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Public Debt and Sovereign Immunity: The Foreign Sovereign Immunities Act of 1976

Published online by Cambridge University Press:  27 February 2017

Georges R. Delaume
Georges R. Delaume*
Affiliation:
Legal Policy Adviser, International Bank for Reconstruction and Development; Professorial Lecturer in Law, The George Washington University
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Extract

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.

Type
Three Perspectives on Sovereign Immunity
Information
American Journal of International Law , Volume 71 , Issue 3 , July 1977 , pp. 399 - 422
Copyright
Copyright © The American Society of International Law 1977

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References

1 Public Law 94-583, 28 USC §1, 90 Stat. 2891, 15 ILM 1388 (1976). See also Official Documents section, infra pp. 595-601.

2 On June 11, 1976, upon ratification by Austria, Belgium, and Cyprus. The Convention has also been signed by the Federal Republic of Germany, Luxembourg, The Netherlands, Switzerland, and the United Kingdom. The text of the Convention is reproduced in 11 ILM 470 (1972) and in G. Delaume, Transnational Contracts, Appendix I, Part iv (1975, updated 1976).

3 Known as S.566, H.R. 3493, 93d. Cong., 1st Sess. (1973); 12 ILM 118 (1973).

4 Known as H.R. 11315, S/8877, 94th Cong., 1st Sess. (1976); 15 ILM 90 (1976); 70 AJIL 313 (1976).

5 See infra notes 37 to 44 and accompanying text.

6 See infra notes 51 to 64 and accompanying text.

7 See e.g., Lowenfeld, Litigating a Sovereign Immunity Claim —Haiti Case, 49 N.Y.U.L. REV. 377 (1974).

8 Dexter&Carpenter, Inc. v. Kunglig Jamvagsstyrelsen, 43 F. 2d 705 (2d Cir. 1930), cert, denied 282 U.S. 896 (1931). Weilamann v. Chase Manhattan Bank, 192 N.Y.S. 2d 649, 21 Misc. 2d 1086 (Sup. Ct. 1959), in which an action in aid of attachment failed, following a suggestion of immunity by the Department of State.

9 May 19, 1952, 26 Dept. State Bull. 984 (1952).

10 See note 2 supra.

11 6 Delaume, Legal Aspects Of International Lending And Economic Development Financing 169-77 (1967) [hereinafter cited as Delaume, Legal Aspects].

12 Delaume, supra note 2, Chs. VI-X and XIII.

13 Id. §§11.03 and 12.04.

14 See Delaume, Legal Aspects, supra note 11, at 176-77 and for more recent examples:(a) European Coal and Steel Community $75 million 8-1/8% Notes, due November 15, 1984 and 8-7/8% Bonds, due November 15, 1996 (prospectus dated Nov. 10, 1976, at 17): The ECSC will appoint the Fiscal Agent as its authorized agent in New York City upon which process may be served in actions arising out of or based upon the Notes or the Bonds which may be instituted in any State or Federal court in The City and State of New York by the holder thereof and the ECSC will irrevocably waive any immunity from jurisdiction to which it might otherwise be entitled in any such action. However, with respect to execution, the Merger Treaty provides that the property and assets of the ECSC may be taken or constrained by legal process only upon authorization of the Court of Justice of the European Communities. The Notes, the Bonds and the Fiscal Agency Agreements will each provide that it will be governed by and interpreted in accordance with New York law, except with respect to its authorization and execution on behalf of the ECSC and any other matters required to be governed by the laws of the ECSC, and that the jurisdiction of the Court of Justice of the European Communities will extend to any dispute between a holder of Notes or Bonds and the ECSC. (b) European Investment Bank 8-7/8% Bonds, due December 15, 1996 (prospectus dated Dec. 14, 1976, at 14-15): The Bonds will be governed by, and construed in accordance with, the laws of the State of New York except as to matters relating to the authorization and execution of the Bonds by the EIB, which shall be governed by the Treaty of Rome and the Statute. The EIB will appoint the Fiscal Agent as its authorized agent in New York City upon which process may be served in any action based on the Bonds which may be instituted in any State or Federal court in New York City by the holder of a Bond and will expressly accept the jurisdiction of such courts in respect of such action. Notwithstanding the foregoing, any action based on the Bonds may be instituted by the holder of a Bond in any competent court of the jurisdiction in which the EIB has its seat. The EIB will irrevocably waive any immunity from jurisdiction or execution to which it or its property might otherwise be entitled in any action based on the Bonds which may be instituted by the holder of a Bond in any State or Federal court in New York City. However, the property and assets of the EIB within the Member States are not subject to attachment or to seizure by way of execution without the authorization of the Court of Justice.]

