Jurisdictional immunity

Domestic law

Describe domestic law governing the scope of jurisdictional immunity.

Jurisdictional immunity covers the foreign state itself and its various organs, agencies and instrumentalities, and extends to all activities unless specifically excepted in the Act (see sections 1605 to 1607). Under section 1603, a ‘foreign state’ includes ‘a political subdivision of a foreign state or an agency or instrumentality of a foreign state’. An ‘agency or instrumentality of a foreign state’ is an entity:

  • that is a separate legal person, corporate or otherwise;
  • that 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
  • that is neither a citizen of a state of the United States . . . nor created under the laws of any third country.

 

State waiver of immunity or consent

How can the state, or its various organs and instrumentalities, waive immunity or consent to the exercise of jurisdiction?

A foreign state may waive its immunity explicitly or implicitly (see section 1605(a)(1)). Waivers of immunity cannot be revoked unilaterally. An explicit waiver or consent may occur by treaty (as has been done concerning commercial and other activities in a series of treaties of friendship, commerce and navigation) or in a contract between a foreign state and a private party. Implicit waiver of sovereign immunity from jurisdiction may be established where the foreign defendant has appeared in court (or has filed a responsive pleading in an action without raising the defence of immunity), has agreed to arbitrate in another country, or agreed that the law of the particular country should govern a contract (see Report of the House Judiciary Committee, HR Rep No. 1487, 94th Congress, 2d Session (1976), at 18).

The Act also establishes the arbitration exception, which concerns actions to enforce arbitration agreements between private parties and foreign states or actions to confirm arbitration awards rendered under such agreements (see section 1605(a)(6)). In these cases, a foreign state is not immune from the jurisdiction of US courts.

In which types of transactions or proceedings do states not enjoy immunity from suit (even without the state’s consent or waiver)? How does the law of your country assess whether a transaction falls into one of these categories?

Apart from waiver and consent, foreign states do not enjoy sovereign immunity from the jurisdiction of US courts in the following areas:

  • commercial activities (section 1605(a)(2));
  • taking of property in violation of international law (ie, expropriation) (section 1605(a)(3));
  • rights in property in the United States acquired by succession or gift or rights in immovable property situated in the United States (section 1605(a)(4));
  • personal injury or death, or damage to or loss of property occurring in the United States (section 1605(a)(5));
  • monetary damages concerning a terrorist act (section 1605A) or international terrorism (section 1605B);
  • admiralty proceedings (specifically suits involving maritime liens) (section 1605(b)); and
  • when the claim against a foreign state arises in the form of a counter­claim (section 1607).

 

All these are exceptions to jurisdictional immunity and do not in themselves overcome enforcement immunity.

The commercial activity exception is limited to those cases in which the action is based upon a commercial activity carried on by the foreign state, an act performed in connection with a commercial activity of the foreign state elsewhere, or an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States (section 1605(a)(2)). A ‘commercial activity’ is further defined as ‘either a regular course of commercial conduct or a particular commercial transaction or act’, whose commercial character ‘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(d)). On the other hand, a ‘commercial activity carried on in the US by a foreign state’ means a commercial activity carried on by a state and having substantial contact with the United States (section 1603(e)).

In Republic of Argentina v Weltover Inc, the Supreme Court held that the issuance of bonds by Argentina constituted a commercial activity under the Act because Argentina had acted ‘not as a regulator of a market, but in the manner of a private player within it’ (504 US 607 (1992), at 614). Argentina argued that the nature-purpose distinction is not appropriate because the ‘essence of an act is defined by its purpose’, but the Supreme Court pointed to the wording of section 1605(a)(2) and considered that such an argument was ‘squarely foreclosed by the language of the’ Act, as however ‘difficult it may be in some cases to separate “purpose” from “nature” . . . the statute unmistakably commands that to be done’ (504 US 607 (1992), at 617). In another leading case on the commercial activity exception, Texas Trading & Milling Corp v Federal Republic of Nigeria, the Court of Appeals for the Second Circuit held that Nigeria’s anticipatory breach of more than 100 contracts for the purchase of cement qualified as commercial (647 F2d 300 (2d Cir 1981) cert den). In another case, the Court of Appeals for the Seventh Circuit held that Greece had engaged in commercial activity and was thus amenable to suit where Greece had contracted with a healthcare provider for the provision of medical services to Greek nationals in the United States (see Rush-Presbyterian-St Luke’s Medical Center v Hellenic Republic, 877 F2d 574 (7th Cir 1989) cert den).

