Evidence and Burden of Proof in Foreign Sovereign Immunity Litigation: A Guide for International Lawyers and Government Counsel (3)


Published in 2014 with Createspace / Amazon by Peter Fritz Walter.


Publication Table of Contents


Contents

Introduction
Importance of the Act
Construction of the Act
The House Report
Procedural Questions
Jurisdictional Immunity
The Immunity Exceptions
Core Areas of Sovereign Immunity
Immunity from Execution
The Immunity Exceptions
Conclusion


Introduction

The Foreign Sovereign Immunities Act of 1976, quoted in the literature as FSIA, FSIA 1976 or Act represents for the United States the culmination point of a legal history spanning over more than one and a half centuries.

— Public Law 94–583 (H.R. 11315), 90 STAT 2891–2898, 28 U.S.C. 1330, 1391, 1602–1611, 71 AJIL 595 (1977), 15 ILM 1388 (1976). The Act entered in force the 19th of January 1977, 28. U.S.C. 1391. It was officially introduced by the Leigh-Letter, the letter of Monroe Leigh, acting legal advisor, to the attorney general of 10 September 1976, 15 ILM 1437 (1976).

It has to be noted in this general context that sovereign immunity is not one single concept but encompasses two different immunity rules, namely regarding immunity from jurisdiction, on one hand, and immunity from execution into property, on the other.

In accordance with the quite different legal traditions of these rules, I will carefully distinguish between jurisdictional immunities, and immunity from execution. While in American textbooks on international law, this distinction is not always made, it is not constructive in my view to refer to sovereign immunity without distinguishing between the different immunity rules.

— The distinction is not always made, for example, in Gamal Moursi Badr, State Immunity (1984), 9–20 and in Ian Sinclair, The Law of Sovereign Immunity, Recent Developments, RCADI (1980-II), 121–128, and 161–170. See also Sompong Sucharitkul, State Immunities and Trading Activities in International Law (1959), 4–14 and Immunities of Foreign States before National Authorities, 149 RCADI (1976-I), 155.

There is more clarity to be found in case law, as even in the earliest of precedents on foreign sovereign immunity, the question which immunity was concerned was case-specific, and generally elucidated by the court. For example, in The Schooner Exchange v. M’Faddon, 11 U.S. (7 Cranch) 116 (1812) or Berizzi Brothers v. Steamship Pesaro, 271 U.S. 562, 46 S.Ct. 611 (1926), it was made clear that while at that time sovereign immunity was still meant to be that of a sovereign ruler, in the second precedent, this immunity doctrine was extended to governments. In fact, in the first precedent, the vessel Exchange belonged to Emperor Napoleon I, and the vessel Pesaro belonged to the government of Italy.

Berizzi Brothers v. Steamship Pesaro is a precedent that for the first time informs about the details of how the foreign state has to submit its immunity claim to the court.

Namely, in this case, the Italian ambassador made a suggestion that the vessel Pesaro belonged to the Italian government. The court however stated that this way to claim immunity was insufficient. Already in Ex Parte Muir, 254 U.S. 522, 532–533, the United States Supreme Court rejected an immunity claim that was submitted to the court in the form of a simple statement from the British embassy and said foreign states were held to use official channels for claiming immunity. This meant in clear text that the immunity claim had to be submitted to the State Department.

The verdict was criticized in the international law literature as a voluntary submission of the judiciary under the executive in matters of foreign sovereign immunity, but I do not see the point as the court also expressly stated that there was a second way to claim immunity. This second alternative was that the foreign state send an official delegate to the court who would present the immunity claim in the name of the foreign government.

This, then, was confirmed in Compania Española v. Navemar, 303 U.S. 68, 74, however with a modification. In this case, the Secretary of State had refused to grant immunity to the vessel Navemar and the Spanish ambassador chose the second way to submit immunity, directly to the court, and pleaded the vessel belonged to the Spanish state.

More importantly, these precedents that are often taken as examples for a so-called absolute immunity doctrine never absolutized anything in matters of foreign sovereign immunity. Their rulings were strictly case-specific, and in the more renowned international law textbooks, the error is explicitly corrected.

— For the fact that these precedents did not affirm any general immunity rules, see Gamal Moursi Badr, State Immunity (1984), 19–20 and Sucharitkul, State Immunities and Trading Activities in International Law (1959), 51–52. For the fact that these precedents did not hold true any ‘absolute’ rule of immunity from jurisdiction, see Gamal Moursi Badr, State Immunity (1984), 10–14 and Sucharitkul, Immunities of Foreign States before National Authorities, 149 RCADI (1976-I), 155.

In fact, an absolute doctrine of foreign sovereign immunity was never established. And it didn’t need to be established because as long as states did not engage in the marketplace and behaved like traders, the distinction between sovereign and private activities of a foreign state did not need to be made. Hence, the whole question of the restrictive immunity doctrine could not come up in the first place. As a further result, the very subject of this study would have been obsolete as a burden of proof situation can only come up on the basis of the restrictive immunity doctrine.

More precisely, as to these precedents, it was not even the immunity of a foreign sovereign or government that was concerned in the litigations, but the immunity of a vessel belonging to that ruler or government. Hence, when it is stated in the international law literature these cases were strictly about jurisdictional immunities, this is simply not true. These precedents were about property belonging to foreign rulers or governments, and thus were concerning for the least as a second reasoning the question of immunity from execution.


Importance of the Act

The FSIA was the first national enactment on foreign sovereign immunity, while it was preceded by several international conventions, as for example the Brussels Convention of 1926 or the European Convention on Sovereign Immunity of 1972.

The Act also provided an important clarification on the practice of foreign sovereign immunity by the Department of State. Both before this enactment and thereafter, the Department of State issued their legal opinion to courts in pending foreign sovereign immunity litigations.

In Compania Española v. Navemar, 303 U.S. 68, 74, the Supreme Court ruled that in case a court grants public character to a foreign vessel, ‘it is then the duty of the courts to release the vessel.’ This precedent was later confirmed in Ex Parte Peru and Republic of Mexico v. Hoffmann.

Ex Parte Peru, 318 U.S. 578, 589: ‘This practice is founded upon the policy, recognized both of the Department of State and the courts, that our national interest will be better served in such cases if the wrongs to suitors, involving our relation with a friendly foreign power, are righted through diplomatic negotiations rather than by compulsion of judicial proceedings.’ Already in the case United States v. Lee, 106 U.S. 196, 209, and with regard to state immunity, the Supreme Court ruled: ‘In such cases the judicial department of this government follows the action of the political branch, and will not embarrass the latter by assuming an antagonistic jurisdiction.’

Republic of Mexico v. Hoffmann, 324 U.S. 30, 35: ‘It is therefore not for the courts to deny an immunity which our government has seen fit to allow, or to allow an immunity on new grounds which the government has not seen fit to recognize.’

It has to be noted that the practice prior to the FSIA in matters of foreign sovereign immunity was often characterized by a ‘voluntary deference’ of the judiciary under the executive powers of the State Department.

This had obvious political reasons. The United States Supreme Court ruled consistently that the judiciary may not interfere in the political decision-making of the department, as matters of wrong-doing by foreign states could be handled better by diplomacy than by the ‘compulsion of judicial proceedings.’

— See the two preceding comments, supra. From the literature, see, for example, Philip Jessup, Has the Supreme Court Abdicated One of its Functions?, 40 AJIL 168–172 (1946). The expression ‘deference’ is to be found in Sweeny/Oliver/Leech, The International Legal System (1981), 300.

From the Tate Letter of 19 May 1952, the administrative practice of the State Department became more sophisticated, as the restrictive immunity doctrine was from that moment the official doctrine to be followed by the United States of America in foreign sovereign immunity litigations.

— The Tate Letter introduced the restrictive immunity doctrine by stating: ‘For these reasons it will thereafter be the Department’s policy to follow the restrictive theory of sovereign immunity in the consideration of requests of foreign governments for a grant of sovereign immunity.’ (Sweeny/Oliver/Leech, The International Legal System (1981), 304).

The application of legal decision-making within administrative procedure was quite problematic from a constitutional point of view. The House Report criticized this practice.

H. R. Report No. 94–1487

The Tate Letter, however, posed a number of difficulties. From a legal standpoint, if the Department applies the restrictive principle in a given case, it is in the awkward position of a political institution trying to apply a legal standard to litigation already before the courts. Moreover, it does not have the machinery to take evidence, to hear witnesses, or to afford appellate review. (H. R. Report No. 94–1487, 1–55, at 8, 15 ILM 1398 (1976), at 1402).

In fact, the State Department was constantly in these affairs under political pressure, as foreign states tried to use diplomacy to influence the Department’s decisions. In addition, the administrative rulings of the State Department, as they were not binding to the courts, were not giving a definite satisfaction to the issue, and their compliance with due process was not assured. The House Report explained the purpose of the Act also with due process considerations.

H. R. Report No. 94–1487

A principle purpose of this bill is to transfer the determination of sovereign immunity from the executive branch to the judicial branch, thereby reducing the foreign policy implications of immunity determination and assuring litigants that these often crucial decisions are made on purely legal grounds and under procedures that insure due process. (Id.)

— The legislative materials also noted that ‘[t]he Department of State would be freed from pressures from foreign governments to recognize their immunity from suit and from any adverse consequences resulting from an unwillingness of the Department to support that immunity.’ (Id., p. 7, 15 ILM 1401).

As to the political importance of the Act, a topic that is quite debated nowadays because of the 2006 Amendment to the FSIA, the United States Supreme Court stated already back in 1981 in Dames & Moore v. Regan, 453 U.S. 654, 101 S.Ct. 2972, 69 L.Ed 2d 918 (1981), that the FSIA did not impede the President of the United States from suspending any action pending in a federal court against a foreign state, nor from initiating any court action against a foreign state in any federal court under the International Emergency Economic Powers Act (IEEPA) and the Trading With The Enemy Act (TWEA). In that case, the Supreme Court ruled about actions taken by President Jimmy Carter in 1979 against Iran, subsequent to the hostage taking of American embassy staff in Iran.


Construction of the Act

The FSIA contains two general rules, one regarding immunity from jurisdiction, §1604, and one regarding immunity from execution, §1609. These rules are each followed by exceptions, §§1605, 1606, 1607 and §§1610–1611.

Immunity is granted only when one of the exceptions applies. This is also called the rule and exception principle.

§1330(a) entangles the competence ratione materiae of the court, also called original jurisdiction or subject matter jurisdiction, with the decision about immunity, which means that in practice that court is competent to rule over the case only when an exception to immunity applies, and thus when the immunity claim of the foreign state has been denied.

Maritime International Nominees Establishment (MINE) v. The Republic of Guinea, 21 ILM 1355, 1360 (D.C.Cir.1982): ‘The Act thereby connects the issue of subject matter jurisdiction to the issue of sovereign immunity: the absence of immunity is a condition to the presence of subject matter jurisdiction.’

From competence ratione materiae or subject matter jurisdiction is to distinguish competence ratione personae or personal jurisdiction, §1330(b), which requires affirmation of subject matter jurisdiction, §1330(a) and service of process, according to §1608 of the Act.

— The House Report, p. 13, 15 ILM 1398, 1405 (1976) notes: ‘… section 1330(b) also satisfies the due process requirement of adequate notice by prescribing that proper service is made under section 1608 of the bill.’

Thus, sections 1330(a),(b), 1608 and 1605–1607 of the FSIA are all carefully interconnected to a point that in Maritime International Nominees Establishment (MINE) v. The Republic of Guinea, the court speaks about ‘the Act’s interlocking provisions governing the separate issues of subject matter jurisdiction, sovereign immunity, and personal jurisdiction’.

— H. R. Report No. 94–1487, p. 14, 15 ILM 1398, 1405 (1976) and Maritime International Nominees Establishment (MINE) v. The Republic of Guinea, 21 ILM 1355, 1360 (D.C.Cir.1982). See also Upton v. Empire of Iran, 459 F.Supp. 264, 265 (D.D.C.1978), Velidor v. L/P/G Benghazi, 653 F.2d 812, 817 (3d Cir.1981), Texas Trading & Milling Corp. v. Federal Public of Nigeria and Central Bank of Nigeria, 647 F.2d 300, 307–308 (2d Cir.1981), Ohntrup v. Firearms Center, Inc., 516 F.Supp. 1281, 1283 (E.D.Pa.1981).

This is how the FSIA entangles substantive law and procedural law, and this is why the whole matter is so tricky! It’s also tricky for the courts because this drafting technique requires the court to state about the whole question of immunity before entering the trial, as without pronouncing itself about its competence, the court is not legally in state to rule over the matter. Thus, for affirming its competence, the court must affirm one of the exceptions, §§1605–1607 of the FSIA.

How does that work in practice? There is case law that can be drawn upon to elucidate the matter. In Upton v. Empire of Iran, 459 F.Supp. 264, 265 (D.D.C.1978), the court stated:

The Immunities Act thereby creates an identity of substance and procedure; that is, it requires the court to examine the underlying claim in light of the immunity exceptions set forth in sections 1605–1607 whenever a jurisdictional sovereign immunity defense is interposed.

— See also Letelier v. Chile, 488 F.Supp. 665, 671 (D.D.C.1980)

Other precedents clarify that the House Report’s idea that foreign sovereign immunity was an affirmative defense cannot be taken literally but has to be interpreted in the light of valid international law, which namely requires the court to state about the immunity claim sua sponte, and not depending on the pleadings.


The House Report

The Burden of Proof

The initiative to insert a passage in the House Report that tries to give some guidance on the difficult problem of the burden of proof came from the Committee on International Law of the Association of the Bar of the City of New York.

— H.R. Report No. 94–1487, 94th Cong., 2d Session., 1–55, U.S. Code Cong. & Adm. News 6604, 15 ILM 1398 (1976), Jurisdiction of United States Courts in Suits Against Foreign States, U.S. Congress, House of Representatives, Subcommittee on Administrative Law and Governmental Relations of the Committee on the Judiciary, Hearing, June 4, 1976, Washington, D.C., 1976 and HEARING before the Subcommittee on Administrative Practice and Procedure of the Committee on the Judiciary, United States Senate, 91st Cong., 2d Session, June 3, 1970, Washington, D.C., 1970.

The Burden of Proof Rule

New chapter 97 of title 28, United States Code, starts from a premise of immunity and then creates exceptions to the general principle.

The chapter is thus cast in a manner consistent with the way in which the law of sovereign immunity has developed. Stating the basic principle in terms of immunity may be of some advantage to foreign states in doubtful cases, but, since sovereign immunity is an affirmative defense which must be specially pleaded, the burden will remain on the foreign state to produce evidence that a foreign state or one of its subdivisions, agencies or instrumentalities is the defendant in the suit and that the plaintiff’s claim relates to a public act of the foreign state — that is, an act not within the exceptions in sections 1605–1607.

Once the foreign state has produced such prima facie evidence of immunity, the burden of going forward would shift to the plaintiff to produce evidence establishing that the foreign state is not entitled to immunity. The ultimate burden of proving immunity would rest with the foreign state.

Corrective Case Law

In several leading cases, American District Courts have principally affirmed the allocation of the burden of proof the way the House Report proposed it. In Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1378 (5th Cir. 1980), the court stated:

The burden of establishing the applicability of this immunity naturally lays with the one claiming it.

In Verlinden B.V. v. Central Bank of Nigeria, 647 F.2d 320, 326 (2d Cir. 1981), the district court held:

The Act retains sovereign immunity as a defense, to be raised by the defendant.

In De Sanchez v Banco Central de Nicaragua, 515 F.Supp. 900, 903 (E.D.La. 1981), the court explained:

First, as is true for all the other exceptions under the FSIA, the burden of demonstrating that the claim does not fall within §1605(a)(2), i.e. the burden of proof that immunity exists, is upon the foreign state.

In Matter of Sedco, Inc., 543 F.Supp. 561, 564, 21 ILM 318 (S.D.Tex. 1982), the court ruled:

Once a basis for jurisdiction is alleged, the burden of proof rests on that foreign state to demonstrate that immunity should be granted.

In Transamerican S.S. Corp. v. Somali Democratic Republic, 767 F.2d 998, 1002 (D.D.C. 1985), the court held:

In accordance with the restrictive view of sovereign immunity reflected in the FSIA, the burden of proof in establishing the inapplicability of these exceptions is upon the party claiming immunity.

Evaluation

The wording of the legislative materials is not without ambiguities.

The main problem comes from the fact that the court, as a general rule, is obliged to decide sua sponte about the affirmation of subject matter jurisdiction.

This brings about an obvious contradiction between 28 U.S.C. §1330(a) and §1605(a)(w) FSIA which links together subject matter jurisdiction and sovereign immunity, on one hand, and the construct of sovereign immunity as an affirmative defense which would have to be specifically pleaded.

The contradiction here is that to construe a defense under 1605(a)(2) as a conditio sine qua non for jurisdiction would rule against the general principle that courts have to state about their jurisdiction before examining the subject matter of the case.

The United States Supreme Court ruled about this important question in Verlinden B.V. v. Central Bank of Nigeria, 461 U.S.480, 103 S.Ct.1962, 76 L.Ed.2d 81, 51 U.S.L.W. 4567, 22 ILM 647 (1983).

In this important precedent, the foreign state did not enter an appearance to assert an immunity defense. The Supreme Court decided that in such a case a district court still must determine that immunity is unavailable under the FSIA, as this is a condition for the court’s jurisdiction. (103 S.Ct.1962, 1971, note 20). Hence, the wording of the House Report that sovereign immunity is to be considered as an affirmative defense cannot be taken literally.

More clearly even stated the Court of Appeal of the 7th Circuit, in Frovola v. Union of Soviet Socialist Republics, 761 F.2d 370 (7th Cir. 1985), that the statement of the House Report is not accurate in this point. Because the absence of sovereign immunity is a prerequisite to subject matter jurisdiction, the question of immunity must be decided about by a district court even though the foreign country whose immunity is at issue not entered an appearance. (Id., 372, 373).

The most interesting leading case that modified the statement of the House Report is perhaps Alberti v. Empresa Nicaraguense de la Carne, 705 F.2d 250, 22 ILM 835 (7th Cir. 1983). Here, an expropriation was at the basis of the claim.

The conditions under which expropriation had been effected by the Nicaraguan government could not be clarified in the litigation.

This was however a decisive question under §1605(a)(3) FSIA which denies sovereign immunity if the expropriation had been done in violation of international law.

The court held that the foreign state was not obliged to disprove all the immunity exceptions enumerated in sections 1605 to 1607 of the Act, but only the ones the plaintiff invoked in support of his allegation that immunity had to be refused. It would be a waste of time, argued the Court of Appeal, to require of the foreign state a detailed and complicated proof, whereas it would be relatively easy for the plaintiff to assert the particular exception on which he bases his claim.

As a result, the foreign state could limit its evidence production on the assertion that the activity which gave rise to the claim, was of a public, governmental nature.

Alberti v. Empresa Nicaraguense de la Carne

Accordingly, we believe that the purposes of the act will best be served by requiring that the defendant demonstrate that the suit relates to a governmental act of the foreign state being sued, and then placing the burden of identifying the relevant exception by affidavit or otherwise upon the plaintiff. (705 F.2d 250, 256, 22 ILM 835, 839).

This leading case has been discussed by Monroe Leigh, Esq., from Steptoe & Johnson, the former legal advisor of the Department of State, who was in this function the leading figure in the process of preparing and drafting the FSIA.

Mr. Leigh insists on the wording of the House Report passage. (77 AM.J.INT’L L. 888 (1983). However, after the Supreme Court decision in the Verlinden case and considering the ambiguities in the wording of the House Report, it seems that the Alberti precedent serves better the practice and is more reasonable as to a functional fair play in the evidence procedure, than the strict and inflexible rule established in the House Report.

As to a future international law standard on the problem of the burden of proof in the field of sovereign immunity, every skilled observer of international law knows that the construct of sovereign immunity as an affirmative defense would never be accepted by the international community!

However, the Alberti standard might be a solution that could be accepted internationally. This seems also to be the general tenor in the international law literature. For example Julia B. Brooke, writes in her article The International Law Association Draft Convention on Foreign Sovereign Immunity: A Comparative Approach:

A strict interpretation of the second element would impose an onerous burden on the foreign state, since the statutory exceptions are numerous, complicated, and often ambiguous. As a result, courts tend to focus on the ability of the foreign state to disprove the particular exception asserted by the plaintiff. (23 VA.J.INT’L L. 635, 642 (1983).

We can thus conclude that the FSIA did not affect or alter the general rule that the plaintiff bears the burden of proof for personal jurisdiction, minimal contacts, service of process and the prerequisites of a default judgment.


Procedural Questions

Subject Matter Jurisdiction

The Foreign Sovereign Immunities Act is the only statute that grants jurisdiction of the United States judiciary over foreign states, which has been confirmed by case law.

For example, in Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443, 102 L. Ed. 2d 818, 109 S. Ct. 683 (1989), the United States Supreme Court held that the FSIA provides the sole basis for obtaining jurisdiction over a foreign state in American courts.

We have seen already that, regarding the FSIA, we have to distinguish between the court’s subject matter jurisdiction, and personal jurisdiction. Here, I would like to look again at this procedural question, while focusing on the problem of the burden of proof.

This means that we need to have a detailed regard on the interplay of subject matter jurisdiction, §1330, minimal contacts, §§1605(a)(2), 1605(a)(5), and service of process, §1608:

Title 28, Part IV, Chapter 85, §1330

(a) The district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603 (a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605–1607 of this title or under any applicable international agreement.

(b) Personal jurisdiction over a foreign state shall exist as to every claim for relief over which the district courts have jurisdiction under subsection (a) where service has been made under section 1608 of this title.

(c) For purposes of subsection (b), an appearance by a foreign state does not confer personal jurisdiction with respect to any claim for relief not arising out of any transaction or occurrence enumerated in sections 1605–1607 of this title.

There are some tricky points to observe regarding the affirmation of jurisdiction under the FSIA. First, it has to be seen that the FSIA entangles sovereign immunity and subject matter jurisdiction in that the denial of immunity is a condition for jurisdiction.

This leads to the strange result that the court has to clarify the whole quite complex sovereign immunity matter at the very onset of the trial, as it’s a condition for its jurisdiction or competence, and it goes without saying that the court has to do this sua sponte.

Second, as I have already pointed it out, there are terminological difficulties regarding the expressions jurisdiction, as it is used in the FSIA, and the term competence. There is no doubt, however, that section 1330 FSIA speaks of jurisdiction, but means competence — and not, for example, minimal contacts. Equally, the statute uses the terms subject matter jurisdiction and personal jurisdiction instead of subject matter competence and personal competence.

Next, it has to be seen that section 1330(b) is a federal long-arm statute that subjects foreign states to the territorial jurisdiction of the United States under the condition that due process regulations are strictly followed, which means that there must be minimal contacts between the facts in issue and the territorial scope of the United States of America.

International Shoe Co. v. Washington, 326 U.S. 310 (1945), McGee v. International Life Insurance Co., 355 U.S. 220, 223 (1957). See also the House Report, 15 ILM 1398, 1408 (1976).

Personal Jurisdiction

The next question that comes up is who bears the burden of proof for personal jurisdiction? The question was asked in Wyle v. Bank Melli of Teheran, Inc., 577 F. Supp. 1148, 1157 (N. D. Cal. 1983), and the court clearly came to the conclusion that the burden of proof for personal jurisdiction follows the general principle, that is, the burden for the facts pertaining to personal jurisdiction rests with the plaintiff:

The legislative history makes clear what the foreign state must prove to establish immunity; that the challenged action is that of a foreign state in its public, noncommercial capacity. The burden of proving the existence of an otherwise actionable (if not barred by sovereign immunity) activity or act within the United States or having a direct effect in the United States would obviously remain with the plaintiff. Simply because the foreign state must plead and prove certain facts necessary to establish its immunity does not mean that the normal burden of proving subject matter and personal jurisdiction is reversed. (577 F. Supp. 1148, 1157 (N. D. Cal. 1983).

Minimal Contacts

There is an abundance of literature and jurisprudence regarding the particular requirements of minimal contacts for the assertion of subject matter jurisdiction in the United States.

— See, for example, Johnson & Worthington, Minimum Contacts Jurisdiction under the FSIA, 12 GA. J. INT’L & COMP. L. 209–230 (1982), Terence J. Pell, The FSIA of 1976: Direct Effects and Minimal Contacts, 14 CORNELL INT’L L. J. 97–115 (1981) as well as Direct Effect Jurisdiction under the FSIA of 1976, 13 N.Y.U.J. INT’L L. & POL. 571 (1981), Effects Jurisdiction under the FSIA and the Due Process Clause, 55 N. Y. U. L. REV. 474 (1980), The Nikkei Case: Toward a More Uniform Application of the Direct Effect Clause of the FSIA, 4 FORDHAM INT’L L. J. 109 (1980).

With regard to the burden of proof of the minimal contacts for jurisdiction to be established, the district court, in Tigchon v. Island of Jamaica, 591 F. Supp. 765, 766 (W. D. Mich. 1984), held:

Plaintiff correctly notes that once a basis for jurisdiction is alleged, the burden of proof rests on the foreign state to demonstrate that immunity should be granted. However, plaintiff has not alleged the minimal facts necessary in order to establish a basis for jurisdiction.

A comparison of the FSIA’s federal long-arm statute, §1330(b), with the New York Civil Practice Law, §301, the famous doing business clause, shows clearly that the onus can only be with the plaintiff, as shown in Beacon Enterprises v. Menzies, 715 F.2d 757, 762 (2d Cir. 1983):

As plaintiff, Beacon bore the ultimate burden of proving the court’s jurisdiction by a preponderance of evidence.

In this context, Rules 4(d)(7) and 4(e) of the Federal Rules of Civil Procedure are to be observed. They state that the competence of a federal court against any non-resident defendant goes only as far as the applicable long-arm statute of the forum state.

Service of Process

The next criterion for affirming personal jurisdiction under §1330(b) FSIA is service of process according to §1608 FSIA.

— The House Report explains under section 1608: ‘Provisions in section 1608 are closely interconnected with other parts of the bill — particularly the … section 1330 and sections 1605–1607. If notice is served under section 1608 and if the jurisdictional contacts embodied in sections 1605–1607 are satisfied, personal jurisdiction over a foreign state would exist under section 1330(b).’ (H.R. Report, p. 23, 15 ILM 1398, 1410 (1976).

§ 1608. Service; time to answer; default

(a) Service in the courts of the United States and of the States shall be made upon a foreign state or political subdivision of a foreign state: (1) 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; or (2) 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; or (3) 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 (4) 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. As used in this subsection, a ‘notice of suit’ shall mean a notice addressed to a foreign state and in a form prescribed by the Secretary of State by regulation. (b) Service in the courts of the United States and of the States shall be made upon an agency or instrumentality of a foreign state: (1) 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; or (2) 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 authorized 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 (3) 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 — (A) as directed by an authority of the foreign state or political subdivision in response to a letter rogatory or request or (B) 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 (C) as directed by order of the court consistent with the law of the place where service is to be made. (c) Service shall be deemed to have been made — (1) in the case of service under subsection (a)(4), as of the date of transmittal indicated in the certified copy of the diplomatic note; and (2) in any other case under this section, as of the date of receipt indicated in the certification, signed and returned postal receipt, or other proof of service applicable to the method of service employed. (d) In any action brought in a court of the United States or of a State, a foreign state, a political subdivision thereof, or an agency or instrumentality of a foreign state shall serve an answer or other responsive pleading to the complaint within sixty days after service has been made under this section. (e) No judgment by default shall be entered by a court of the United States or of a State against a foreign state, a political subdivision thereof, or an agency or instrumentality of a foreign state, unless the claimant establishes his claim or right to relief by evidence satisfactory to the court. A copy of any such default judgment shall be sent to the foreign state or political subdivision in the manner prescribed for service in this section.

Service to either the foreign state itself or to one of its subdivisions is ruled by §1608(a), whereas service to any agency or instrumentality of a foreign state is stipulated in §1608(b).

Regarding the burden of proof, the House Report contains an explanatory statement only with regard to admiralty actions.

— Admiralty actions, §1605(b) FSIA are not within the scope of the present monograph as they have no parallel to continental law. This restriction however only applies with regard to jurisdictional immunities. Regarding immunity from execution, the seizure of vessels belonging to foreign states is a custom common to all jurisdictions. See, in detail, A.N. Yannopoulos, Foreign Sovereign Immunity and the Arrest of State-Owned Ships: The Need for an Admiralty Sovereign Immunities Act, 57 TUL.L.REV. 1274–1342 (1983), Kevin P. Simmons, Admiralty Practice under the FSIA — A Trap for the Unwary, 12 J.MAR.L. & COMM. 109–121 (1980). The House Report states that ‘ … the plaintiff must also be able to prove that the procedures for service of process under section 1608(a) or (b) have commenced … (H. R. Report No. 94–1487, p. 22, 15 ILM 1398, 1410 (1976).

It suffices thus to prove the commencement of service and the plaintiff doesn’t need to demonstrate that service has been effectively accomplished.

The House Report explains that this means an attenuation of proof for the specific case of admiralty actions and is different under ‘ordinary’ procedural law.’ (Id.) See also Federal Rules of Civil Procedure, Rules 1, 81, 82, 9(h).

For actions under ‘ordinary’ procedural law, not this passage of the legal materials applies, but Rule 4(g) of the Federal Rules of Civil Procedure.

Rule 4(g) Federal Rules of Civil Procedure

The person serving the process shall make proof thereof to the court promptly and in any event within the time during which the person served must respond to the process.

Default Judgment

Section 1608(e) FSIA rules the default judgment against a foreign state:

§1608(e)

(e) No judgment by default shall be entered by a court of the United States or of a State against a foreign state, a political subdivision thereof, or an agency or instrumentality of a foreign state, unless the claimant establishes his claim or right to relief by evidence satisfactory to the court. A copy of any such default judgment shall be sent to the foreign state or political subdivision in the manner prescribed for service in this section.

Under section 1608(e) a default judgment can be rendered only if the plaintiff delivers conclusive proof to the court. This clause is filed after Rule 55(e) Federal Rules of Civil Procedure which applies for default judgments against the United States as the defendant.

— Rule 55(e) Federal Rules of Civil Procedure states: ‘Judgment against the United States. No judgment by default shall be entered against the United States or an officer or agency thereof unless the claimant establishes his claim or right to relief by evidence satisfactorily to the court.’

This proof is stricter than the one required in Rule 55(a) for the ‘ordinary’ default judgment where it’s enough that the defendant didn’t enter an appearance.

— Rule 55(a) Federal Rules of Civil Procedure states: ‘Entry. When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules and that fact is made to appear by affidavit or otherwise, the clerk shall enter his default.’

Section 1608(e) FSIA requires even more than that; it requires that the plaintiff also proves his claim with regard to the applicable substantive law. This is so because §1330(a) links the question of subject matter jurisdiction with the applicability of one of the exceptions in sections 1605–1607 to the general rule of sovereign immunity.

This leads to the interesting constellation that, regarding the default judgment, according to section 1608(e) FSIA, the foreign state is not obliged to make a prima facie case of immunity first; the burden is entirely on the plaintiff regarding all the procedural and substantial facts at issue in the action.

This is logical, by the way, as the foreign state didn’t enter an appearance and in such a situation typically doesn’t produce any evidence.

For the similar provision in Rule 55(e) Federal Rules of Civil Procedure, the precedent Giampaoli v. Califano, 628 F.2d 1190, 1195–1196 (9th Cir. 1980), stated that as the plaintiff has the right to begin with producing evidence, it’s upon him to make the prima facie case, whereupon the evidential burden ‘shifts to the government.’

This shows that the ultimate burden here is clearly with the plaintiff; it also shows that the FSIA did not absolve from the general rules of evidence that impose the burden of proof for the court’s jurisdiction upon the plaintiff. This is both valid for the legal burden and the evidential burden. It’s always the plaintiff who bears the evidential burden for the facts regarding service of process.

— See, for example, Gray v. Permanent Mission of People’s Republic of the Congo in the United States, 443 F.Supp. 816, 821–822 (S.D.N.Y. 1978), 63 IRL 121 (1982), Velidor v. L/P/G Benghazi, 653 F.2d 812, 821 (3d Cir. 1981), 21 ILM 621, 623–624 (1982), 63 ILR 622, Harris Corp. V. National Iranian Radio and Television, 691 F.2d 1344, 1352 (11th Cir. 1982), 22 ILM 434, 439 (1983), Alberti v. Empresa Nicaraguense de la Carne, 705 F.2d 250, 253 (7th Cir. 1983), 22 ILM 835, 836 (1983).

This section is drafted after Rule 55(e) of the Federal Rules of Civil Procedure which refers to a default judgment against the United States as a defendant party.

It is obvious that these provisions are more severe than those regarding the ordinary default judgment, that is, Rule 55(a) of the Federal Rules of Civil Procedure, where it is sufficient that the defendant party has failed to plead or otherwise defend itself. It is rather a matter of common sense that the plaintiff bears the burden of proof for the prerequisites of the default.

In the case of 1608(e) FSIA, this is a quite severe burden since the plaintiff must practically prove his entire claim by evidence satisfactory to the court, not only his title, but also the conditions of competence. This means that the plaintiff must prove, by a preponderance of probability, the applicability of one of the exceptions of §§ 1605, 1606 or 1607 FSIA.

— See also Maritime International Nominees Establishment (MINE) v. Republic of Guinea, 21 ILM 1355, 1360 (D. C. Cir. 1982): ‘The Act thereby connects the issue of subject matter jurisdiction to the issue of sovereign immunity: the absence of immunity is a condition to the presence of subject matter jurisdiction.’

Definitions

28 U.S.C. §1603. Definitions

For purposes of this chapter — (a) A ‘foreign state’, except as used in section 1608 of this title, includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b). (b) An ‘agency or instrumentality of a foreign state’ means 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 of the United States as defined in section 1332 (c) and (d) of this title, nor created under the laws of any third country. (c) The ‘United States’ includes all territory and waters, continental or insular, subject to the jurisdiction of the United States. (d) 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. (e) 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.

28 U.S.C. §§1332(c),(d)

(c) … a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principle place of business … (d) The word ‘States’, as used in this section, includes the Territories, the District of Columbia, and the Commonwealth of Puerto Rico … ‘.

We have already seen previously in this study that according to the House Report and federal case law that the burden is upon the foreign state to prove that the conditions of §§1603(a),(b) are fulfilled.

— See House Report, §1604, p. 17, 15 ILM 1398, 1407 (1976): ‘… the burden will remain on the foreign state to produce evidence in support of its claim of immunity. Thus, evidence must be produced to establish that a foreign state or one of its subdivisions, agencies or instrumentalities is the defendant in the suit … .’

The problem was already subject of the precedent Jet Line Service, Inc. v. M/V Marsa El Hariga, 462 F.Supp. 1165 (D.Md. 1978). The plaintiff seized the Libyan steamship M/V Marsa El Hariga for indemnifying himself for discharging the raw oil from this ship.

— This is a simplification of the facts; the bill that was not paid only amounted to $91,310.00, while the value of the vessel was 24 million dollars!

The owner of the vessel, the General National Maritime Transportation Company (GNMTC) from Libya, claimed immunity from jurisdiction alleging it was neither a citizen of the United States under §1603(b)(3) FSIA nor created under the law of a third country, nor else an ‘organ’ of the Libyan government in the sense of §1603(b)(2) FSIA. This point was a fact in issue as the plaintiff expressly contested the fact that GNMTC fell under §§1603(a),(b).

Hence, the burden of proof was upon the GNMTC for these facts; it presented two affidavits by the Chargé d’Affaires of the Libyan embassy in Washington D.C. that certified the status of the GNMTC and the ownership of the vessel.

The court stated that the burden was upon GNMTC for proving the conditions of its immunity claim and that the affidavits were proper proof and had to be valued accordingly (462 F.Supp. 1165, 1171–1172).

In addition, it is interesting to see that the court did not limit the inquiry to the mere evaluation of these affidavits but referring to Carey v. National Oil Corporation, 453 F.Supp. 1097 (S.D.N.Y. 1978), 63 ILR 164, 232 (1982), found from that precedent that the GNMTC was a ‘wholly-owned Libyan entity which has succeeded the General Maritime Transport Organization in 1970.’

It is important to see that despite the burden of the foreign state to produce prima facie evidence for their immunity claim, the district courts will nonetheless inquire sua sponte about these facts, if there is more information available in the records presented at court.

This was also important here in this case because the second affidavit did not fulfill the formal requirements for being evaluated as adequate proof, but was nonetheless appreciated by the court in its quality of a ‘simple statement.’