15 The Act provides in §1611(a) for immunity from attachment of funds held by organizations designated by the President of the United States pursuant to the International Organizations Immunities Act, pending disbursements of such funds to, or on the order of, a foreign state. This provision is discussed in Delaume, Public Debt and Sovereign Immunity Revisited: Some Considerations Pertinent to H.R. 11315, 70 AJIL 538-40 (1976).

16 §§1604 and 1609. This is the converse approach of that taken by the drafters of the European Convention. The Convention assumes that there are situations, which can be identified and are listed in the Convention, in which a Contracting State would have no immunity from suit. It is only in cases other than those enumerated in the Convention that a Contracting State would be entided to plead immunity as a defense. In other words, under the Convention, sovereign immunity, rather than being the principle, becomes a purely residual concept.

17 The Section-by-Section Analysis annexed to H.R. 11315, the bill from which the Act finally emerged (15 ILM 90 (1976)) stated that: “The term ‘political subdivisions’ includes all governmental units beneath the central government including local governments.” (Comment on §1603(a), id. 104). This definition, which in respect of the constituent states of a federal state is consistent with U.S. case law, is not necessarily supported by cases dealing with foreign municipalities. See Delaume, supra note 2, §11.02 text and notes 6-7. It is in sharp contrast with the European Convention, since under the Convention political subdivisions do not, as a rule, enjoy immunity (Arts. 27 and 28(1)), subject, however, to the right of a Contracting State (Art. 28(2)) to declare, by notification to the Secretary General of the Council of Europe, that its constituent states may invoke the provisions of the Convention applicable to Contracting States and have the same obligations.

18 §1603(b). This provision contrasts also with the European Convention which denies immunity to “any legal entity of a Contracting State which is distinct therefrom and is capable of suing and being sued, even if that entity has been entrusted with public functions.” (Art. 27(1), subject, however, to the exception in paragraph 2 of the same provision in respect of acts jure imperii).

19 Delaume, supra note 2, §11.02 text and notes 13-17.

20 See Amtorg Trading Co. v. United States, 71 F. 2d 554 (C.C.P.A. 1934).

21 Delaume, supra note 2, §7.03 text and notes 17-31.

22 §1605(a)(2).

23 Victory Transport Inc. v. Comisaria General de Abastecimientos y Transportes, 336 F. 2d 354 (2d Cir. 1964), cert, denied 381 U.S. 934 (1965).

24 Delaume, supra note 2, §11.05.

25 Id.

26 Arts. 4-14.

27 Section-by-Section Analysis, comment on Section 2 of the bill and proposed §1330 of Title 28 U.S.C. (Supra note 17, at 102). Plaintiffs may still elect to proceed in a state court. However, any such action may be removed by the foreign state to the proper district court. See Section 6 of the Act.

28 See notes 3 and 4 supra.

29 Delaume, Public Debt and Sovereign Immunity: Some Considerations Pertinent to S. 566, 67 AJIL 745 (1973), and Public Debt and Sovereign Immunity Revisited, supra note 15, at 529.

30 Section-by-Section Analysis, Comment on §1603(e), supra note 17, at 105.

31 Id. at 106.

32 NYCPLR § 302 (a)(l).See e.g., Lewis and Eugina Van Wezel Foundation, Inc.v. Guerdon Industries, Inc., 450 F.2d 1264 (2d Cir. 1971); Irving Trust Co.v.Smith, 349 F. Supp. 146 (S.D.N.Y. 1972).

33 Supra note 17, at 107.

34 Id.

35 See e.g., among recent literature, Mizrack, Recent Developments in the Extraterritorial Application of Section 10(b) of the Securities and Exchange Act of 1934, 30 The Business Lawyer 367 (1975); Sandberg, The Extraterritorial Reach of American Economic Regulation: The Case of Securities Law, 17 Harv. Int'l. L.J. 315 (1976); Rosenfield, Extraterritorial Application of United States Laws: A Conflict of Laws Approach, 28 Stanford l. Rev. 1005 (1976); Note, American Adjudication of Transnational Securities Fraud, 89 Harv. L. Rev. 553 (1976).

36 § 1608 (a)(l) and (b)(1)

37 §1608(a)(2).