The expropriation exception (section 1605(a)(3)) creates two exceptions to the general rule of sovereign immunity. First, a state is not immune in any case ‘in which rights in property taken in violation of international law are in issue and that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state’. Property is ‘taken in violation of international law’ through nationalisation or expropriation that does not serve a public purpose, is discriminatory and is without payment of prompt, adequate and effective compensation (see, generally, Zappia Middle E Constr Co v Emirate of Abu Dhabi, 215 F3d 247 (2d Cir 2000)). Exhaustion of local remedies in the foreign jurisdiction is also not a statutory prerequisite to jurisdiction under the expropriation exception (see Cassirer v Kingdom of Spain, 616 F3d 1019 (9th Cir 2010) cert den; however, see also Restatement (Third) of Foreign Relations Law (1987), section 713, comment f: ‘Under international law, ordinarily a state is not required to consider a claim by another state for an injury to its national until that person has exhausted domestic remedies, unless such remedies are clearly sham or inadequate, or their application is unreasonably prolonged.’).

Second, a state is not immune when the taken property or any property exchanged for that property ‘is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in commercial activity in the United States’. For example, in De Sanchez v Banco Central de Nicaragua, the court found that the defendant was engaged in commercial activity in the United States through the holding of funds in a US bank for the facilitation of currency exchanges (515 F Supp 900 (ED La 1981), at 911; and 770 F2d 1385 (5th Cir 1985)). Accordingly, in Dayton v Czechoslovak Socialist Republic, the Court of Appeals for the DC Circuit held that the nationalisation of textile plants without the payment of compensation did not fall within the expropriation exception because the plants were located in Czechoslovakia, no property exchanged for the plants was located in the United States and a Czechoslovakian trading company, which was sought to be held liable, did not own or operate the plants or property exchanged for them (Dayton v Czechoslovak Socialist Republic, 834 F2d 203 (DC Cir 1987) cert den).

Further, the Supreme Court recently opined that ‘whether the rights asserted are rights of a certain kind, namely, rights in “property taken in violation of international law”, is a jurisdictional matter that the court must typically decide at the outset of the case, or as close to the outset as is reasonably possible’ (see Bolivarian Republic of Venezuela v Helmerich & Payne Int’l Drilling Co, 137 US 1312 (2017), at 1319).

If one of the exceptions to sovereign immunity set out above applies, is there any related principle that could prevent a court having jurisdiction over the state?

In addition to sovereign immunity, the act of state doctrine could also prevent a court from exercising jurisdiction over the foreign state in question. As the legislative history explains, the Act ‘in no way affects existing law on the extent to which, if at all, the “act of state” doctrine may be applicable’ (see also Dayton v Czechoslovak Socialist Republic, 672 F Supp 7 (DC Dist 1986), affd 834 F2d 203 (DC Cir 1987) cert den).

Proceedings against a state enterprise

To what extent do proceedings against a state enterprise or similar entity affect the immunity enjoyed by the state? Is there precedent for piercing the corporate veil to subject the state itself to those proceedings?

Section 1603 of the Act provides that a foreign state ‘includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state’. A state enterprise may qualify as a foreign state provided the tripartite test in section 1603(b) is met, namely, that the enterprise is:

  • a separate legal person;
  • 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
  • neither a citizen of the United States nor created under the laws of any third country.

 

When a state enterprise qualifies as a foreign state, whether it will be amenable to suit depends on the applicability of the exceptions to sovereign immunity set out in sections 1605 to 1607 of the Act. For example, an airline that was wholly owned by the government of the Dominican Republic was considered an instrumentality of a foreign state although it had several offices and bank accounts in the United States and paid city, state and federal taxes (see Arango v Guzman Travel Advisors, 761 F2d 1527 (11th Cir 1985)). Likewise, an airline that was 97 per cent owned by the Ecuadorian Air Force was held to be an instrumentality of a foreign state (see Keller v Transportes Aereos Militares Ecuadorianos, 601 F Supp 787 (DC Dist 1985)).

However, in Filler v Hanvit Bank, the Court of Appeals for the Second Circuit held that certain South Korean commercial banks did not enjoy sovereign immunity under the Act because the majority of the banks’ stock was owned by the Korean Deposit Insurance Corporation and was therefore not directly owned by South Korea (378 F3d 213 (2d Cir 2004) cert den). This follows the Supreme Court’s ruling in Dole Food Co v Patrickson, that settled the issue of ‘tiering’, finding that a foreign state must itself directly own a majority of the shares of an enterprise if that enterprise is to be deemed an instrumentality of the state under the Act. In that case, ownership of the defendant company was at various times separated from the state of Israel by one or more corporate layers (see 538 US 468 (2003); compare with In re Aircrash Disaster near Roselawn, 909 F Supp 1083 (ND Ill 1995), in which jurisdiction was upheld even though the aircraft manufacturer was indirectly owned by French and Italian governments through tiers of government-owned corporations, holding that the manufacturer was entitled to foreign state status despite ‘tiering’ of ownership through intermediaries since two foreign governments owned a majority of each intermediate corporation).