More importantly, the court held: ‘Moreover, there is authority for the view that a court may take judicial notice of an entity’s sovereign character.’ (462 F.Supp. 1165, 1172).

Now, in such a situation, there is a certain ambiguity as both ideas cannot be true at the same time. Either the burden is upon the foreign state to demonstrate a basis for their immunity claim or there is no such burden because the court must consider all those facts sua sponte.

So, if the latter is the case, why then the whole plot about the burden of proof? This doesn’t seem to make sense, and the court obviously was conscious of that and elaborated:

Consequently, unlike the situation in Pan American Tankers Corp. v. Republic of Vietnam, 291 F.Supp. 49 (S.D.N.Y. 1968), where the record was devoid of any facts probative as to whether two corporate defendants were ‘creatures of the Republic of Vietnam’, 291 F.Supp. at 52, this Court is able to find that defendant has produced such prima facie evidence of immunity and that plaintiff, then faced with the burden of going forward, has failed to produce evidence establishing that sovereign immunity should not be granted. (Id.)

Pan American Tankers Corp. v. Republic of Vietnam, 291 F.Supp. 49 (S.D.N.Y. 1968), was an arbitrage action under the Federal Arbitration Act, 9 U.S.C. §§4, 8 (1964) against the Vietnamese government and two Vietnamese companies resulting from a navigation contract. The plaintiffs alleged breach of contract by the fact that the Vietnamese government didn’t allow them to discharge the cement from their ships. Vietnam claimed foreign sovereign immunity.

The court referred to the House Report that construes sovereign immunity as an affirmative defense; in addition, the court explained, Vietnam could have claimed immunity directly with the State Department, and that in that case the suggestion of the American government would have been conclusive for the court.

However, Vietnam had not done that nor had the Vietnamese government offered any evidence to the fact if the two defendant companies were agencies or instrumentalities of a foreign state under §§1603(a)(b) FSIA.

Now, this is really one of the rare cases where at the end the court stays with a non liquet situation. Contrary to an older precedent, Puente v. Spanish National State, 116 F.2d 43 (2nd Cir. 1940), that was still ruled before the restrictive immunity doctrine was applied in the United States, the court stated in the present case:

Since the Republic of Vietnam has asserted this plea, which is in the nature of a defense, it would appear to have the burden of proving its privilege of immunity. It is hereby ordered that the defendant The Republic of Vietnam submit such affidavits and other proofs as it may deem supportive of its plea of sovereign immunity. (…) Should the Republic of Vietnam succeed in establishing at least a prima facie case to sustain its plea, the Court may order an evidentiary hearing to further develop the record, on the motion of either party, unless the essential facts are clearly set forth and not disputed. (291 F.Supp. 49, 52–53).

In addition, this case clarifies that the court is obliged to find out sua sponte about the governmental character of an agency or instrumentality of a foreign state only if there are significant indices to be found in the pleadings served to the court by the parties.

Because the Court must have ‘full development of the facts’ in order to dispose of the legal issues, …, the papers to be submitted by both parties should be based on specific facts and events succinctly stated and not accompanied by generalized conclusions. (Id., 53).

The court thus appreciated the proof submitted by GNMTC, admitting its quality to be an organ of the Libyan government under §§1603(a),(b) FSIA and concluded it was adequate enough to establish a prima facie case of immunity. Hence, the judge saw the burden of going forward with evidence, or evidential burden, shifting to the plaintiff.

— See also Sugarman v. Aeromexico, 626 F.2d 270, 272 (3d Cir. 1980) that I already discussed and where the Court of Appeals of the 3rd Circuit stated: ‘We agree with the district court that clause two and three of section 1605(a)(2) afford no basis for piercing the immunity which, prima facie, Aeromexico derives from its sovereign parent.’

Subsequent case law confirmed that the burden is upon the foreign state to demonstrate that the conditions of §§1603(a),(b) FSIA apply. In S & S Machinery Co. v. Masinexportimport (MASIN), 706 F.2d 411 (2d Cir. 1983), the appeal was filed by MASIN, a Romanian company, and the Romanian Bank for Foreign Commerce and was about the seizure by S & S of property the defendants maintained in the United States, as well as about the issuing of certain letters of credit. The defendants had not waived their immunity from execution.

Before the Court of Appeals stated about the question of a possible immunity waiver, it examined the juridical nature of both the Romanian Bank and MASIN.

The Legal Status of Romanian Bank

Regarding the Romanian Bank, the court found the situation clear-cut in the sense that it was an agency or instrumentality of a foreign state. For arriving at that conclusion, the judge was scrutinizing also the Romanian law; such judicial exam of foreign law is rendered necessary under the terms of §§1603(a),(b) and was confirmed by the legal materials.

— H.R. Report, p. 15, 15 ILM 1398, 1406 (1976): ‘… that the entity be a separate legal person, is intended to include a corporation, association, foundation, or any other entity which, under the law of the foreign state where it was created, can sue or be sued in its own name, contract in its own name and hold property in its own name.’

Thus the court considered, in particular, Article VII of the Romanian Constitution which clearly states that all banks are state property. The court then concluded:

This evidence alone is sufficient to prove that Romanian Bank is a state-owned instrumentality established to serve the state’s foreign trade goals. (Id.)

In addition, the court considered the proof submitted and came to conclude that Romania had established a prima facie case of immunity under section 1603 and that, as a result, the evidential burden had shifted to the plaintiff. However, S & S failed to discharge this burden.

S & S failed to rebut any of this persuasive evidence, arguing instead that more was required to prove agency or instrumentality status. We disagree. Convincing and uncontroverted evidence established that the Bank is but a cat’s paw of the Romanian government — an instrumentality owned and controlled by the state. (706 F.2d 411, 414).

— The court stated about the evidence: ‘There was additional evidence of the Bank’s state-ownership and its position as a state foreign trade organ. The uncontroverted affidavits of Sava, Consul to the Socialist Republic of Romania, and Radu, the managing director of the Bank, and of Hersovici, an expert in Romanian law, corroborated the Bank’s assertion that it is owned by the state and that it serves the foreign trade goals of the state. Finally, a report published by the United States Department of Commerce characterizes the Romanian Bank in the same terms.’

In First National City Bank v. Banco Para El Comercio Exterior de Cuba (BANCEC), 103 S.Ct. 259 (1983), the United States Supreme Court has stated several important principles that apply in similar cases against organisms of foreign states.

In 1960, the defendant was created by the Cuban government as an autonomous credit institution for facilitating foreign trade operations, and was established as a full juridical person. The facts at issue are quite complicated and I will report here only the conclusion of the Supreme Court regarding what the court calls a ‘presumption of independence’ in favor of organisms of foreign states when they have been properly created and invested with legal person status.

In such a case, the Supreme Court ruled, the presumption is rebutted only if the foreign state can be shown to have used its responsibility under international law in a fraudulent manner, so as to benefit of sovereign immunity in front of a United States tribunal.

The Legal Status of MASIN

As to MASIN, the plaintiff argued that already the presumption of state property as it exists in all socialist jurisdictions should give rise to the conclusion that MASIN was an agency or instrumentality of the Romanian state. (706 F.2d 411, 415).

However, taking reference to the case Edlow International Co. v. Nuklearna Elektrarna Krsko, 414 F.Supp. 827 (D.D.C. 1977), 63 IRL 100 (1982), S & S concluded that the state property presumption is not to be considered as adequate proof under section 1603 as there were well also in socialist economies entities that are distinct from the state. The court held that Edlow was not standing against their ruling, as there was additional evidence:

We may assume for present purposes that there is essentially private entities operating within socialist economies. This does not alter our holding that the district court correctly concluded that MASIN is an agency or instrumentality of the state. For unlike ‘Edlow’, where only the presumption of state ownership was relied upon, MASIN established its status as a state-owned and state-controlled trading company with specific evidence. (Id.)

— MASIN had provided an affidavit by the Romanian Consul to the effect that MASIN ‘is a state foreign trade company wholly-owned and controlled by the Romanian Government.’ Regarding this affidavit, the court held: ‘Although S & S belittles this sworn statement as the catechism of a brainwashed functionary, statements of foreign officials — regardless of their political or ideological orientation — have been accorded great weight in determining whether an entity is entitled to claim the protection of the FSIA. (706 F.2d 411, 415, citing Yessenin-Volpin v. Novosti Press Agency, Tass, 443 F.Supp. 849, 854 (S.D.N.Y. 1978), UN-MAT., 468, 63 ILR 127.

We can thus conclude that according to this precedent, a legal presumption as it was existent in socialist regimes at the time, is not per se an adequate proof for the governmental status of a foreign state’s organism under section 1603(b) FSIA.

If the governmental status of the foreign organism is not contested by the plaintiff, the proof can be acquitted by affidavit or even a statement delivered to the court by an accredited official of the foreign state. If, however, the plaintiff contests such proof, additional evidence is needed.

It is difficult to say how severe this burden is as in the case discussed here, all the proof one can possibly imagine was delivered satisfactorily to the court.

— See 706 F.2d 711, 715: ‘MASIN introduced a variety of material detailing the role of the Romanian state in foreign trade.’

As to the obligation of judges to examine foreign law under section 1603 FSIA, it is important to note that the American judge is not obliged to take notice sua sponte of foreign law.

This is so because common law considers foreign law as a fact that must be pleaded and proved. This is still the case in the United Kingdom. However, in the United States, there was a certain development of the law with the introduction, in 1966, of Rule 44.1 Federal Rules of Civil Procedure.

Rule 44.1 Federal Rules of Civil Procedure

A party who intends to raise an issue concerning the law of a foreign country shall give notice in his pleadings or other reasonable written notice. The court, in determining foreign law, may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court’s determination shall be treated as a ruling on a question of law.

The determination of foreign law is thus considered as a legal question with American district courts. Nonetheless, a district court will take notice of foreign law only if the question has been submitted to the court in the pleadings by the party ‘who intends to raise an issue concerning the law of a foreign country.’ This means that this party in so far bears the burden of proof regarding the particularity of foreign law that it wants to apply to their favor.

— See Thomas A. Coyne, Rules of Civil Procedure for the United States District Courts (1983), Rule 44.1, Practice Comment, p. 543: ‘The Rule imposes a notice burden on a party who intends to raise an issue about foreign law,’ citing Commercial Ins. Co. of Newark v. Pacific-Peru Construction Corp., 558 F.2d 948, 952 (9th Cir. 1977). As to the reason for such a restriction of judicial notice of foreign law, Coyne remarks: ‘This would put an extreme burden on the court in many cases; and it avoids use of ‘judicial notice’ in any form because of the uncertain meaning of that concept as applied to foreign law.’ (Id.) See also Stern, Foreign Law in the Courts: Judicial Notice and Proof, 45 CALIF.L.REV. 23, 43 (1957) and Schlesinger, A Recurrent Problem of Transnational Litigation: The Effect of Failure to Invoke or Prove the Applicable Foreign Law, 59 CORNELL L.REV 1 (1973) as well as the whole issue of STAN. J.INT’L L., Spring 1983, entitled Pleading and Proof of Foreign Law, 19 STAN.J.INT’L L., Issue 1, Spring 1983, with further references and bibliography.

The question of how severe the standard of proof is was more clearly outlined in O’Connell Machinery Company, Inc. v. M/V Americana, 566 F.Supp. 1381 (S.D.N.Y. 1983), where additional proof was lacking, except an affidavit of an employee of the Italian embassy in Washington D.C. that swore to the effect that the ship M/V Americana belonged to Italian Line, an agency or instrumentality of the Italian state. While in S. & S. Machinery, the proof was conclusive, here the court considered the sole affidavit as adequate proof for establishing the prima facie case of sovereign immunity:

Plaintiff next argues that insufficient proof has been presented to support defendant’s contention that Italian Line is an ‘agency or instrumentality’ of the Republic of Italy. We have before us, however, the affidavit of Gerardo Carante, ‘Counselor of Commercial Activities of the Republic of Italy’ and ‘Chief Officer of the Commercial Office at the Embassy of the Republic of Italy’, describing the ownership of Italian Line. This affidavit, executed on the letterhead of the Italian Embassy in Washington, states that the majority of the shares of Italian Line is owned by FINAMARE, a ‘subdivision of the Istituto per la Ricostruzione Industriale (IRI)’, a government entity which coordinates the management of Italian government enterprises. IRI’s annual budget and plans, in turn, are approved by a member of the Italian Cabinet and, ultimately, submitted to the Parliament. (…) In our view, this establishes that Italian Line is, indeed, an ‘agency or instrumentality of a foreign state’, as defined in 28 U.S.C. §1603(b). (566 F.Supp. 1381, 1384, citing the House Report, 15–16).

In two other precedents that equally concerned admiralty actions and the pre-judgment attachment of vessels, the burden of proof under section 1603 was scrutinized in all detail. These actions were pending in front of different district courts but concerned the same parties, Outbound Maritime Corporation v. P.T. Indonesian Consortium of Construction Industries (ICCI), 575 F.Supp. 1222 (S.D.N.Y. 1983).

— I shall talk about this precedent as Outbound I, for there are two cases with the same same. Outbound II: 582 F.Supp. 1136 (D.Md. 1984). There was still one more defendant, ICCI/AMF Joint Venture (JV).

Why there were two different actions between the same parties is simply the result of the plaintiff, a corporation founded under New York law and that acts as a ‘non vessel owning carrier’ (NVOCC), claiming damages for breach of an orally concluded contract, having seized two different vessels belonging to ICCI, one within the district of New York, and the other within the district of Maryland.

In the case Outbound I, the evidence defendant was submitting was deemed insufficient by the court, for two reasons.

Credibility of the Affidavit

The affidavit did not reveal the facts upon which the nationalization of ICCI was based and the court ruled:

As an affirmative defense however the entity claiming the protection of the statute has the burden of demonstrating, inter alia, that it falls within the statutory definition of a ‘foreign state’ or that it constitutes an entity ‘a majority of whose shares or other ownership interest is owned by a foreign state.’ 28 U.S.C. §1603. Once a defendant presents prima face evidence of this, the burden shifts to the plaintiff to demonstrate that the Act does not apply. (575 F.Supp. 1222, 1224, citing the precedents Alberti and Jet Line).

This criterion could be called the ‘credibility’ of the affidavit, which in the present case was limiting itself to simply stating that ICCI was fully owned by the Indonesian government.

Formal Requirements Regarding the Affidavit

The second criterion that is critical for the affidavit is that it has to be submitted by an official of the foreign state, which in the present case was not adequately effected.

In this case, ICCI bears the burden of producing evidence to establish its claim of sovereign immunity. At the December 8, 1983 hearing, defendants presented only the affidavit of an officer of ICCI and translated version of a May 5, 1983 Indonesian Presidential Proclamation purportedly nationalizing ICCI. The affidavit merely states in conclusory terms that ICCI is wholly owned by the Republic of Indonesia. I cannot credit the affidavit of the officer of ICCI since it does not state the underlying facts of nationalization nor is it made by an official of the Republic of Indonesia on whose behalf defendants seek to invoke immunity. (575 F.Supp. 1222, 1224).

This is not a new element as it was already considered and stated upon in the before-mentioned precedents O’Connell Machinery and S & S Machinery. However, the judge in the present case also found an additional affidavit inadequate that was rendered by the Consul General of Indonesia to the United States.

I directed counsel to submit competent evidence of the claim of sovereign immunity which necessarily would include the Proclamation, its effective date and further evidence of the interest of the Republic of Indonesia in ICCI. In response, counsel has submitted the affidavit of the Consul General of the Republic of Indonesia sworn to on December 9, 1983 which now forms the only support for defendants’ claim of immunity. This affidavit simply is not enough. (…) The translation of the asserted Proclamation contains numerous handwritten corrections and is not authenticated. While I intentionally withheld this decision to give defense counsel every opportunity to submit competent evidence of the May 5th Proclamation, counsel has produced nothing but this poor copy, which is so bad that the effective date of the Proclamation, i.e., the date of payment by the Republic of Indonesia to the private shareholders, is not clear. As such, I cannot place much evidentiary value on the proffered submission. (Id.)

The judge cited the precedents Victory Transport Inc. v. Comisaría General de Abastecimientos y Transportes, 336 F.2d 354, 358–359, note 7 (2d Cir. 1964), cert. denied, 381 U.S. 934, 85 S.Ct. 1763, 14 L.Ed.2d 698 (1965), and Civil Aeronautics Bd. v. Alitalia-Linee Aeree Italiane, 328 F.Supp. 759, 761 (E.D.N.Y. 1971).

These two affairs however only confirm that under the absolute sovereign immunity doctrine, a governmental organism of a foreign state could claim immunity only directly to the State Department. The second possibility, that is, to raise the immunity claim directly in front of the tribunal, was reserved to the foreign state itself, or the ruler of the foreign state. (Victory Transport, 336 F.2d 354, 358). That is why the Court of Appeals, in the case Victory Transport, did not judge the affidavit of the Spanish Consul in New York as adequate proof:

A consul is supposedly clothed with authority to act for his government only in commercial matters. Since nothing in the record indicates that the Spanish Consul was specially authorized to interpose a claim of sovereign immunity, the affidavit was plainly insufficient. (336 F.2d 354, 358, note 7).

The reason for this meticulous formal handling of the proof submission is that it must be conclusive for the court that not the person who renders the affidavit is the authority that claims immunity, but implicitly the foreign state itself.

Hence, there must be some substance for the court to see that the foreign official was acting within the scope of his governmental functions when submitting the affidavit, and not just within the scope of his commercial functions. In the Civil Aeronautics suit, the defendant Italian airline ‘Alitalia’ could address the immunity claim only directly to the State Department, not to the court.

On first sight, these requirements seem to be exaggerated and they may generally contradict to the case law that I was discussing above. But such a general view cannot render an adequate picture of the proof situation in each and every of these precedents. Thus, the regard here must be rather careful and detailed; the answer cannot be given as a general statement. What can be said is that ‘… statements of foreign officials … have been accorded great weight in determining whether an entity is entitled to claim the protection of the FSIA. (O’Connell Machinery, 566 F.Supp. 1381, 1384 (S.D.N.Y. 1983), S. & S. Machinery, 706 F.2d 411, 415 (2d Cir. 1983) and Yessenin-Volpin, 443 F.Supp. 849, 854 (S.D.N.Y. 1978).

This means only that the official character of the witnessing functionary of the foreign state plays a certain role in the appreciation of the evidence; this is however not enough. Besides, the affidavit itself must appear clear, precise, conclusive and credible, by and large, so as to convince the court that it is the foreign state itself that is really the owner or controller of the foreign organism that claims immunity in front of the court. This, then, is what the court found in the Outbound I case.

The affidavit in itself is confusing. It recites that part of defendant ICCI was privately owned but apparently that arrangements were made to transfer all private interest to the government. It is unclear whether this transfer was ever effectuated. It is unclear when it was done, if ever. The defendant JV is not even mentioned. (575 F.Supp. 1222, 1224).

The affidavit was thus evaluated negatively by the court, despite the fact that the court generally held that ‘a letter from the ambassador of a foreign country claiming immunity for an agency or instrumentality of a foreign state has a persuasive quality.’ (48 C.J.S.2d Intern’l Law, §52, p. 89 (1981), citing the precedents Harris and Yessenin-Volpin).

While, generally speaking, in all these precedents, we can see a judicial appreciation of the general submission procedure for proving elements of §1603, that is, per affidavit, the judge in Outbound I ostensibly esteemed insufficient the content of the submitted consular affidavit. What is perhaps still more astonishing is that the judge also found the quality of the offered prove being inadequate. He concludes the judgement:

The means of raising a claim of sovereign immunity are fairly well known. 48 C.J.S.2d Intern’l Law §52 (1981), 45 Am.Jur. 2d §54 Intern’l Law (1969). The failure of the counsel for the defendants to submit anything from the United States Department of State or the Indonesian Embassy is simply amazing. Under the circumstances, I find that the single affidavit presented in support of defendant’s claim of immunity is simply insufficient to make out a prima facie case of sovereign immunity. (Id.)

In view of the precedents, this judgment delivers a guideline as to the quality of the proof submitted in these cases; it makes clear that such proof is not just ‘a simple formality’ foreign organisms can use for being granted sovereign immunity in American tribunals.

I would even go as far as saying that this judgment lets us see that American district courts really take serious the burden of proof situation and thereby make it rather difficult to foreign organisms to slip in the veil of a ‘governmental garment’ so as to be immune from responsibility as a result of their commercial transactions with private traders.

In plain English, the proof to be delivered here must be precise, clear, convincing and authoritative enough to being trusted that the real actor behind the organism on the international stage is the foreign state, and only the foreign state.

The District Court of Maryland only at first sight contradicted this conclusion in the case of Outbound II, 582 F.Supp. 1136 (D.Md. 1984).

The plaintiff alleged that the defendants have failed to prove the applicability of the FSIA, that is, that ICCI was owned by the Republic of Indonesia. However, the court esteemed the proof as adequate and sufficient. (582 F.Supp, 1136, 1143). It is interesting to see that we have here a totally different proof situation, which allows us to get a feel for the standard of proof required under section 1603(b).

To begin with, the court examined an affidavit of the General Consul of Indonesia in New York, and concluded:

The court finds that the evidence submitted establishes that defendants are ‘an agency and instrumentality of a foreign state’ as defined in §1603(b). Courts that have considered the sufficiency of proof required to establish foreign sovereign status under the FSIA have concluded that ‘statements of foreign officials … have been accorded great weight in determining whether an entity is entitled to claim the protection of the FSIA. (…) Outbound submits no evidence to rebut the persuasive evidence submitted by defendants. (582 F.Supp, 1136, 1144).

In fact, Outbound claimed litispendence because of the affair pending in front of the New York court. They thought that this would foreclose the Maryland court to state about the action. The court rejected the argument of res judicata however with the argument that the New York court judgment would not be a ‘final judgment’ in the pending affair. In such a case the res judicata rule does not apply. (582 F.Supp, 1136, 1146).

— The court explained: ‘Both rulings by the New York court are interlocutory and subject to revision. Neither ruling is ‘final’ within the meaning of 28 U.S.C. §1291 and hence neither ruling has a res judicata effect.’

Regarding the more important question of the quality of the proof submitted to the court, the Maryland court did not need to doubt in the same way as the New York court, because the affidavit submitted was long, clear, precise and detailed.

In addition, the proof before this court appears to be different than that before the New York court. In its opinion, the New York court noted that the affidavit of the Consul did not mention the defendant, Jv. 575 F.Supp., at 1224. The affidavit before this court states at page 2 ‘JV is a joint venture entered into by ICCI. (…) ICCI owns a majority of the ownership interest in JV. Similarly, the New York court noted that while arrangements apparently were made to transfer all private interests to the government, the affidavit was ‘unclear [as to] whether this transfer was ever effectuated.’ Id. Yet, the affidavit before this court states: ‘The transfer of shares directed in the regulation was effected on June 11, 1983, by payment to the private shareholders of the amounts each paid in to ICCI.’ Affidavit at p. 2. Finally the New York court indicated that the translation of the Presidential Proclamation before the court ‘contains numerous handwritten corrections and is not authenticated …’ and further commented that the copy received by the court was so poor ‘that the effective date of the Proclamation … is not clear.’ Id. The document before this court is entitled ‘Regulation of the Government of the Republic of Indonesia Number 19 Year 1983’, it does not contain any handwritten corrections, the copy is quite clear, and article 5 of the regulation dealing with the effective date of its enactment quite clearly shows May 5, 1983 as the date of enactment. (…) (582 F.Supp, 1136, 1147).

As to the quality of the witness, the court stated against the distinction that was made in Outbound I, between a General Consul, and an Ambassador, of the foreign state:

Further, the New York court’s reference to the failure of counsel for defendants to submit anything from the United States Department of State or from the Indonesian embassy does not appear significant to this court. First, the legislative history of the FSIA clearly indicates that the Act was intended to withdraw the executive branch from involvement with claims of immunity and place responsibility for such determinations with the judiciary, ‘thereby reducing the foreign policy implications of immunity determinations and assuring litigants that these often crucial decisions are made on purely legal grounds and under procedures that insure due process. (…) In this court’s view, an affidavit from the Indonesian consulate is no less an official document than an affidavit from the Indonesian embassy, and is not thereby entitled to any less weight. Also, the cases cited by the New York court in support of its finding that the affidavit of the Consul General was insufficient proof are all pre-FSIA cases, where different procedures were required to claim and be granted sovereign immunity. (Id.)

The court thus rejected the argument that there was a difference in quality between an affidavit rendered by the consulate rather than the embassy of the foreign state. This verdict is indeed covered by the precedents that, regarding the quality of the witness, held that it’s enough that that person is an official of the foreign state’s government.

Also this ruling finds a confirmation in Rule 902(3) of the Federal Rules of Evidence. This rule also only talks about ‘any foreign official’ and states in addition:

Rule 902(3) Federal Rules of Evidence

A final certification may be made by a secretary of embassy or legation, consul general, consul, vice consul, or consular agent of the United States, or a diplomatic or consular official of the foreign country assigned or accredited to the United States.

Besides, it is interesting to note that in Gray v. Permanent Mission of the People’s Republic of the Congo to the United States, 443 F.Supp. 816 (S.D.N.Y. 1978), the permanent mission of a foreign state to the United Nations was recognized as a ‘foreign state’ under section 1603(a) and not as an ‘agency or instrumentality of a foreign state’ under section 1603(b). The district court held that ‘indeed it is hard to imagine a purer embodiment of a foreign state than the state’s permanent mission to the United Nations.’ (443 F.Supp. 816, 820).

This distinction is of high practical value because service of process, under section 1608, is different for foreign states, one one hand, and agencies and instrumentalities of foreign states, on the other. It is for this reason that the legal materials note under section 1603(a) FSIA the fact that for organisms of the foreign state, section 1608(a) is not applicable.

Conclusion

The proof of the conditions of §§1603(a),(b) of the Act is upon the foreign state and its agencies and instrumentalities to make a prima facie case for sovereign immunity, that is, that it’s a foreign state or an agency or instrumentality thereof under the provisions of that section.

For discharging this burden, the foreign state or its organism must present prima facie evidence that is adequate enough to meet the applicable standard of proof. After that has been done, the evidential burden shifts to the plaintiff for proving that one of the exceptions to foreign sovereign immunity applies under the FSIA. This proof can be delivered in the following ways:

— by rebutting the prima facie case;

— by proving the conditions of an exception to immunity, §§1605–1607, 1610, 1611 FSIA.

Regarding the means of proof, it’s primarily the affidavit that has been utilized in practice for meeting this requirement; exceptionally it may be a simple statement rendered by an official of the foreign state that could be held sufficient for proving the governmental character of the organism in question.

As to the content of the affidavit, as I said above, the applicable case law cannot be generalized because of the complexity of the issue. As all proof, such an affidavit must appear clear, without contradictions, precise, logical, conclusive and credible to the court for meeting the standard of proof required under section 1603.

For avoiding unnecessary risks, the foreign state is advised to not just simply state that the organism was a public and governmentally functional entity of the foreign government, but detail the facts that show this to be true. When this proof has been delivered satisfactorily to the court, the evidential burden shifts to the plaintiff to either rebut the prima face case by, for example, a responsive affidavit.

In Sugarman v. Aeromexico, Inc., 626 F.2d 270, 272 (3d Cir. 1980), the court stated: ‘Aeromexico, asserting by way of affidavit that it was a Mexican corporation wholly-owned by the Mexican government … Sugarman filed a responsive affidavit asserting that a New York-based public relations officer of Aeromexico had advised Sugarman’s attorney that Aeromexico ‘was a Mexican corporation and … a New York corporation.’ The relevance of this affidavit was that if, in addition to being a Mexican corporation, Aeromexico had been incorporated in New York, it would have fallen outside the sovereign immunity decreed by the Foreign Sovereign Immunities Act. 28 U.S.C. §§1332(a) and (c) and 1603(b)(3). (…) Thereafter, Aeromexico submitted a further affidavit enclosing a letter from New York’s Secretary of State certifying that Aeromexico was not to be found on the roster of New York corporations.’

In addition, it has to be seen that the presumption of state property that is generally true for socialist regimes, as an isolated form of proof, is not to be considered as adequate and sufficient to meet the standard of proof under section 1603(b).


Jurisdictional Immunity

Rule-and-Exception Construction

The Foreign Sovereign Immunities Act 1976, as all the other legal instruments discussed in this study is legally construed in a particular fashion. It poses for each of the immunities first an immunity rule, and thereafter a long list of exceptions. The rule for jurisdictional immunities is stated in section 1604 of the FSIA:

Title 28, Part IV, Chapter 97, §1604

Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.

— As to the relation between international treaties and the FSIA, the House Report remarks under section 1604: ‘All immunity provisions in section 1604 through 1607 are made subject to ‘existing’ treaties and other international agreements to which the United States is a party. In the event an international agreement expressly conflicts with this bill, the international agreement would control. Thus, the bill would not alter the rights of duties of the United States under the NATO Status of Forces Agreement or similar agreements with other countries; nor would it alter the provisions of commercial contracts or agreements to which the United States is a party, calling for exclusive nonjudicial remedies through arbitration or other procedures for the settlement of disputes. Treaties of friendship, commerce and navigation and bilateral air transport agreements often contain provisions relating to the immunity of foreign states. Many provisions in such agreements are consistent with, but do not go as far as, the current bill. To the extent such international agreements are silent on a question of immunity, the bill would control: the international agreement would control only where a conflict was manifest.’ 15 ILM 1398, 1407 (1976).

The major questions to ask at this point are:

(i) Which are the facts that each party in a sovereign immunity litigation must allege?

— This question is about the incidence of the Evidential Burden.

(ii) Which party carries the immunity risk in case the evidence in court is not sufficient to make a decision, when thus the litigation results in a non liquet situation?

— This question is about the incidence of the Persuasive or Legal Burden.

To begin with, and as I have shortly outlined it early in this study, the FSIA does not contain any provision regarding the burden of proof; but there is a quite detailed explanation to be found in the House Report, under section 1604:

H.R. Report No. 94–1487

New chapter 97 of title 28, United States Code, starts from a premise of immunity and then creates exceptions to the general principle. The chapter is thus cast in a manner consistent with the way in which the law of sovereign immunity has developed. Stating the basic principle in terms of immunity may be of some advantage to foreign states in doubtful cases, but, since sovereign immunity is an affirmative defense which must be specially pleaded, the burden will remain on the foreign state to produce evidence that a foreign state or one of its subdivisions, agencies or instrumentalities is the defendant in the suit and that the plaintiff’s claim relates to a public act of the foreign state — that is, an act not within the exceptions in sections 1605–1607. Once the foreign state has produced such prima facie evidence of immunity, the burden of going forward would shift to the plaintiff to produce evidence establishing that the foreign state is not entitled to immunity. The ultimate burden of proving immunity would rest with the foreign state. H.R. Report No. 94–1487, 9th Cong., 2d Session, 1, 17, 15 ILM 1398, 1407 (1976).

This passage suggests that foreign sovereign immunity under the FSIA has been construed as an affirmative defense.

This construction would entail, if it is true, a particular procedural consequence. Sovereign immunity would need to be specifically pleaded for the court to take into consideration. Further, the persuasive burden, or immunity risk, would be on the foreign state as defendant of the action. This would further entail, as the evidential burden at the start of the trial coincides with the persuasive burden, that the foreign state has the right to begin with producing evidence. Thus, the foreign state would need to show that —

(i) it is a foreign state under 1603(a),(b) FSIA; and

(ii) that the action in question was of a public, governmental character.

After the production of such prima facie evidence, the evidential burden would shift to the plaintiff to demonstrate that one of the exceptions to foreign sovereign immunity applies.

If the plaintiff cannot show satisfactorily to the court that an immunity exception applies, the court would have to grant immunity to the foreign state by applying the general rule (§1604).

As I pointed out already in the general introduction to the law of evidence, the court is not obliged to follow the prima facie evidence, however in case of a general rule in a statute, as it is the case in the FSIA with sections 1604 and 1609, the general rule has a decisive impact on the weight of probability. In such a case, the judge is well obliged to resort to the general rule in any situation of doubt.

The House Report recognized this general principle to be true for the FSIA, stating that ‘ … the basic principle in terms of immunity may be of some advantage to foreign states in doubtful cases …’ If, on the other hand, the plaintiff succeeds to prove that an exception to foreign sovereign immunity applies, the court is obliged to deny immunity to the foreign state. And if, already at the start of the trial, the foreign state is not able to make a prima face case for sovereign immunity, the court is obliged to reject the immunity claim. In this latter case, the plaintiff will not have anything to prove procedurally, but well of course regarding the applicable substantive law.

The House Report Evidence Rule

As I have briefly pointed it out already, the incidence of the burden of proof that was explained in the legal materials is highly ambiguous in several respects.

Before the United States Supreme Court stated on this important point, district courts seemed to be bewildered by the daring construction of foreign sovereign immunity as an affirmative defense and, confused, explained that this could not be true. Courts declared that in contradiction to the statement in the House Report, they had to rule about the immunity question sua sponte, as a legal necessity within the court’s stating about their competence, right at the start of the trial.

This reasoning was correct, so the clear statement in the legal materials to the very contrary gave rise to a hefty debate both in case law and in the international law literature. And this confusing situation rested for several years.

Needless to add that this controversy was not conducive to my having a good time with writing my doctoral thesis; it was a major matter of confusion and upset, to be true, and I had nobody to ask what was the way to go. I had to find my way out of the maze!

In 1979, three years after the enactment of the FSIA, in Behring International Inc. v. Imperial Iranian Air Force (IIAF), the question was addressed, for the first time, in an obiter dictum by the District Court of New Jersey. (Behring International Inc. v. Imperial Iranian Air Force (IIAF), 475 F.Supp.383 (D.N.J.1979), UN-Mat. 479, 63 ILR 261 (1982).

The plaintiff, an American company, was seizing property owned by IIAF as a consequence of not being paid for certain services rendered to IIAF. While the defendant did not expressly claim immunity from jurisdiction, but only immunity from the prejudgment attachment of their property, the court ruled about this point concluding that immunity from jurisdiction had to be denied. In a note, the court briefly explained the burden of proof situation:

Under the Immunities Act, sovereign immunity is an affirmative defense which must be specifically pleaded. The burden is upon the foreign state to ‘produce evidence at its claim of immunity.’ (475 F.Supp, 383, 389).

— In a more recent precedent, Transamerican S.S. Corp. v. Somali Democratic Republic, 767 F.2d 998, 1002 (D.D.C.1985), the court stated: ‘In accordance with the restrictive view of sovereign immunity reflected in the FSIA, the burden of proof in establishing the inapplicability of these exceptions is upon the party claiming immunity …’

The ambiguity stems from the fact that generally courts have to state sua sponte about their competence at the start of the trial.

— See, for example, Habscheid & Schaumann, Die Immunität ausländischer Staaten nach Völkerrecht und deutschem Zivilprozessrecht, BDGVR, Vol. 8 (1968), 7 and 24 ff., Gamal Moursi Badr, State Immunity (1984), 138, Behring v. IIAF, 475 F.Supp. 383, 389, note 13, IAM v. OPEC, 477 F.Supp. 553, 565, note 10, Letelier v. Republic of Chile, 488 F.Supp. 665, 667, Moore’s Federal Practice, §0.60[4], at 624–28, Wright, Miller & Cooper, Federal Practice and Procedure, §3522, at 46–48.

In fact, the drafting technique of the FSIA and the other immunity statutes was criticized in the international law literature. The main argument was that it was of little use to put up a ‘rule’ of sovereign immunity, and then undermine it with so many exceptions that virtually nothing is left but a residual concept.

Some authors suggest that at least for jurisdictional immunities, it would have been better to state jurisdiction as the rule and stating precisely in which singular case or cases a foreign state still enjoys foreign sovereign immunity. Other authors explain that the drafting technique of the statutes simply followed the historical development of sovereign immunity, and that it had been intentional that here the statutes reflect also the legal history.

— See, from the large literature, only Sutherland, Recent Statutory Developments in the Law of Foreign Sovereign Immunity, 7 AUSTRALIAN Y. B. INT’L L. 27–71 (1981), at 51, and Georges R. Delaume, Transnational Contracts, Vol. 2, XI., Booklet 13 (May 1985), §11.05.

I have explained this already in Chapter One — the general introduction to the law of evidence. In fact, the obvious contradiction between §1330(a) FSIA, and the conception of foreign sovereign immunity as an affirmative defense was eventually giving rise for the United States Supreme Court to clarify this point.