38 20 UST 361, TIAS No. 6638, 658 UNTS 163, 60 AJIL 464 (1966).

39 §1608(a)‘(3).

40 §1608(a)(4). See also 22 CFR §§93.1 and 93.2.

41 §1608(b)(2).

42 §1608(b)(3)(A), (B), and (C).

43 §1608(c).

44 §1608(d). This rule corresponds to similar provisions applicable to suits against the United States and its agencies. Rule 12(a) F. R. Civ. Pr.

45 See e.g., the provisions quoted in note 14 supra and note 84 infra.

46 Section 2, amending Ch. 85 of Title 28 U.S.C. §1330(a).

47 Section 5, amending §1391 of Title 28 U.S.C, para (f)(1).

48 Id . para, (f)(3).

49 Id. para, (f)(4).

50 See e.g., the provisions quoted in note 14 supra and note 84 infra.

51 The Section-by-Section Analysis (supra note 17, at 115) indicated 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 representation by the foreign state of steps being taken to satisfy the judgment. Reasonable as it seems to avoid diplomatic embarrassment to the executive branch of the government, this suggestion may put the rights of private claimants in abeyance for protracted periods of time.

52 The Act now refers only to “existing” international agreements of the United States. The preceding bill referred as well to “future” international agreements. The deletion of the word “future” in the final version of the Act is no cause for concern. It is well settled that the provisions of an international agreement of the United States have precedence over existing domestic statutes. Thus, if the United States were to accede to the European Convention, the Convention would supersede the provisions of the Act.

53 Art. 27(2) and 28(2), subject, however, to the possible notification by a federal state party to the Convention that its “constituent states” may invoke the provisions of the Convention. Art. 28(2).

54 Art. 23. Note, however, that under Article 20, a Contracting State, which is not entitled to immunity from suit, is, after final judgment rendered against it by a court in another Contracting State, under an obligation to “give effect” to that judgment. So long, therefore, as a Contracting State would comply with that obligation, the issue of immunity from execution would not arise. This is a consideration which, from the practical viewpoint, is not without significance, since a sovereign may, once the battle of immunity from suit has been lost, not be unwilling to settle the claim. See e.g., National City Bank of New York v. Republic of China, 348 U.S. 356, 75 S. Ct. 423 (1955); Delaume, supra note 2, para. 11.08 text and notes 4-5.

55 Cass. November 2, 1971, Clerget v. Banque Commerciale pour l'Europe du Nord, 61 Rev. Critique De Droit International Privé 310 (1972); 99 J. De Droit International 269 (1972).

56 T.F. February 1, 1960, République Arabe Unie v. Dame X … , R.O. 86 1.23; 55 AJIL 167 (1961).

57 Delaume supra note 2, §12.02 text and notes 4-6, §12.03 text and notes 2-7.

58 §1611. The other two exceptions concern property used in connection with a military activity and property of certain international organizations. In this last respect, see Delaume, Public Debt and Sovereign Immunity Revisited, supra note 15, at 538-41.

59 Delaume, supra note 2 §11.02 text and notes 15-16. See also, Delaume, Legal Aspects, supra note 11, at 158-59.

60 Trendtex Trading Co. v. Central Bank of Nigeria, [1976] 1 WLR 868. After this article was written, the Court of Appeal reversed the lower court's decision. [1977] 2 WLR 356, 16 ILM 471 (1977). For further comment on this case, see Higgins, Recent Developments in the Law of Sovereign Immunity in the United Kingdom, infra, p. 423.

61 National American Co. v. Federal Republic of Nigeria, 420 F. Supp. 954 (S.D.N.Y. 1976), 16 ILM 505 (1977).

62 § 1611 (b) (l).

63 Supra note 17, at 116.

64 The “ownership” test might be detrimental to private claimants since it raises the same problems of proof of ownership or intended use of the funds subject to execution as was discussed in connection with §1610(a)(2). See supra notes 55-57 and accompanying text. It might be extremely difficult for the claimant to establish whether the funds held by a central bank are “for its own account” or the account of third parties, whereas the bank could easily make transfers among accounts and remove its funds from the reach of its creditors.

65 At least three decades in American practice. See Delaume, Legal Aspects, supra note 11, at 170, quoting the provisions found in a loan agreement of February 8, 1945 between Chase National Bank of the City of New York and the Kingdom of the Netherlands.