However, even if the entity is not majority-owned by a foreign state, it may still qualify as an ‘agency or instrumentality of a foreign state’ if it is an ‘organ’ of a foreign state (section 1603(b)(2)). The term ‘organ’ is not defined in the Act and the US Circuit Courts have adopted different tests to determine whether an entity is an organ of a foreign state. For example, in USX Corp v Adriatic Ins Co, the Court of Appeals for the Third Circuit considered whether an insurance company was an organ of the Irish government and concluded that ‘for an entity to be an organ of a foreign state, it must engage in public activity on behalf of foreign government’ (see 345 F3d 190 (3d Cir 2003) at 208, considering the findings of the Ninth and Fifth Circuits in EOTT Energy Operating Ltd P’Ship v Winterthur Swiss Ins Co, 257 F3d 992 (9th Cir 2001) at 997 and Kelly v Syria Shell Petroleum Dev BV, 213 F3d 841 (5th Cir 2000) at 846 and 847).

The Third Circuit also synopsised the various factors employed by the Courts of Appeals for the Ninth and Fifth Circuits, in particular:

  • the circumstances surrounding the entity’s creation;
  • the purpose of the entity’s activities;
  • the degree of supervision by the government;
  • the level of government financial support;
  • the entity’s employment policies, particularly regarding whether the foreign entity requires the hiring of public employees and pays their salaries; and
  • the entity’s obligations and privileges, and added an additional factor, namely the ownership structure of the entity.

 

All these factors are relevant, but none is determinative. What is critical is whether the entity in question performs a governmental function. Indeed, in Murphy v Korea Asset Management Corporation, the Court of Appeals for the Second Circuit held that a corporation organised under the laws of the Republic of Korea qualified as a foreign state because that corporation had a quintessentially ‘public’ mission to service and stabilise the Korean economy by disposing of non-performing loans and restructuring failing corporations (see Murphy v Korea Asset Mgmt Corp (2005, SD NY) 421 F Supp 2d 627, affd (2006, CA2 NY), cert den). Conversely, in Bd of Regents of Univ of Tex Sys v Nippon Tel & Tel Corp, the Court of Appeals for the Fifth Circuit held that a Japanese telecommunications company was not an organ of Japan because it was not created for a national purpose, was not actively supervised by the Japanese government, was not required to hire public employees, did not hold exclusive rights under Japan’s laws, and was not treated as a governmental organ under Japanese law (see 478 F3d 274 (5th Cir 2007), following the test developed in Kelly by the Court of Appeals for the Fifth Circuit).

Standing

What is the nexus the plaintiff needs to have standing to bring a claim against a state?

The nexus that the plaintiff needs to have is determined by applicable law regarding personal and subject matter jurisdiction. However, the sole basis for obtaining jurisdiction over a foreign state is the Act (see Youming Jin v Ministry of State Sec, 557 F Supp 2d 131 (DC Dist 2008)). The Act provides for the exercise of personal jurisdiction under section 1330(b), but personal jurisdiction is satisfied if subject matter jurisdiction exists under the Act (ie, if one of the enumerated jurisdictional exceptions to immunity is satisfied) and service is perfected under section 1608 of the Act. Since the Supreme Court’s decision in Argentine Republic v Amerada Hess Shipping Corp, it is clear that the Alien Tort Claims Act (also known as the Alien Tort Statute), or federal statutes other than the Act, may not form the basis for a suit against a foreign state or instrumentality (see 488 US 428 (1989) at 443).

Further, once a court determines that personal jurisdiction exists over the defendant state, it must then consider whether the exercise of jurisdiction over the defendant is permissible under the due process clause of the Fifth Amendment. In fact, although section 1330(b) grants district courts personal jurisdiction over foreign states in cases where those states are not entitled to sovereign immunity as determined in sections 1605 to 1607 of the Act when service has been made under section 1608, the reach of section 1330(b) does not extend beyond those limits set by the minimum contacts standard set out in International Shoe Co v Washington, 326 US 310 (1945) (see also Gilson v Republic of Ireland, 606 F Supp 38 (DC Dist 1984), affd 787 F2d 655 (DC Cir 1986); and Verlinden BV v Central Bank of Nigeria, 488 F Supp 1284 (SDNY 1980), affd 647 F2d 320 (2d Cir 1981)). For example, the Court of Appeals for the Fifth Circuit held that personal jurisdiction over the National Grains Production Company, Ltd (NGPC) of Nigeria was properly exercised by the district court, because NGPC had, among others, established a joint venture with a US corporation to establish rice farming operations in Nigeria and there was a transmission of funds to the United States (Hester International Corp v Federal Republic of Nigeria, 681 F Supp 371 (ND Miss 1988), affd 879 F2d 170 (5th Cir 1989)).