In the first precedent, Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 103 S.Ct. 1962, 76 L.Ed.2d 81, 51 U.S.L.W. 4567, 22 ILM 647 (1983), the Supreme Court stated in a note:

The House Report on the Act states that ‘sovereign immunity is an affirmative defense that must be specially pleaded.’ H.R. Rep. No. 94–1487, at 17. Under the Act, however, subject matter jurisdiction turns on the existence of an exception to foreign sovereign immunity, 28 U.S.C. §1330(a). Accordingly, even if the foreign state does not enter an appearance to assert an immunity defense, a District Court still must determine that immunity is unavailable under the Act. (103 S.Ct. 1962, 1971, note 20).

In more recent precedents, the question was elucidated in still more precise terms. Taking reference to the Verlinden precedent, the Appeal Court of the 7th Circuit, in Frovola v. Union of Soviet Socialist Republics, 761 F.2d 370, 372–373 (7th Cir. 1985), explained:

The FSIA begins with the presumption that foreign states are immune from suit, subject to specific exceptions. (…) Furthermore, a district court lacks jurisdiction of a suit against a foreign country until it is determined that the defendant does not have immunity. (…) Thus, the statement in the legislative history that sovereign immunity is an affirmative defense which must be pleaded and proven by the party asserting it, H.R. Rep. No. 1487, at 17, 1976, U.S. Code Cong. & Adm. News at 6616, is not entirely accurate. Because the absence of sovereign immunity is a prerequisite to subject matter jurisdiction, the question of immunity must be considered by a district court even though the foreign country whose immunity is at issue has not entered in appearance.

In reality, the question is merely of a theoretical nature because only rarely a sovereign immunity litigation resulting in a non liquet came up where the court had to rule about the immunity question without sufficient evidence, and thus according to the incidence of the burden of proof. This is why the courts could limit their arguments at repeating the principle in obiter dicta that more or less copied the House Report reasoning on the burden of proof in sovereign immunity litigation under the FSIA.

As I have explained it in the introductory chapter on civil procedure and the rules of evidence, in principle it is the plaintiff who bears the burden of proof for competence ratione materiae (subject matter jurisdiction), and here the FSIA obviously has put this old rule upside-down, imposing the foreign state with the burden of proving its immunity claim satisfactorily to the court.

— See also De Sanchez v. Banco Central de Nicaragua, 515 F.Supp. 900, 903 (E.D.La.1981): ‘This [the incidence of the burden of proof according to the House Report] is in contrast to the usual rule that upon challenge, the plaintiff bears the burden of proving that subject matter jurisdiction exists over its claim.’ See e.g. Save Our Cemeteries, Inc. v. Archdiocese of New Orleans, 568 F.2d 1074, 1076 (5th Cir. 1978), cert. denied, 439 U.S. 836, 99 S.Ct. 120, 58 L.Ed.2d 13 (1978), Rosemond Sand and Gravel Co. v. Lambert Sand and Gravel Co., 469 F.2d 416, 418 (5th Cir. 1972).

But the question is if international law does not put a limit here on the national law maker?

To begin with, a highly interesting precedent was set by the Appeal Court of the 7th Circuit in Alberti v. Empresa Nicaraguense de la Carne, 705 F.2d 250, 22 ILM 835 (7th Cir. 1983). In this case, the court stated about the incidence of the burden of proof for an expropriation; the conditions under which this expropriation was undertaken could not be entirely clarified from the evidence in court.

As to the facts, Nicaragua had expropriated the plaintiff of his shareholder rights at Empresa without paying an indemnity, and thereafter acted within these shareholder rights in managing the company. As a response, the plaintiff indemnified himself by ordering products from Empresa that he did not pay. Thus, the question came up if the expropriation was in violation of international law under §1605(a)(3) FSIA.

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case —

(3) 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; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States;

Right at the start of the trial, the court stated on the incidence of the burden of proof:

It is uncontested that defendants bear the burden of establishing their immunity from this suit; therefore, the only issue is whether they have met this burden. (705 F.2d 250, 253, 22 ILM 835, 836).

In accordance with the House Report, the court stated that the foreign state has to make a prima facie case on two elements: ‘that it is a foreign state under the definition employed in FSIA, and that the claim relates to a public act’ (Id., p. 256, 22 ILM 835, 839).

Once this evidence was submitted, the general rule of immunity in section 1604 would have the effect of a presumption of immunity in favor of the foreign state that the plaintiff had to overcome if he is to win; and he had to do this by proving that one of the exceptions applies.

In the present case there was no doubt as to Empresa being an organism of a foreign state under §§1603(a),(b) of the Act. It was thus only the question if the activity in question was of a governmental or public nature. This gave rise to the scrutiny of the burden of proof. The judge took the House Report as a point of departure and reasoned that a public act was ‘an act not within the exceptions in section 1605–1607.’

However, the judge reasoned that this would practically imply that the foreign state had to disprove all the exceptions that the Act contains, for having immunity being granted, and that such a situation could not what the legislator had in mind when drafting the FSIA. It would require of the foreign state an almost impossible task to refute all the exceptions under the Act, while it would be relatively easy for the plaintiff to indicate on which exception he relies.

In addition, it would be a sheer waste of time and resources to require from the foreign state such an amount of evidence when it was so easy for the plaintiff to arrest his claim on the specific exception or exceptions that he holds applicable. The court implied with this reasoning of course that the judge in sovereign immunity litigations should consider only the exceptions that the plaintiff invokes, and not all exceptions.

From the foregoing, we have learnt that district courts must state about their competence sua sponte, so they have to consider all possible exceptions from foreign sovereign immunity. And insofar the reasoning in the Alberti case cannot be entirely accurate. It is accurate as to its end result however: the court came to the conclusion that for making the prima face case of foreign sovereign immunity, the foreign state could present evidence that shows that the activity in question was public or governmental, and that it was then the plaintiff’s task to see how he can win by proving the applicability of one of the exceptions to the general rule of §1604.

This is nothing new, however, and was already current practice in former precedents. Julia B. Brooke, in her article The International Law Association Draft Convention on Foreign Sovereign Immunity: A Comparative Approach, 23 VA.J.INT’L L. 635, briefly summarized that foregoing case law, and came to concluding on the lines of the Alberti precedent, while affirming that this was more or less the current practice in matters of handling foreign sovereign immunity in United States federal courts.

After these reflections about the burden of proof, the court concluded that the foreign state could limit its production of evidence to demonstrating, in a general manner, that the act in cause was governmental, and that it could further limit it to the specific exception(s) the plaintiff invokes.

Accordingly, we believe that the purposes of the act will best be served by requiring that the defendant demonstrate that the suit relates to a governmental act of the foreign state being sued, and then placing the burden of identifying the relevant exception by affidavit or otherwise upon the plaintiff. (705 F.2d 250, 256, 22 ILM 835, 839).

I have already mentioned that in a case note, Monroe Leigh, Esq., the acting legal advisor of the State Department at the time of the enactment of the FSIA strongly criticized the Alberti precedent. (77 AJIL 888 (1983). Mr. Leigh, from Steptoe & Johnson in Washington D.C., whom I have met back in 1985 for a discussion about my doctoral thesis, wrote in his case note:

The effect of this protective measure is to place both the responsibility for producing evidence and the risk of nonproduction upon the plaintiff. It should be observed that while the FSIA plan, as explained in the legislative history, may have posed some practical difficulties, the court’s solution departs from the FSIA’s allocation of the burden of proof to the foreign state invoking immunity. At least in this case, where there was no dispute regarding the fact of nationalization, the court effectively eliminated the foreign state’s burden by requiring only a general statement by defendant to prove a prima face case of immunity. (77 AJIL 888, 891).

While I have briefly mentioned that discussion above, I will now discuss this interesting point more in detail. In fact, there are three allegations being made in Mr. Leigh’s statement:

(1) The interpretation of the House Report regarding the burden of proof that was done by the court in Alberti resulted in raising the burden of proof on the side of the plaintiff. The latter had been charged with both the ‘responsibility for producing evidence’ and the ‘risk of nonpersuasion;’

(2) The FSIA contains a rule regarding the burden of proof called by Monroe Leigh ‘FSIA’s allocation of the burden of proof,’ while he admits that the House Report statement ‘posed some practical difficulties;’

(3) As there was no dispute regarding the fact of the nationalization itself, the Appeal Court, according to Leigh, reduced the foreign state’s burden of proof by limiting it to a mere ‘general statement.’

For the following reasons I hold Mr. Leigh’s criticism for unjustified, if not erroneous regarding the principles and rules of evidence that it invokes.

Ad (1)

It was not disputed between the parties that the plaintiff bears the evidential burden after Nicaragua established a prima facie case of sovereign immunity regarding the nationalization. The Court of Appeal did not rule on the risk of nonpersuasion here, but only on the incidence of the evidential burden.

The legal burden or risk of nonpersuasion comes to carry only in the moment that the plaintiff, too, has achieved to rebut the prima facie evidence established by the foreign state.

This was however not the case. The plaintiff even failed to respond the submission of the foreign state, and remained completely inactive, let alone submitted any counter-evidence, and this despite the fact that the court asked for it. In this case, it is obvious that the plaintiff did not rebut the prima face evidence, and thus the legal burden never came to carry in this case.

Ad (2)

It is incorrect to state that the Act itself contained a rule of the burden of proof; there is no provision to this effect to be found in the FSIA. Regarding the legal materials, the Court of Appeals well considered the explanation given therein, but then modified the application of this explanation for the judicial practice. The judge considered the fact that immunity cannot be construed, from a procedural point of view, as an affirmative defense, because courts have to state about their competence sua sponte; abrogating this practice would have repercussions in international law and practice.

As a result, the court adapted the explanation of the House Report to the judicial practice in matters of sovereign immunity litigation. It has to be seen that this modification that the court proposed in Alberti only regards the evidential burden, and not the persuasive burden or risk of nonpersuasion.

Ad (3)

That a nationalization is a public, governmental act was not even contested by the plaintiff, and this fact was admitted by Monroe Leigh in his case note. So why should Nicaragua have been obliged to prove all the details regarding this public act? It follows from litigation equity that only what is contested needs to be proved. In such a situation, to talk about the court having ‘eliminated’ the burden of proof of the foreign state is untenable.

To summarize, the Alberti precedent represents a sound, logical and practical adaptation of the burden of proof explanation in the House Report to the requirements of judicial practice and procedural equity considerations. As the court, in compliance with the overwhelming majority of international law scholars and international practice, considered a nationalization as ‘a quintessential Government act,’ the prima facie evidence that Nicaragua had submitted to demonstrate this fact was sufficient to having the evidential burden shift to the plaintiff for rebutting the presumption of immunity established by the prima facie case. And here is where the case ended, as the plaintiff did not even respond to the submission of the foreign state. The court held:

Defendants having established a prima facie entitlement to immunity it was plaintiff’s obligation to produce support for their position that a statutory exception was applicable. (705 F.2d 250, 256).

As I said above, the foreign state can limit its production of evidence until the plaintiff has contested the prima facie case; only in the latter case would the foreign state bear the full burden of proving that the act in question was of a public, governmental nature. But the plaintiff did not contest the prima face evidence. The court stated:

It is only when the plaintiff has produced this evidence that the defendant must prove its entitlement to immunity by a preponderance of the evidence. (Id.)


The Immunity Exceptions

Immunity Waver

§ 1605. General exceptions to the jurisdictional immunity of a foreign state

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case — (1) in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver; (…)

The House Report explains under section 1605(a)(1):

H.R. Report No. 94–1487

(a)(1) Waivers. Section 1605(a)(1) treats explicit and implied waivers by foreign states of sovereign immunity. With respect to explicit waivers, a foreign state may renounce its immunity by treaty, as has been done by the United States with respect to commercial and other activities in a series of treaties of friendship, commerce and navigation, or a foreign state may waive its immunity in a contract with a private party. Since the sovereign immunity of a political subdivision, agency or instrumentality of a foreign state derives from the foreign state itself, the foreign state may waive the immunity of its political subdivisions, agencies or instrumentalities. With respect to implicit waivers, the courts have found such waivers in cases where a foreign state has agreed to arbitration in another country or where a foreign state has agreed that the law of a particular country should govern the contract. An implicit waiver would also include a situation where the foreign state has filed a responsive pleading in an action without raising the defense of sovereign immunity. The language, ‘notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver’, is designed to exclude a withdrawal of the waiver both after and before a dispute arises except in accordance with the terms of the original waiver. In other words, if the foreign state agrees to a waiver of sovereign immunity in a contract, that waiver may subsequently be withdrawn only in a manner consistent with the expression of the waiver in the contract. Some court decisions have allowed subsequent and unilateral rescissions of waivers by foreign states. But the better view, and the one followed in this section, is that a foreign state which has induced a private person into a contract by promising not to invoke its immunity cannot, when a dispute arises, go back on its promise and seek to revoke the waiver unilaterally. (H.R. Report No. 94–1487, 94th Cong., 2d Session., 1–55, U.S. Code Cong. & Adm. News 6604, 15 ILM 1398, 1407–1408 (1976).

General Considerations and Burden of Proof

We have seen that by and large that in sovereign immunity litigation, foreign states have the right to begin with producing evidence, and accordingly bear the evidential burden for their sovereign immunity claim. That means, more precisely, that the foreign state, or its organism, need to establish a prima facie case regarding the conditions pointed out in §§1603(a) or (b) FSIA and further, that the exceptions to foreign sovereign immunity that the plaintiff invoked, and that are enumerated in §§1605 to 1607 FSIA, do not apply. We also have seen that the general rules of evidence that require the plaintiff to prove the facts that establish personal jurisdiction have not been abrogated by the FSIA.

From the foregoing follows that once the foreign state has submitted prima facie evidence satisfactorily to the court, the evidential burden shifts to the plaintiff to demonstrate that an exception to sovereign immunity applies.

As we have seen already in some detail, the most common exception that is invoked in sovereign immunity litigation is the ‘commercial activity exception,’ §1605(a)(2) FSIA. However, sometimes, in such a situation, when a plaintiff cannot find ground to show that the activity in question was of a commercial nature, he is well advised to try proving that the foreign state has waived their immunity. There are quite a few obvious and less obvious ways how a foreign state may have waived their immunity.

To begin with, in Harris v. Vao Intourist, Moscow, 481 F.Supp. 1056 (E.D.N.Y. 1979), 63 ILR 318 (1982), which can be considered a landmark decision as it is quoted in a series of subsequent precedents, we face exactly such a situation.

The plaintiff, testamentary executor of an American tourist who was killed in a fire that ravaged the Moscow International Hotel, sued not only the hotel but also the Russian government. The judge considered a simple letter from the Soviet Ambassador sufficient for establishing a prima facie case in favor of the defendants. Thereby, the judge ruled, the evidential burden shifted to the plaintiff to show that an exception applies.

The plaintiff invoked the waiver exception, §1605(a)(1) FSIA, but the judge concluded that ‘the statutes and treaties cited by plaintiff, though indicating a capacity of the defendants to sue or to be sued at their option, do not reflect an intention to waive governmental immunity.’ Accordingly, the action was rejected by the court.

In Matter of Rio Grande Transports, Inc., 516 F.Supp. 1155 (S.D.N.Y. 1981), 63 ILR 604 (1982), the case was about a claim to exonerate responsibility for an American vessel that was colliding with an Algerian vessel. The defendant, the Compagnie Nationale Algérienne de Navigation (CNAN), filed a conditional claim and answer against the American plaintiff. CNAN was recognized by the court to be an ‘agency or instrumentality of a foreign state’ under §1603(b), which proof was delivered by both a letter from the Algerian Ministry of Transportation, and an affidavit filed by the Chargé d’Affaires of the Algerian embassy in the United States.

The interesting question came up if the counterclaim filed by CNAN was to be considered as an implicit waiver of sovereign immunity under the terms of §1605(a)(1) FSIA.

After having examined a particularity in American admiralty law, the judge refused to admit an implicit immunity waiver with the argument that the defendant, running the risk to lose their only forum when passing the deadline stipulated in 46 U.S.C. §185 and thus for preserving substantive rights.

— 46 U.S.C. §§183, 185. Section 185 stipulates that within six months from service of process, the owner of a vessel can file a counterclaim for reducing its financial responsibility which, in admiralty matters, can be considerable and is usually limited by maritime counterclaims. 516 F.Supp. 1155, 1159: ‘CNAN did everything possible to preserve substantive rights it reasonably expected it would lose if its sovereign immunity claim was denied; its actions cannot be considered an express or implied waiver of its sovereign immunity defense.’

As such, the defendant only acted for preserving their rights but did not imply to waive their immunity for that matter. The judge also invoked a Supreme Court precedent, The Bremen v. Zapata-Off-Shore Co., 407 U.S. 1, 19–20, 92 S.Ct. 1907, 1918, 32 L.Ed.2d 513 (1972), where the case was ruled in the same manner. The defendant Zapata, an american company, filed a protective limitation proceeding and conditional claim, under 46 U.S.C. §185, as it is regularly done in maritime actions for limiting financial responsibility.

In Ohntrup v. Firearms Center, Inc., 516 F.Supp. 1281 (E.D.Pa. 1981), 63 ILR 632 (1982), the explanation provided by the legal materials regarding implicit sovereign immunity waivers was interpreted and explained. The plaintiff had bought a gun from defendant which did not function correctly and as a result wounded him. Between defendant and the fabricant of the weapon, Makina, a Turkish company, an arbitrage agreement was concluded which the plaintiff interpreted as an immunity waiver. The court held that the contract between Makina and Firearms Center did not rule any torts committed to third parties, and therefore no immunity waiver could be construed from the arbitration clause.

In addition, in International Association of Machinists and Aerospace Workers (IAM) v. OPEC, it was clarified that the only fact to have not responded timely to the action cannot be construed as an implicit immunity waiver.

— 477 F.Supp. 553, 575 (C.D. Cal. 1979), UN-MAT., p. 503, 63 ILR 284 (1982). See also Castro v. Saudi Arabia, 510 F.Supp. 309, 312 (W.D.Tex. 1980), 63 ILR 419.

Such a case is of course different from the case if a foreign state responds to the claim without however claiming foreign sovereign immunity.

This is one of the clear-cut situations where the foreign state implicitly waives his sovereign immunity defense. This was already foreseen by the legal materials that state that an ‘implicit waiver would also include a situation where a foreign state has filed a responsive pleading without raising the defense of sovereign immunity.’

— H. R. Report No. 94–1487, 15 ILM 1398, 1407–1408. See also Flota Maritima Browning de Cuba v. Motor Vessel Ciudad, 335 F.2d 619 (4th Cir. 1964) where the court pronounced the same reasoning.

To conclude as to the general burden of proof allocation under §1605(a)(1) FSIA, we see that the situation is similar to the other exceptions in that here as well, the foreign state must begin to present evidence satisfactorily to the court by filing a prima facie case of sovereign immunity, whereupon the burden shifts to the plaintiff to demonstrate that an express or implicit immunity waiver exists, and that this waiver was contained in any contractual relationship that he himself had with the foreign state.

Arbitration Clauses

In Ipitrade International S.A. v. Federal Republic of Nigeria, 465 F.Supp. 824 (D.D.C. 1978), 17 ILM 1395 (1978), 63 ILR 196 (1982), regarding the confirmation of an arbitration decision against Nigeria rendered by the Chambre de Commerce Internationale (CCI) in Paris, the arbitration clause agreed upon between the parties in a commercial contract, which stipulated that all litigation out of the contract be ruled by Swiss law and by arbitration, was considered as an implicit immunity waiver because this clause could not be revoked unilaterally according to its own terms.

The precedent Ipitrade was confirmed later by the same court in Libyan American Oil Company (LIAMCO) v. Socialist Libyan Arab Jamahirya, 482 F.Supp. 1175 (D.D.C. 1980), 20 ILM 151 (1980), which was an arbitration in relation to an oil drilling concession granted by Libya.

After Libya nationalized LIAMCO in 1973/1974, the company sued Libya in an arbitration tribunal. Here the arbitration clause in the concession was qualified by the court as an implicit immunity waiver because it stipulated that arbitration will take place at a location the parties are going to agree about, or a location chosen by the arbiters. While the United States were not mentioned as forum state in this clause, the court considered the clause as broad enough to also cover the United States as forum state for the arbitration.

— Id., p. 1178: ‘Although the United States was not named, consent to have a dispute arbitrated where the arbitrators might determine was certainly consent to have it arbitrated in the United States.’

A case constellation even more complicated than the present ones came up with Verlinden B.V. v. Central Bank of Nigeria which was one of many litigations resulting from what was called, by Lord Denning, the Nigerian cement catastrophe.

— 488 F.Supp. 1284 (S.D.N.Y. 1980), confirmed for other reasons, 647 F.2d 320 (2d Cir. 1981), UN-MAT., p. 543, 63 ILR 573, reversed for other reasons, 51 U.S.L.W. 4567 (U.S. May 23, 1983)(No. 81–920), 103 S.Ct. 1962 (1983), 22 ILM 647 (1983). See also a case-note about this precedent, 16 VAND.J.TRANSNAT’L L. 1081 (1983).

The Central Bank of Nigeria had granted letters of credit for securing contracts between Nigeria and private merchants from various countries for purchasing immense quantities of cement. After the Nigerian government failed to fulfill their duties under most of these contracts, the Central Bank of Nigeria was sued all over the world; the present case is one of them. As to the question of an implicit immunity waiver through the issuing of the letter of credit, the court scrutinized the arbitration clause in the letter of credit, as the clause was not contained in the purchasing contract itself. The court was thus facing two questions, that is, can that clause contained in the letter of credit be applied also for the purchasing contract which was at the basis of the claim, and did the parties consent that also the United States are forum state for the arbitration?

— The clause reads as follows: ‘The construction, validity and performance of this contract shall be governed by the Law of the Netherlands and all disputes of any nature whatsoever which may arise under, out of, in connection with, or in relation to this contract shall be submitted to the arbitration of the International Chamber of Commerce, Paris, in accordance with its Rules at the date thereof.’ (488 F.Supp. 1284, 1300).

The result of this exam was that the court refused to apply the clause contained in the letter of credit, to the contract, while regarding the forum provision in the clause, the court provided a rather extensive interpretation. With regard to the first question, the court strictly differentiated between the letter of credit as an obligation engaged in by the central bank, on one hand, and the purchasing contract concluded by the Nigerian government, on the other. The judge noted that the plaintiff must have been conscious of this distinction as well because he preferred to base his claim on the letter of credit rather than the contract. Thus, the court rejected an ‘indirect’ application of the arbitration clause. Here are the quite meticulous reasonings:

By its very definition, the letter of credit is a separate and distinct obligation; in this case it bound only Central Bank, and not the Nigerian government. (…) Nigeria undertook no obligations under the letter of credit, nor Central Bank, under the contract. This is not a hypertechnical distinction. (…) Even if Nigeria’s waiver of immunity under one contract was held to bind its instrumentality under a different obligation, we would nevertheless find no implicit waiver, for Nigeria itself has never implicitly accepted the jurisdiction of American courts. (488 F.Supp. 1284, 1301).

Regarding the second question, the judge would have recognized an implicit waiver if American law, not Dutch law, had been declared as applicable in the clause. He did not find it sufficient that the parties agreed about a ‘third-party-country.’ While the court believed that the legal materials would justify even a more extensive interpretation of the waiver exception, it refused to apply it for other reasons:

Although both of these interpretations may be consistent with the literal language of the single paragraph of legislative history that addresses implicit waivers, there are strong reasons to reject the latter view. By its peculiar mixture of substantive and procedural provisions, the Immunities Act confers personal jurisdiction over all foreign states not entitled to immunity (assuming a valid service has been effectuated). Proof of an implicit waiver absolutely defeats the assertion of sovereign immunity. If the language of the Act is applied literally, the result is that a foreign sovereign which has waived its immunity can be subjected to the personal jurisdiction of United States courts regardless of the nature or quality of its contacts with the country. Plaintiff’s view, if adopted, would presage a vast increase in the jurisdiction of federal courts in matters involving sensitive foreign relations: whenever a foreign sovereign had contracted with a private party anywhere in the world, and chose to be governed by the laws or answer in the forum of any country other than its own, it would expose itself to personal liability in the courts of the United States. Verlinden and Nigeria could scarcely have foreseen this untoward result when they signed the contract; and it is unlikely that Congress could have intended it. (488 F.Supp. 1284, 1301–1302).

It seems indeed daring to admit that the parties, in the present case, wanted to include the United States as a forum state for their arbitration, as they expressly stated the applicable law shall be Dutch law. In addition, we already have seen earlier in this study that the affirmation of personal jurisdiction needs minimal contacts to be existent to the territory of the United States.

— In fact, in a side note the judge added this on to his reasoning: ‘88. There is reason to believe that Congress did not anticipate this problem at all. On one hand the legislative history indicates that Congress intended the courts to exercise personal jurisdiction only over foreign states having sufficient contacts with the United States.’ (488 F.Supp. 1284, 1302).

It would have been better systematically if the judge had discussed the matter not only under the waiver exception but if he had directly recurred to the question of personal jurisdiction and the minimal contacts requirement.

In fact, the solution could be found only when one was getting a realistic picture in one’s mind of what the parties of the letter of credit wanted when agreeing about the arbitration clause; when you see they chose Dutch law, it is quite far-fetched to assume that simply because the Netherlands was a ‘third-party-country’ to both parties, they would implicitly also have agreed that the United States should be involved as a possible forum state.

This precedent was confirmed in Chicago Bridge & Iron Company v. The Islamic Republic of Iran, 19 ILM 1436 (1980)(N.D.Ill. 1980), 63 ILR 511 (1982), a case that was about a nationalization undertaken by Iran. The court examined arbitration clauses in the contracts between the parties, and came to wonder if they are to be qualified as immunity waivers. Taking reference to Verlinden, the judge refused to qualify the arbitration clauses as immunity waivers.

— 19 ILM 1436, 1444: ‘Plaintiff argues, in addition, that the arbitration clauses in the contracts with the Iranians provide implicit consent to jurisdiction in the United States courts. We requested plaintiff to file copies of these clauses. Having now reviewed them, we categorically reject the arbitration clauses as a basis for jurisdiction.’

However, an implicit immunity waiver was admitted by the court in Maritime International Nominees Establishment (MINE) v. Republic of Guinea, 505 F.Supp. 141 (D.D.C. 1981), 20 ILM 669 (1981), UN-MAT., 524, 63 ILR 535 (1982), rev., 21 ILM 1355 (1982)(D.C.Cir. 1982). The plaintiff MINE had founded with Guinea a Société Mixte de Transports Maritimes (SOTRAMAR). The failure of this enterprise resulted in arbitration. The contract stipulated, inter alia, the submission of any dispute to a bench of three arbiters, to be chosen by the President of the International Center for the Settlement of Investment Disputes (ICSID) in Washington, D.C.

The court considered this arbitration agreement as an implicit waiver of Guinea in front of American tribunals; this despite the fact that the arbitration clause didn’t specify anything regarding the arbitration forum state. The judge considered the ICSID headquarters and a provision in the Rules of Procedure for Arbitration Proceedings, Rule 13, that states that arbitrators shall meet at the seat of the Centre; consequently, the judge admitted that the will of the parties was including the United States as an arbitration forum state.

— 505 F.Supp. 141, 143: ‘The only fair construction of the SOTRAMAR contract and the ICSID rules is that the parties contemplated arbitration to be held in the United States.’

Distinguishing the MINE case from the precedents LIAMCO, Ipitrade and Verlinden that we reported already, the court stated that the SOTRAMAR contract had the required nexus with the jurisdiction of the United States, while in those other precedents such a nexus was not as firmly established. Countering the argument of the defendant that the arbitration forum was not enough to assume a will of the parties to embrace American jurisdiction, but that they would have needed to subject the arbitration also to American law, the judge responded that ‘this is too constricted a view.’

However, this judgment was reversed by the Court of Appeals of the District of Columbia, and the Court of Appeals confirmed Guinea’s view that without the parties having chosen American law as the applicable law to the dispute settlement, the required nexus with American jurisdiction could not be affirmed. As a result, the court denied the application of the waiver exception under §1605(a)(1) FSIA.

This comes quite surprising, and there is an interesting obiter dictum to be found in Ohntrup v. Firearms Center, Inc., 516 F.Supp. 1281 (E.D.Pa. 1981), 63 ILR 632 (1982) that we already discussed; and it is also interesting that the judge took reference to the MINE district court decision, before it was appealed and reversed. There is much logic in this reasoning, in my view:

While it is reasonable to conclude that an agreement by a foreign country to either arbitrate disputes in or be governed by the laws of the United States constitutes an implicit waiver of that state of the defense of sovereign immunity in the courts of the United States … (Id.)

There are two options, two possible choices to make for parties of such an agreement. One is to choose the arbitration forum, the other is to choose the applicable law. I do not see why both criteria would need to be fulfilled for establishing the necessary nexus as a precondition to an immunity waiver. I also do not see why the applicable law should have a stronger nexus than the choice of the arbitration forum.

I think that the Court of Appeals in MINE really screwed down the jurisdictional powers of the United States for reasons of ‘political correctness’ while there was hardly any reason for doing so, given that the legal materials really are liberal in this respect. And the legal materials having been prepared and suggested by the legal advisor of the State Department, these concerns of ‘political correctness’ do not seem reasonable, but exaggerated.

The State Department has given convincing reasons why they wanted to retreat and give sovereign immunity litigation over to the judiciary; in such a case, if the judiciary remains looking up, or looking back, at what might be ‘political will’ and what might not be, it’s not doing its job correctly. To assume that parties of arbitration clauses must agree on both the arbitration forum and the applicable law, as both those criteria must embrace the jurisdiction of the United States, doesn’t make sense as a matter of logic.

One of these criteria that ‘grasps,’ should suffice for making a valid assumption as to the will of the parties regarding the jurisdiction of the United States, vel non.

The last case I am going to briefly review here doesn’t make an exception to this rather disappointing and confusing line of jurisdiction, as in that precedent matters were clear-cut.

There was an expressly stated immunity waiver, and thus the court didn’t need long reasonings for assuming that sovereign immunity had been waived. It’s the case Sperry International Trade v. Government of Israel, 532 F.Supp. 901 (S.D.N.Y. 1982), 21 ILM 1073 (1982), confirmed, 21 ILM 1066 (2d Cir. 1982). At the basis of the action was an arbitration sentence pronounced by the American Arbitration Association.

The case didn’t contain any legal difficulties, but of course cannot help to influence the very restrictive doctrine established by MINE, as we are dealing here with an express waiver. I quote the whole clause here as a model for international lawyers and government counsel, because it is ‘safe’ in the sense that the district court judgment was confirmed.

Buyer (Government of Israel) hereby waives any and all rights to claim sovereign immunity in any court of competent jurisdiction within the United States with respect to any suit in equity, action at law, or arbitration proceeding instituted by Seller. Buyer further waives any right to sovereign immunity with respect to any attachment, levy or execution resulting from a decree or judgment of any of the aforementioned courts on its commercial or quasi-commercial property or any funds, liquidated or unliquidated, or securities, negotiable or non-negotiable, deposited in or handed by any banking institution or other entity within the United States. (532 F.Supp. 901, 908–909).

To summarize, and with regard to arbitration clauses, we can observe a reversal in American federal jurisprudence as to the admission of implicit immunity wavers under §1605(a)(1) FSIA.

While in the beginning, with the precedents Ipitrade and LIAMCO, the legal situation was rather favorable for the private merchant to sue a foreign state on the basis of an arbitration clause that contained either a nexus to the United States through the forum choice, or the choice of American law, since the Verlinden leading case, this argumentation has been restricted severely.

According to the Verlinden precedent both criteria must be fulfilled, thus the parties must have agreed both on the United States as the forum state, and the application of American law to the dispute.

This reversal of the former more liberal case law was subsequently confirmed through the precedents Chicago Bridge and the MINE Court of Appeals decision, where it was expressly held that the mere choice of the United States as the forum state for the arbitration did not establish a sufficient nexus to the United States jurisdiction, within the court’s decision-making about an implicit immunity waiver according to section 1605(a)(1).

Regarding the burden of proof, there is no novelty; the same scheme is valid here that applies to all the other exceptions from sovereign immunity, that is, the foreign state must first establish a prima facie case for supporting its immunity claim, whereupon the evidential burden shifts to the plaintiff to assert and prove the waiver exception to be applied.

To give an example, in the LIAMCO precedent, the action was about a nationalization that was done in violation of international law under the terms of §1605(a)(3) FSIA. The court, citing Hunt v. Mobil Oil Corporation, 550 F.2d 68, 73 (2d Cir. 1977), cert. denied, 434 U.S. 984, 98 S.Ct. 608, 57 L.Ed.2d 477, stated that expropriations ‘are traditionally considered to be public acts of the sovereign removed from judicial scrutiny by application of the act of state rubric.’ (482 F.Supp. 1175, 1179).

After this successful establishment of the prima face case, the burden shifted to the plaintiff to demonstrate that the expropriation was ‘in violation of international law.’

International Treaties

A foreign state can also waive its immunity in an international treaty. This is formulated in §1604 FSIA: ‘Subject to existing international agreements to which the United States is a party at the time of enactment of this Act, a foreign state …’ Furthermore, the House Report explains:

H. R. Report No. 94–1487

With respect to explicit waivers, a foreign State may renounce its immunity by treaty, as has been done by the United States with respect to commercial and other activities in a series of treaties of friendship, commerce and navigation.

This indicates that the repartition of the burden of proof should be similar to the situation that the foreign state has agreed to arbitration in the contract that is at the basis of the litigation.

However, things do not look that clear-cut, and I got the impression after reviewing the pertinent case law that American courts were rather reluctant to derive immunity waivers from international treaties the foreign state is a member of.

To begin with, in the case Castro v. Saudi Arabia, 510 F.Supp. 309 (W.D.Tex. 1980), 63 ILR 419 (1982), the district court scrutinized the requirements of an implicit immunity waiver contained in a bilateral treaty between the United States and Saudi Arabia.

This treaty, that regarded military training, was interpreted by the plaintiff as an implicit immunity waiver on the part of Saudi Arabia. However, the court refused to admit an immunity waiver, arguing that just because a state makes a bilateral agreement with another state, the state does not for that matter waive its immunity.

— 510 F.Supp. 309, 312: ‘A foreign state does not waive its sovereign immunity by merely entering into a contract with another nation.’

What was required here, the court explained, was an intentional and conscious abandonment, by the foreign state, of a legal right. The contractual obligation of Saudi Arabia under the treaty to indemnify the American government for all financial expenses and to assume the responsibility for the transport of the soldiers, does not represent, according to the court, such an abandonment of a legal right.

Succinctly speaking, this requirement of the court boils down to the situation that only an express immunity waiver in a bilateral treaty can be considered as a valid immunity waiver, under section 1605(a)(1) FSIA.

An example for such a clause can be found in Behring International v. Imperial Iranian Air Force (I.I.A.F.), 475 F. Supp. 383 (D.N.J. 1979), UN-MAT., p. 479, 63 ILR 261 (1982), an executive action in which the court had to state about its competence first.

— Regarding the problem of immunity from execution, see further down in this study, and consider that there were two precedents, Behring I, 475 F. Supp. 383 (D.N.J. 1979), UN-MAT., 479, 63 ILR 261 (1982), and Behring II, 475 F.Supp. 396 (D.N.J. 1979), UN-MAT., 492. See 475 F.Supp. 383, 389, note 13: ‘It is important to note that the Immunities Act deals both with a foreign state’s immunity from the jurisdiction of United States courts, see 28 U.S.C. §§1604–1607, and with the immunity a foreign state’s property enjoys from attachment and execution. In this case it is the second form of immunity which is the source of the controversy. It is the first form of immunity, however, which is determinative of this Court’s subject matter jurisdiction under 28 U.S.C. §1330(a).’

The plaintiff, an international freight forwarder, contracted with I.I.A.F., the predecessor of the Islamic Republic Iranian Air Force (I.R.I.A.F.), for the transport of merchandise from the United States to Iran. After I.I.A.F. had not paid several bills and the revolutionary troubles started in Iran, the plaintiff tried to seize, by means of a pre-judgment attachment, property belonging to the defendant in the United States.

— The court has also stated about the commercial activity exception, §1605(a)(2), concluding: ‘It is obvious that I.R.I.A.F. was engaged in commercial activity carried on in the United States. I.R.I.A.F. was engaged in using its cargo planes to ship goods purchased in this country to Iran. Its contact with Behring obliged Behring to prepare those goods for shipment by I.R.I.A.F. The contract was negotiated and executed in New York City; I.R.I.A.F. maintained an office there, and it regularly sent its planes to this country to pick up cargo. Thus, I.R.I.A.F. has waived its jurisdictional immunity by engaging in commercial activity carried on in this country. 28 U.S.C. §§1604, 1605(a)(2).’ (475 F.Supp. 383, 390).