66 For a comparative analysis of contractual trends, see Delaume, supra note 2, §§11.07, 12.05, and 12.06.

67 Delaume, Public Debt and Sovereign Immunity, supra note 29, at 745 and Public Debt and Sovereign Immunity Revisited, supra note 15, at 529.

68 Republic of Finland 7-7/8% External Loan Notes due 1981 (prospectus dated Dec. 3, 1976). See also The Kingdom of Norway 8-1/4% Notes due July 15, 1981 (prospectus dated July 14, 1976).

69 New Zealand DM 10 million 7-3/4% Bonds of 1976 providing that New Zealand submits to the jurisdiction of German courts, the courts of New Zealand, and any courts in which New Zealand assets are situated and: New Zealand waives the right to claim extraterritoriality or immunity from jurisdiction before any Court in which claims can be pursued against New Zealand under this provision and before any agency competent for the enforcement of the law and hereby submits their jurisdiction.

70 Kobenhavns Amtskommune (the Copenhagen Country Authority) 5-3/4% 1977- 1992 Swiss Fr. 50 million Loan providing for the submission of loan disputes to the Swiss courts, with an option to sue in the Danish courts and “L'Amstkommune waives immunity from suit and execution.” (as translated).

71 Delaume, supra note 2, at §§11.02 and 12.02. Recent contractual trends follow the increasing criticism of the English rules (see Mann, New Developments in the Law of Sovereign Immunity, 3 MOD. L. REV. 18 (1973)) and the signing of the Convention by the United Kingdom, supra note 2. See e.g., the following provisions in prospectuses regarding loans issued in England or Eurobonds subject to English law: (a) Privredna Banka Sarajevo, Kuwaiti Dinars 5 million 9-1/4% Guaranteed Notes due 1982 (issued 1976): (i) The Notes are governed by and construed in accordance with English law. The Bank hereby agrees that any legal action or proceeding against the Bank with respect to this Note may be brought in the courts of Yugoslavia or in the courts of England as any Noteholder may elect, and by execution and delivery of this Note, the Bank hereby irrevocably submits, for itself and in respect of its property, generally and unconditionally, to the non-exclusive jurisdiction of the aforesaid courts. The Bank further irrevocably consents to the service of process out of the courts of England in any such action of proceedings upon the Chief Representative for the time being of the Yugoslav Economic Chamber in London. (ii) the Republic (as guarantor of the Notes): … agrees that, should any Noteholder bring any judicial proceedings in relation to any matter arising under this Guarantee, no immunity from such judicial proceedings or from execution of judgment shall be claimed by or on behalf of the Republic or with respect to its properties. (b) Substantially similar provisions are found in the Banque de Developpement Kconomique de Tunisie, Kuwaiti Dinars 7 million 8-1/2% guaranteed Notes due 1981 (issued in July 1976) guaranteed by the Republic of Tunisia; the Republic of Austria US $50 million 8-1/4% Bonds 1990 (issued in July 1976); the Kingdom of Denmark US $10 million 8-1/2% Notes due 1st October 1984 (issued in Sept. 1976); the Banque Nationale d'Algerie, US $50 million Redeemable Floating Rate Deposit Notes due 1981 (issued July 15, 1976); and the Real Nacional de los Ferrocariles Espafloles (RENFE) 9-1/4% Notes due 1983 (issued Nov. 26, 1976).

72 See note 12 supra and accompanying text.

73 See supra p. 405.

74 §§1605(a)(l), 1610(a)(1) and (b)(1), and 1611(b)(1).

75 Art. 2.

76 Delaume, supra note 2, §12.04.

77 §§1610(a)(l), (b)(1), and 1611(b)(1).

78 §1610(a)(2) and (b)(2).

79 See supra p. 406.

80 §1610(a)(2).

81 §1610(b)(2).

82 Delaume, supra note 2, Chs. VI-X and XIII.

83 Id.

84 See e.g., the Osterreichische Kontrollbank Aktiengesellschaft 8% Guaranteed Notes, due October 1, 1988, guaranteed by the Republic of Austria (prospectus dated Sept. 28, 1976): The Fiscal Agency Agreement contains a submission by the Bank to the jurisdiction of the Federal and State courts in New York, New York, with respect to any legal action by any person, and an appointment by the Bank of the Fiscal Agent as its authorized agent upon which process may be served in any such action. The Fiscal Agency Agreement provides that such submission does not preclude the institution of such actions elsewhere, including the Republic of Austria. The Notes and the Guarantees provide that they shall be governed by and interpreted in accordance with the laws of the State of New York. Dr. Otto Ortner, Austrian counsel for the Bank, and Dr. Peter Avancini, Austrian counsel for the Underwriters, have advised that such choice of law would be respected by the courts of Austria. However, in original actions brought in Austrian courts, questions of procedural law and, under certain circumstances, questions of public policy, would be governed by Austrian law. Also it will not be possible to enforce in an Austrian court a judgment of a United States court.

