations in the charters of these organizations regarding the classes of persons who may bring action against them and, consequently, attach their assets or enforce judgments against them. The older organizations, such as the World Bank, can be sued (subject to the restrictions referred to in the following discussion in the text) by any person. More recent organizations, such as the Asian Development Bank, limit the right to bring action to persons deriving claims from purely financial transactions of the organization, such as those arising out of borrowings, guarantees given, or sales of securities made, by the organization involved. See Delaume, Contracts, supra note 2, at para. 11.03, n . l l to n.15 and accompanying text.

36 Delaume, Contracts, supra note 2, at para. 11.03, n.7 and n.8 and accompanying text.

37 Ibid.

38 Id. para. 11.02, n.2 and n.3 and accompanying text.

39 Id. para. 1.12.

40 See e.g., The IBRD General Conditions Applicable to Loan and Guarantee Agreements, dated March 15, 1974, Section 5.06, of which reads:

Each application and the accompanying documents and other evidence must be sufficient in form and substance to satisfy the Bank that the Borrower is entitled to withdraw from the Loan Account the amount applied for and that the amount to be withdrawn from the Loan Account is to be used only for the purposes specified in the Loan Agreement.

41 See e.g., IBRD Articles of Agreement, Article III, Section 1(a) and Section 5(b) and (c), which read:

Section 1

(a) The resources and the facilities of the Bank shall be used exclusively for the benefit of members with equitable consideration to projects for development and projects for reconstruction alike.

Section 5

(b) The Bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency and without regard to political or other non-economic influences or considerations.

(c) In the case of loans made by the Bank, it shall open an account in the name of the borrower and the amount of the loan shall be credited to this account in the currency or currencies in which the loan is made. The borrower shall be permitted by the Bank to draw on this account only to meet expenses in connection with the project as they are actually incurred.

42 See Note, , Collection of a Foreign Nation Debt by Attachment of an International Bank Loan, 69 Col. L. Rev. 897 (1969).

43 Delaume, Public Debt supra note 2, at 752–54.

44 Delaume, Contracts, supra note 2, at paras. 11.07 and 12.05. See also the Eurobonds of New Zealand quoted infra p. 543, and the prospectus of the DM 100 million 3i% DM Bearer Bonds of 1975 (issued in January 1976) of Ireland, which provides:

The non-exclusive place of jurisdiction in respect of all matters covered by these Terms and Conditions is Frankfurt/Main. The bondholders and the Trustee are also entitled to pursue their claim before Irish courts and before courts in any other country in which they are situated [sic] assets belonging to Ireland in which case the laws of the Federal Republic of Germany shall likewise be applicable in accordance with §14(1). The German courts shall have jurisdiction over the annulment of lost or destroyed Bonds. Ireland will not plead immunity or lack of jurisdiction before any court in which claims can be pursued against Ireland under this provision, or before any authority competent for the enforcement of judical decrees and judgments. Ireland hereby expressly submits to the jurisdiction of such courts or authorities.

45 See e.g., the $60 million 91% Guaranteed Notes Due April 15, 1980 of Société Nationale des Chemins de Fer Francais (SNCF) issued in April 1975, guaranteed by the Republic of France:

SNCF will appoint the Fiscal Agent as its authorized agent upon which process may be served in actions arising out of or based upon the Notes, coupons or the Fiscal Agency Agreement which may be instituted in any state or federal court in The City and State of New York by the holder of a Note or coupon, and SNCF will irrevocably waive any immunity from jurisdiction to which it might otherwise be entitled in any such action. The Republic of France will not appoint such an agent. In addition it is possible that the Republic would be entitled in “ the … United States to assert the defense of sovereign immunity. Such defense would not be available in an action brought in a competent French court on the guarantee of the Notes, although it would be available, as in other jurisdictions, as to execution against public property. The Notes and the Fiscal Agency Agreement will also provide that the jurisdiction of any competent court in France shall extend to any dispute between a holder of a Note or coupon and SNCF (the competent court being administrative, civil or commercial depending on the questions in controversy).

Substantially, the same provision appears in Notes issued in May 1975 by the Banque Franchise du Commerce Extérieur and Notes issued in January 1976 by Electricité de France, all guaranteed by France.

* Senior Counsel, International Bank for Reconstruction and Development; Professorial Lecturer in Law, the George Washington University. The views expressed in this paper are those of the author and do not necessarily represent those of the IBRD.

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