Examining its competence, the court, inter alia, applied section 1605(a)(1) FSIA with regard to Article XI, §4, of the Friendship Treaty between the United States and Iran of 8 August 1955 which contains an express sovereign immunity waiver.

— This is the text of the article: ‘No enterprise of either High Contracting Party including corporations, associations, and government agencies or instrumentalities, which is publicly owned or controlled shall, if it engages in commercial, industrial, shipping or other business activities within the territories of the other High Contracting Party, claim or enjoy, either for itself or for its property, immunity therein from taxation, suit, execution of judgment, or other liability to which privately owned and controlled enterprises are subject therein.’

In Chicago Bridge, 19 ILM 1436 (1980)(N.D.Ill. 1980), 63 ILR 511 (1982), a precedent discussed earlier on, we can find another example where an implicit immunity waiver allegedly contained in the same friendship treaty was denied by the court. The court ruled that an expropriation effected by Iran did not fulfill the criterion ‘within the territories of the other High Contracting Party.’ (19 ILM 1436, 1439).

In a more recent case, Jafari v. Islamic Republic of Iran, 539 F.Supp. 209 (N.D.Ill. 1982), the same district court interpreted the provision in question as not covering activities ‘of the sovereign itself’, but only those of enterprises that it defines and enumerates. (539 F.Supp. 209, 211–212).

The court concluded that the treaty did not contain any implicit immunity waver of either party of the treaty.

The precedents Behring and Chicago Bridge differ also under another point of view. While in Behring, the judge stated that ‘[s]ection 1604 expressly establishes that existing international agreements to which the United States is a party survive the Immunities Act[.], and that ‘[t]he Treaty of Amity is just such an agreement’ (475 F.Supp. 383, 390), the judge in Chicago Bridge denied such a ‘survival’ of the treaty, and concluded that the parties member of the treaty did not have the intention to waive their sovereign immunities. (19 ILM 1436, 1440).

Conclusion

We can thus conclude that for an implicit or explicit immunity waiver to be assumed under section 1605(a)(1) of the Act, there must be proof of an unconditional immunity waiver to be contained in any juridical relation between the private plaintiff and the foreign state.

With respect to arbitration agreements, the plaintiff must prove that American law had been chosen to rule any dispute arising out of the agreement in order the establish the necessary nexus between the contract and the jurisdiction of the United States.

An implicit immunity waiver in an international treaty was only affirmed by the courts for the case that the clause in question was clearly pointing to an intentional abandonment of a legal right on the side of the foreign state, defendant of the action. In any other constellation, such implicit immunity waivers were denied to be agreed upon by the parties of international treaties.

The repartition of the burden of proof that is suggested in the House Report and that was partially modified by American federal jurisprudence, is that it’s the foreign states to begin with producing prima facie evidence about two elements, first, that it is a foreign state under §§1603(a),(b) FSIA, and second, that the activity at the basis of the action had a public, governmental character. For proving the second element, the foreign state only needs to disprove any explicit or implicit immunity waiver under §1605(a)(1) FSIA that the plaintiff has invoked in its claim.

Once the foreign state has produced prima facie evidence regarding the two elements, which can by done by affidavit or otherwise, the evidential burden shifts to the plaintiff for proving that the alleged immunity waiver was such that it fulfilled the requirements of §1605(a)(1) FSIA.

Commercial Activity

§1605(a)(2) FSIA states that a foreign state shall not be immune from jurisdiction for any case in which the action is based upon:

§1605(a)(2) FSIA

(Clause 1) a commercial activity carried on in the United States by the foreign state, or (Clause 2) an act performed in the United States in connection with a commercial activity of the foreign state elsewhere, or (Clause 3) an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that causes a direct effect in the United States.

First, of all, it has to be noted that the notions ‘foreign state,’ ‘commercial activity’ and ‘United States’ are defined in §1603. This does not require further discussion.

§ 1603. Definitions

For purposes of this chapter —
(a) A ‘foreign state’, except as used in section 1608 of this title, includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b).
(b) An ‘agency or instrumentality of a foreign state’ means 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 of the United States as defined in section 1332 (c) and (d) of this title, nor created under the laws of any third country.
(c) The ‘United States’ includes all territory and waters, continental or insular, subject to the jurisdiction of the United States.
(d) 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.
(e) 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.

The interesting legal issue involved here in this so-called commercial activity exception is the particular nexus required between the action or act in question, on one hand, and the commercial activity, on the other. To discuss this further in detail I found it useful to divide the statutory ruling into three separate clauses.

When you calmly read them, you see that there is a movement in the sense that the commercial activity moves as it were farther and farther away. When reading this for the first time, I had to think immediately of a passage in the House Report regarding §1330(b), which I discussed already earlier on:

H. R. Report No. 94–1487

(b) Personal Jurisdiction. Section 1330(b) provides, in effect, a Federal long-arm statute over foreign states (including political subdivisions, agencies, and instrumentalities of foreign states). It is patterned after the long-arm statute Congress enacted for the District of Columbia, Public Law 91–358, section 132(a), Title I, 84 Stat. 549. (H. R. Report No. 94–1487, p. 13, 15 ILM 1398, 1408 (1976).

In my view, the commercial activity exception of the Act uses a very similar long-arm clause here to establish the nexus or a minimal contacts provision between the action of the foreign state the litigation is about, on one hand, and the commercial activity, on the other. In clause (3), it is evident that this nexus can be a relatively feeble one, and here, the literature is all but united if such kind of ‘direct effects jurisdiction’ is still constitutional or not.

— See, for example, Johnson & Worthington, Minimum Contacts Jurisdiction under the FSIA, 12 GA.J.INT’L & COMP.L. 209–230 (1982), Terence J. Pell, The FSIA of 1976: Directs Effects and Minimal Contacts, 14 CORNELL INT’L L.J. 97–115 (1981).

Whatever one may think about such a legislative attempt to ‘force jurisdiction’ into one’s nation — which can be problematic under international law — the principle that is unquestioned here is that such a nexus between the suit and the commercial activity must exist, and here the statute is clear-cut in that it requires that the action pending at court be based upon the commercial activity in question.

Clause 1

As to this first clause of the section, there are instructive explanations to be found in a judgment by the Court of Appeals of the 3rd Circuit, in the case Sugarman v. Aeromexico, Inc., 626 F.2d 270 (3d Cir. 1980).

The plaintiff claimed damages from the Mexican government, alleging he had greatly suffered from waiting for his delayed flight to the United States, in a Mexican airport.

The district court had recognized Aeromexico as being an agency or instrumentality of a foreign state under the section. What is interesting to note about the appeal judgment is that it contains a confirmation of what was to be supposed from the point of view of the burden of proof. The court clearly held that the burden is upon the plaintiff to show the necessary connectivity required by section 1605(a)(2) FSIA.

— The court stated: ‘… if we felt confined by the recitals of the complaint, standing alone, we would acknowledge that the complaint does not provide very sturdy underpinning for the finding that Sugarman’s claim is ‘based upon a commercial activity carried on in the United States’, as called for by the first clause of section 1605(a)(2).’ (626 F.2d 270, 272).

This ruling becomes even more clear when considering Verlinden v. Central Bank of Nigeria, 488 F.Supp. 128 (S.D.N.Y. 1980), where the court held that it’s upon the plaintiff to identify a ‘regular course of commercial conduct’ or a ‘particular commercial transaction or act’ under this section, as well as that the activity has ‘substantial contact(s) with the United States.

— The judgment was confirmed by the Court of Appeals of the 2nd circuit, 647 F.2d 320 (2d Cir. 1981), but the appeal was reversed by the Supreme Court, however for other reasons, 103 S.Ct. 1962 (1983), 22 ILM 647 (1983).

Clause 2

This criterion was interpreted in the case Gilson v. Republic of Ireland, 682 F.2d 1022 (D.C. Cir. 1982) where the plaintiff, an American citizen, claimed damages based on a commercial contract concluded with the government of Ireland, or an agency thereof. The plaintiff invoked that the government of Ireland had not fulfilled its duties under the contract, and in addition had divulged certain facts that they had to keep secret under the contract. There was no doubt as to the commercial character of the activity in question.

— 682 F.2d 1022, 1027, note 20: ‘The district court apparently accepted plaintiff’s assertion that the acts involved were ‘commercial,’ and our disposition of the case today does not call for review of this issue.’

Hence, the Court of Appeal only stated about the necessary nexus between the facts at issue and the territory of the United States. Admitting as verified the facts alleged by the plaintiff, the Court in applying clause 2 of §1605(a)(2) and clearly concluded that the burden for proving the minimal contacts required by the clause was upon the plaintiff.

— Appeal courts only revise legal questions. See id., p. 1026 where the court stated: ‘Our conclusion that the district court’s dismissal for lack of jurisdiction was improper is based on our finding that the facts ‘as alleged’ — and generously interpreted — make a dismissal at least premature in light of the dearth of fact-finding done by the district court thus far.’

Clause 3

The third clause of section 1605(a)(2) was subject of the precedents Upton v. Empire of Iran, 459 F.Supp. 264 (D.D.C. 1978), 63 ILR 211 (1982), and Wyle v. Bank Melli of Teheran, Inc., 577 F.Supp. 1148 (N.D.Cal. 1983). The Upton suit was initiated by a woman whose husband was killed when, back in 1974, the hall of the international airport in Teheran, Iran, crashed down.

Mrs. Upton as well as two other plaintiffs was claiming damages from the Iranian government and the Iranian Civil Aerospace Department. Here also, the court affirmed that the burden of proof for the necessary nexus under the third clause of §1605(a)(2) is upon the plaintiff.

Plaintiffs principally rely upon 28 U.S.C. §1605(a)(2), clause 3, as a bar to the defendants immunity. (…) The court finds that causing injury to American citizens abroad is insufficient to satisfy the requirement of the District of Columbia long-arm statute. The relatively simple statement of plaintiff’s position points up the correctness of this result. They contend that ‘defendant’s acts caused the deaths and injuries to Americans which caused direct effects in the United States. (…) Their own language attenuates the connection between the act and the effect. (…) Inasmuch as section 1605(a)(2), clause 3, is unavailable to remove defendants’ immunity under section 1605, and plaintiffs are unable to assert jurisdiction under any of the alternative exceptions to sovereign immunity, this court lacks subject matter and personal jurisdiction over these defendants by the terms of 28. U.S.C. §1330. Accordingly, the court dismisses the action. (459 F.Supp. 264, 266).

The court also ruled on the retroactivity of the FSIA which entered in force on the 19th January 1977, and affirmed it (459 F.Supp. 264, 265, referring to Yessenin-Volpin v. Novosti Press Agency, Tass, 443 F.Supp. 849, 851, note 1 (S.D.N.Y. 1978).

However, while thus two district courts have initially affirmed the retroactivity of the Act, it was later denied by the Court of Appeals of the 2nd circuit in the case Corporación Venezolana de Fomento v. Vintero Sales, 629 F.2d 786, 790 (2d Cir. 1980). From this precedent onward, a retroactive application of the FSIA was generally denied by the American jurisprudence.

This becomes still more evident in Wyle v. Bank Melli of Teheran, Inc., a suit that was initiated by the bankruptcy attorney of two shipment companies, the Pacific Far East Line (PFEL) and Atlantic Bear Steamship Co. (ATLANTIC), against Bank Melli from Iran, the government of Iran, an iranian shipment company (Ports and Shipping Organization of Bushire, Iran (PSO) and the Bank of California.

The plaintiff alleged a fraudulent cooperation of the defendants with regard to a letter of credit. In fact, for the navigation of PFEL and ATLANTIC within the Bushire port in Iran, PSO required a letter of credit to be issued by Bank Melli for indemnifying eventual loss or deterioration of the cargo.

PFEL offered a letter of credit to the Bank of California for indemnifying Bank Melli for the case that PSO would ask for the letter of credit. After complicated arrangements, Bank Melli claimed from Bank of California the payment of the entire amount guaranteed, pretending PSO had cashed in the letter of credit from PFEL and ATLANTIC who had violated the credit agreement. The plaintiff alleged that there was no reason for cashing the letter of credit as there was no loss or deterioration of any cargo.

With regard to the minimal contacts between the activities of PSO and Bank Melli, the plaintiff invoked the House Report statement where jurisdictional immunity is construed as an affirmative defense. He thus concludes that what is valid for the question of affirming or denying sovereign immunity, and the burden of proof regarding those facts, must equally be valid for minimal contacts. (577 F.Supp. 1148, 1157).

Thus, the plaintiff argued that the burden of proving minimal contacts was on the defendants, but as the latter had not presented proof to the court as a basis of their immunity claim, the plaintiff thought he had been dispensed from presenting evidence. The court did not share the plaintiff’s opinion:

This argument is specious. The legislative history makes clear what the foreign state must prove to establish immunity: that the challenged action is that of a foreign state in its public, noncommercial capacity. The burden of proving the existence of an otherwise actionable (if not barred by sovereign immunity) activity or act within the United States or having a direct effect in the United States would obviously remain with the plaintiff. Simply because the foreign state must plead and prove certain facts necessary to establish its immunity does not mean that the normal burden of proving subject matter and personal jurisdiction is reversed. (Id.)

The burden of proof for the existence of minimal contacts, and implicitly, for the affirmation of subject matter and personal jurisdiction of the tribunal is thus unequivocally upon the plaintiff.

The repartition of the burden of proof in the House Report only regards the immunity question, and did not change the general rule that the plaintiff must demonstrate and prove the facts that are establishing the competence of the court.

Expropriation in Violation of International Law

This exception — §1605(a)(3) FSIA — is a novelty in American law in that contrary to general international law principles, where all nationalizations are considered as sacrosanct in the sense that they are considered as ‘quintessential government acts,’ the FSIA allows to sue a foreign state nonetheless when the foreign state has effected the nationalization ‘in violation of international law.’

One of the initiators of this exception was Professor Louis B. Sohn, at the time legal advisor to the State Department, when the Act was in preparation, and who was for twelve years professor of international law at Harvard University.

The other person who signed responsible for the introduction of this exception is Monroe Leigh, Esq., who was the acting legal advisor when the FSIA was drafted, and who was for long years a founding member of the law firm Steptoe & Johnson in Washington, D.C.

Section 1605 (a)(3) seems to have been drafted in analogy with the international law of torts, or international torts, and the responsibility of states for torts committed by one of their officials, which is called in the literature state responsibility or international responsibility.

— See Henkin/Pugh/Schachter/Smit, International Law (1980), Chapter 11, 685–803, Steiner/Vagts, Transnational Legal Problems (1976), Chapter IV, pp. 357 ff, and the work of the International Law Commission, Draft Articles on State Responsibility, [1978] 2 Y.B.I.L.C. 78, reproduced in Henkin et al., Basic Documents Supplement, 257 ff. However, in the 2004 final United Nations Convention on Jurisdictional Immunities of States and Their Property (2004), a clause to that effect is missing.

In addition, there is a parallel to United States law, the so-called Hickenlooper Amendment to the Foreign Assistance Act of 1965.

28 U.S.C. §1605(a)(3)

(3) 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; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States; …

The House Report explains for this section:

H. R. Report No. 94–1487

(a)(3) Expropriation claims. Section 1605(a)(3) would, in two categories of cases, deny immunity where ‘rights in property taken in violation of international law are in issue.’ The first category involves cases where the property is present in the United States by the foreign state, or political subdivision, agency or instrumentality of the foreign state. The second category is where the property, or any property exchanged for that property, is (i) owned or operated by an agency or instrumentality of a foreign state and (ii) that agency or instrumentality is engaged in a commercial activity in the United States. Under the second category, the property needs to be present in connection with a commercial activity of the agency or instrumentality. The term ‘taken in violation of international law’ could include the nationalization or expropriation of property without payment of the prompt, adequate and effective compensation required by international law. It would also include takings which are arbitrary or discriminatory in nature. Since, however, this section deals solely with issues of immunity, it in no way affects existing law on the extent of which, if at all, the ‘act of state’ doctrine may be applicable. See 22 U.S.C. 2370(e)(2). H.R. Report, pp. 19, 20, 15 ILM 1398, 1408 (1976).

We have to distinguish the different clauses in this exception, under the special focus of the repartition of the burden of proof.

Expropriation in Violation of International Law

The Court of Appeals of the 7th Circuit, in Alberti v. Empresa Nicaraguense de la Carne, 705 F.2d 250 (7th Cir. 1983), 22 ILM 835 (1983), a case already discussed earlier on regarding its important rulings on the burden of proof, is equally interesting with regard to the interpretation of the criterion ‘expropriation in violation of international law,’ under §1605(a)(3) FSIA.

As in this case, the expropriation was considered by the court to be a public, governmental act and the defendant state thus established a prima facie case to support its immunity claim, the fact at issue was if the expropriation had been effected ‘in violation of international law.’

Plaintiff’s final basis for removing this case from the protection of sovereign immunity rests upon their allegation that the nationalization was in violation of international law. If this is the case then defendant’s immunity is removed by section 1605(a)(3), as the remaining elements are present. To decide this issue we must determine what is required by international law to validate a nationalization and then allocate the appropriate burden of proof. (705 F.2d 250, 255).

The plaintiffs forwarded the view that international law required the prompt payment of an adequate compensation to the property holders. As they had not received such compensation, they thought that the expropriation was in violation of international law.

The defendants, by contrast, argued that international law only required that reasonable and comprehensive provisions had been enacted for a compensation to be paid.

While the court admitted that generally, in the international law literature, prompt, adequate and effective compensation was required to be effected by the nationalizing government, the court admitted that there was little agreement about the precise terms under which such payment must be effected in the particular case.

— The court took reference to Banco Nacional de Cuba v. Chase Manhattan Bank, 658 F.2d 875, 888 (2n Cir. 1981) and Dawson & Weston, Prompt, Adequate and Effective: A Universal Standard of Compensation?, 30 FORDHAM L.REV. 727 (1962).

The court however rejected the argument of the plaintiffs that compensation had to be paid before the nationalization:

We think that international law does not require payment of compensation prior to nationalization. Our position is buttressed by Congress’ adoption of the ‘prompt’, rather than a prior or immediate, payment standard in the legislative history of 1605(a)(3). (…) Prompt payment, by definition, is made within a reasonable time after nationalization. As long as the expropriating nation affords property owners a means of obtaining prompt payment the dictates of international law have been satisfied. (Id. See also H.R. Rep, pp. 19–20).

As the legal provisions in Nicaragua have indeed foreseen the payment of a prompt, adequate and effective compensation, the court proceeded to state on the burden of proof for this fact at issue. I will cite the entire passage of the judgment here because it exemplarily reveals the repartition of the burden of proof, and its underlying principles, under the Act, and how those principles are to be applied in procedural practice:

In our opinion section 1604 requires a foreign state to establish a prima facie case on two elements: that it is a foreign state under the definition employed in FSIA, and that the claim relates to a ‘public act.’ Once this evidence is produced section 1604 provides a ‘presumption’ of immunity that the plaintiff must rebut by offering evidence that one of the statutory exceptions applies. It is only when the plaintiff has produced this evidence that the defendant must prove its entitlement to immunity by a preponderance of the evidence. Plaintiffs do not contend that defendants have failed to establish that they are both to be treated as foreign states under the FSIA. The question that remains is whether defendants have established that the suit relates to a public act. The only definition of public act appears in the suggestion in the legislative history that a public act is ‘an act not within the exceptions in sections 1605–1607.’ House Report at 6616. This definition, which is circular, would require a defendant to establish the inapplicability of every statutory exception. Common sense refutes this position as it would be a nearly impossible task for a defendant to refute the exceptions before the plaintiff has indicated which one is applicable or, as in this case, how a nationalization was in violation of international law. (…) Defendants having established a prima facie entitlement to immunity it was plaintiff’s obligation to produce support that a statutory exception was applicable. This they did not do; although they were not precluded from adducing affidavits. Instead they failed even to respond to defendant’s motion to dismiss. In this situation, defendants need not disprove a claim that the nationalization was in violation of international law, and we need not consider whether their affidavit was sufficient for that purpose. (705 F.2d 250, 256, 22 ILM 835, 839).

— The quote of the House Report refers to U.S.Code Cong. & Adm. News 6604 (1976). It is page 17 in the original text and corresponds to 15 ILM 1398, 1407 (1976).

It is interesting to examine if the same repartition of the burden of proof exists under the act of state doctrine?

There is namely an exception to the act of state doctrine contained in the Hickenlooper Amendment to the Foreign Assistance Act of 1965 which states that American courts, if the president, for political reasons opposes it, are not supposed to apply the act of state doctrine, except that ‘claim or title or other right to property … based upon (or traced through) a confiscation or other taking after January 1, 1959, by an act of that state in violation of the principles of international law,’ 22 U.S.C. §2370(e)(2).

Referring to this provision, the district court of the district of Columbia, in the LIAMCO precedent, concluded that ‘[t]he president has made no suggestion in this matter, but petitioner has failed to show that the amendment’s requirements have been met.’ (482 F.Supp. 1175, 1179 (D.D.C. 1980).

The conditions namely require that the expropriation was effected in violation of the principles of international law. Hence, the court states that the petitioner ‘has failed to show that the taking was in violation of international law.’

The court applied thus the act of state doctrine, which resulted in an arbitration sentence rendered in Geneva, the 12th of April, 1977, not to be executed within the United States, notwithstanding the fact that the court had refused to grant Libya immunity from suit. In a more recent case, Kalamazoo Spice Extraction Company v. The Provisional Military Government of Socialist Ethiopia, 24 ILM 1278 (W.D.Mich. 1985), the district court equally struggled with factual problems regarding the question if the nationalization of plaintiff’s company by the Ethiopian government was effected ‘in violation of international law.’

As under §§1330(a),(b) FSIA, jurisdiction requires the absence of immunity, the judge had to deal with all the factual problems regarding the immunity exceptions, before he could state about its jurisdiction. However, before having affirmed its jurisdiction or competence, the court is impeached from entering the examination of the underlying substantive law. This vicious circle, that is a result of the strange drafting technique of the Act, was broken by the court:

When factual issues are determinative of both the jurisdictional question and the merits, as here, a court must assert jurisdiction unless the claim is insubstantial or frivolous. (…) KAL-SPICE’s claims are neither insubstantial nor frivolous. Because plaintiff has made a substantial allegation of a violation of international law, the court must assert jurisdiction. (24 ILM 1278, 1284).

As to the burden of proof of the plaintiff with regard to a violation of international law through the nationalization in question, a substantial allegation was thus considered to be sufficient by the court.

The Minimal Contacts Requirements

We have already outlined the principles of due process being part of the FSIA, which is why a minimal contact or nexus must exist between the facts at issue, and the territorial jurisdiction of the United States.

This is required by a variety of exceptions to the general rule of immunity. Here, §1605(a)(3) requires that the property (or the property exchanged for it) be present in the United States in connection with a commercial activity of the foreign state conducted in the United States, or that the property belongs, or is administered by, an agency or instrumentality of the foreign state, conducting commercial activity in the United States. This latter criterion was examined in De Sanchez, 515 F.Supp. 900 (E.D.La. 1981), a case we discussed earlier on.

The court admitted an expropriation in violation of international law regarding the refusal of Banco Central to pay out to Mrs. Sanchez the amount of the cheque, without the payment of a prompt, adequate and effective compensation. (515 F.Supp. 900, 910, note 10). Then the judge stressed the fact that contrary to section 1605(a)(2), the ‘commercial activity’ exception, §1605(a)(3) did not require that the property be used in connection with a commercial activity, when such activity was conducted by an agency or instrumentality of the foreign state:

Section 1605(a)(3) … permits a court to exercise jurisdiction over the foreign state so long as the state’s agency or instrumentality holds the property allegedly confiscated, or property exchanged for it, and conducts commercial activities in the United States, even if the property is not used in connection with those commercial activities. (515 F.Supp. 900, 911–912).

Appreciating the evidence submitted by the plaintiff, the court affirmed the existence of commercial conduct by Banco Central in the United States, stating:

From Incer’s testimony, it is clear that Banco Central used the C & S account as part of certain commercial activities conducted in the United States. Checks from the C & S account were used to pay for letters of credit issued through C & S for Nicaragua imports and to pay for principle and interest on credit extended to Banco Central by C & S. Incer at 11–12. The account was also used to collect all other American checks tendered to Banco Central. Id., at 11.’

As to the burden of proof regarding those minimal contacts, we have already seen that as these criteria are substantial elements of personal jurisdiction, the burden of proof is upon the plaintiff. In the present case, the court took reference to Verlinden, 647 F.2d 320 (2d Cir. 1981), 461 U.S. 480, 103 S.Ct. 1962, 76 L.Ed.2d 81, 51 U.S.L.W. 4567, 22 ILM 647 (1983), and held:

Although Verlinden approached the issue as one of personal jurisdiction, which Banco Central contends is lacking in this case, the analysis is the same because the FSIA makes the court’s personal jurisdiction coterminous with its subject matter jurisdiction over the claim asserted against the foreign state. 28 U.S.C. §1330(b). (515 F. Supp. 900, 911).

In the following note, the court pursued:

I acknowledge that Incer’s testimony, standing alone, is not particularly strong evidence of the scope and nature of Banco Central’s commercial activities in the United States. However, because the burden of proof of the defense of sovereign immunity is upon Banco Central, … and it has failed to present evidence rebutting Incer’s testimony, I am compelled to find in favor of Sanchez on the issue. I also acknowledge that generally the burden of proof on the existence of personal jurisdiction, like subject matter jurisdiction, falls upon the plaintiff. Familia de Boom v. Arosa Mercantil, S.A., 629 F.2d 1134, 1138 (5th Cir. 1980), Product Promotions Inc. v. Cousteau, 495 F2d 483, 490 (5th Cir. 1974), Jetco Electronic Industries, Inc. v. Gardiner, 473 F.2d 1228, 1232 (5th Cir. 1973). However, because the FSIA incorporates the elements of personal jurisdiction into its grant of subject matter jurisdiction, and the foreign state must bear the burden of proof that subject matter jurisdiction is lacking, a plaintiff suing under the Immunities Act is necessarily relieved from his duty to prove that the defendant foreign state is subject to personal jurisdiction of the court. Therefore, because Banco Central has failed to prove that Sanchez’s claim does not arise under 1605(a)(3), its contention that personal jurisdiction is lacking is also without merit. (Id., note 11).

These revelatory passages in the judgment are in obvious contradiction with the precedents, and with the conclusions I have taken further up in this study. However, the court’s argument that the plaintiff was liberated from his burden of proof regarding personal jurisdiction because the Act has interwoven it with subject matter jurisdiction, is not very convincing.

This circular schema, that results from the drafting technique of the Act, can be broken apart, so that we can well look at the burden of proof for subject matter jurisdiction, on one hand, and for personal jurisdiction, on the other. In addition, it has to be seen that these considerations of the court were but an obiter dictum, not relevant for the final decision.

Even if we admit that the plaintiff has to bear the burden of proof for minimal contacts as part of personal jurisdiction, we can conclude that in the present case the plaintiff has well acquitted this burden, even though the court held it was not ‘particularly strong evidence.’

In other words, Sanchez has well established a prima facie case with respect to that fact at issue whereupon the evidential burden shifted toward the defendant, Banco Central.

However as the bank failed to present evidence ‘rebutting Incer’s testimony,’ the judge actually concluded that the bank failed to discharge this burden, which is why the judge was ‘compelled to find in favor of Sanchez on this issue.’

This is why the developments of the court regarding the burden of proof were not relevant, and therefore obiter dicta. In addition, more recent precedents overruled these considerations, that is Alberti, 705 F.2d 250 (7th Cir. 1983), 22 ILM 835 (1983), and Wyle, 577 F.Supp. 1148, discussed already earlier in this study. In Alberti, the Court of Appeals of the 7th Circuit, affirming the burden of proof of the foreign state for its immunity claim, modified the allocation of the burden of proof, as it was outlined in the House Report.

The court limited the burden of proof of the foreign state to the prima facie demonstration of a public act ‘and then placing the burden of identifying the relevant exception by affidavit or otherwise upon the plaintiff. (705 F.2d 250, 256).

After this important leading case, we can conclude that the foreign state does not bear the burden of proof for personal jurisdiction; this burden is upon the plaintiff. Hence, the burden of proof for minimal contacts is equally upon the plaintiff, including the necessary nexus required by §1605(a)(3). This criterion is almost identical with clause 2 of §1605(a)(2), for which the burden of proof of the plaintiff was affirmed in Gilson v. Republic of Ireland, 682 F.2d 1022 (D.C. Cir. 1982).

Conclusion

Thus, to summarize, these precedents reveal that the burden of proof is upon the plaintiff for demonstrating the applicability of any of the criteria employed by §1605(a)(3) and that the burden of proof of the foreign state is limited to two elements, that is, that it is a foreign state or an agency or instrumentality of a foreign state, under §§1603(a),(b) and that the activity in question was of a public, governmental nature. In other words, the examination of section 1605(a)(3) regarding the burden of proof fully confirms our earlier conclusions.

Immovable Property

This exception from immunity — §1605(a)(4) — is ‘classical’ in the sense that is existed already under the absolute immunity doctrine.

— See Hersch Lauterpacht, International Law (1977), 340, 341: ‘There is uniform authority in support of the view that there is no immunity from jurisdiction with respect to actions relating to immovable property.’ See also Sompong Sucharitkul, State Immunities and Trading Activities in International Law (1959), 167.

The refusal to grant immunity for any litigations regarding property of the foreign state situated in the forum state is justified by the fact that foreign states can freely dispose where they want to locate their property, and this decision implies a voluntary submission of their property under the jurisdiction of the states where such property has been located. This could be called an implicit immunity waiver.

— See, for example the Harvard Draft Convention, Art. 9, 26 AJIL 572, 577 (1932 Suppl.), where this is called ‘submission to the jurisdiction of the situs.’

We could also explain this immunity exception with the consideration that the jurisdiction of a forum state is absolute in the sense that it covers all the immovable property located in its territory, without regard to who is the owner of such property.

§1605(a)(4) FISA denies immunity from jurisdiction in the case:

28. U.S.C. §1605(a)(4)

(4) in which rights in property in the United States acquired by succession or gift or rights in immovable property situated in the United States are in issue; (…)

The House Report explains for this section:

H.R. Report 94–1487

(a)(4) Immovable, inherited, and gift property. Section 1605(a)(4) denies immunity in litigation relating to rights in real estate and in inherited or gift property located in the United States. It is established that, as set forth in the ‘Tate Letter’ of 1952, sovereign immunity should not be granted in actions with respect to real property, diplomatic and consular property excepted. 26 Department of State Bulletin 984 (1952). It does not matter whether a particular piece of property is used for commercial or public purposes. It is maintainable that the exception mentioned in the ‘Tate Letter’ with respect to diplomatic and consular property is limited to questions of attachment and execution and does not apply to an adjudication or rights in that property. Thus the Vienna Convention on Diplomatic Relations, concluded in 1961, 23 UST 3227, TIAS 7502 (1972), provides in article 22 that the ‘premises of the mission, their furnishings and other property thereon and the means of transport of the mission shall be immune from search, requisition, attachment and execution.’ Actions short of attachment or execution seem to be permitted under the Convention, and a foreign state cannot deny to the local state the right to adjudicate questions of ownership, rent, servitudes, and similar matters, as long as the foreign state’s possession of the premises is not disturbed. There is general agreement that a foreign state may not claim immunity when the suit against it relates to rights in property, real or personal, obtained by gift or inherited by the foreign state and situated or administered in the country where the suit is brought. As stated in the ‘Tate Letter’, immunity should not be granted ‘with respect to the disposition of the property of a deceased person even though a foreign sovereign is the beneficiary.’ The reason is that, in claiming rights in a decedent’s estate or obtained by gift, the foreign state claims the same right which is enjoyed by private persons. (H.R. Report 94–1487, p. 20, 15 ILM 1398, 1411 (1976).

The general allocation of the burden of proof as it is to be concluded from in the legislative history and the precedents is not just a matter of one single exception, but it principally valid for all exceptions, §§1605 to 1607 FSIA. For the exception under §1605(a)(4), we can distinguish two criteria:

— the material criteria, ‘rights in property acquired by succession or gift’ and ‘rights in immovable property;

— the procedural criterion, that is, the necessary nexus to the territorial jurisdiction of the United States, ‘in the United States.’

For the procedural criterion, the burden of proof is clearly upon the plaintiff. For the material criteria, if we follow the precedent Alberti, the burden of proof is equally upon the plaintiff. Specifically for section 1604(a)(4), there is not yet any precedent that deals with the burden of proof.

However, in Matter of Rio Grande Transport, Inc., 516 F.Supp. 1155 (S.D.N.Y. 1981), already discussed earlier in this study, the court briefly explained how to interpret the term ‘immovable property;’ the pleadings here indicate that the court allocated the evidential burden to be upon the plaintiff and confirmed that the burden for the material criteria in §1605(a)(4) is equally upon the plaintiff. In fact, the question was if a limitation fund for limiting naval tort responsibility also is to be considered as ‘immovable property.’ (516 F. Supp. 1155, 1160).

Noncommercial Tort

This exception of the Act — §1605(a)(5) — is of particular interest because its existence cannot only be explained with the restrictive immunity doctrine, but is to be understood rather as a complementary provision to the ‘commercial activity exception,’ §1605(a)(2) FSIA.

— The expression ‘noncommercial tort exception’ is to be found in the House Report and in the subsequent federal jurisprudence, see for example, Matter of Sedco, Inc., 543 F.Supp. 561, 566 (S.D.Tex. 1982).

This exception to the general rule of sovereign immunity equally requires a nexus between the facts at issue and the territorial jurisdiction of the United States. The tort must have occurred in the United States.

28. U.S.C. §1605(a)(5)

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case —
(5) not otherwise encompassed in paragraph (2) above, in which money damages are sought against a foreign state for personal injury or death, or damage to or loss of property, occurring in the United States and caused by the tortious act or omission of that foreign state or of any official or employee of that foreign state while acting within the scope of his office or employment; (…)
(A) any claim based upon the exercise or performance or the failure to exercise or perform a discretionary function regardless of whether the discretion be abused or
(B) any claim arising out of malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.

The House Report explains:

H. R. Report No. 94–1487

(a)(5) Noncommercial torts. Section 1605(a)(5) is directed primarily at the problem of traffic accidents but is cast in general terms as applying to all tort actions for money damages, not otherwise encompassed by section 1605(a)(2) relating to commercial activities. It denies immunity as to claims for personal in injury and death, or for damage to or loss of property, caused by the tortious act or omission of the foreign state or its officials or employees, acting within the scope of their authority; the tortious act or omission must occur within the jurisdiction of the United States, and must not come within one of the exceptions enumerated in the second paragraph of the subsection.

As used in section 1605(a)(5), the phrase ‘tortious act or omission’ is meant to include causes of action which are based on strict liability as well as on negligence. The exceptions provided in subparagraphs (A) and (B) of section 1605(a)(5) correspond to many of the claims with respect to which the U.S. Government retains immunity under the Federal Tort Claims Act, 28 U.S.C. 1680(a) and (h).

Like other provisions in this bill, section 1605 is subject to existing international agreements (see section 1604), including Status of Forces Agreements; if a remedy is available under a Status of Forces Agreement, the foreign state is immune from such tort claims as are encompassed in sections 1605(a)(2) and 1605(a)(5).

Since the bill deals only with the immunity of foreign states and not its diplomatic or consular representatives, section 1605(a)(5) would not govern suits against diplomatic or consular representatives but only suits against the foreign state. It is noteworthy in this regard that while article 43 of the Vienna Convention on Consular Relations of 1963, 21 UST 77, TIAS 6820 (1970), expressly abolishes the immunity of consular officers with regard to civil action brought by a third party for ‘damage arising from an accident in the receiving state caused by a vehicle, vessel or aircraft’, there is no such provision in the Vienna Convention on Diplomatic Relations of 1961, supra. Consequently, no case relating to the traffic accident can be brought against a member of a diplomatic mission.

The purpose of section 1605(a)(5) is to permit the victim of a traffic accident or other noncommercial tort to maintain an action against a foreign state to the extent otherwise provided by law … ‘ (H.R. Report, pp. 20–21, 15 ILM 1398, 1409 (1976).

When we dissect this provision, we can make out the following system, consisting of four distinct areas, or sets of criteria.

(1) The minimal contacts or nexus between the facts at issue and the territorial jurisdiction of the United States: ‘occurring in the United States’;

(2) Causality: ‘caused by the tortious act or omission’;

(3) Scope of Employment: ‘while acting within the scope of his office or employment.’