85 21 UST 2517, TIAS No. 6997, 330 UNTS 3.

86 Delaume, supra note 2, §11.09.

87 §1608.

88 Art. 16.

89 Delaume, supra note 2, §13.05.

90 17 UST 1270, TIAS No. 6090, 575 UNTS 159, 60 AJIL 892 (1966). See also Delaume supra note 2, Appendix II.

91 See e.g., Broches, The Convention on the Settlement of Investment Disputes between States and Nationals of other States, 136 Rec. Des Cours 333 (II, 1972). A bibliography of publications concerning the ICSID Convention is currently available at the ICSID headquarters, 1818 H Street, N.W., Washington, D.C. 20433.

92 Art. 25(1).

93 Art. 36(1).

94 Arts. 44 and 45.

95 Art. 53(1). See e.g., the following provision in Yen Bonds of the Kingdom of Denmark Series No. 1 (1976) (prospectus dated Nov. 1976). Except as to the authorization relating to the issuance by the Kingdom of the Bonds and matters concerning the creation, validity and enforcement of security provided for in “Clause 6. Matters Relating to Security or Guarantee,” the Bonds, the form and substance of the Bond certificates and interest coupons and all the rights and obligations of all the parties concerned, including the Bondholders, arising thereunder shall in all respects be governed by the laws of Japan. Except as otherwise provided in the Conditions of Bonds, the place of performance of obligations pertaining to the Bonds is Tokyo. Any legal action relating to the Bonds, Bond certificates, interest coupons and the Conditions of Bonds may be brought against the Kingdom in the Tokyo District Court, to the jurisdiction of which the Kingdom hereby expressly and unconditionally and irrevocably submits. Any such action may also be brought against the Kingdom in any competent court of the Kingdom. To the extent that it is legally able to do so, the Kingdom hereby irrevocably waives any sovereign immunity to which it might otherwise be entitled in any such action. The Kingdom has designated its Embassy in Tokyo, Japan, as the address for the purpose of accepting service of process in Japan in connection with any such action instituted in the Tokyo District Court and appointed its Ambassador from time to time to Japan as the authorized agent to accept such service of process. So long as any of the Bonds or interest coupons remains unpaid, the Kingdom shall take any and all actions that may be necessary to effect and continue such designation and appointment in full force and effect. If a bondholder were to take a legal action against the Kingdom in Japan to recover the principal (and premium, if any) of and interest on the Bonds and obtain a final and conclusive judgment in a Japanese court of appropriate jurisdiction, the bondholder could present the judgment to the Minister of Finance of the Kingdom by transmitting it to the Ministry of Foreign Affairs of the Kingdom through a diplomatic route. If the judgment were related to the payment of a specific amount of money under the Bonds, such amount of money would be paid out of an appropriate account of the budget of the Kingdom. There are no statutory provisions in the Kingdom relating to the recognition of judgments of a Japanese court. Thus, if a bondholder who has obtained a judgment in a Japanese court wants to obtain a judgment legally enforceable in the Kingdom, he would have to pursue this action in a competent court of jurisdiction in the Kingdom in the same way as a bondholder without any such judgment and submit such Japanese court judgment as evidence. In such proceeding, the Danish court will give full consideration to such Japanese court's judgment. A judgment rendered against the Kingdom in an action brought by a bondholder in a Danish court is enforceable against general assets of the Kingdom… . The Kingdom is one of the signatory states to the “Convention on the Settlement of Investment Disputes between States and Nationals of Other States.” A dispute concerning the Bonds may not be arbitrated in accordance with the said convention without a written consent of the Kingdom. The Kingdom is obliged under the convention to enforce within the Kingdom the pecuniary obligations imposed by an arbitration award rendered pursuant to the convention as if it were a final judgment of a Danish court.

96 Art. 54(3).

97 Art. 54(2).

98 Art. 55.

99 Broches, supra note 91, at 403-04.

100 Art. 64.