The Foreign Sovereign Immunities Act of 1976 (the Act) took effect on January 19, 1977, some six months after the entry into force of the European Convention on State Immunity (the Convention). Both instruments are of direct interest to the financial community since they dispel vestigial fictions concerning the public debt of foreign sovereigns and extend to the borrowings of foreign sovereigns the restrictive doctrine of immunity generally applicable to contracts concluded by foreign states.

The last eighteen months have witnessed very significant changes in the interpretation and application of the doctrine of sovereign immunity by the English Courts. These changes are important not only as matters of historical and practical interest, but because they address many of the fundamental policy questions in a manner that has been unnecessary in U.S. practice because of the way in which the Tate Letter has channelled the development of the law along certain set patterns.

When President Nixon and Prime Minister Tanaka of Japan, held a summit meeting in Hawaii on August 31-September 1, 1972, doubtless no one expected they were laying the foundation for one of the most curious sovereign immunity cases in the annals of American jurisprudence. The resulting communique, however, which placed the leaders' seal of approval on extensive Japanese purchase commitments in the United States, became the basis for a Japanese claim that half a billion dollars worth of enriched uranium subsequently purchased by ten Japanese utilities from the Atomic Energy Commission (AEC) and stored on its reservation in Oak Ridge, Tennessee enjoyed sovereign immunity from local commercial property taxes. The Japanese claim, apart from posing a diplomatic issue between Japan and the United States, embroiled the Department of State and the AEC (and its successor, the Energy Research and Development Administration (ERDA)) with each other and with the Department of Justice, threatened controversy between Tennessee and Washington, and eventually resulted in the Japanese utilities’ settling the matter for $4.5 million. Although the settlement deprived posterity of a decision on the issue, this unique case remains not simply an entertaining episode but also a useful lesson in defense against claims of sovereign immunity. While the Foreign Sovereign Immunities Act of 1976 was intended substantially to eliminate the role of the Department of State in sovereign immunity disputes, the Act could not have been successfully invoked in this case, even had it been in effect, as related below.

There is no question that there has been confusion about the precise meaning of the terms cease-fire, truce, and armistice. The oldest term is truce, which in the Middle Ages usually had a religious connotation as in the phrase “Truce of God.” Hugo Grotius used truce to mean an agreement by which warlike acts are for a time abstained from, though the state of war continues—“a period of rest in war, not a peace.” If hostilities were resumed after a truce, according to Grotius, there would be no need for a new declaration of war, since the state of war was “not dead, but sleeping.” Truces might be concluded by generals in command of forces or by officers of lower rank. In the absence of agreement to the contrary, it was lawful to rebuild walls or to recruit soldiers during a truce, but actual acts of war were forbidden, whether against persons or property: that is to say, “whatever is done by force against the enemy.” Also forbidden were the bribery of enemy garrisons and the seizure of places held by the enemy. If a truce was violated, the injured party was free to resume hostilities “even without declaring war.” Private acts did not constitute a violation, however, unless there was public command or approval.

On September 22, 1976, the United States and the Government of Peru signed an agreement resolving the nationalization of the Marcona Mining Company’s Peruvian branch. The settlement, the intergovernmental negotiations leading up to it, and the expropriation itself are of more than passing interest. The settlement has been characterized by the U.S. Government as providing, when fully implemented, prompt, adequate, and effective compensation through a package—a combination of cash and long term sales relationship—which represents a relatively beneficial arrangement economically and politically for the Government of Peru. These arrangements were the more remarkable for having been concluded with a leading Third World country that has a long history of nationalization of foreign investment. In light of the frequency of expropriations of American-owned property abroad, and of the fact that in one or more ways such expropriations involve issues of the public interest as well as those of private U.S. companies, the Marcona settlement has implications for the handling of other investment disputes.