(4) Exception: ‘except this paragraph shall not apply to … (A) any claim based upon … a discretionary function …

Minimal Contacts or Nexus

In the case Perez v. The Bahamas, 482 F.Supp. 1208 (D.D.C. 1980), 63 IRL 350, 601 (1982), the plaintiff claimed damages from the government of the Bahamas for the fact that his son was hurt by a gun shot fired from a patrol boat of the Bahamian naval police. The accident occurred less than half a mile off Great Isaac Bay in the Bahamas.

The decisive question regarding §1605(a)(5) FSIA was the scope of the term ‘in the United States’ under the definition of §1603(c).

— Regarding the ‘commercial activity exception,’ §1605(a)(2), the court denied the commercial character of the police action, despite the fact that the patrolling of the police is ultimately founded upon the safeguarding of commercial interests. But the police action itself was of course governmental, not commercial, by nature.

In fact, this provision grasps a part of governmental activity that doesn’t fall under the ‘commercial activity’ exception, which is unequivocal under its terms. The court clearly stated that it is upon the plaintiff to prove the applicability of the noncommercial torts exception:

Plaintiff advances two interpretations in an effort to place event ‘in the United States’ for jurisdictional purposes. (…) The injury complained of, then, did not occur ‘in the United States’, and the exception in section 1605(a)(5) does not operate to remove The Bahamas’ immunity from jurisdiction. Plaintiffs have failed to show how The Bahamas fits into any of the exceptions to the immunity granted to all foreign states by the FSIA. Accordingly, the court lacks jurisdiction over this action… (482 F.Supp. 1208, 1210–1211).

— The judgment was confirmed by the Court of Appeals of the District of Columbia Circuit, 652 F.2d 186, 189 (D.C.Cir. 1981) who pronounced itself accordingly: ‘Appellant has failed to demonstrate how section 1605(a)(5) or any of the statutory exceptions to sovereign immunity, are applicable to The Bahamas in this case.’

This precedent was confirmed by the precedents McKeel v. Islamic Republic of Iran, 722 F.2d 582 (9th Cir. 1983) and Olsen by Sheldon v. Government of Mexico, 729 F.2d 641 (9th Cir. 1984). In the McKeel case, the Court of Appeals of the 9th Circuit stated on the appeal of hostages taken in the American embassy in Iran; the appeal was directed against the ruling of the district court that rejected the plaintiff’s claims against both the United States and Iran. The suit was in particular about the question if the hostage taking occurred ‘in the United States’, §1603(c) FSIA. The court implicitly ruled that the evidential burden for this legal criterion was on the appellants.

Appellants argue that section 1603(c) should be interpreted to embrace ‘all territory and waters’ with respect to which the United States exercises any form of jurisdiction. Inasmuch as United States embassies are subject to the jurisdiction of the United States for certain purposes, appellants argue that events occurring at the embassies fall within the waiver of immunity contained in section 1605(a)(5). (722 F.2d 582, 589).

The same appellate court ruled even more clearly in the precedent Olsen by Sheldon. The suit was filed by children whose parents, prisoners held in Mexico, had been killed in the crash of a plane that had taken them from the United States to Mexico. The crash occurred during the landing on Tijuana airport, Mexico.

— Tijuana airport is very close to the American border, and the faulty piloting of the plane occurred while the plane was still over American territory.

With regard to the criterion ‘occurring in the United States,’ the court stated that it was sufficient when only a part of the tortious action was occurring in the United States:

In this case, appellants allege conduct constituting a single tort — the negligent piloting of the aircraft — which occurred in the United States. We are satisfied that appellants have alleged sufficient conduct occurring in the United States to bring this case within the non-commercial tort exception as expressed in section 1605(a)(5) and its legislative history. (729 F.2d 641, 646).

This line of reasoning is consistent in later case law, as for example in Tigchon v. Island of Jamaica, 591 F.Supp. 765 (W.D.Mich. 1984), where the court held:

Plaintiff correctly notes that once a basis for jurisdiction is alleged, the burden of proof rests on the foreign state to demonstrate that immunity should be granted. However, plaintiff has not alleged the minimal facts necessary in order to establish a basis for jurisdiction. (591 F.Supp. 765, 766).

When I wrote my thesis, back in 1985–1987, the question who bears the burden of proof for the exceptions from sovereign immunity, as pronounced by the FSIA, was hardly ever tackled in the international law literature. In the article by Julia B. Brooke, that I mentioned earlier, the question was shortly mentioned in the notes.

— Julia B. Brooke, The International Law Association Draft Convention on Foreign Sovereign Immunity: A Comparative Approach, 23 VA.J.INT’L L. 635–669, 641–642, notes 18 to 23 (1983).

The author defended the opinion that in certain cases, as for example the Upton precedent, courts tended to put the persuasive or ultimate burden upon the plaintiff. (Id., p. 642, note 23).

As we have to distinguish between the question of the jurisdiction of the court, on one hand, and the applicability vel non of an exception to sovereign immunity, on the other, the author is inaccurate in her article.

— See also Robert von Mehren, The Foreign Sovereign Immunities Act of 1976, 17 COLUM.J.TRANSNAT’L L. 33 (1978) who made that necessary distinction: ‘The plaintiff would still have to show that the commercial act … caused a direct effect in the United States.’ (Id., p. 98).

Contrary to the burden of proof regarding the basis of the sovereign immunity claim, which rests on the foreign state, the burden for proving all the facts regarding the jurisdiction of the court is upon the plaintiff. While subject matter jurisdiction is under the FSIA entangled with the question of immunity vel non, this is not the case for the conditions of personal jurisdiction where the burden if entirely upon the plaintiff. In a subsequent case that didn’t concern the long-arm statute of the FSIA, but the New York Civil Practice Law, §301 which equally requires a nexus of the facts to territory of the United States; it’s the famous doing business clause.

— N.Y. SCP. Law §301: ‘Jurisdiction over persons, property or status. A court may exercise such jurisdiction over persons, property, or status as might have been exercised heretofore.’ According to the Federal Rules of Civil Procedure, Rule 4(d)(7) and 4(e), jurisdiction of a federal court against a non-resident defendant is ruled by the long-arm statute of the forum state. See also Prejean v. Sonatrach, Inc., 652 F.2d 1260, 1264, note 2 (5th Cir. 1981), with further references.

In the case Beacon Enterprises v. Menzies, 715 F.2d 757 (2d Cir. 1983), the plaintiff, a New York company filed suit against a Californian company for copyright violation.

The Court of Appeals clearly affirmed that the burden of proof for personal jurisdiction is upon the plaintiff.

As plaintiff, Beacon bore the ultimate burden of proving the court’s jurisdiction by a preponderance of evidence.’ (715 F.2d 757, 762).

— The burden of proof is even more severe in a summary action, as the court points out: ‘For a plaintiff to prevail on summary judgment when defendant contests personal jurisdiction, his burden is even greater; he must demonstrate that there is no genuine issue as to any material fact on the jurisdictional question.’ (Id.) See, in general, Diego C. Asencio, Robert W. Dry, An Assessment of the Service Provisions of the Foreign Sovereign Immunities Act of 1976, 8 JOURNAL OF LEGISLATION (Notre Dame Law School) 230–249 (1981). With regard to the exclusivity of these provisions, see A.G. Bradley, Services of Process under the FSIA of 1976: The Arguments for Exclusivity, 14 CORNELL INT’L L.J. 357–368 (1981) and Georges R. Delaume, Transnational Contracts, Vol. II, XI (Booklet 13), §11.09 ‘Service of Process.’

Causality

The causal link between the illicit action and the suffered damage is an essential criterion in the law of torts. This causal link, which links the action with the infringement of a legal right of the plaintiff, is thus part of substantive law, the law of torts. As such, the burden of proof is upon the plaintiff, as he must generally prove all the factual elements that the claim is based upon.

The FSIA does not expressly modify the underlying substantive law. Thus, we have to distinguish between the evidence rules that govern the applicable substantive law from those that govern the claim of sovereign immunity.

— 28 U.S.C. §1606 FSIA (Extent of Liability) states: ‘As to any claim for relief with respect to which a foreign state is not entitled to immunity under section 1605 or 1607 of this chapter, the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances; (…)’

This distinction has shown to be relevant already in our discussion of the ‘commercial activity’ exception, §1605(a)(2) FSIA. The plaintiff who bases his claim upon a commercial contract with a foreign state, must prove the existence of this contract.

— See, for example, Phipson on Evidence (1982), 4–06, note 33, Cross on Evidence (1979), p. 108. See also The Glendarroch, [1894] 226, 63 L.J.Adm. 89, 6 R. 686, 70 L.T. 344 and Hurst v. Evans, [1917] 1 K.B. 351.

This is also valid for torts; the burden of proof is upon the plaintiff to prove the facts regarding the tort.

— Phipson and Elliott, Manual of the Law of Evidence (1980), 15–16: ‘Thus in an action in tort, it is the law of the tort which prescribes the elements of the tort; these the plaintiff must prove if he is to win.’ While according to Clerk & Lindsell, On Torts (1982), 1–87, ‘the law has not followed a uniform course in casting the burden of proof either on the plaintiff or the defendant[.], the proof for ‘negligence’ or ‘malicious prosecution’ is upon the plaintiff, see Charlesworth & Percy, On Negligence (1983), 5–16 and Salmand & Heuston, On the Law of Torts (1981), p. 13: ‘… , in torts such as negligence or malicious prosecution the onus lies on the plaintiff to show that the conduct of the defendant is legally unjustified.’

However, there is a certain difference between §1605(a)(2) and §1605(a)(5) for in the latter section, there is an additional element, namely the causality requirement. But this difference does not influence the basic separation between procedural law and substantive law.

Another argument confirms this result, that is, section 1605(a)(5) is drafted after the United States’ Federal Tort Claims Act (FTCA), 28 U.S.C. §1346, §§2671–2680). This statute, which applies for tort actions against the United States government, contains literally the same causality clause, 28 U.S.C. §1346(b) FTCA.

— 28. U.S.C. §1346(b) states: ‘§1346 United States as defendant. (…) (b) Subject to the provisions of chapter 71 of this title, the district courts together with the United States District Court of the District of the Canal Zone and the District of the Virgin Islands, shall have exclusive jurisdiction of civil actions and claims against the United States, for money damages, accruing on and after January 1, 1945, for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.’

As to this criterion, the burden of proof of the plaintiff has been stated in a number of precedents.

— 28 U.S.C.A. §1346, notes 415, 416 and the respective notes in the Cumulative Annual Pocket Part, For Use in 1984, in volume Title 28, §§1346 to 1390. See also 28 U.S.C.A. §2674 note 146 and the corresponding note in the Cumulative Annual Pocket Part, For Use in 1984, in volume Title 28, §2501 to End, with references to all precedents.

Scope of Employment

The arguments brought forward under the criterion ‘causality’ are equally valid for this present criterion, with one distinction; here it is conceivable that the foreign state bears the burden of proof for rebutting the presumption that the tortious action was committed by the state’s official or personnel ‘within the scope of his office or employment.’

This is so because it is obvious that the employer can much more easily prove this fact than any third party who generally ignores what exactly the professional relationship is between the foreign state as employer, and his employees. In Castro v. Saudi Arabia, 510 F.Supp. 309 (W.D.Tex. 1980), that we discussed earlier in this study, Saudi Arabia proved that the soldier had acted outside of his professional duties when he participated in road traffic as a civil person in the United States.

— 510 F.Supp. 309, 313: ‘At the adversary hearing, Saudi Arabia proved that there were no flight training activities schedules either on the 16th or the 17th September … and that Al-Quassimie [the soldier] was in civilian clothes at the time of the accident. (…) Applying state law principles of respondeat superior, Williams v. United States, 350 U.S. 857, 76 S.Ct 100, 100 L.Ed. 761 (1955), the court fails to see how the soldier can be said to have been in the course of his employment even while off duty and pursuing an entirely personal matter.’

In such a case, Saudi Arabia argued, the United States government was responsible for the action. In addition, Saudi Arabia put on evidence that Al-Quassimie was subject to the United States Air Force regulations while at Laughlin Air Force Base.

Thus, it was the United States government who apparently had the right to control the soldier’s behavior in off-duty hours, not the Saudi Arabian government.’

While the court held that ‘[t]he defendant has demonstrated that none of the exceptions in FSIA operate to deprive Saudi Arabia of its immunity from this court’s jurisdiction[.]’, it would be erroneous to see an allocation of the burden of proof in this statement.

Apart from the fact that the judge has not used the term ‘burden of proof’ at all, the fact that the foreign state has started to produce evidence is not enough for affirming a conclusive repartition of the burden of proof.

In fact, the judge appreciated the evidence produced by the two parties; the burden of proof, as a risk of non-persuasion only comes to bear in a non liquet situation. We can thus admit that the only burden that was in play here was the evidential burden, and that when formulating its statement, the court had this burden in mind.

However, the plaintiff did not contest the proof submitted by Saudi Arabia. Instead of contesting the evidence of the defendant foreign state, the plaintiffs argued that Saudi Arabia was responsible for the soldier for another reason; that it had been obliged to better train the soldier for participating in road traffic in the United States, and that it thus had ‘negligently entrusted the automobile to the soldier.’ (Id.)

This argument was rejected by the court for the simple reason that Saudi Arabia was not the owner of the car and that the soldier had a valid Texas drivers license.’ Thus, there was no litigation about the question of the burden of proof, for this issue is relevant only in case the evidence is contested by the other party.

A recent precedent answers this question even more clearly. It is the case Skeen v. Federative Republic of Brazil, 566 F.Supp. 1414 (D.D.C. 1983), which concerned an assassination attempt against the plaintiff by Antonio Francisco da Silveira, Jr., the grandson of the Brazilian Ambassador to the United States.

The fire was opened in front of a night club in Washington, D.C. The court held:

In order to invoke §1605(a)(5) in this case, plaintiff must demonstrate that da Silveira’s actions were ‘within the scope of his office or employment’. Section 1605(a)(5) is essentially a respondeat superior statute, providing an employer (the foreign state) with liability for certain tortious acts of its employees. (566 F.Supp. 1414, 1417).

Quoting the Castro, 510 F.Supp. 309 (W.D.Tex. 1980), precedent, the court stated that the decision about the criterion ‘scope of employment’ depended on the applicable state law. (566 F.Supp. 1414, 1417). It is interesting to note that the judge compared the noncommercial tort exception with the Federal Tort Claims Act (FTCA):

This is the choice of law rule applied under an analogous federal statute, the Federal Tort Claims Act (FTCA), which also provides for federal jurisdiction simply on the basis of the identity of the defendant, without regard to the existence of other federal issues in the case. Under the FTCA, the United States waives its sovereign immunity and accepts liability for the tortious acts of its officials committed within the scope of their employment. The statute indicates — and the courts have consistently held — that, with certain statutory exceptions, 28 U.S.C. §2680, the definition of ‘scope of employment’ under the FTCA must be determined by reference to state law. (Id.)

Applying the law of the state of Columbia, the court finally rejected the lawsuit with the argument that Silveira had acted outside the scope of his office or employment with the Brazilian embassy in the United States. (566 F.Supp. 1414, 1418–1420).

The court’s discussion of §1605(a)(5) and the analogous federal statement resulted in an analogous treatment of the burden of proof; for under the FTCA, regarding the criterion ‘scope of employment’, in §1346(b) FTCA, there is general agreement that the burden if upon the plaintiff for demonstrating that the state employee had acted within the scope of his employment with the United States government.

— 28 U.S.C.A. §2674, notes 143, 155 and the corresponding notes in the Cum.Ann.Pock.Part, For Use in 1984, in volume T. 28, §2501 to End, and 28. U.S.C.A., §1346, note 416.

It is also interesting to see that the court found the scope of responsibility under both statutes ‘nearly identical.’ (566 F.Supp. 1414, 1417, note 5).

Exception

It flows from the drafting technique of this section that the burden of proof for the exception is upon the foreign state.

In general, according to statute construction, the exception of an exception recurs to the general rule.

Moreover, this argument is confirmed by §§2680(a),(h) FTCA, analogous provision, clarifying that the exceptions from the exception are construed as affirmative defenses; accordingly, the burden of proof is upon the American government, for proving the factual elements of those defenses.

— 28 U.S.C. §§2680(a),(h) state that the provisions of this chapter and section 1346(b) of this title shall not apply to ‘(a) Any claim based upon an act or omission of an employee of the Government, exercising due care, in the execution of a statute or regulation be valid, or based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government whether or not the discretion involved be abused. (…) (h) Any claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.’ See also Boyce v. US, 93 F.Supp. 866 (D.C. Iowa 1950), 28 U.S.C.A. §2680, note 75, with further references.

There are also precedents ruled under the FSIA; however, in these cases the burden of proof of the foreign state for the exceptions from the exception have not yet explicitly clarified by the judges, as this was the case for the FTCA. Nonetheless, the analogous character of both statutes in this respect is so striking that the burden of proof situation is almost certainly the same. Before we are going to discuss these cases, it should be clarified what American law understands under a ‘discretionary function’, §2680(a) FTCA and §1605(a)(5) FSIA? In the leading case Dalehite v. United States, 346 U.S. 15 (1953), the Supreme Court interpreted the term within the framework of §2680(a) FTCA. In the syllabus of this decision, while the syllabus is merely informative, not normative, the long developments of the Supreme Court were condensed as follows:

The ‘discretionary function or duty’ that cannot form a basis for suit under the Act includes more than the initiation of programs and activities; it also includes determinations made by executives or administrators in establishing plans, specifications or schedules of operations. Acts of subordinates in carrying out the operations of government in accordance with official directions cannot be actionable. (Id.)

An indication for the burden of pleading, the evidential burden, regarding §1605(a)(5) FSIA, is to be found in Letelier v. Republic of Chile, 488 F.Supp. 665 (D.D.C. 1980), 19 ILM 409 (1980), 63 ILR 378 (1982), an action where the relatives of Orlando Letelier, Chile’s Minister of Foreign Affairs at the time, claimed damages for the assassination of Letelier through a car bomb in the United States.

— The government of Chile seriously opposed the allegation of the plaintiff to have been involved in the murder but that allegation was not only directed toward the government, but also the other defendants, Michael Vernon Towley, Alvin Ross Diaz, Ignacio Novo Sampol and Guillermo Novo Sampol. The original judgment, that I will henceforth term Letelier I was a default judgment under §1608(e) FSIA and was affirmed in Letelier II, 502 F.Supp. 259 (D.D.C. 1980) and in Letelier III, 567 F.Supp. 1490 (S.D.N.Y. 1983), which was a litigation involving foreign property, and immunity from execution. The respective penal action is United States v. Sampol, 636 F.2d 621 (D.D. Cir. 1980). The district court held:

Subject to the exclusion of these discretionary acts defined in subsection (A) and the specific causes of action enumerated in subsection (B), neither of which have been invoked by the Republic of Chile … (488 F.Supp 665, 671, 19 ILM 409, 422).

The court denied sovereign immunity for Chile after having examined §1605(a)(5)(A), (B), arguing that a ‘discretionary function’ was not to be admitted in the present case.

Whatever policy may exist for a foreign country, it has no ‘discretion’ to perpetrate conduct designed to result in the assassination of an individual or individuals, action that is clearly contrary to the precepts of humanity as recognized in both national and international law. Accordingly there should be no ‘discretion’ within the meaning of section 1605(a)(5)(A) to order or to aid in an assassination and were it to be demonstrated that a foreign state has undertaken any such act in this country, that foreign state could not be accorded sovereign immunity under subsection (a) for any tort claims resulting from its conduct. As a consequence, the Republic of Chile cannot claim sovereign immunity under the Foreign Sovereign Immunities Act for its alleged involvement in the deaths of Orlando Letelier and Ronni Moffitt. (488 F.Supp. 665, 673, 19 ILM 409, 426–427).

In Letelier II, 502 F.Supp. 259 (D.D.C. 1980), 19 ILM 1418 (1980), the court pronounced itself with regard to the evidence requirements for a default judgment under §1608(e) FSIA.

The court’s developments here are interesting for they reveal which specific requirements must be met under this section, and who bears the burden of proof for the factual basis of those requirements. The court concluded that the burden of proof is upon the plaintiff and that he must thus establish ‘his claim or right to relief by evidence satisfactory to the court.’

2. Pursuant to the dictates of 28 U.S.C. §1608(e), plaintiffs have produced satisfactory evidence to establish that on or about September 21, 1976, employees of the Republic of Chile, acting within the scope of their employment and at the direction of Chilean officials who were acting within the scope of their office, committed tortious acts of assault and battery and negligent transportation and detonation of explosives that were the proximate cause of the deaths of Orlando Letelier and Ronni Moffitt. Accordingly, a judgment by default as to these claims will be entered in favor of plaintiffs and against the Republic of Chile. (502 F.Supp. 259, 266, 19 ILM 1418, 1431).

In a more recent precedent, Olsen by Sheldon v. Government of Mexico, 729 F.2d 641 (9th Cir. 1984), which we discussed already earlier on, the court ruled specifically with regard of what it called the ‘discretionary function exception’, §1605(a)(5)(A) FSIA. (729 F.2d 641, 646 ff.).

Section 1605(a)(5)(A) provides an exception to noncommercial tort jurisdiction for claims based upon a state’s discretionary function. Mexico seeks to bring the airplane crash within this exception by contending that the conduct which led to the crash was discretionary. (729 F.2d 641, 646).

Apart from the fact that in both cases, the courts mentioned the advantage the foreign state has under this section, that is, to plead the ‘discretionary function’ as an affirmative defense, in the present case, the comparison that the Court of Appeals makes with the FTCA is relevant and important as to the allocation of the burden of proof:

The FSIA provides considerable guidance as to which sets or decisions constitute discretionary functions. Not only does the language of the FSIA discretionary function exception replicate that of the Federal Tort Claims Act (FTCA), 28 U.S.C. §2680(a), but the legislative history of the FSIA, in explaining section 1605(a)(5)(A), directs us to the FTCA. House Report at 21. To determine the scope of the discretionary function exception of the FSIA, we therefore turn to the interpretation given the similar FTCA provision. (Id.)

— Such reference to the FTCA was made by American district courts already in Letelier I, 488 F.Supp. 665, 673 and in Matter of Sedco, Inc., 543 F.Supp. 561, 567.

The Court of Appeals thus compared the discretionary function under the FTCA with the one in the FSIA, applying the jurisprudence referring to the FTCA for interpreting the FSIA.

— Apart from the leading case Dalehite v. United States, 346 U.S. 15 (1953), the Court of Appeals quoted the precedents Discroll v. United States, 525 F.2d 136, 138 (9th Cir. 1975), Thompson v. United States, 592 F.2d 1104, 1111 (9th Cir. 1979), and Lindgren v. United States, 665 F.2d 978, 980 (9th Cir. 1982), noting that ‘[o]ver the years, the definition of discretion has been refined and qualified somewhat’, 729 F.2d 641, 647.

In fact, the two statutes are not only similar from an editorial point of view, but also with regard to their legislative objective.

Congress’ intention to model section 1605(a)(5) FSIA after the FTCA was clearly expressed in the legislative history. In addition, the case law that interprets the exceptions, §§1605(a)(5)(A),(B) regularly references precedents that were ruled under the respective provisions of the FTCA.

Hence, the allocation of the burden of proof that was established under the FTCA can practically be applied to the FSIA, with regard to the factual basis of §§1605(a)(5)(A),(B) FSIA. This was confirmed by the precedents examined here, and regarding the burden of pleadings or evidential burden, with regard to the criterion of ‘discretionary function.’

Conclusion

The examination of sections 1605(a)(4) and 1605(a)(5) FSIA confirms the conclusion that we arrived at earlier on in this study. The burden of proof of the foreign state for its immunity defense is limited in the sense that the foreign state, starting to produce evidence, is required to establish a prima facie case as a basis for its immunity claim.

Under §1605(a)(5) FSIA, the burden of proof is upon the plaintiff for demonstrating the causal link between the tortious act and the damage suffered, as well as for the criterion that the employee of the foreign state was acting ‘within the scope of his office or employment.’ It follows from this framework, and the drafting technique employed in the FSIA that the exceptions from the exception, §§1605(a)(5)(A),(B) are affirmative defenses where the burden of proof lies upon the foreign state to demonstrate the applicability of one of those exceptions.

This systematic argument is confirmed by the analogous statute, the Federal Tort Claims Act (FTCA), §2680(a),(h), referenced not only by the legal materials to the FSIA, but also by federal jurisprudence interpreting §1605(a)(5) FSIA.

To summarize, the repartition of the burden of proof under section 1605(a)(5) FSIA is as follows. The plaintiff bears the burden of proof for:

— Minimal contacts;

— Causality between the tortious act and the damage suffered;

— The employee having acted within the ‘scope of his office or employment.’

The burden of proof lies upon the foreign state for the exceptions (A) and (B) to §1605(a)(5) FSIA. With regard to §1605(a)(4), the burden of proof lies entirely with the plaintiff for proving the minimal contacts or nexus requirement, ‘in the United States’ and for the material criteria, ‘rights in property acquired by succession or gift’ or ‘rights in immovable property.’


Core Areas of Sovereign Immunity

Overview

In this part of the study, we shall have a more detailed regard upon the requirements that American federal jurisprudence has found to apply regarding the prima facie case to be established by the foreign state.

We will focus particularly upon those actions where jurisdiction was denied, and will try to classify those actions because the analysis will reveal that there are several core areas of sovereign behavior where federal courts have shown to be particularly reluctant to affirm jurisdiction under §1605(a)(2) FSIA (commercial activity exception).

Contrary to cases where such commercial activity was affirmed by the courts and where the judges could rely on the text of §1603(d) FSIA or the legislative history, the cases we are going to examine, present a different set of facts at issue.

To give the reader a clearer picture of the distinction I wish to establish, let me shortly review what we have in part already seen earlier in this study, but this time under a slightly different perspective. To begin with, the most clear-cut cases have been shown to be those actions that were dealing with what has been called the ‘Nigerian cement catastrophe,’ both in the United States and the United Kingdom, but also in Germany and other countries.

— See, for example, National American Corporation v. Federal Republic of Nigeria, 448 F.Supp. 622, 641–642 (S.D.N.Y. 1978), 17 ILM 1407 (1978), 63 ILR 63 (1982), confirmed, 597 F.2d 314 (2d Cir. 1979), 63 ILR 137, or Texas Trading & Milling Corporation v. Federal Republic of Nigeria and Central Bank of Nigeria, 647 F.2d 300, 310 (2d Cir. 1981), 20 ILM 620 (1981) as well as the case note by Georges R. Delaume, 20 ILM 618, UN-MAT., 527, 63 ILR 459 (1982), cert. den’d, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982). See also, for example, the affairs litigated in the United Kingdom, such as Trendtex Trading Corporation v. Central Bank of Nigeria, [1977] 2 W.L.R. 356, 369, 1 All E.R. 881, 1 Lloyd’s Rep. 581, 588 ff. (Lord Denning), and one of the affairs litigated in Germany, Youssef M. Nada Establishment v. Central Bank of Nigeria, Landgericht Frankfurt, August 25, 1976, 16 ILM 501 (1977).

American federal courts, in these affairs, have all rejected the argument submitted by Nigeria that the breach of those purchasing contracts had been effected in Nigeria’s governmental authority, that is, to prevent a national economic catastrophe. The courts also have denied the alleged ‘military character’ of the utilization of the cement, that is, for building and upgrading the country’s infrastructure. Nigeria also forwarded the view that, as the actions regularly were based upon letters of credit issued by the Central Bank of Nigeria, this bank, because of its governmental authority, as per se immune from all actions.

This argument was overall rejected, and was actually a quite twisted one, as of course, it’s not the character of the person or persona that acts behind the screens that is the divider under the restricted immunity doctrine, but the character of the activity that lies before the court and that gave rise to the action. And in all those cases, the commercial character of the purchasing contracts concluded between the Nigerian government and private merchants was affirmed by the courts — and Nigeria had to pay after all!

— Regarding Texas Trading, see case notes by Robert H. Yaffe, Direct Financial Effect under the Foreign Sovereign Immunities Act, 14 LAW.AMERICAS 361–365 (1982) and Effects Jurisdiction Under the FSIA and the Due Process Clause, 55 N.Y.U.L.REV. 474 (1980).

Regarding other precedents where the commercial activity exception was affirmed, most of which I have discussed earlier on in this study, American federal courts have been particularly lucid to detect the often hidden governmental portmanteaux behind obvious financially lucrative business transactions conducted by foreign states, and unveiled it as a mask that served to hide the commercial character of those transactions.

For example, in United Euram v. U.S.S.R., 461 F.Supp. 609 (S.D.N.Y. 1978), 63 ILR 228 (1982), the Soviet Union had rendered remunerated services within the United States under a bilateral cultural treaty, which were qualified by the court as commercial in character.

— The judge held that the precedent Gittler v. German Information Center, 408 N.Y.S.2d 600 (Sup.Ct.N.Y. 1978), Digest of United States Practice in International Law, 1978, 879–883, was overruled by the FSIA.

Another interesting case is Jackson v. People’s Republic of China, 550 F.Supp. 869, 873 (N.D.Ala. 1982), where the judge qualified bonds issued by the Chinese government for building railways in the United States, back in 1911, as commercial, despite a ‘statement of interest’ issued by the American government which claimed ‘to set aside default judgment against China.

— 22 ILM 1077, 1108 (1983). See also the case notes by Allan Ashman, People’s Republic Told to Pay $41.3 Million Debt from 1911, 69 A.B.A.J. 512(2)(1983), Jill A. Sgro, China’s Stance on Sovereign Immunity: A Critical Perspective on Jackson v. People’s Republic of China, 22 COLUM.J.TRANSNAT’L L. 101–133 (1983), and Monroe Leigh, Foreign Sovereign Immunities Act — Liability of People’s Republic of China for Defaulted 1911 Bonds — State Succession, 77 AJIL 146–148. As to the interpretation of the term ‘commercial activity’, more in general, see David L. Brittenham, Foreign Sovereign Immunity and Commercial Activity: A Conflicts Approach, 83 COLUM.L.REV. 1440–1512 (1983), Patricia Hunt Holmes, Establishing Jurisdiction Under the Commercial Activities Exception to the FSIA of 1976, 19 HOUS.L.REV. 1003–1023 (1982), D. Schloss, ‘Commercial Activity’ in the FSIA of 1976, J.INT’L L. & ECON. 163–173 (1979), G. Cairns, Jurisdiction: FSIA, TEX.INT’L L.J. 277–289 (1981), J.H. Friend, Suing A Foreign Government under the United States Antitrust Laws: The Need for Clarification of the Commercial Activity Exception to the FSIA of 1976, 1 NW.J.INT’L L. & BUS. 657–699 (1979).

Despite this general trend in American post-FSIA case law to interpret ‘commercial activity’ in a broad manner, there is a subtler effort to be made out, when one looks closely at it, to preserve for foreign states a certain core area of governmental action that is and shall be untouched by the restrictive immunity doctrine. These areas could be classified as follows, while they slightly overlap:

a) Foreign Affairs

b) Interior Affairs

  • aa) Police and National Security Activities
  • bb) Protection of National Resources

c) Budgetary Activity

d) National Defense

Foreign Affairs

Just a year after the FSIA entered into force, a district court rendered an important judgment on this matter, a case I already mentioned earlier, Yessenin-Volpin v. Novosti Press Agency, Tass.

— 443 F.Supp. 849 (S.D.N.Y. 1978), 17 ILM 720 (1978), UN-MAT., p. 468, 63 ILR 127 (1982). Another defendant was Daily World, a magazine published by the United States’ Communist Party.

This interesting law suit was actually improperly filed to the United States Supreme Court, from where the action was removed to the competent district court — S.D.N.Y. — under the terms of §1441(d) FSIA.

— 28 U.S.C. §1441(d) reads as follows: ‘Any civil action brought in a State court against a foreign state as defined in section 1603(a) of this title may be removed by the foreign state to the district court of the United States for the district and division embracing the place where such action is pending. Upon removal the action shall be tried by the court without jury …’

The suit was filed as a libel action for alleged defamations against the plaintiff that were published in February 1976, and thus before the FISA had entered into force, in the NOVOSTI magazines Sowjetunion Heute, and Krasnaya Zvesda, and the TASS magazines Izvestia, and Sovietskaya Russiya, that regularly circulate in the United States.

As already pointed out earlier in this study, NOVOSTI and TASS were qualified by the court as agencies or instrumentalities of a foreign state under §1603(b) FSIA. The plaintiff invoked clause 3 of §1605(a)(2) FSIA and the court examined if the publishing of the articles was ‘based upon a commercial activity carried on in the United States by the foreign state.’ (443 F.Supp. 849, 855).

The plaintiff based his argument upon the fact that in NOVOSTI’s statutes, this agency was assigned the competence to carry out various commercial tasks for the Soviet state within the United States. The court argued that it was not the status of the agency that was the decisive criterion under the Act, but solely the nature of the activity in question:

The plaintiff’s argument is based on the unstated premise that an entity which engages in commercial activity is a commercial entity and thus not entitled to claim sovereign immunity. The Immunities Act does not embody such a principle, however. Rather, it clearly contemplates that a given entity may at some time engage in commercial activities, on which it would be immune, and at other times take actions whose essential nature is public or governmental, on which it would be immune.’ (Id.)

Consequently, the court had to decide which was actually the activity that the litigation was about, for in that case, this was not obvious, as in so many others. The court did not deny that NOVOSTI ‘does engage in commercial activity’ because ‘it sells articles to foreign media.’ But it was not that activity of the press agencies that the litigation was really about.

The relevant issue in this case, however, is not whether Novosti or Tass engage in commercial activities but whether their alleged libels were ‘in connection with a commercial activity.’ (Id.)

In the following developments, the judge sustained the view that the publishing of the articles was actually a governmental activity; these rather lengthy developments can be summarized in three main arguments.

(1) The four magazines in which the alleged defamations were published, were all official publications of the Soviet state. This was the result of the court evaluating the evidence submitted by the agencies, to make their prima facie case of sovereign immunity. The judge referred to the affidavit swearing that the header title of the journal Sowjetunion Heute indicated that it was a publication by the press department of the embassy of the Soviet Union in Germany, in collaboration with NOVOSTI.

The publication Krasnaya Zvesda was equally identified, in this affidavit, as being the central organ of the Soviet Ministry of Defense, and Izvestia turned out to be published by the Supreme Soviet of the USSR.

Finally, the magazine Sovietskaya Russiya describes itself as the organ of the central committee of the Soviet communist party, the Supreme Soviet and the Council of Ministers.

(2) The second argument the court used to affirm a governmental character of the activity in question was that the libels appeared in all four publications at the same time.

Thus, by collaborating in the publication of stories in these journals, Novosti, as well as Tass, was engaged not in ‘commercial activity’ but in acts of intra-governmental cooperation of a type which apparently constitutes much of Novosti’s (and presumably more of Tass’s) activity. (Id.)

In addition, the court underlined that this activity was not related to any contract, nor any possible arrangement with a foreign political party, as such arrangements, according to the judge, are ‘commercial in most circumstances.’

(3) In the third argument, a development of the first actually, but more rigorously expressed, the judge considered the ‘cooperative relationship’ of those four agencies, because the libels were published in exactly the same manner in all four publications. The judge saw in this kind of collaboration an intention and held that the libels were actually ‘an official commentary of the Soviet government, ‘an activity whose essential nature is public or governmental.’ The court’s reasoning was thus systematically correct in that the judge scrutinized the nature of the activity in question, under §1603(d) FSIA. For these reasons, the court rejected the actions against TASS and NOVOSTI.

Moreover, it is to be noted that the non-commercial tort exception, §1605(a)(5), discussed earlier in this study, expressly excludes libel actions. This was confirmed by the district court in the present case.

The same district court, but another judge, also decided the case Carey v. National Oil Corporation, 453 F.Supp. 1097 (S.D.N.Y. 1978), 17 ILM 1180 (1978), UN-MAT., p. 477, 63 ILR 232 (1982).

— On the plaintiff side was also the ‘New England Petroleum Corporation’ (NEPCO); on the defendant side was in addition the Arab Republic of Libya. The plaintiff CAREY was the trustee of NEPCO’s two affiliates, the ‘Grand Bahama Petroleum Company’ (PETCO) and the ‘Antco Shipping Company’ (ANTCO), these latter companies founded under the law of the Bahamas.

I need to briefly relate the rather complex factual background. There were in total eight suits, both against NOC and Libya itself; here only the 6th and the 7th law suit, directed against Libya itself, are of interest.