Nexus of forum court

What is the nexus the forum court requires to exercise jurisdiction over a state if the property or conduct that forms the subject of the claim is outside the forum state’s territory?

The required nexus is determined by sections 1330 and 1604 and the exceptions to immunity set out in sections 1605 to 1607 of the Act. For example, a state is not immune from jurisdiction when rights in immovable property are at issue (section 1605(a)(4)), or when an act occurring outside the United States in connection with a commercial activity of the foreign state elsewhere causes a direct effect in the United States (section 1605(a)(2)).

Interim or injunctive relief

When a state is subject to proceedings before a court or arbitral tribunal in your jurisdiction, what interim or injunctive relief is available?

Under section 1606 of the Act:

 

[a]s to any claim for relief with respect to which a foreign state is not entitled to immunity . . . the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances; but a foreign state except for an agency or instrumentality thereof shall not be liable for punitive damages.

 

Nevertheless:

 

in any case wherein death was caused, the law of the place where the action or omission occurred provides, or has been construed to provide, for damages only punitive in nature, the foreign state shall be liable for actual or compensatory damages measured by the pecuniary injuries resulting from such death which were incurred by the persons for whose benefit the action was brought.

 

Final relief

When a state is subject to proceedings before a court or arbitral tribunal in your jurisdiction, what type of final relief is available?

In principle, the final relief available against a state will be damages. Specific performance will be subject to the conditions of section 1606 of the Act.

Service of process

Identify the court or other entity that must be served with process before any proceeding against a state (or its organs and instrumentalities) may be issued.

Process is served on a state under section 1608 of the Act. Typically, proceedings will be issued before the federal district courts.

How is process served on a state?

Under section 1608 of the Act process is served on a foreign state:

  • by delivery of a copy of the summons and complaint in accordance with any special arrangement for service between the plaintiff and the foreign state or political subdivision;
  • if no special arrangement exists, by delivery of a copy of the summons and complaint in accordance with an applicable inter­national convention on service of judicial documents;
  • if service cannot be made under paragraphs (1) or (2), by sending a copy of the summons and complaint and a notice of suit, together with a translation of each into the official language of the foreign state, by any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the head of the ministry of foreign affairs of the foreign state concerned; or
  • if service cannot be made within 30 days under paragraph (3), by sending two copies of the summons and complaint and a notice of suit, together with a translation of each into the official language of the foreign state, by any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the Secretary of State in Washington, District of Columbia, to the attention of the Director of Special Consular Services and the Secretary shall transmit one copy of the papers through diplomatic channels to the foreign state and shall send to the clerk of the court a certified copy of the diplomatic note indicating when the papers were transmitted.

 

Similarly, process is served on an agency or instrumentality of a foreign state:

  • by delivery of a copy of the summons and complaint in accordance with any special arrangement for service between the plaintiff and the agency or instrumentality;
  • if no special arrangement exists, by delivery of a copy of the summons and complaint either to an officer, a managing or general agent or to any other agent authorised by appointment or by law to receive service of process in the United States; or in accordance with an applicable international convention on service of judicial documents; or
  • if service cannot be made under paragraphs (1) or (2), and if reasonably calculated to give actual notice, by delivery of a copy of the summons and complaint, together with a translation of each into the official language of the foreign state:
    • as directed by an authority of the foreign state or political subdivision in response to a letter rogatory or request;
    • by any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the agency or instrumentality to be served; or
    • as directed by order of the court consistent with the law of the place where service is to be made.

 

Strict compliance with the procedures set out in section 1608 of the Act is necessary. For example, a plaintiff, who sent a complaint in English by registered mail, did not perfect service on the Mexican Consulate (see Gerritsen v Consulado Gen de Mexico (989 F2d 340 (9th Circ 1993) cert den).

Judgment in absence of state participation

Under what conditions will a judgment be made against a state that does not participate in proceedings?

Under section 1608(e) of the Act, no judgment shall be made against a foreign entity unless there is satisfactory evidence of the right to relief. A copy of any default judgment must be sent to the foreign entity in the prescribed manner. Therefore, a default judgment is proper, provided proper service of process is effectuated. In Reichler, Milton & Medel v Republic of Liberia, the District Court for the District of Columbia held that default judgment was proper against Liberia because Liberia was properly served and the claim was proven (see 484 F Supp 2d 1 (DC Dist 2007)). The courts have also held that default judgment is proper where provisions of the 1958 Convention on Recognition and Enforcement of Foreign Arbitral Awards and the Act were satisfied (see Ipitrade International, SA v Federal Republic of Nigeria, 465 F Supp 824 (DC Dist 1978)).

Law stated date

Correct on

Give the date on which the information above is accurate.

31 May 2020