NEPCO acquired, through a complicated network of transactions, raw oil from the California Asiatic Oil Company (CALASIA), which had a drilling concession in Libya. In September 1973, Libya nationalized 51% of the drilling concessions, among them CALASIA’s.

— See also the extensive arbitrage decisions regarding NEPCO, TEXACO and LIAMCO against Libya, discussed by an eminent expert on the matter, the Geneva-based international lawyer Jean-Flavien Lalive, in his course Contrats entre Etats ou entreprises étatiques et personnes privés, 181 RCADI (1983-III), 13 ff,, 83 ff. I have discussed at the time with Jean-Flavien Lalive, Esq., matters regarding my doctoral thesis, and my conclusions regarding the burden of proof and the evidence problems in foreign sovereign immunity litigation.

As a result, the ‘Chevron Oil Trading Company’ (COT) did not fulfill its contractual obligations with PETCO, invoking the ‘force majeure’ clause contained in the contract. In March 1970, Libya created NOC, a state-owned company, and transferred the nationalized concessions to it. As to the political background of the nationalizations, the judge painted what he called ‘the petroleum picture in the Middle East’ (453 F.Supp. 1097, 1099, ‘Factual Background’), a picture that was quite tainted by the outbreak of the Kippur war in October 1973, that gave rise to a total embargo of the petroleum producing countries against the United States, the Netherlands, and the Bahamas.

All these actions were rejected, for different motifs, but by overall affirming the jurisdictional immunity of both NOC and Libya. The court held that ‘[i]it is beyond cavil that these actions by Libya were not part of a commercial undertaking; rather, they were deliberate weapons of foreign policy, aimed at influencing the conduct of other nations, or at least punishing undesirable conduct.’ (453 F.Supp. 1097, 1102).

The judge thus ruled not only about the nationalization itself, but also what relationship can possibly be seen between this governmental activity and the foreign policy of Libya. It is interesting in this context that the judge saw something like an intentionality here from the side of Libya to use those drastic measures as some kind of weapon. I think there can be hardly an activity by a foreign state where the core sphere of national sovereignty is to that point clear-cut and visible, which is why I believe the court made that very transparent in the otherwise brilliant judgment.

This somewhat ‘protective’ attitude of the court here regarding the core area of Libya’s sovereignty means, if one agrees or not, that in the future foreign states will try to construe ‘sovereign purpose’ as a basis for their sovereign immunity defense, which could in principle endanger the restrictive immunity approach that the FSIA has taken. The motivation of a government, or their intentions, was not to be considered, in the first place, by §1603(d) FSIA. Even if such a motivation or intention is governmental, it is a purpose, and should not be considered, as this section clearly states that the qualification of the activity as private or governmental should be according to its nature, ‘rather than by reference to its purpose.’

These are leading cases in a domain that even after the enactment of the FSIA is still on shaky ground; they may signal a certain tendency in American federal jurisprudence to henceforth apply the Act rather conservatively and to give to foreign states a certain margin for forwarding subtly political motivations and intentions, when those were painting the background of the commercial activity itself.

I may for that reason, as this jurisprudence is post-FSIA, have a short look how this would look under the legal situation prior to the FSIA. The court stated in the eighth action that ‘nationalization is a quintessentially sovereign act, never viewed as having commercial character’ and referred to Victory Transport Inc. v. Comisaría General de Abastecimientos Y Transportes, where the Court of Appeals of the 2nd Circuit already applied, back in 1964, the restrictive theory of sovereign immunity.

— 336 F. Supp. 354 (2d Cir. 1964), cert. den’d, 381 U.S. 934, 85 S.Ct. 1763, 14 L.Ed.2d 698 (1965), Whiteman, Digest of International Law (1968), 577 ff., Sweeny/Oliver/Leach, The International Legal System (1981), 306 ff, McDougal/Reisman, International Law in Contemporary Perspective (1981), 1458 ff., Henkin/Pugh/Schachter/Smit, International Law (1980), 506, Steiner/Vagts, Transnational Legal Problems (1976), 649.

The appellee, a division of the Spanish Ministry of Commerce had chartered a vessel from the appellant for transporting wheat to Spain that this Ministry had purchased in the United States. Because of lacking safety in Spanish ports, the vessel was damaged. The court, considering it significant that the State Department had not filed a suggestion for granting immunity, rejected the immunity claim by reference to the Tate Letter (1952), ‘… unless it is plain that the activity in question falls within one of the categories of strictly political or public acts about which sovereigns have traditionally been quite sensitive.’ Then the court explains:

Such acts are limited to the following categories: (1) internal administrative acts, such as expulsion of an alien; (2) legislative acts, such as nationalization; (3) acts concerning the armed forces; (4) acts concerning diplomatic activity; (5) public loans. (336 F.2d 354, 360, Whiteman, 579, Sweeny, 307, McDougal, 1461, Henkin, 507–508, Steiner, 653).

The court further stated that the chartering of the vessel for transporting the wheat ‘is not a strictly public or political act.’ (Id.)

It is obvious that a nationalization falls under the second category of this schema. There are several reasons why for this study, I have chosen a slightly different classification. In addition, it has to be seen that the court’s schema here is not complete, as foreign policy is not mentioned, and there is overlapping in that the third category could well have been merged with the first. And while a nationalization was always considered as a purely governmental act, one could imagine foreign policy regulations that could fall within the second category, and that are not nationalizations in the strict sense.

In addition, the fifth category is not anymore considered sacrosanct and protected. The court took reference to Jean-Flavien Lalive’s article who, in turn, seems to have overtaken the schema from Lauterpacht.

— Jean-Flavien Lalive, Contrats entre Etats ou entreprises étatiques et personnes privés, 181 RCADI (1983-III), pp. 209 ff.

In fact, the classification was published, for the first time, in the article by Lauterpacht, The Problem of Jurisdictional Immunities of Foreign States (1951), 28 BRIT.Y.B.INT’L L. 220–272 (1951). Regarding the fifth category, Lalive notes at p. 286 that ‘it’s a delicate question while the arguments against immunity seem to prevail in principle.’

As for the United States, after Jackson v. People’s Republic of China, 550 F.Supp. 869 (N.D.Ala. 1982), a case I discussed in detail earlier in this study, and where the governmental character of Chinese government bonds that were emitted back in 1911 for construing railways and public buildings in the United States was clearly denied, the fifth category can be seen as obsoleted in the meantime.

Interior Affairs

Police Actions

In Perez v. The Bahamas, 482 F.Supp. 1208 (D.D.C. 1980), 63 ILR 350, 601 (1982), confirmed, 652 F.2d 186 (D.C.Cir 1981), already discussed earlier on, where the action was about a shot fired from a boat of the Bahamian naval police against the vessel of the plaintiff, the district court stated:

The commercial character of an activity is to be determined by the nature of the act or course of activity and not by reference to its purpose, 28 U.S.C. §1603. Police enforcement of Bahamian fishing law does not become commercial because it may have some commercial purpose or goal. (482 F.Supp. 1208, 1210).

In fact, the ultimate reasons behind police actions can be of various kinds, but the action remains an action that is by its very nature governmental and public in nature.

The other action that falls in this present category, is a case ruled by the Court of the Appeals of the 5th Circuit, Arango v. Guzman Travel Advisors, 621 F.2d 1371 (5th Cir. 1980), 63 IRL 467 (1982), where DOMINICANA, the national airline of the Dominican Republic, equally a defendant of the action, had collaborating in repelling the Arango family from entering the country for a ‘package tour,’ as they figured on a blacklist of ‘undesirable foreigners;’ they were forcibly placed on board the flight the Dominican flight from Santo Domingo to San Juan, Puerto Rico.

— The fact that DOMINICANA was an agency or instrumentality of the Dominican Republic under §§1603(a),(b) FSIA was not contested by the plaintiff (621 F.2d 1371, 1378).

The judge strictly distinguished between this ‘involuntary re-routing,’ on one hand, and the breach of the ‘package tour’ contract, on the other. Apparently, the court stated about two different questions:

(i) the governmental character of the repulsion taken by the Dominican immigration; (ii) the governmental character of the assistance DOMINICANA gave to this police action.

ad i) There was no doubt for the judge as to the governmental character of the expulsion action itself, as it was carried out by Dominican immigration ‘pursuant to that country’s laws.’

ad ii) This second question is way more interesting as the answer may not be as clear-cut. The judge made a fine distinction here between the normal commercial activities carried out by the airline staff, and the exceptional aiding in the expulsion action, where he saw the personnel being compelled to act jointly, as this was a governmental or police action where, in their quality as government employees, they had no right to refuse collaborating and thus had to give their helping hand. For that reason, the judge concluded that also DOMINICANA acted pursuant to Dominican Republic law enforcement, in that particular action. As the FSIA might not have foreseen such a case, or simply left the question open, the precedent is very important.

Actions for the Protection of Natural Resources

Under this category, there is an equally important precedent to report and discuss, International Association of Machinists and Aerospace Workers (IAM) v. The Organization of the Petroleum Exporting Countries (OPEC), 477 F.Supp. 553 (D.Cal. 1979), UN-MAT., p. 503, 63 ILR 284 (1982), Henkin et al., p. 511, conf’d for other motives, 649 F.2d 1354 (9th Cir. 1981), cert. den’d, 454 U.S. 1163, 102 S.Ct. 1036, 71 L.Ed.2d 319 (1982). The facts are relatively simple. The plaintiff, an international trade union, pursued OPEC for damages, arguing that OPEC’s crude oil fix price policy was a violation of American antitrust laws, particularly §1 Sherman Act. I will of course not discuss in this study if that was substantially the case, as we are only interested in the procedural aspect, that is, if OPEC’s fix price policy was to be considered a commercial or governmental activity.

— This case was broadly discussed in the American international law literature, see for example, Don Wallace, Jr., Extraterritorial Jurisdiction, XV L.POL.INT’L BUS. 1099, 1131–1132 (1983), Stanley E. Hilton, The Demise of the Restrictive Theory of Sovereign Immunity and of the Extraterritorial Effect of the Sherman Act Against Foreign Sovereigns (Case Note), 41 U.PITT.L.REV. 841–857 (1980), Russell S. Burman, Restrictive Immunity and the Opec Cartel: A Critical Examination of the Foreign Sovereign Immunities Act and International Association of Machinists v. Organization of Petroleum Exporting Countries (Case Note), 8 HOFSTRA L.REV., 771–809 (1980), Note: Jurisdiction — Act of State Doctrine — Foreign Sovereign Immunities Act, 3 J.INT’L & COMP. L. 119–120 (1981), Lynn Berat, Act of State Doctrine — Act of State Doctrine Applied as a Bar to Antitrust Suit Against Foreign Sovereigns (Case Note), 17 TEX.INT’L L.J. 82–91 (1982), David Aronofsky, Private Antitrust Actions Against Foreign States: Problems and Issues After International Association of Machinists and Aerospace Workers v. OPEC, 17 TEX.INT’L L.J. 82–91 (1982), Michael H. Roffer, Antitrust Law — International Law — Act of State Doctrine — Foreign Antitrust Violations (Case Note), 27 N.Y.L.SCH.L.REV. 1013–1041 (1982), Charles W. Pollard, The Ninth Circuit Breathes New Life Into the Act of State Doctrine in Commercial Settings (Case Note), 16 GEO.WASH.J.INTL’L L. & ECON. 427–449 (1982), Richard Bardos, Judicial Abstention Through the Act of State Doctrine (Case Note), 7 INT’L TRADE L.J. 177–192 (1982), Eric D. Isicott, An Alternative Justification for Judicial Abstention in Politically Sensitive Disputes Involving Acts of Foreign States (Case Note), 14 LAW.AMERICAS 85–90 (1982), John A. Kenward, Sovereign Immunity — Oil Fixing by Member States of OPEC is a Governmental Act, Not a Commercial Act, and Thus is Exempt from Suit under the Foreign Sovereign Immunities Act: Foreign States Can Sue, But Cannot Be Sued Under American Antitrust Laws (Case Note), 9 DEN.J.Int’L L. & POL’Y 141–144 (1980), Lawrence Crocker, Sovereign Immunity in the United States, 29 INT’L & COMP. L.Q. 508–510 (1980), H. Smit & al., Sovereign Immunity. Act of State. Opec, Am.SOC.INT’L PROC. 49–81 (1980), J.A. Jostad, Status of Foreign Sovereign in Private Antitrust Actions, 10 DEN.J.INT’L L. & POL’Y 81–104 (1981), C.A. Corcoran, IAM v. OPEC: Commercial Activity — One Factor in a Balancing Approach to the Act of State Doctrine, XIV L.POL.INT’L BUS. 215–243 (1982).

With regard to OPEC’s immunity claim, the court, after having reviewed the legal materials, states: ‘If the activity is one in which only a sovereign can engage, the activity is non-commercial. These standards are somewhat nebulous, however, in the context of a particular factual situation.’ (477. F.Supp. 553, 567).

Right at the start of his developments, the judge took a specific direction for the arguments to follow, by interpreting the ‘commercial activity’ criterion in the following manner:

It has been suggested that in determining whether to define a particular act narrowly or broadly, the court should be guided by the legislative intent of the FSIA, to keep our courts away from those areas that touch very closely upon the sensitive nerves of foreign countries. This Court agrees that this ‘commercial activity’ should be defined narrowly. (Id.)

After this point of departure, the court evaluated the nature of the activity in question, by appreciating the specific evidence presented, rather then ruling on a ‘generalized view of the evidence’ and concluded:

From the evidence presented to this Court, it is clear that the nature of the activity engaged in by each of these OPEC member countries is the establishment by a sovereign state of the terms and conditions for the removal of the prime natural resources — to wit, crude oil — from its territory. (Id.)

It is of interest to have a closer look at the evidence the court was examining in this case, for it has played a decisive role for the final judgment, and the court did not take it easy to peruse it. First of all, it has to be seen that the court has stated against the evidence rule established in the legal materials.

[F]or this court to have subject matter jurisdiction the defendant must show that the activities engaged in by the defendants are ‘commercial activities.’ (477 F.Supp. 553, 566).

Apart from the obvious redactional error in that statement and the fact that the court can only have meant to say that the ‘plaintiff must show,’ it is rather the foreign state defendant of the action who must establish prima face evidence for the fact that the activity in question had a public, governmental character.

In fact, there are only two logical possibilities to resolve the burden of proof question, it’s that either the burden is upon the foreign state to demonstrate that the activity in question was governmental, or the burden is upon the plaintiff to establish evidence that the activity in question was commercial.

Obviously, the FSIA chose the first alternative, in that the foreign state has the right to begin with producing evidence, and the jurisprudence confirmed it over and over.

Here, the situation was awkwardly that as the court was in error about the repartition of the burden of proof, and accordingly it did not call upon OPEC to start with producing evidence that the oil price fixing activity was of a governmental nature, but in the contrary the plaintiff who presented expert evidence to the court to demonstrate that said activity was commercial in nature.

However, the court rejected the experts, questioning the expertise of the experts, and nominated sua sponte two experts that it gave ‘complete reliance’ because of their academic standing and experience.

— 477 F.Supp. 553, 566, note 12: ‘The Court, dissatisfied with the apparent expertise and proposed testimony of the plaintiff’s experts, Dr. Arnold E. Safer, Dr. James R. Kurth, and Dr. Stanley J. Foster, and after consulting the outstanding academic economic authorities in the United States, appointed as its own experts, Dr. M.A. Adelman, Professor of Economics at Massachusetts Institute of Technology, and Dr. Philip K. Verleger, Jr., Senior Research Scientist, School of Organization and Management, Yale University, who until very recently had been working as Special Assistant to the Assistant Secretary for Economic Policy in the Department of the Treasury. Both of the experts were unanimously acknowledged by their peers as the two most outstanding and erudite experts in the field of both World and domestic petroleum economics.’ The judge has the power to call forth evidence and can nominate sua sponte expert witnesses, see Graham, Federal Rules of Evidence in a Nutshell (1981), p. 194, Wigmore, Evidence in Trials at Common Law (1981), Vol. IX, §2484, p. 276. Rule 614 of the Federal Rules of Evidence states: ‘(a) Calling by Court. The court may, on its own motion or at the suggestion of a party, call witnesses, and all parties are entitled to cross-examine witnesses thus called.’

This means more in detail that:

(i) the court based its decision only on the expert evidence produced by its own nominated experts, and not on the evidence of the experts that the plaintiff had proposed;

(ii) the court justified its ruling to grant OPEC immunity on the doctrine of ‘permanent sovereignty over natural resources’, saying that such authority was a principle of international law.

The Price Fixing Procedure

The court did a thorough examination of OPEC’s raw oil price fixing procedure and considered as shown by the evidence the fact that all member states built consensus about what is called the government take. (Id., p. 566).

This term designates the amount the governments obtain for each barrel of sold crude oil that is extracted within their territorial boundaries. In the beginning, the states received that take in form of a tax, later by buyback, amount that the drilling company had to pay.

In our days, the government take is effected as a tax, through the very price fixing procedure, and by the control of the production.

Within this mechanism, the price fixation was not the most important element, according to the court, but only the most popular aspect of it. This system was rather founded upon the capacity and the will of the OPEC member states to control and govern the whole process of raw oil production. The court concluded:

The control over a nation’s natural resources stems from the nature of sovereignty. By necessity and by traditional recognition, each nation is its own master in respect to its physical attributes. The defendants’ control over their oil resources is an especially sovereign function because oil, as their primary, if not sole, revenue-producing resource, is crucial to the welfare of their nations’ peoples. (Id., p. 568).

The plaintiff, quoting the House Report, forwarded the argument that OPEC’s price fixing procedure was to be seen as a commercial activity; in this process of commercial gain in the patrimonial interest of the states was lying the primary character of the activity, which is why it had to be qualified as commercial.

The court rejected this argument, stating that such a general view of the evidence at court was inappropriate and that the activity at issue had to be identified first of all:

While it may be true that through their activities as partial or total owners of these companies, the defendant nations do engage in commercial activities, this does not mean, and the legislative intent does not support the conclusion, that all activities, even those remotely connected with these companies, are necessarily commercial. The fact that a nation owns and operates an airline company, does not mean that all government activities regulating the use of airspace, or the ingress and egress of airplanes to and from the nation’s airports, are commercial activities. Accordingly, we must look to the specific activities in which the defendants engage. (Id., pp. 568–569, note 14).

A clear distinction had to be made, according to the court, between the ‘proprietary’ activities of the states and those that are of a governmental character. The activities of OPEC, the court held, were to be qualified as governmental by nature.

The court supported this argument also by the fact that the sales conditions for the crude oil were fixated long before its extraction; for that reason a patrimonial interest could not result from it. In addition, even if one would assert such an interest, the court concluded, the governmental nature of the activities would not change, just because the modalities of how the activities were executed had changed. (Id., pp. 568–569).

Standards of International Law

The court examined Resolution 1803 of the United Nations’ General Assembly and referred to a number of others.

— Id., p. 567: ‘1. The right of people and nations to permanent sovereignty over their national wealth and resources must be exercised in the interest of their national development and of the well-being of the people of the State concerned.’

The judge did not bother about the juridical validity of such resolutions, in general, nor of Resolution 1803, in particular, but stated:

In determining whether the activities of the OPEC members are governmental or commercial in nature, the Court can and should examine the standards recognized under international law. The United Nations, with the concurrence of the United States, has repeatedly recognized the principle that a sovereign state has the sole power to control its natural resources. (477 F.Supp. 553, 567).

— This ruling was contrary to, for example, the international arbitration verdict in the Texaco affair, 17 ILM 1 (1978), Steiner/Vagts, Transnational Legal Problems (1982), Case and Documents Supplement, 227 ff.

This conclusion is not really a surprise as this judgment obviously was motivated by political reasons.

The apodictic character of the verdict was to be seen already at the onset of the judgment, when the court defined ‘commercial activity’ in a rather restrictive manner, looking at things in a way to be sensibly hostile to the wordings and the intention of the FSIA and its legal materials.

Then, a redactional error, a wrong repartition of the burden of proof, and accordingly, a wrong manner to handle the evidential burden, the reject of the expert evidence produced by the plaintiff without giving a substantial reason for doing so, and finally the summoning of sources of international law that can be said to be controversial to this day, and that are recognized only on the basis of the political value, all this makes for a judgment that is on rather shaky ground.

And yet, despite these weaknesses in the judgment itself, the subsequent jurisprudence seems to have fully accepted the direction that was taken in this leading case, and seems to bother little about the procedural details I was mentioning here. This is to be explained with the sensibly political aspect of these litigations.

The Court of Appeals Judgment

The verdict was confirmed by the Court of Appeals, 649 F.2d 1354 (9th Cir. 1981), while the question was looked at from a different legal point of view: the Court of Appeals argued it through with the act of state doctrine as the legal hanger, but came to the same result.

This is interesting to note as the act of state doctrine is another legal construct than foreign sovereign immunity. It is namely a way of dealing with the applicable substantial law, not a procedural defense such as sovereign immunity. The Court of Appeals explained the difference as follows:

The doctrine of sovereign immunity is similar to the act of state doctrine in that it also represents the need to respect the sovereignty of foreign states. The two doctrines differ, however, in significant respects. The law of sovereign immunity goes to the jurisdiction of the court. The act of state doctrine is not jurisdictional (…). Rather, it is a prudential doctrine designed to avoid judicial action in sensitive areas. Sovereign immunity is a principle of international law, recognized in the United States by statute. It is the states themselves, as defendants, who may claim sovereign immunity. The act of state doctrine is a domestic legal principle, arising from the peculiar role of American courts. It recognizes not only the sovereignty of foreign states, but also the spheres of power of the co-equal branches of our government. Thus a private litigant may raise the act of state doctrine, even when no sovereign state is a party of the action. (…) The act of state doctrine is apposite whenever the federal courts must question the legality of the sovereign acts of foreign states. (649 F.2d 1354, 1359).

The Court of Appeals underlined the fact that the two doctrines are independent and that the FSIA only rules the sovereign immunity defense as a procedural handicap, but doesn’t touch the act of state doctrine.

That is why the Court of Appeals validated the motivation of the OPEC member states for price fixing under the act of state doctrine because, obviously, such motivation would not be a valid criterion under the FSIA, where only the nature of the activity in question is to consider under §1603(d).

In my view, such an argument appears construed after all, as all those reasonings, valid as they are, were provided by the law giver when drafting the FSIA and its legal materials, and it is therefore a valid question, and was asked in the literature, if not the restrictive sovereign immunity doctrine, as it is subject of the immunities act, has not substantially modified, if not overruled the act of state doctrine?

I cannot give an answer here to that interesting question because it’s outside of this research topic and thus not part of this study. However, it has to be seen that this question has been fertile and the output that followed up to IAM v. OPEC in the literature is considerable.

— See, for example, Marian Lloyd Nash, Digest of United States Practice in International Law (1980), Vol. 1979, §8, 947 ff., Sweeny/Oliver/Leech, The International Legal System (1981), Chapter 6, 365 ff., McDougal/Reisman, International Law in Contemporary Perspective (1981), Chapter 14, 1513 ff., Henkin/Pugh/Schachter/Smit, International Law (1980), 516, Steiner/Vagts, Transnational Legal Problems (1982), 672–673, Brian S. Fraser, Adjudicating Acts of State in Suits Against Foreign Sovereigns: A Political Question Analysis, 51 FORDHAM L.REV. 722–746, 737 ff. See also particularly on the controversial question how the FSIA relates to the act of state doctrine, Antonia Dolar, Act of State and Sovereign Immunities Doctrines: The Need to Establish Congruity, 17 U.S.F.L.REV. 91–116 (1982), Stephen C. Krane, Rehabilitation and Exoneration of the Act of State Doctrine, 12 N.Y.U.J.INT’L L. & POL’Y 599–651 (1980), T.H. Hill, Sovereign Immunity and the Act of State Doctrine, 14 VAND.J.TRANSNAT’L L. 909–930 (1981), Monroe Leigh & M.D. Sandler, Dunhill: Toward a Consideration of Sabbatico, 16 VA.J.INT’L L. 685–718 (1976), J.S. Williams, The Act of State Doctrine: Alfred Dunhill of London v. Republic of Cuba, 9 VAND.J.TRANSNAT’L L. 735–770 (1976), Jacobs, Stephen et al., The Act of State Doctrine: A History of Judicial Limitation and Exceptions, 18 HARV.INT’L L.J. 677–679 (1979), Hans-Ernst Folz, Die Geltungskraft fremder Hoheitsäusserungen, Eine Untersuchung über die anglo-amerikanische Act of State Doctrine (1975).

However, it is interesting what the Court of Appeals stated with regard to the sovereign immunity question:

While we do not apply the doctrine of sovereign immunity, its elements remain relevant to our discussion of the act of state doctrine. (649 F.2d 1354, 1358).

Despite the fact that the appellant contested the governmental character of OPEC’s price fixing activity, the Court of Appeals limited itself to report the arguments produced by the district court, without criticizing them, but also, without approving of them. The writ of certiorari against the Court of Appeals judgment was rejected by the United States Supreme Court. (454 U.S. 1163, 102 S.Ct. 1036, 71 L.Ed.2d 319 (1982).

The OPEC precedent was cited in Matter of Sedco, Inc., equally a case regarding crude oil, where the plaintiff, owner of a drilling platform, filed a suit for exoneration and limitation of responsibility resulting from an oil spill disaster against Petróleos Mexicanos (PEMEX), created by the Mexican government back in 1938 as a government agency responsible for the exploitation and the development of the hydrocarbon resources of that country.

— 543 F.Supp. (S.D.Tex. 1982), 21 ILM 318 (1982). See also the case note by Monroe Leigh, Sovereign Immunity — Foreign Sovereign Immunities Act — Commercial Activity and Tortious Conduct Exception Not Applicable to Support Jurisdiction Over Defendant in Oil Spill Disaster, 77 AJIL 149–151 (1983). 543 F.Supp. 561, 565: ‘Beyond of doubt, Pemex is a ‘foreign state’ as contemplated by §1603(d) of the FSIA.’

PEMEX had used the drilling platform for effecting the extraction of crude oil and claimed sovereign immunity, and the court stated about the repartition of the burden of proof.

Once a basis for jurisdiction is alleged, the burden of proof rests on that foreign state to demonstrate that immunity should be granted. (543 F.Supp. 561, 564).

However, the court only ruled on questions of law, that is, the qualification of the activity in question as governmental or commercial. As in the OPEC case, the court first identified which actually was the activity that was substance of the litigation:

Undeniably, Pemex, as a national oil company, engages in a substantial amount of commercial activity. (…) However, this Court must focus on the specific acts made the basis of the present lawsuit in applying the FSIA. It is whether these particular acts constituted or were in connection with commercial activity, regardless of the defendant’s general commercial or governmental nature that is in issue. (543 F.Supp. 561, 565).

Distinguishing the case from cases where the commercial nature of the activity was rather obvious, the court concluded:

That is to say that every act done by a foreign state which could be done by a private citizen in the United States is ‘commercial activity’ under §1605(a)(2). Such a world view unrealistically denies the existence of other types of governments and economic systems. (Id.)

After having scrutinized the precedents Arango and Yessenin-Volpin, the judge stated that the existence of a contractual relationship, even if it was not the essential denominator of the action, was often an indicator for the commercial nature of the activity.

— The court also considered the precedents Rio Grande Transport and Harris, already discussed in this study.

The court ruled that PEMEX was totally dependent on its government shadow. For example, the drilling dates were determined long in advance by a governmental regulation and PEMEX had no influence on Mexican petroleum policy, as this was made ‘by higher levels of the government.’ Under Mexican law, PEMEX had the competence to handle information regarding natural resources and to draft programs for executing the governmental resource development policy, which is renewed and updated every six years by various ministries, and approved by the President of Mexico. In addition, there was no contractual relationship with American companies regarding the extraction of the crude oil, nor with regard to the usage of the drilling platform. Thus, the court concluded:

Acting by authority of Mexican law within its national territory and in inter-governmental cooperation with other branches of the Mexican government, Pemex was not engaged in commercial activity as contemplated by Congress in the FSIA when the IXTOC I well was drilled. (Id.)

Finally, the court, taking reference to OPEC, supported its conclusion further with the argument that also in the present case, the crude oil was a natural resource for Mexico that is why the activities in question were of a public, governmental nature.

The court must regard carefully a sovereign’s conduct with respect to its natural wealth. A very basic attribute of sovereignty is control over its mineral resources and short of actually selling these resources on the world market, decisions and conduct concerning them are uniquely governmental in nature. (Id.)

The last precedent to report and discuss under the present category concerns the exportation of animals that were considered a natural resource of a country. It was Mol, Inc. v. People’s Republic of Bangladesh, 572 F.Supp. 79 (D.Or. 1983). The plaintiff, an American corporation, filed a law suit for damages against Bangladesh for breach of a licensing agreement regarding the capturing and exportation of Rhesus monkeys from Bangladesh to the United States. As Bangladesh did not enter an appearance, the plaintiff asked for a default judgment under §1608(e) FSIA, but the court rejected that motion with the argument that Bangladesh was immune from suit both under the sovereign immunity doctrine, and the act of state doctrine.

— 572 F.Supp. 79, 85–86. The court referred to the IAM v. OPEC precedent.

The facts are quite interesting. Since India put an embargo on the exportation of rhesus, Bangladesh became the main exporter of these monkeys that are traded on the world market for the purpose of scientific research. In 1976, the plaintiff obtained a licensing agreement from Bangladesh for capturing and exporting those monkeys; however the license was given under certain conditions.

If the licensee did not act according to these conditions, Bangladesh had the right to revoke the license. In 1979, Bangladesh revoked the license, arguing the licensee had acted contrary to two conditions in the license.

— The licensing agreement required from the licensee to build a breeding farm for the animals in 1978 and it contained in addition a clause that the monkeys ‘shall be used exclusively for the purpose of medical and other scientific research by highly skilled and competent personnel for the general benefit of all peoples of the world.’ (572 F.Supp. 79, 81). The plaintiff failed to construe the breeding farm, and in addition, Bangladesh argued the ‘humanitarian clause’ in the license had been violated when the plaintiff delivered monkeys to the Armed Force Radiobiology Research Institute for Neutron Bomb Radiation Experiments.’ (Id., pp. 81–82).

We have seen earlier in this study that the burden of proof is upon the plaintiff for the conditions of a default judgment under §1608(d) FSIA. That means a default judgment shall by rendered by a district court only if the claimant establishes his claim or right to relief by evidence satisfactorily to the court.

The court argued that this severe burden of proof had political reasons, in that it was set ‘to prevent unwarranted intrusions upon the diplomatic efforts of the United States by private litigants. (Id., p. 82). Despite the fact that the plaintiff had produced affidavits and documents in support of its motion, the judge concluded in accordance with the suggestion of the State Department, acting as amicus curiae.

— Even after the enactment of the FSIA, the State Department can still deliver their opinions to the courts, in their role as amicus curiae. Such a suggestion does not bind the court, however, and sometimes courts do not follow those suggestions, as we have seen in the spectacular case Jackson v. People’s Republic of China.

The State Department argued that the court didn’t have jurisdiction over the case as the activity in question was governmental for reasons of the ‘protection of natural resources of a foreign state.’ Regarding clause 3, §1605(a)(2), that we discussed earlier in this study, the court argued:

I conclude that Bangladesh’s granting of a License to plaintiff in this case was not a ‘commercial activity’, but a sovereign act not subject to suit in the United States courts. The granting of such a license as part of a comprehensive regulation of wildlife under the police power is an action in which the sovereign power is essential. Likewise the granting of an export license, like the power to exclude imports or regulate exports in general, is a power possessed only by sovereigns, not private parties. I find that the activity in suit here is by its ‘nature’ sovereign activity. (572 F.Supp. 79, 84).

The plaintiff objected that the license had after all the objective to bring Bangladesh a commercial profit or material gain and that for that reason it was of a commercial nature. But the report reply that ‘[t]he purpose of the activity is irrelevant under the statute[.]’ and concluded:

If I were allowed to consider the purpose of the activity, it would clearly indicate that the activity was based upon the ‘public interest’ as perceived by the government of Bangladesh, to conserve wildlife and establish closer control over the exportation of Bangladeshi species. This is true even if Bangladesh receives revenue from the License. The power to tax, or to power to levy a duty upon exports or imports, is a sovereign function designed solely to bolster the fisc by generating state income; yet these activities do not thereby become ‘commercial.’ Even if Bangladesh’s sole purpose in entering in the License was to generate revenue (and the record reveals other goals, including the conservation of wildlife and the meeting of a demand for humanitarian purposes), the granting of the License in this case was not a commercial activity. However, the purpose of the activity, as opposed to its ‘nature’, is not relevant for immunity purposes. The ‘nature’ of the activity in suit is the regulation of wildlife. This is a sovereign activity not subject to challenge in foreign courts. (Id.)

The plaintiff then argued that the rhesus in question were ferae naturae and that therefore, Bangladesh had acted regarding these animals as any other owner of animals would behave.

While the court found this argument positively ‘inventive,’ the judge rejected it with the simple reasoning that this doctrine was not applicable when matters were about governmental activities that regulate wildlife, and the capture or exportation of certain species. The very fact that the plaintiff had needed a license for doing these activities was proving that the rhesus in question were not ferae naturae. In addition, the court argued that an exportation license as it was part of the licensing agreement was ‘obviously a governmental, not a proprietary act.’ (Id., p. 85).

Finally, the plaintiff forwarded the view that the power to control the capture of animals was a power every animal holder had and that for this reason, it was of a commercial nature. The court, taking reference to the OPEC precedent, concluded:

The power to regulate the taking of game upon land owned by a landowner is an aspect of sovereignty, attached to land and derived from feudal precedent, which is subordinate to the State’s overriding police power. It is clear that Bangladesh is acting as a sovereign in this case. (Id., p. 84).

It has to be seen that under the act of state doctrine, the result would have been the same. What we see here is a certain tendency in American federal jurisprudence to exclude a whole area of government activity from the possible wide scope of ‘commercial activity’ under §1605(a)(2) FSIA, and this area could be labeled ‘the protection of natural resources of a foreign state.’

While the act of state doctrine leads to the same result in these cases, the sovereign immunity defense has a particular value and should not be confounded with act of state; the two doctrines should be seen within their respective boundaries.

And as the FSIA does not actually incorporate the act of state doctrine, which has been considered by some as a deficiency, the jurisprudence has effectively managed to get those sensibly political areas out of the litigation mill and thereby preserve certain core areas of sovereign activity under the provisions of the FSIA.

Budgetary Activity

Under this category we shall further discuss a precedent that we mentioned already earlier up, De Sanchez v. Banco Central de Nicaragua.

— 515 F.Supp. 900 (E.D.La. 1981), 63 IRL 584 (1982). See also the case note by Mark A. Block, De Sanchez v. Banco Central de Nicaragua: An Extension of the Restrictive Theory of Foreign Sovereign Immunity, 7 N.C.J.INT’L L. & COMM.REG. 419–431 (1982).

Here an American federal court had to rule about an activity of Nicaragua’s Central Bank.

— There was no litigation about the fact that Banco Central represented an agency or instrumentality of a foreign state under §1603(b) FSIA, see 515 F.Supp. 900, 902, note 3.

The facts are quite complex. The plaintiff, a citizen of Nicaragua, emigrated to the United States in 1979, during the civil war in her country, and filed suit against Banco Central and C & S Bank, an American commercial bank. Already in 1971, the plaintiff had obtained a certificate of deposit from Banco Nacional de Nicaragua, a commercial bank in Nicaragua, about the amount of $150.000.

Shortly before she departed to the United States, Mrs. Sanchez asked Banco Nacional to pay her out the deposited amount. But as the bank had not enough dollar cash available, it asked Banco Central, where it maintained an account, to deliver the needed cash.

Banco Central charged the account of Banco Nacional with an equivalent amount in cordobas, the national currency, and issued a cheque over $150.000 in favor of Mrs. Sanchez drawn on the account that C & S Bank had with Banco Central. But upon her arrival in the United States, when she wanted to cash the cheque, she got to hear that the Banco Central account had been closed; after that the bank argued there was some money, but not enough to cover the whole amount; finally the check was returned to Mrs. Sanchez with the imprint ‘Refer to Maker.’ C & S explained that because of the political troubles, all payments by Banco Central had been suspended according to an order by the new president of the bank, who was set in office by the revolutionary regime.

After having scrutinized the term ‘commercial activity’ under §1603(d) FSIA, as well as the legal materials, the court stated about the burden of proof.

First, as is true for all the other exceptions under the FSIA, the burden of demonstrating that the claim does not fall within §1605(a)(2), i.e., the burden of proof that immunity exists, is upon the foreign state. (515 F.Supp. 900, 903).

As it was in the precedents I discussed before, the court in the present case held that the purpose of the activity in question was irrelevant; only the nature of the activity was subject to qualification.

— 515 F.Supp. 900, 904: ‘… as both the language of the statute and its legislative history make clear, in determining the existence of immunity, the purpose of the challenged conduct is irrelevant;’

The court considered the precedents Arango, Yessenin-Volpin, Carey and Opec and then evaluated the evidence.

— 515 F.Supp. 900, 905: ‘In this case, both sides have offered sworn statements by officials of Banco Central and the Nicaraguan Government attesting to the governmental or commercial nature of the bank, and to the nature of the particular transaction giving rise to Sanchez’s claim.’

The affidavits submitted by Banco Central certified for the official character of the bank.

— Id., pp. 905–906: ‘For example, Gonzalo Meneses-Ocon, chief counsel of Banco Central, stated that the bank was created by the Nicaraguan Congress on August 23, 1960 through Decree N° 525 as the central bank of Nicaragua, with its main objective, as defined in the Decree, ‘to create, promote and keep monetary exchange and credit conditions favorable to the orderly development of the national economy.’ Accordingly, Meneses-Ocon declared, ‘Banco Central is not a commercial bank and does not operate with a mercantile objective.’ Affidavit of Gonzalo Meneses-Ocon at pp. 3, 4.’

The plaintiff responded to this evidence by the testimony of Dr. Roberto Incer, the former president of Banco Central under the Somoza regime who certified that the central bank has also engaged in commercial activity and that, more specifically, the issuing of the cheque had been one of those commercial activities. (Id., p. 906). The judgment cites a passage of the testimony:

Q. In utilizing the C & S account, was Banco Central wearing its commercial hat or its Government hat?

A. This was just a commercial operation, a banking operation. It was not a Government function. (Id.)

The witness also revealed that Banco Central used its account with C & S bank for the payment of expenses that Nicaraguan students incur in the United States, for covering letters of credit for imports and for paying debts with C & S.

Until that point, the judgment really lets us believe, and also the evidence, that the court will recognize the commercial character of the issuing of the cheque by Banco Central. But it took an almost incredible turn and twist and ended up in the contrary conclusion. First, the court declared it was not satisfied with the evidence produced, and the arguments provided here by the court are intriguing:

The problem with regarding these statements as probative to the ultimate issue on this motion is two-fold. First, it is not enough for these witnesses merely to offer conclusory descriptions of Banco Central’s general character or specific conduct. To be sure, reasonable people may disagree over the proper characterization of what Banco Central did; indeed, some commenters have concluded that the governmental / commercial dichotomy in foreign sovereign immunity law in unworkable because of the conceptual difficulties. But I can decide this motion only upon facts, and not on the basis of a government’s official opinion. To the extent that these statements are simply conclusory, I must disregard them. (Id., p. 907).

The judge found the evidence ‘too general’ for conclusively demonstrating that the specific activity in question was either commercial or governmental. A part of the evidence was indeed not at all about the issuing of the cheque itself.

— Id.: ‘… I cannot decide this motion under §1605(a)(2) on the basis of Banco Central’s general character, for just as a government entity may nevertheless be engaged in a commercial activity and thus be subject to suit, … so may a commercial entity perform a governmental function and avoid liability for claims arising therefrom.’

The court distinguished the case from National American Corporation v. Federal Republic of Nigeria, 448 F.Supp. 622 (S.D.N.Y. 1978), 17 ILM 1407 (1978), 63 ILR 63 (1982), conf’d 597 F.2d 314 (2d Cir. 1979), 63 ILR 137, where the breaches of contract arising during the ‘Nigerian Cement Catastrophe’ were qualified as commercial activity, while the Nigerian government had argued that the repudiations of contract had been undertaken ‘for preventing a national economic catastrophe.’ It was only from this point in the judgment that the real developments took off, namely with the court defining what really was the pertinent activity in question, or the pertinent question to ask:

It seems clear that Banco Central is imbued with general authority over Nicaragua’s financial affairs, and that on occasion it engages in commercial activities through its C & S account; neither facts decides this motion, however. Similarly, whether Banco Central acted to conserve its foreign currency supplies in a time of fiscal crisis when it ordered that Sanchez’s cheque not be honored is nondispositive. Just as Nigeria acted to avoid a national catastrophe by repudiating its obligations in order to stop the flow of cement into its ports, Banco Central may be acting purely in its own sovereign interests by repudiating its debt to Sanchez. But if that debt arose from commercial conduct, as did Nigeria’s, then Banco Central cannot invoke immunity against this suit. (515 F.Supp. 900, 907).

After having clearly peeled out the core juridical question, the judge looked at additional evidence and came to conclude that the issuing of the cheque, in this particular case, was a governmental act effected by Banco Central. It is really intriguing to see that it was the plaintiff who had submitted the evidence that ultimately was in favor of the defendant, Banco Central.

Let me comment here on this particularity of the American law of evidence.

In principle, the judge is not impeached from appreciating evidence submitted by one party, in favor of the other.

The judge is supposed to regard all the evidence in the record to prove a fact at issue, notwithstanding which party has submitted the evidence to the court. In addition, the judge can ask a witness additional questions, and here as well, it is not relevant which party has presented the witness, or expert evidence, to the court.

— See Wigmore, Evidence in Trials at Common Law (1981), Vol. IX, §2484, p. 278, Fed.R.EVID. §614(b), Michael H. Graham, Federal Rules of Evidence in a Nutshell (1981), §614.2, p. 194.

We can admit in the present case that Banco Central was not able to establish a prima facie case regarding the governmental character of the activity in question (issuing of the cheque) in order to support its immunity claim, as the judge didn’t find the evidence was meeting the necessary standard of proof.

The result should have been to deny immunity for the defendant. This would have been done by a so-called directed verdict.

However, such is done by the court generally only if the other party has issued a motion for directed verdict, but there is agreement that that court can issue a directed verdict also sua sponte.

— See Rule 50 Federal Rules of Civil Procedure and Thomas A. Coyne, Federal Rules of Civil Procedure for the United States District Courts (1983), Rule 50, Practice Comment, Subdivision (a), p. 577.

However, in the present case, the court did not pursue such an action. The reason is probably the general rule of sovereign immunity contained in §1604 FSIA, taken as a ‘residual presumption’ of immunity for all cases where the evidence results in a non liquet situation.

The evidence revealed here in particular that, since September 1978, there were no foreign exchange regulations in Nicaragua, and Banco Central and other Nicaraguan banks maintained accounts with American banks in order to facilitate the exchange of cordobas in dollars.

Then, because of the decision of the Carter administration to freeze Nicaragua’s access to the international monetary funds, Incer, the Banco Central president at that time, decreed a control policy for foreign exchange.

The witness also said that decisions regarding foreign exchange were taken ‘at the highest level of Banco Central.’

When Banco Nacional asked Banco Central to transfer the dollars for covering the certificate of deposit of Mrs. Sanchez, it was Incer himself who had allowed the transaction.

This precedent offers the great advantage that it contains explicit passages from the witness evidence submitted to the court. As it’s really a very important case, I will publish the decisive last part of the hearing hereafter:

Q. Are you telling me that Banco Central was obliged to buy and sell dollars as desired by the private banks? Is that the point you are making here? A. The Central Bank was obliged to sell dollars to the private bank when they requested for private transactions.

Q. Banco Central was required to abide by a private bank’s request; is that correct? A. Yes.

Q. So, the only requests that were not honored were those that were not permitted by law; is that right? A. That’s right.

Q. Why did you want to know about all these requests? A. Because of the low level of foreign exchange. There was not enough to meet all the demands that were represented at that time in the Central Bank of Nicaragua.

Q. Why was Banco Central required to honor requests by private banks to buy dollars? A. Why? Because the Central Bank — just as I say, the Central Bank has to keep a fixed exchange rate between the Cordoba and the dollar, so any excess amount — the Central Bank is obliged to keep a fixed exchange rate within the Cordoba, the national currency of Nicaragua, and the dollar, so any excess supply of dollars that were in the market and the bank did not want to acquire it, they sold it to the Central Bank and the Central Bank had to meet any excess demands that were in the market so that this exchange rate should be kept fixed.

Q. That related to both buying and selling dollars? A. Yes.

Q. Central Bank’s function is to buy and sell dollars from private banks in order to maintain a stable exchange rate? A. That’s right.

Q. I believe you told us before that you did not really concern yourself with the relationship between the private bank and the customer in the transaction that created the ned for the dollars; is that right? A. That’s right.

Q. Your sole interest was in the maintenance of the stability of the exchange rate; is that correct? A. That’s right.

Q. Is that correct? A. That’s right. (Id.)

The court concluded:

From this testimony, it is clear that Banco Central was not engaged in commercial venture when it exchanged dollars for Cordobas upon the request of Banco Nacional. Clearly Sanchez was not Banco Central’s customer, since her certificate of deposit was held with Banco Nacional and not with it. Banco Nacional earned no fee from the transaction, …, and as Incer testified it was not even interested in the dealings between Banco Nacional and Sanchez, Banco Central’s function in this matter — the maintenance of foreign exchange rates through regulation of foreign currency transactions — was not commercial, but was governmental. (Id.)

After the judge distinguished the case from National American Corporation, Texas Trading and Verlinden, that we all discussed earlier in this study, the court came to the final conclusion:

However, in those cases, the letters of credit were issued as the culmination of a series of commercial transactions involving the purchase of cement by the Nigerian government. Here, by contrast, although the relationship between Sanchez and Banco Nacional was commercial, Banco Central’s role in that relationship was no different than the role any government plays in facilitating business transactions between its citizens through regulation or licensing. Just as a corporation may not sell shares of its stock without complying with applicable securities laws and obtaining necessary licenses or permits, Banco Nacional could not redeem Sanchez’s certificate of deposit without obtaining Banco Central’s approval to exchange Cordobas for dollars. Banco Central’s C & S check was a necessary element of the commercial transaction between Sanchez and Banco Nacional, but it was not issued as part of any commercial function performed by Banco Central, and consequently cannot form a basis for suit under §1605(a)(2). (Id.)

After appreciating all the evidence in the record, the court thus came to the conclusion that the issuing of the cheque was a governmental activity of Banco Central, for its role in the complex suite of transactions was solely the regulation of foreign exchange, which is clearly a governmental activity. As a result, the court had to deny the applicability of the ‘commercial activity’ exception under §1605(a)(2) FSIA. The court then applied the exceptions in sections 1605(a)(3) and 1605(a)(5). The Court of Appeals of the 5th Circuit fully confirmed the district court’s reasoning regarding the applicability vel non of the ‘commercial activity’ exception in §1605(a)(2) FSIA. (770 F.2d 1385, 1387 (5th Cir. 1985).

Here, Banco Central’s purpose in selling dollars — namely to regulate Nicaragua’s foreign exchange reserves — was not ancillary to its conduct; instead, it defined the conduct’s nature. Banco Central was not merely engaging in the same activity as private banks with a different purpose; in a basic sense, it was engaging in a different activity. It was performing one of its intrinsically governmental functions as a Nicaraguan Central Bank. (…) As such, it was wearing its sovereign rather than its commercial hat. If we were to hold that a central bank is subject to suit for its actions in regulating foreign exchange reserves, we would interfere with this basic governmental function and would thereby touch sharply on ‘national nerves,’ contrary to the policies underlying the FSIA. (Id., pp. 1393–1394).

The De Sanchez precedent is of paramount importance as to withholding judicial interference in the budgetary activities of foreign states. While the FSIA contains a special provision with regard to foreign central banks, §1611(b)(1), this provision, as we shall see further down in this study, is only applicable for immunity from execution. With regard to immunity from jurisdiction, the protection of the budgetary domain of foreign states was not explicitly stated in the FSIA, and as such, the De Sanchez case serves as an important pillar to interpret the statute in a way that is in accordance with the basic principles of international law and the conduct of states on the international platform.

— In more recent precedents, this interpretation of the FSIA was confirmed and even more fine-tuned, see Wolf v. Banco Nacional de Mexico, S.A., 739 F2d 1458 (9th Cir. 1984), Braka v. Bancomer, S.N.C., 762 F.2d 222 (2d Cir. 1985), 24 ILM 1047 (1985) and Callajo v. Bancomer, S.A., 764 F.2d 1101 (5th Cir. 1985), 24 ILM 1050 (1985).

The decision is also elucidative as to how a judge may peel out the decisive question before evaluating the evidence and distinguishing the case from precedents. Wrong judicial acts are often the result of wrong questions asked.

Here, the ambiguous character of the evidence regarding the facts at issue shows with quite some rigor that the evidence problems in foreign sovereign immunity litigation are not to underestimate. It is for that reason so important that the facts are clearly identified, before even thinking of an appreciation of the evidence.

It was notably tempting in this case to look at the relation between Mrs. Sanchez and Banco Nacional and derive conclusions therefrom. But it would have been the wrong question because the cheque was issued by Banco Central, while Mrs. Sanchez had no commercial relation with that bank at all. Hence, the decisive action holder here was the central bank of Nicaragua, and once this was clearly identified, the court only had to see if the exercise of that function was private and commercial, or public and governmental, and to that purpose, the witness evidence was clear-cut and unequivocal.

It also has to be seen that, as actions under the FSIA are ruled without jury, §1441(d) FSIA, the judge exercises the two different functions of judge and jury, united in his or her person.

With regard to the problems of evaluating the evidence in foreign sovereign immunity litigation, the handling of these functions by the judge can at times be extremely difficult.

This present case is the best proof to demonstrate that and to show how meticulous judges have to proceed in order to rule those cases in a way that is both efficient and far-sighted enough to not step on the feet of foreign states’ internal powers, thereby creating undesired diplomatic strain and interference.

— One could cite here §2(4) United Nations Charter — the non-interference clause — as a supportive argument for this reasoning.

National Defense

The last category in our schema of sensibly political domains of foreign states will also be exemplified by one single, but very important, precedent; it is Castro v. Saudi Arabia, 510 F.Supp. 309 (W.D.Tex. 1980), 63 ILR 419 (1982), a precedent which we discussed already further up in this study. To shortly reiterate the facts, a relative of the Castro family was killed in a car accident in the United States, whereupon they sued Saudi Arabia for damages because the driver of the car that caused the accident was a Saudi soldier stationed in the United States under a bilateral military treaty between the two countries. It is important to note that the treaty did not contain any compensation clause for the Saudi services rendered to the United States, and was thus a non-profit agreement.

— We have already discussed the question if such a clause could be interpreted as an implicit immunity waiver.

Evaluating the nature of the treaty, the court found the fact irrelevant that the military services as such had a government character; only the nature of the activity was the decisive criterion for the court to consider under the FSIA. (510 F.Supp. 309, 312).

It is interesting to observe the development of the restrictive immunity doctrine in these cases. Already back in 1923, André Weiss proposed in his course Compétence ou incompétence des tribunaux à l’égard des états étrangers (1923), 1 RCADI (1923) 525, to consider the nature of the activity in question as the exclusive criterion for deciding about immunity vel non. He wrote:

If he [the judge] has to examine the question [of sovereign immunity], there is only one thing to ask: is the action that the litigation is about, by its nature, such that only a state can do it and that it’s done in the name of the state, which would mean it’s an act of public power, a political action, which couldn’t be revised by a tribunal without infringing upon the sovereignty of the foreign state. In this case, the court has no jurisdiction. By contrast, is the nature of the action such as any private person can do it, such as a contract or a loan, this action, whatever is the purpose or motivation behind it, is by its very nature private, and the foreign court would have jurisdiction over it. (…) It is of little importance that normally people don’t do such large transactions [except when they conclude with foreign states], and or that the objectives are different. It’s a contract, an acquisition, a loan. That is enough. The nature of the contract, not its objective, is what is to consider here. (Id., p. 546, translation mine).

This manner of distinguishing between acts ‘de iure imperii’ and those ‘de iure gestionis,’ while it sounds clear and straight, was however often misunderstood and criticized when it’s about contracts that were concluded with specific military purposes.

Hersch Lauterpacht writes in The Problem of Jurisdictional Immunities of Foreign States, 28 BRIT.Y.B.INT’L L. 220, 225 (1951):

However, upon analysis, that test merely postpones the difficulty. To what extent is it true to say that contracts made by the state for the purchase of shoes for the army or a warship, or of munitions, or of foodstuff necessary for the maintenance of the national economy, are not immune from the jurisdiction for the reason that they were contracts and that an individual can make a contract? For can it not be said that these particular contracts can be made by a state only, and not by individuals? Individuals do not purchase shoes for their armies; they do not buy warships for the use of the state; they are not, as such, responsible for the management of the national economy.

Jean-Flavien Lalive cites Lauterpacht in his article Contrats entre États ou entreprises étatiques et personnes privées (1983) and adds:

This reaction is typical for a private lawyer … for who is today the person that would need to buy for himself the luxury to buy a tank or a torpedo defense system?

— Jean-Flavien Lalive, L’immunité de juridiction des états et des organisations internationales, 84 RCADI (1953-III), 209 ff., 258. (Translation mine). Then he continues that Weiss’ proposition could be managed to be applied for the general practice, while the example that Weiss cites, that is, a warship, was without a doubt ‘little satisfying.’

I cannot see Lalive’s criticism justified. There is not a doubt that a private person can buy army boots or a warship. For example, there are drug barons in quite a few countries in South America who rule over private armies and militias, and while the number of such military personnel may be smaller than the army of a nation state, it’s basically the same principle.

These private militia need their boots, they need their guns, and ammunition, they need uniforms, food and clothing. And as weaponry can be bought, even against national regulations, in black markets, it is not excluded, but rather the rule that such people also buy heavy weaponry or torpedo boats, to just name these.

Lauterpacht has misunderstood what really means nature of an act or action. The nature of a purchasing contract does not change in any way according to the motivations or goals that are connected to it, that is to say, the whole of the human intentional factor. Lalive fell in the same trap and asks the silly question if it was a luxury or whatever, or how a private person would need to buy a warship or other military equipment? This is simply not the question.

When we look at the nature of a transaction, we do not need to know who can possibly engage in it, how big or small the business volume is, or if people have the necessary financial means to afford such a purchase!

All this is strictly irrelevant. What counts is the nature of the transaction; a contract is a contract, it’s a private, commercial activity.

The FSIA embodies, under the definition of §1603(d), and the legislative materials, exactly the doctrine that Weiss has proposed so many years earlier in his brilliant article. The House Report expressly underlines that ‘a contract by a foreign government to buy provisions or equipment for its armed forces … constitutes a commercial activity.’ (H.R. Report, p. 16, 15 ILM 1398, 1406–1407 (1976). This was confirmed in National American Corporation v. Federal Republic of Nigeria, 448 F.Supp. 622 (S.D.N.Y. 1978), 17 ILM 1407 (1978), 63 ILR 63 (1982), conf’d 597 F.2d 314 (2d Cir. 1979), 63 ILR 137.

This case is particularly interesting. Judge Goettel remarked that, already in 1976, when the case was being dealt with by judge Weinfeld (420 F.Supp. 954 (S.D.N.Y. 1976), Nigeria argued that the cement ‘was intended for the use in governmental works and military installations.’ (448 F.Supp. 622, 641).

Judge Weinfeld, who had to know this case before the entering into force of the Act, referred to Victory Transport, 336 F.2d 354 (2d Cir. 1964), where immunity was granted ‘for the acts concerned the armed forces.’

Judge Weinfeld admitted that the military objective of the purchasing contract was a pertinent fact at issue; however he concluded that ‘[t]here was almost a total failure of proof at trial as to the purpose for which the cement was ordered and, certainly, there was no convincing proof that the majority or a substantial portion was secured with a governmental purpose in mind.’ (448 F.Supp. 622, 641). Judge Goettel, however, who had to try the case under the FSIA, wrote:

Even had this been demonstrated, it would not have materially aided defendants, since the Immunity Act has changed the grounds on which the defense of sovereign immunity rests. (Id.)

After citing §1603(d) FSIA and the legal materials, the judge continued:

This definition eliminates the significance attached by Nigeria to its purported intent to use the cement for military purposes. (Id.)

The judge thus confirmed that it’s only the nature of the action or act in question that has to be taken into account, not its purpose or objective.

The latter will not be a relevant fact at issue, while it may have been so before the enactment of the FSIA.

Despite criticism, we can thus conclude that the old theory established by André Weiss has merit, so much merit in fact that it can be said to be the reigning doctrine right now, not only the United States, in sovereign immunity litigation, but also, as we shall see further down, in other jurisdictions that have enacted sovereign immunity statutes.

This is particularly true for the United Kingdom’s State Immunity Act 1978, and the precedent Trendtex Trading, and the interesting opinion of Lord Denning in this judgment.

Trendtex Trading Corp. Ltd. v. Central Bank of Nigeria, [1977] 1 All E.R. 881, [1977] 2 W.L.R. 356, [1977] 1 Lloyd’s Rep. 581 (C.A.), [1977] 1 Q.B. 529, 16 ILM 471 (1977), 64 ILR 111 (1983).

Contrary to this line of reasoning and the precedents discussed, in Castro v. Saudi Arabia, as we saw it already in the OPEC case, the judge performed a rather construed interpretation of the criterion ‘commercial activity’ that obviously tries to restrict the scope and applicability of this exception:

The transaction at issue here could be broadly defined as the ‘sale of services’ and so be deemed ‘commercial.’

The activity could also be narrowly viewed as a non-profit agreement between two governments for the training of military personnel. So viewed, the transaction would be public or governmental, and protected by sovereign immunity. In this case, as in the OPEC case, ‘commercial activity’ is best defined narrowly; Saudi Arabia has the sole power to control its armed forces, and proper training of those forces is an essential ingredient of that control. In addition the fact that the contract is expressly ‘non-profit’ convinces the court that the arrangement between the two sovereigns is not commercial in nature. (510 F.Supp. 309, 312).

Consequently, the judge rejected the action, after also denying the applicability of §1605(a)(5), concluding that ‘defendant has demonstrated that none of the exceptions in FSIA operate to deprive Saudi Arabia of its immunity from this court’s jurisdiction.’

— Id., p. 313. The default judgement previously obtained by the plaintiffs under §1608(e) FSIA had thus to be rendered void, ‘for without subject matter jurisdiction the default judgment is a nullity.’ 510 F.Supp. 309, 312.

This sentence reveals the repartition of the burden of proof. Apart from the evidence submitted by Saudi Arabia as to the exception 1605(a)(5), the court did not need to evaluate the evidence for qualifying the action in question because, at that point, the facts were not contested.

We can see three lines of reasoning in this judgment:

  • Fact at issue was not the nature of the Saudi soldier participating in public traffic in the United States, but the bilateral treaty that stationed the soldier in the forum state;
  • The treaty was governmental because of the exclusive control of Saudi Arabia over its troupes stationed in the United States, and over their training;
  • The treaty had a governmental character also because the military services rendered by Saudi Arabia to the United States were not remunerated because it was a non-profit agreement.

By these reflections, the court has traced a certain demarcation line that marks certain limits under the Act, and this for protecting the sensible area of internal affairs of a foreign state, which is undeniably governmental activity of that foreign state. In fact, the military treaty discussed in this judgment can be seen as a sort of inter-governmental cooperation.

This expression, while the judge did not use it, can relate us back to the precedent Yessenin-Volpin, 443 F.Supp. 849 (S.D.N.Y. 1978), discussed earlier in this study and where the judge had qualified the activities of TASS and NOVOSTI as intra-governmental cooperation with the Soviet government.

With regard to the first line of reasoning, if the judge had focused not upon the treaty, but upon the mere participation of the soldier in the road circulation in the United States, this participation would have had to be considered commercial. However, in focusing exclusively upon the statute of the soldier being stationed in the United States, the judge has predetermined the outcome in that, incontestably, such a treaty is public and governmental in character.

Conclusion

With regard to the allocation of the burden of proof, this judgment thus follows the schema that we have already established to be valid under Matter of Sedco, De Sanchez and other precedents, that is, the facts at issue which determine subject matter jurisdiction and personal jurisdiction are to be proven by the plaintiff, and here the proof is particularly severe in case the latter motions a default judgment against a foreign state under §1608(d) FSIA.

The precedents discussed here show that vital interests, foreign affairs and internal affairs of a foreign state are sensible areas that American federal courts tend to protect, thereby preserving something like a hard core of foreign sovereignty that federal jurisdiction doesn’t touch upon. To summarize, these areas are the following:

Foreign Affairs

Some kind of intra-governmental cooperation between foreign press agencies and the foreign state (Yessenin-Volpin) or a nationalization, that is effected by the foreign state in such a way that it appears to be a weapon of foreign policy (Carey).

Internal Affairs

Police actions undertaken for protecting fishery laws (Perez) and immigration laws (Arango). Activities of the foreign state that were undertaken for the protection of ‘natural resources’, for example for crude oil (OPEC, Matter of Sedco) or the national wildlife (Mol).

Budgetary Activity

Activities undertaken by foreign central banks in their function as facilitators of foreign exchange and for regulating foreign exchange (De Sanchez).

National Defense

An inter-governmental collaboration for training military troupes under a bilateral treaty between the foreign state and the forum state (Castro).

In all the precedents we thus examined, the judges affirmed that the specific activity for qualifying it as governmental or private, needs to be clearly identified.

Here, there is sometimes harsh difficulty to see the relevancy versus irrelevancy of certain facts at issue, and all the art is to really peel the onion, so as to speak, to see what in fact the particular activity is that is the subject of the litigation.

Often, as we have seen, this initial work of the judge in looking at the facts, before appreciating the evidence, leads to a quite clear-cut legal conclusion at the end, and if the situation had been under a slightly different angle, the legal outcome would have swapped to its opposite. This is quite intriguing to observe in all those cases!

Generally speaking, and with regard to the specific criterion ‘commercial activity,’ all these cases let us see that courts are careful not to infringe upon the political affairs of foreign states, in cases where there is initially a certain temptation to ‘help’ the plaintiff succeed when the situation is such that it all looks like blunt injustice to grant immunity.

However, this cannot and must not entice us to steer off from the legally correct path, as the sovereignty of foreign states needs to be respected when the foreign state has really acted within its public, governmental function.

As to the means of proof, American federal courts have been quite open to accept a range of possible evidence, such as testimony (De Sanchez), affidavit (Mol), expert evidence (Yessenin-Volpin, OPEC) and even a simple statement by an ambassador of the foreign state (Yessenin-Volpin).


Immunity from Execution

Types of Execution Measures

We have to distinguish basically three types of executional measures:

— The enforcement of a judgment arising from a lawsuit;

— The post-judgment attachment, or attachment in aid of execution;

— The pre-judgment attachment.

A forth type of execution, called ‘arrest’ is mentioned, to be true, in the text of §1609 FSIA, but is not to be found in any of the exceptions from this general rule from immunity from execution contained in §1610 FSIA.

The question logically comes up if that means that for arrests, foreign states enjoy an absolute kind of immunity from execution? As the legal materials are silent with regard to this question, we could ponder what ‘arrest’ actually means, because in American law, there are basically two different definitions of this term. There is the arrest of a person, and the arrest of a ship, in an ‘in rem’ action.

— See Jowitt’s Dictionary of English Law (1977), Vol. 1, ‘Arrest,’ and Ninth Decennial Digest (1976–1981), Part I, Vol. 2, ‘Arrest.’ See Jowitt’s Dictionary of English Law (1977), Vol. 1, ‘Arrest,’ and Words and Phrases (1969), ‘Arrest.’

Sompong Sucharitkul asked this question in his course Immunities of Foreign States Before National Authorities (1976), 149 RCADI (1976-I), 93, 122, and concluded as follows.

It is difficult to imagine how a State qua an international legal entity could be subject to arrest or detention. In actual realities, however, the State often acts through its various organs, agencies, instrumentalities or individual representatives. The representatives as individuals, as well as the properties and assets belonging to a foreign State can be the target of arrest or detention.

By a stretch of imagination, the cloak of State immunities may be said to extent to cover many types of State representatives and agencies as well as their properties from the power of local authorities to effect arrest and detention.

The text of section 1609, ‘… the property … of a foreign state …’, doesn’t really give room for doubting that only measures of execution against foreign property are meant to fall under this rule. However, the arrest of a ship is no longer possible under the FSIA. Against such an action ‘in rem’, the foreign state enjoys absolute immunity from execution. On the other hand, an action ‘in personam’ is still possible under the conditions of §1605(b) FSIA.

H. R. Report No. 94–1487

In view of section 1609 of the bill, section 1605(b) is designed to avoid arrests of vessels or cargo of a foreign state to commence a suit.

— House Report, p. 21, 15 ILM 1398, 1409 (1976). The problems of such admiralty actions were largely discussed in the literature and the solution under the FSIA was often criticized, if not authors were outright requiring an addendum to be made, or an ‘admiralty sovereign immunities act’ so be drafted, see for example Russell J. Pope, Maritime Arrest Under the Foreign Sovereign Immunities Act: An Anachronism, 62 TEXAS L.R. 511–535 (1983).

The elimination of attachment as a vehicle for commencing a lawsuit will ease the conduct of foreign relations by the United States and help eliminate the necessity for determinations of claims of sovereign immunity by the State Department. (House Report, p. 27, 15 ILM 1398, 1412 (1976).

Sections 1610(a) to (c) of the Act concern the post-judgment attachment. As to the pre-judgment attachment, section 1610(d) provides a peculiar solution. This distinction is justified by the fact that we are facing here different juridical notions; in addition, it was Congress’ intention to prohibit the pre-judgment attachment for vessels or cargo for commencing a lawsuit against a foreign state.

— Georges R. Delaume notes that there are three major factors that determine the question of execution vel non: ‘These factors relate to: (i) the personality of the borrower (since the rules applicable to foreign states may be different from those applicable to foreign public entities distinguishable from the state itself; (ii) the nature of the property sought to be attached or executed against (since execution is usually possible only against property used for commercial, as opposed to public, purposes; and (iii) the time at which execution is sought (since not all legal systems permit prejudgment attachment and the creditor’s remedies may be limited to post-judgment execution.’ (Transnational Contracts, Vol. II, Booklet 14, XII, Text pp. 1–2).

28 U.S.C. §1610(d)

The property of a foreign state, … , shall be immune from attachment prior to the entry of judgment … , if the purpose of the attachment is to secure satisfaction of a judgment that has been or may ultimately be entered against the foreign state, and not to obtain jurisdiction.

The Allocation of the Burden of Proof

As for jurisdictional immunities of foreign states, the FSIA provides for immunity from execution a rule-and-exception principle. The rule is stated in section 1609.

28 U.S.C. §1609

Subject to existing international agreements to which the United States is a party at the time of enactment of this Act the property of a foreign state shall be immune from attachment, arrest and execution except as provided in sections 1610 and 1611 of this chapter.

The exceptions are stated in section 1610.

The formulation of section 1609 is not very clear in this respect, as section 1611 doesn’t contain exceptions to the rule, but exceptions to the exceptions (‘… notwithstanding the provisions of section 1610 of this chapter …’).

Astonishingly enough, there is no remark to be found in the legal materials as to the burden of proof regarding sections 1609, 1610, as this was the case for jurisdictional immunity, while it follows from statutory construction that the exceptions from the exceptions lead back to the rule (§1609), which is noteworthy, as this influences the allocation of the burden of proof.

However, it would not be correct to simply apply the burden of proof rules that apply for immunity from jurisdiction, to immunity from execution. Neither the text of the legislative history regarding sections 1604, 1605–1607, nor its systematic placement within the section by section analysis of the House Report, allow to draw any analogous conclusions for immunity from execution.

Furthermore, it has to be seen that the two immunity rules have had different historical developments, and have a different legal character. This was already stated in the Harvard Draft Convention (1932) — 26 AJIL 453 (1932 Suppl.), Comment on Art. 22, p. 690 — was repeated in the legal materials and is general opinion in the literature.

— H. R. Report No. 94–1487, 27, 15 ILM 1398, 1412–1413 (1976). See, for example Sompong Sucharitkul, State Immunities (1959), 255–256, 347–368, citing the precedent Duff Development v. Government of Kelantan, [1924] A.C. 797, Jean-Flavien Lalive, L’immunité de juridiction des Etats et des Organisations Internationales, 84 RCADI (1953-III), 209, 272–273, Hersch Lauterpacht, The Problem of Jurisdictional Immunities of Foreign States, 28 BRIT.Y.B.INT’L L. 220–272, 241–243 (1951), Sompong Sucharitkul, Immunities of Foreign States Before National Authorities, 149 RCADI (1976-I), 89, 170, Ian Sinclair, The Law of Sovereign Immunity. Recent Developments, 167 RCADI (1980-II), 117, 220–223, Gamal Moursi Badr, State Immunity (1984), 117 ff.

This means that we have to engage a novel scrutiny as to the burden of proof in matters of immunity from execution, under the FSIA.

Interestingly enough, in the International Law Association’s Draft Convention, the burden of proof is handled differently for each type of immunity. Here are the rules:

Art. II (Immunity from jurisdiction)

In general, a foreign State shall be immune from the adjudicatory jurisdiction of a forum State for acts performed by it in the exercise of its sovereign authority i.e. iure imperii. It shall not be immune in the circumstances provided in Article III.

Article III (Exceptions)

Sovereign immunity shall not be granted when the case in question involved a commercial activity of the foreign state.

Art. VII (Immunity from execution)

A foreign State’s property in the forum State shall be immune from attachment arrest and execution except as provided in Article VIII.

In the ILA Report of the Belgrade Conference (1980), it is written that Art. II is considered as a ‘somewhat flexible rule’, while Art. VII is held to be stricter, in a way that ‘there should be an absolute rule of immunity unless a particular exception applied.’

— ILA Report of the Fifty-Ninth Conference held at Belgrade 1980, 219 ff., at 329, note 45.

It is interesting to note that the two immunity rules are drafted in a different manner. As for jurisdictional immunity, the foreign state is granted immunity only if the activity in question can be demonstrated to have been iure imperii. This is exactly how the FSIA handles it in sections 1604, 1605–1607.

This is why we can conclude that the ILA Draft Convention appears to handle the burden of proof for jurisdictional immunities in the same manner as the FSIA. In other words, when this can be seen, then the other analogy may also be true. When we can say that under the ILA Draft, the rule of immunity from execution is principally absolute, and is pierced only in very particular exceptional circumstances, then we might reflect if under the FSIA, this might also be the case.

Fortunately, we do not need to engage in such a shaky argument, while logically it makes sense; we got some precedents that are explicit and that we shall carefully examine under our particular focus on the allocation of the burden of proof.


The Immunity Exceptions

The Waiver Exception

Contrary to the drafting technique regarding immunity from jurisdiction, under §§1604, 1605–1607 FSIA, that applies both for foreign states and agencies and instrumentalities of foreign states, section 1610 clearly distinguishes the case where the property belongs to the foreign state, §1610(a), or to one of its organisms, §1610(b). As to the execution of a judgment or a post-judgment attachment, sections 1610(a)(1) and 1610 (b)(1) state:

(a) The property in the United States of a foreign state, as defined in section 1603(a) of this chapter, used for a commercial activity in the United States, shall not be immune from attachment in aid of execution, or from execution, upon a judgment entered by a court of the United States or of a State after the effective date of this Act, if — (1) the foreign state has waived its immunity from attachment in aid of execution or from execution either explicitly or by implication, notwithstanding any withdrawal of the waiver the foreign state may purport to effect except in accordance with the terms of the waiver, (…) (b) In addition to subsection (a), any property in the United States of an agency or instrumentality of the foreign state engaged in commercial activity in the United States shall not be immune from attachment in aid of execution, or from execution, upon a judgment entered by a court of the United States or of a State after the effective date of this Act, if — (1) the agency or instrumentality has waived its immunity from attachment in aid of execution or from execution either explicitly or implicitly, notwithstanding any withdrawal of the waiver the agency or instrumentality may purport to effect except in accordance with the terms of the waiver, (…) (d) The property of a foreign state, as defined in section 1603(a) of this chapter, used for commercial activities in the United States, shall be immune from attachment prior to the entry of judgment in any action brought in a court in the United States or of a State, … , if — (1) the foreign state has explicitly waived its immunity from attachment prior to judgment, notwithstanding any withdrawal of the waiver the foreign state may purport to effect except in accordance with the terms of the waiver, (…).

A particular handling of the pre-judgment attachment is thus provided by §1610(d)(1). Contrary to §§1610(a)(1), (b)(1) where an implicit waiver is admitted, this provision obviously only admits an explicit immunity waiver; thus, conditions are stricter for pre-judgment attachments of foreign property, for obvious reasons.

There is case law dealing with defining what an ‘explicit immunity waiver’ is under these terms. In Libra Bank v. Banco Nacional de Costa Rica, 676 F.2d 47 (2d Cir. 1982), 21 ILM 618 (1982), the Court of Appeals of the 2nd Circuit reversed the district court judgment, holding a waiver for ‘explicit’ that was formulated as follows:

The Borrower hereby irrevocably and unconditionally waives any right of immunity from legal proceedings including suit judgment and execution on grounds of sovereignty which it or its property may now or hereafter enjoy. (676 F.2d 47, 49, 21 ILM 618, 619).

The immunity waiver was contained in promissory notes that Banco Nacional had given out to Libra Bank, but the defendant argued that the terms of the waiver did not cover the pre-judgment attachment as this form of execution was not expressly mentioned in the waiver. The Court of Appeals however rejected this argument, holding that the wording of section 1610(d)(1) ‘does not require recitation of the words ‘prejudgment attachment’ as an operative formula.’ (Id.)

Then the court further explained:

This enumeration clearly is not intended to be exhaustive. If anything, it suggests that prejudgment attachment is a form of ‘legal proceedings’. The waiver is explicit in the sense that it is clear and unambiguous. Banco Nacional certainly intended to reserve no rights of immunity in any legal proceedings. (Id.)

The same Court of Appeals confirmed another interesting case, Sperry International Trade v. Government of Israel, 532 F.Supp. 901 (S.D.N.Y. 1982), 21 ILM 1073 (1982), conf’d, 21 ILM 1066 (1982), that we mentioned earlier on in this study, and where the district court had to deal with an arbitration sentence against the Israeli government. While the court denied the applicability of the FSIA, it stated in an obiter dictum that even if he applied the Act, he had to rule that the waiver contained in the contract with the plaintiff was ‘explicit’ in the sense of §1610(d)(1). (532 F.Supp. 901, 908–909, 21 ILM 1073, 1078–1079).

In S & S Machinery, 706 F.2d 411 (2d Cir. 1983), a precedent we discussed already, the Court of Appeals of the 2nd Circuit had to decide the question if a clause in the Agreement on Trade Relations of April 2, 1975 between the United States and Romania was to be considered as an explicit waiver of immunity from prejudgment attachment. (26 U.S.T., T.I.A.S. N° 8159) This clause reads as follows:

Business Facilitation Clause

Nationals, firms, companies and economic organizations of either Party shall be afforded access to all courts, and, when applicable, to administrative bodies as plaintiffs and defendants, or otherwise, in accordance with the laws in force in the territory of such other Party. They shall not claim or enjoy immunities from suit or execution of judgment or other liability in the territory of the other Party with respect to commercial or financial transactions, except as may be provided in other bilateral agreements. (706 F.2d 411, 416–417).

The court subsumed the prejudgment attachment under the term ‘other liability in the territory of the other Party.’ As there were not yet any precedents interpreting this clause, the court looked at a similar passage (… ‘other liability’ …) in the Friendship Treaty between the United States and Iran, of August 8, 1955. As we have seen already earlier in this study, this term was interpreted by case law as to not encompass the prejudgment attachment.

— See for a listing of the precedents, at 417–418 of the judgment. In Behring I, already discussed, such an interpretation of the clause was expressly denied by the court, 475 F.Supp. 383, 392–393 (D.N.J. 1979).

The House Report explains under section 1610:

H. R. Report No. 94–1487

However, the traditional view in the United States concerning execution has been that the property of foreign states is absolutely immune from execution. (…) Even after the ‘Tate Letter’ of 1952, this continued to be the position of the Department of State and of the courts. (…) Sections 1610(a) and (b) are intended to modify this rule by partially lowering the barrier of immunity from execution, so as to make this immunity conform more closely with the provisions on jurisdictional immunity in the bill. (House Report, p. 27, 15 ILM 1398, 1412–1413 (1976).

Indeed, international practice is far from the ‘ideal’ situation to treat immunity from jurisdiction and immunity from execution in the same manner. Rather the contrary tendency can be made out, and this is so since a considerable period of time.

The ‘partially lowering of the barrier of immunity from execution’ cannot be compared with the situation under sections 1604, 1605–1607, for jurisdictional immunity, where we have a restrictive immunity doctrine that more or less reversed rule and exception, while the Act stated it in the old terms, putting the immunity rule and then the exceptions.

However, for immunity from execution, such a reversal of rule and exception has never taken place, and even the quite liberal statement in the legislative materials starts with saying that ‘the property of foreign states is absolutely immune from execution.’

In reality, this rule is still absolute in the sense that the exceptions are pointed, and few, while for jurisdictional immunities the exceptions are, so to speak, all over the place, so that there is not much left of that ‘rule of immunity’ in section 1604. This is not my personal opinion but quite general tenor in the international law literature. To quote only Georges R. Delaume, an eminent expert on the matter.

Ideally the rules applicable to immunity from suit and immunity from execution should be coterminous in the sense that there should be no immunity from execution when there is no immunity from suit. In practice, however, this ideal is not always achieved.

— George R. Delaume, Transnational Contracts, Vol. II, Booklet 14, XII., §12.01, Text, p. 1. See also, specifically for the State Immunity Act 1978, of the United Kingdom, F. A. Mann, The State Immunity Act 1978, 50 BRIT.Y.B.INT’L L. 43, 62 (1979).

After careful study of Anglo-American statutory construction and the law of evidence, we can apply, for immunity from execution, the common law standard of statutory interpretation that sees the general rule as a presumption. It follows that the burden of proof is upon the party that relies on an exception from the general rule.

— See, for example, Phipson and Elliott, Manual of the Law of Evidence (1980), p. 54: ‘The party who relies on an exception (or proviso) to some general rule imposing liability has the burden of proving that the exception applies to the case.’

The burden of proof is thus upon the plaintiff for demonstrating that one of the tight exceptions to the general rule of immunity from execution is applicable in the case.

If the plaintiff fails to prove the exception he relies upon satisfactorily to the court, the general rule acts like a presumption and the court is compelled to dismiss the action because of sovereign immunity from execution.

This is the general schema, and so far, it was principally confirmed by precedents. For example Behring International v. Imperial Iranian Air Force (Behring I), 475 F.Supp. 383, 395, which we discussed already earlier on, the court concluded:

Summarizing my conclusions with respect to the Immunities Act: First, only section 1610(d) curtails the immunity from prejudgment attachment enjoyed by the property of a foreign state under section 1609. Second, Behring has not shown that section 1610(d) is applicable here because it cannot point to any explicit waiver of immunity from such attachments.

— The judge however refused to grand immunity to Iran because he saw an implicit immunity waiver in the Friendship Treaty between the United States and Iran, of August 8, 1955: ‘With respect to the Treaty of Amity, my conclusions may be summarized as follows: First, it survives the Immunities Act. Second, the intent of the parties as of the time of the signing governs. Third, it is my task to determine that intent in accordance with ordinary rules of construction. Fourth, I believe that the parties intended that they be treated like any private person. Pre-judgment attachment of the property was proper. Defendants motion for the release of restraints is denied’. (Id., 396).

The burden of proof for an implicit or explicit immunity waiver under the terms of §§1610(a)(1), 1610(b)(1), 1610(d) FSIA is thus entirely upon the plaintiff.

Usibus Destinata

Already under the absolute immunity doctrine in the United Kingdom, there are precedents to be found where, regarding measures of execution, courts were looking at what was the usage of the property in question.

— Sompong Sucharitkul, State Immunities (1959), p. 167. See, for example, The Parlement Belge, [1880] 5 P.D. 197, [1874–80] All E.R. 104 and Juan Ismael & Co. v. Indonesian Government, [1954] 3 All E.R. 236, [1955] A.C. 72, [1954] 3 W.L.R. 531, [1954] 2 Lloyd’s Rep. 175. See also Article 3 of the ‘Convention de Bruxelles pour l’Unification de certaines règles concernant les Immunités des Navires d’Etat’, of 10 April 1926, which stipulates: ‘§1. Les dispositions des deux articles précédents ne sont pas applicables aux navires de guerre, aux yachts d’État, navires de surveillance, bateaux-hôpitaux, navires auxiliaires, navires de ravitaillement et autres bâtiments appartenant à un État ou exploités par lui et affectés exclusivement, au moment de la naissance de la créance, à un service gouvernemental et non commercial, et ces navires ne seront pas l’objet de saisies, d’arrêtes et de détentions par une mesure de justice quelconque ni d’aucune procédure judiciaire ‘in rem.’

When the property had been destined for public, governmental purposes, usibus publicis destinata, then it was immune from execution. This was also the traditional legal situation in France, Switzerland, and Egypt.

— Charles Rousseau, Droit International Public (1979), Tome IV, 19: ‘On décèle dans la jurisprudence française une tendance à refuser le bénéfice de l’immunité d’exécution et de saisie lorsqu’il s’agit de biens situés en France mais détenus par l’État étranger à titre purement privé.’ Hersch Lauterpacht, International Law (1977), Vol. 3, 339.

However, in the United States, the protection of property belonging to foreign states was even stricter compared to that standard, which created an anomalous situation as courts affirmed their jurisdiction for a lawsuit, but then declared the property immune from execution — and the plaintiffs had a judgment that was serving them practically nothing. Such divergence has intently been avoided under the FSIA, and the law giver intended to assimilate the requirements of section 1605(a)(4) FSIA, that we have discussed already, with the standard for the execution of a judgment under §§1610(a)(2), 1610(b)(2). The difference is obvious between the pertinent facts under §1610(a)(2), on one hand, and those for agencies or instrumentalities, under §1610(b)(2), on the other.

Only for property belonging to foreign states themselves, the usage of the property is a relevant fact at issue.

— 28 U.S.C. §1610(a)(2) stipulates: ‘(2) the property is or was used for the commercial activity upon which the claim is based, … ‘. 28 U.S.C. §1610(b)(2) stipulates: ‘(2) the judgment relates to a claim for which the agency or instrumentality is not immune by virtue of section 1605(a)(2), (3), or (5), or 1605(b) of this chapter, regardless of whether the property is or was used for the activity upon which the claim is based.’

Generally speaking, under international law, the usage, or destination for usage, is a well-known criterion in the law of foreign sovereign immunity regarding the property of foreign states. Here, the repartition of the burden of proof is of particular interest.

The literature is not particularly rich to discuss this problem, or ask the question. One of the rare remarks I found on the subject was uttered by George R. Delaume, in Transnational Contracts, Vol. II, Booklet 14, XII., Text, §12.03, pp. 13, 14. He compared §1610(a)(2) FSIA with section 13(5) State Immunity Act 1978 of the United Kingdom, concluding that to determine if the property was used for commercial or noncommercial purposes ‘is a delicate one and left open by the Foreign Sovereign Immunities Act. In a side note, Delaume concludes:

In order to anticipate the possible switching of assets and other manipulations §1610(a)(2) subjects to execution property which ‘is or was used’ by the relevant entity in connection with its commercial activity. The intent of this provision is clear. Its implementation, however, may not be free from difficulty since nothing is said about who should bear the burden of proof. (Id., Note 2/ ad §12.03).

In fact, there is no provision in the Act nor in the legislative materials that would indicate the allocation of the burden of proof under this section.

Notwithstanding this difficulty, it is possible to draw some conclusions from the mere drafting of the provisions in the Act, namely the relationship of sections 1609/1610, on one hand, and the relationship between 1610/1611, on the other. In other words, we can exhibit here the following hypothesis:

(1) Relationship between §1609 and §1610
If it is true that the exceptions provided in §1610 did only partially lower the rule of immunity contained in §1609, which is otherwise absolute, then the burden of proof for an exception to this rule, that is, that the property was destined for commercial usage, is upon the plaintiff.

(2) Relationship between §1610 and §1611
If it is true that, with regard to §1611, the exception to an exception, the burden of proof is upon the foreign state, the burden of proof for the exception (to the general rule in §1609) is upon the plaintiff.

Relationship between §1609 and §1610

The solution of this problem depends on answering the question if immunity from execution, under the FSIA, is equally construed as an affirmative defense, for which the foreign state bears the burden of proof?

We have largely discussed the House Report statement to this effect, for jurisdictional immunities, and we have seen to what extent that original legislative intention was later on modified by federal jurisprudence. We concluded that, after all, the legislative materials were lacking precision to this effect, or even appeared to be ambiguous.

We have discussed already that for immunity from execution, this same statement cannot be taken into account because of its systematic placement in the legislative history. It was clearly to be found within the legal provisions valid only for jurisdictional immunity of foreign states, §§1604, 1605–1607, and can for that reason not be applied to immunity from execution.

Thus, we have to examine the burden of proof for immunity from execution separately. However, in federal jurisprudence, the problem has not yet been identified to a point that clarity was established with regard to the burden of proof. In De Letelier v. Republic of Chile (Letelier III), 567 F.Supp. 1490 (S.D.N.Y. 1983), that we discussed earlier on, the district court asked if §1610(a)(2) could also be applied for the execution of a judgment under §1605(a)(5) FSIA.

The court concluded that §1610(a)(2) and §1610(a)(5) are not mutually exclusive and stated with regard to the burden of proof:

One would be hard pressed to exaggerate the difficulty of interpreting the Foreign Sovereign Immunities Act. As Judge Kaufmann recently explained, the statute was deliberately left vague, so as to provide only ‘very modest guidance’ on issues of preeminent importance. For answers to these most difficult questions, the authors of the law ‘decided to put [their] faith in the U.S. courts. (…) One point that does emerge clearly from the legislative history, however, is that the burden of establishing FSIA immunity lies with the party claiming it. H.R. Rep. No. 94–1487, 94th Cong. 2d Sess., reprinted in [1976] U.S. Code Cong. & Adm. News 6604. (567 F.Supp. 1490, 1498–1499).

The judge thus applied without hesitation the House Report rule of the burden of proof, that was stated for immunity from jurisdiction, to immunity from execution. However, it has to be seen that the court made that statement as an obiter dictum, because there was no litigation about facts, and the judge only ruled about legal questions. In addition, the question was, if the exception of §1610(a)(2) could be applied in the present case. (567 F.Supp. 1490, 1500–1503).

The apparent divergence of opinions regarding the repartition of the burden of proof shows that we cannot find the solution by only focusing on the relationship between §1609 and §1610 FSIA, but have to consider the relationship between §1610 and §1611 as well. And there is an additional argument that can be drawn from the drafting technique of §1610(a)(2); in my view this leads to imparting the burden of proof upon the plaintiff.

We have to carefully observe how this section is drafted; it is namely not drafted in a way that the usage of the property is to be considered in an abstract manner. The formulation of that section is quite precise, in that it positively states that when the property ‘is or was used for the commercial activity,’ immunity from execution is to be denied.

Now let us look how its drafted in the Brussels Convention, Art. 3, that I mentioned before. Interestingly enough, we find precisely the opposite solution. The pertinent fact in this article is the governmental usage of the vessel or its cargo, while the rule, contained in Art. 1, states the equality of state ships and private ships.

To come back to the FSIA, when we thus consider that the rule stated in §1609 is not just a residual concept but an inflexible, absolute principle, we are compelled to impart the burden of proof on the plaintiff because he must ‘unblock the judicial pathway,’ so to speak, in overcoming the presumption of the property to being immune under the rule. This is a classical case where in the law of evidence, the one is charged with the burden of proof, who has to overcome the presumption.

To repeat it, this argument could not be forwarded for jurisdictional immunities, under §§1604, 1605–1607 FSIA, because here we have only a residual, restrictive immunity concept put up as the rule, and thus not a presumption. In addition, it is to be seen that statutes usually only fixate already existing legal principles, and when they create new legal principles, such must be clearly follow from the wording of the statute, or its legislative history. This old principle in Anglo-American law was restated in Broadbent v. Organization of American States (OAS), 19 ILM 208, 212 (D.C.Cir. 1980), where the court quoted Sutherland Statutory Construction (1975), §51.08.

A statute which refers to the law of a subject generally adopts the law on the subject as of the time the law was invoked … including all the amendments and modifications of the law subsequent to the time the reference statute was enacted.

We have already seen that this was precisely the case with the FSIA, which was an enactment of an already existing legal situation that granted only restrictive immunity to foreign states with regard to immunity from jurisdiction. Thus the Act codified, in the terms of the court ‘what, in the period between 1946 and 1976, had come to be the immunity enjoyed by sovereign states — restrictive — immunity. (Id.).

However, with regard to immunity from execution, the Act expressly modified the prior juridical practice, thereby giving an excellent example how in one statute, the two methods of statutory construction may be used.

Maxwell on the Interpretation of Statutes (1969) states that ‘… [the judge] may also consider whether a statute has intended to alter the law or to leave it exactly where it stood before.’ (pp. 47, 48).

Relationship between §1610 and §1611

To arrive at a more convincing argumentation, we need to have a closer look at the relationship between sections 1610 and 1611, but also 1609 of the Act.

28 U.S.C. §1611

§1611. Certain types of property immune from execution (a) Notwithstanding the provisions of section 1610 of this chapter, the property of those organizations designated by the President as being entitled to enjoy the privileges, exemptions, and immunities provided by the International Organizations Immunities Act shall not be subject to attachment or any other judicial process impending the disbursement of funds to, or on the order of, a foreign state as the result of an action brought in the courts of the United States or of the States. (b) Notwithstanding the provisions of section 1610 of this chapter, the property of a foreign state shall be immune from attachment and from execution, if — (1) the property is that of a foreign central bank or monetary authority held for its own account, unless such bank or authority, or its parent foreign government, has explicitly waived its immunity from attachment in aid or execution, or from execution, notwithstanding any withdrawal of the waiver which the bank, authority or government may purport to effect except in accordance with the terms of the waiver; or (2) the property is, or is intended to be, used in connection with a military activity and (A) is of a military character, or (B) is under the control of a military authority or defense agency.

It is interesting to note that this section excludes without exception the disbursement of funds held by foreign governments with any international organization or monetary fund. This is to protect the functioning of international organizations situated in the United States, and is thereby an important add-on to the International Organizations Immunities Act of the United States, 22 U.S.C., §§288 ff.

22 U.S.C. 288a(b) IOIA

International Organizations, their property and their assets, wherever located and by whomsoever held, shall enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments, except to the extent that such organizations may expressly waive their immunity fro the purpose of any proceedings or by the terms of any contract.

In Broadbent v. OAS, 19 ILM 208 (D.C.Cir. 1980), that we already mentioned, the Court of Appeals stated on the appeal of former employees of the OAS Secretary General who claimed damages for breach of contract. They invoked §288a(b) IOIA, ‘ … shall enjoy the same immunity from suit … as enjoyed by foreign governments.’ Referring to the FSIA, they argued that jurisdictional immunity was restricted under that statute, which is why, they concluded the immunity of international organizations is equally restricted. The Court of Appeals rejected this argument, considering the role and the function of international organizations:

An attempt by the courts of one nation to adjudicate the personal claims of international civil servants would entangle those courts in the internal administration of those organizations. Denial of immunity opens the door to divided decisions of the courts of different member states passing judgments on the rules, regulations, and decisions of the international bodies. Undercutting uniformity in the application of staff rules or regulations would undermine the ability of the organization to function effectively. (19 ILM 208, 217).

Within the system of the three sections, 1609, 1610, 1611, the last one is the exception from section 1610 or, in other words, the exception from the exception. This conclusion is inevitable when looking at the drafting technique and the wording, and it is confirmed by the House Report.

— ‘Section 1611 exempts certain types of property from the immunity provisions of section 1610 relating to attachment and execution.’ House Report, p. 30, 15 ILM 1398, 1414 (1976).

The question who bears the burden of proof under section 1611 was already asked in federal jurisprudence, and it was answered conclusively; it is the foreign state who bears the burden of demonstrating with evidence to the court that an exception from the exception applies in the case, thereby granting immunity to the foreign property.

The first precedent was Behring International v. I.R.I.A.F. (Behring I), 475 F.Supp. 383 (D.N.J. 1979), UN-MAT., p. 479, 63 ILR 261 (1982), which we discussed earlier, where the question was answered in an obiter dictum.

The plaintiff was seeking to attach property of the Iranian Air Force situated in the United States. The defendant invoked section 1611(b)(2)(B) in support of their immunity claim, and the judge held:

As was previously stated … , I have not felt it necessary to address all other arguments raised by I.R.I.A.F. in its moving papers. Most importantly, this opinion leaves unresolved the applicability of I.R.I.A.F.’s third argument, regarding 28 U.S.C. §1611(b)(2)(B) … Although this argument raises serious questions about whether section 1611 governs in spite of prior international agreements, or is merely a codification of prior law, I need not resolve them now because there has been an utter failure of proof on the issue of who controls the property restrained by I.R.I.A.F. in support of this motion. The Verified Complaint alleges that all of the property now restrained in its warehouse is under Behring’s control and that Behring is neither a military authority nor a defense agency … I.R.I.A.F., which has the burden of proving a defense of immunity, see n. 16, supra, has offered no testimony of any other form of proof that contradicts these verified allegations. (475 F.Supp. 383, 395, note 30).

Then, in Behring II, 475 F.Supp. 396 (D.N.J. 1979), regarding the attachment of this property, the court again stated on the question of the burden of proof, and concluded:

Although I.R.I.A.F. raised its contentions with respect to section 1611(b) of the Act, I refrained from deciding that issue because the record was barren of any facts supporting its claim. In spite of the continued barrenness of the record, which again causes me to conclude that I.R.I.A.F. has not carried its burden of showing that its property is immune, I will address this argument in more detail at this time. (475 F.Supp. 396, 405).

The judge, inter alia, looked at the relationship between sections 1610 and 1611 and reasoned in the manner I have shown it above, concluding that ‘section 1611 applies notwithstanding only the exception to immunity set out within the act in section 1610.’

— The judge also examined the Treaty of Amity between the United States and Iran of August 8, 1955, but concluded that ‘the treaty is silent with respect to whether certain types of property are subject to attachment.’ (Id. 407).

Then, the judge added this important argument which makes sense as to the logic of statutory construction:

Section 1611 standing alone has no effect on those exception from without the Act virtue of the savings clause of section 1609. (Id., 406, note 12).

As to the evidence problems under section 1611(b)(2), the court concluded:

I.R.I.A.F. has not shown that either of these exceptions apply. There is no proof in the record of this case regarding whether the property sought to be attached is of a military character. It is therefore not immune from attachment under section 1611(b)(2)(A). Likewise, there is no evidence contradicting the allegations of Behring’s Verified Complaint and supporting affidavits that the property is in the control of Behring, which is neither a military authority nor a defense agency. The property therefore is not immune from attachment under section 1611(b)(2)(B). The only proof submitted by the defendant which addresses this issue is the affidavit of Colonel Khatami, filed May 4, 1979, at p. 2, to the effect that the materials were purchased for use in connection with I.R.I.A.F. military activities. At most, I.R.I.A.F. has raised an issue of fact with respect to only this last element. I must conclude that I.R.I.A.F. has not sustained its burden of showing immunity from attachment. (Id., 407–408).

It is interesting to see that a district court, also in the present case, quoted the House Report’s statement which is to be found in the section regarding jurisdictional immunity, thereby implicating that that statement could possibly be, or is possibly valid, also for immunity from execution. To repeat it, my view is that such an analogy cannot and should not be drawn, neither from a point of view of statutory construction, nor under the existing principles of international law because of the different character and development of the two immunity rules.

In a recent precedent, Banque Compafina v. Banco de Guatemala, Desarrollo de Autopistas y Carreteras de Guatemala S.Al, Estoril Associated, Inc. and Devco Development Co., Inc., 583 F.Supp. 320 (S.D.N.Y. 1984), 23 ILM 782 (1984), this attribution of the burden of proof was confirmed with regard to §1611(b)(1) FSIA. Compafina, a Swiss bank, sought confirmation of an order of attachment rendered by the New York Supreme Court.

Banco de Guatemala, the central bank of that country, had the action removed to the competent district court, under §1441(d) FSIA. The property in question was Banco de Guatemala’s, situated in the United States. The action was based upon a letter of credit issued by Banco de Guatemala for securing certain promissory notes of defendant Desarrollo de Autopistas y Carreteras de Guatemala, S.A.

With respect to the relationship between sections 1609, 1610, 1611 FSIA, the district court explained:

Under the FSIA, a foreign state’s property in the United States is generally immune from attachment. §1609. Section 1610 provides some exceptions to this general rule, but §1611(b)(1) overrides these exceptions … (583 F.Supp. 320, 321, 23 ILM 782, 784–785)

The court thus confirmed my hypothesis that §1611 contains exceptions from the exceptions in §1610 FSIA. As to the allocation of the burden of proof, the judge held:

To come within §1611(b)(1), Banco de Guatemala must show that the attached funds were ‘held for its own account’, since Compafina does not dispute that Banco de Guatemala is a central bank within the meaning of §1611(b)(1).

— Id., p. 322, 23 ILM 782, 785. See also the article by Ernest T. Patrikis, Foreign Central Bank Property: Immunity from Attachment in the United States, 1982 U.ILL.L.REV. 265–287.

The burden of proof for the fact that the funds were ‘held for its own account’ was thus upon the foreign state, or his agency or instrumentality, respectively. This corresponds to the ruling in Behring II, where the same allocation of the burden of proof was held to exist under §1611(b)(2) FSIA.

It is interesting to observe in which way Banco de Guatemala proceeded to produce this evidence, particularly when you think, to anticipate here a bit, at the analogous provision, §13(5) State Immunity Act 1978, of the United Kingdom. The court took reference to the legal materials and explained regarding the criterion ‘held for its own account:’

According to the relevant legislative history, funds held for a central bank’s ‘own account’ are ‘funds used or held in connection with central bank activities, as distinguished from funds used solely to finance the commercial transactions of other entities or of foreign states. (583 F.Supp. 320, 322, 23 ILM 782, 785).

In order to prove that the funds were used or detained in connection with central bank activities, Banco de Guatemala provided an affidavit of his vice president, Oscar Alvarez that stated under oath:

Affidavit Oscar Alvarez

In connection with the central banking activities, Banco de Guatemala maintains certain assets in the United States, including gold reserves deposited with the Federal Reserve Bank of New York and funds on deposit with commercial banks in New York City. (Id.)

The president of the Federal Reserve Bank in New York produced another affidavit, confirming that Banco de Guatemala was the owner of the funds held with the Federal Reserve and that it did not use those reserves in connection with a commercial banking function, or any other commercial activity.

In addition, the president provided an important policy argument by stating that ‘if foreign central banks such as Banco de Guatemala become concerned that their United States assets are subject to attachment by private litigants, they might withdraw their dollar assets from this country, thereby destabilizing the dollar and the international monetary system. In addition, the affidavit stated under oath that ‘[t]he assets the Reserve Bank holds for the account of Banco de Guatemala are held solely for the account of Banco de Guatemala and are not held directly or indirectly for any other party… ’ (Id., p. 322, 23 ILM 782, 786)

However, Compafina contested this evidence, referring to Alvarez’ affidavit and arguing that Banco de Guatemala regularly negotiated loans for import-export banks of various countries and that for this reason the funds were not held exclusively for the central bank’s own account. The court carefully examined this argument and concluded:

However, the fact that Banco de Guatemala may receive these loans does not contradict Alvarez’ statement that Banco de Guatemala’s funds in the United States are held ‘[i]n connection with its central banking activities’, … nor does it tend to show that the funds in the United States are used for commercial activities. At his preliminary stage, Banco de Guatemala has established by a preponderance of evidence before the court that the attached funds are held for its own account.

— Id. The court also referred to the before-mentioned article by Ernest T. Patrikis, Foreign Central Bank Property: Immunity from Attachment in the United States, 1982 U.ILL.L.REV. 265–287.

While the court rejected Compafina’s argument from a point of view of civil procedure under the FSIA, it was important to see that the plaintiff can contradict the evidence of the central bank and that the court has to use the ordinary evaluation procedure for the evidence in the record.

In this respect, §1611 makes no exception, in other words, central banks do not enjoy a higher level of credibility than any other defendant; this being said, the evidence produced by a central bank for claiming sovereign immunity can be contested by the plaintiff, who then of course bears the evidential burden, while the legal burden here is upon the foreign state or its central bank for the criteria contained in §1611. Now, it is interesting to have a look at the analogous solution contained in §13(5) of the UK’s State Immunity Act 1978, which stipulates:

U.K. State Immunity Act 1978

(5) The head of a State’s diplomatic mission in the United Kingdom, or the person for the time being performing his functions, shall be deemed to have authority to give on behalf of the State … his certificate to the effect that any property is not in use or intended for use by or on behalf of the State for commercial purposes shall be accepted as sufficient evidence of that fact unless the contrary is proved.

This provision contains a proof facilitation in favor of the foreign state; a simple certificate of the chief of a diplomatic mission, or his representative, suffices for establishing a presumption that the property of the foreign state serves governmental functions.

Hence, the burden of proof is upon the plaintiff for rebutting this presumption (‘unless the contrary is proved’) if he is to succeed with attaching those assets.

— See also Alcom Ltd. v. Republic of Colombia, [1984] 2 Lloyd’s Rep. 24 (H.L.), 23 ILM 719 (1984).

Analogous provisions are contained in §15(5) of Singapore’s State Immunity Act 1979 and §14(4) of Pakistan’s State Immunity Ordinance 1981, while Canada’s State Immunity Act 1982 provides in §11(4) a solution that is almost identical with the one of the FSIA.

However, South Africa’s Foreign States Immunities Act 87, 1981, §§15(3), 14(1),(2) does not allow any attachment of central bank assets, except the bank has explicitly waived its immunity from execution, and that the waiver has been issued in a written document.

Under the FSIA, the formulation used by the court, that the central bank was able to prove, by a preponderance of the evidence, that the assets were held for its own account, shows that the ordinary evidence rules are applicable also for §1611 FSIA, in that a presumption always indicates that the party that must overcome it, bears the burden of proof; this burden is namely not attenuated.

The pleadings show this very illustratively in the present case record. There were no simple certificates around here, as in many precedents that regard immunity from jurisdiction; all that was produced were sworn affidavits from high or top officials of the foreign state or its central bank. This is important to note because it shows a cleavage between the American and the Canadian immunity statutes, and the others, in this important matter regarding the problems of proof for immunity from execution.

This also confirms my hypothesis that the burden of proof question for immunity from execution needs to be carefully distinguished from the analogous question regarding immunity from jurisdiction, which means the question has to be seen within the legal framework of immunity from execution. The levels of immunity here simply are different and therefore, the two domains need to be carefully distinguished.

To conclude, American federal jurisprudence has clearly unveiled that for immunity from execution, within the framework of sections 1609, 1610, 1611 FSIA, the burden of proof for the exception from the exception, that is, §1611, is upon the foreign state for demonstrating by evidence satisfactorily to the court that the conditions of that section are fulfilled.

As a result, in the whole of the framework of these three sections, regarding to the relationship between the rule, §1609, and the exceptions, §1610, the burden of proof is upon the plaintiff that one of the exceptions to immunity from execution applies.

This is the inevitable result, simply as a matter of statutory logic. But there is another logical consequence: it is that the rule of sovereign immunity from execution, §1609, is a real presumption pro immunitatem, and not like §1604, a mere residual immunity concept.

We can thus conclude that the burden of proof for the usage of the property in question (usibus destinata), as a criterion contained in §§1610(a)(2),(b)(2) FSIA, is upon the plaintiff.

Conclusion

The burden of proof for the facts pertinent to the applicability of an exception to immunity from execution, sections 1609, 1610 FSIA, is principally upon the plaintiff. The general rule of foreign sovereign immunity regarding the execution into property belonging to foreign states, or their agencies and instrumentalities, §1609, is absolute in the sense that it is only partially lowered through the exceptions contained in §1610. This result is confirmed by the fact that for the exceptions from the exceptions, §1611, the burden of proof is upon the foreign state.

If a private merchant, plaintiff in an action against a foreign state, wants to execute a judgment against the foreign state by seizing any property of that state situated in the United States, and is to succeed, he must show by a preponderance of the evidence to the court that one of the exceptions contained in section 1610 is applicable. If the plaintiff fails to produce this evidence, the property of the foreign state is immune from execution, without the foreign state needing to plead any further motion, for the presumption of immunity will do its effect, §1610. That means that the rule is, in dubio pro immunitatem, as it was once suggested by Professor Dr. Georg Ress.

Entwicklungstendenzen der Immunität ausländischer Staaten, 40 ZaöRV 217 (1980). Les tendances de l’évolution de l’immunité de l’État étranger, in: Droit international et droit interne (1982).

It is noteworthy that it was exactly this intriguing question that Dr. Ress asked me to examine, back in 1981, in the course of a seminar on international law held at the Europa Institut, Saarland University.

Ress was not meeting with uniform acclaim when he voiced his idea that the doctrine of restrictive immunity was going to be limited to jurisdictional immunities and that in matters of execution against property of foreign states, matters were not going to change.

At that time, a real euphoria in international law circles was spreading about restraining the concept of sovereignty as much as possible.

In this climate of change and transformation of international law, that was a striking characteristic of the 1970s and 80s, Ress pleaded for restraint, and for a more realistic attitude, often mentioning in his talks with me the late Lord Denning, Q.C., whom he found to be one of those brilliant judges who have marked the way of sovereign immunity restriction, not only in England, but worldwide. And Ress said that it was enough, and that a further restriction of foreign sovereign immunity was not going to be in accordance with the precepts of international law.

He gave me this interesting subject that later on was accepted as a doctoral thesis at the law faculty of the University of Geneva.

Ress was going to be right; his expert opinion, while marginal at the time, was going to become the prevailing doctrine in international law, that is, to not treat jurisdictional immunities and immunity from execution in one and the same manner, as unfortunately many American district judges thought was the correct approach. It was not. And I was captivated by Ress’ stance on this matter to a point to tackle this immensely difficult problem.


Conclusion

Immunity from Jurisdiction

Under the Sovereign Immunities Act 1976, the burden of proof is principally upon the foreign state, or its agency or instrumentality, to produce evidence in support of their immunity claim.

This means that the foreign state has the right to begin with producing evidence and thus bears the evidential burden, and the legal or persuasive burden for demonstrating that despite the exceptions stipulated in the FSIA, immunity should apply.

However, this burden of proving the facts that are at issue for the immunity claim is not such that the foreign state had to disprove all immunity exceptions, but only those the plaintiff invoked in his complaint.

Only on these elements in the record, the foreign state needs to make a prima facie case, to demonstrate that the action that is at the basis of the lawsuit before the court was one of a public, governmental character.

The foreign state needs to produce this prima evidence on two elements, that it is:

(i) that it is a foreign state, or an agency or instrumentality of a foreign state, §§1603(a),(b) FSIA;

(ii) that the action under scrutiny, that gave rise to the lawsuit, was of a public, governmental character.

As to the second element, the foreign state or its organism do not need to refute all the exceptions from immunity, but only those that the plaintiff has invoked as a basis of its claim against the foreign state. Once the foreign state has produced such prima facie evidence, the evidential burden shifts to the plaintiff for him to demonstrate that the particular exception, or exceptions, that he invoked, really are applicable, and this proof has then to overcome the prima facie evidence, which means the proof must be ‘more probably than not.’ In other words, the facts at issue regarding the applicability of an exception to immunity need to be proven by a preponderance of the evidence, satisfactorily to the court.

For all the other elements of the claim, especially personal jurisdiction and minimal contacts, service of process and default judgment, the burden of proof is entirely upon the plaintiff.

Immunity from Execution

The burden of proof in matters of immunity from execution is principally with the plaintiff. He can seize the property of a foreign state or one of its organisms only if he can prove, by a preponderance of the evidence, that an exception to the general rule applies.

Contrary to the situation that governs immunity from jurisdiction under the FSIA, here it’s the plaintiff who has the right to begin producing evidence, which means he is charged with the evidential burden, in order to demonstrate that an exception to the general rule of immunity applies.

Here it is thus the plaintiff who needs to establish a prima facie case, which the foreign state or its organism may overcome by invoking one of the exceptions from the exception, under §1611 FSIA. In this case, the burden of proof is upon the foreign state to demonstrate that such an exception from the exception applies.

In all cases of non liquet, that is, when the court doesn’t have enough evidence in the record or the evidence is contradictory to a point that no decision can be made upon it, the ultimate or legal burden, also called persuasive burden, is upon the plaintiff.

In other words, for immunity from execution, the immunity rule is still absolute in the sense that in a non liquet situation, the rule in dubio pro immunitatem is to be applied by the court.

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