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This article has been written by Itisha Agarwal, pursuing a Diploma in International Business Law from LawSikho.

Table of Contents

Introduction

State immunity is a mechanism often used and trusted by the states of a different jurisdiction to claim a right over the suing party that it does not have jurisdiction over. It also prevents the enforcement of any judgment against its beneficiaries. In other words, it can shut out any counterparty who is ready to sue for his rights against a state. State immunity is a part of international law. Therefore, state immunity should always be a point of consideration while dealing with foreign states and state entities.

But before dealing with state immunity or sovereign immunity of a state or state entity it is required to understand what exactly state immunity is and when and where it can operate or be claimed.

What is sovereign immunity?

State immunity, or sovereign immunity, is an essential part of the national laws of many states worldwide. It is based on the theory of sovereign equality of the states, which means that the state has no right to question the actions of another state as per national law standards.

It is very closely related to the equality of states and deals with the issues of a foreign sovereign being challenged in the local courts of other states. This is often expressed by the maxim “par in parem non habet imperium” which means an equal has no power over an equal. But just like “all men”, the sovereign is equal only before the law. It protects an entity in two ways:

  1. Immunity from judgment (also known as immunity from suit)

Immunity from judgment or a suit is essential and important from the state’s point of view as it is believed that it would be inappropriate for one state court to sue another state under its jurisdiction. In order to immunize one’s state entities, states take over the guard of sovereign immunity. However, this immunity can be waived by the state entity as per its discretion. 

  1. Immunity from execution

The states also have a right to immunity from execution which precludes authorities to seize the property of another state in order to satisfy the demands of creditors, arbitral awards, or any similar court decisions. However, just like above this can also be waived by the state as per the circumstances.

This first reference of the principle of state immunity was recognized by the United States Supreme Court in its landmark 1812 judgment of the Schooner Exchange V McFadden. Chief Justice Marshall voiced the principle:” that by the definition of sovereignty, a state has absolute and exclusive jurisdiction within its territory but that it could also be implied or express consent waive jurisdiction”.

Since then, State Immunity was recognized and became part of the general practice in the United States and the majority of other modern European States.

National city bank of New York v Republic of China

Facts of the case

The facts of the case have been provided hereunder: 

  • The Republic of China sued the American bank under Section 25(b) of the Federal Reserve Act to recover the amount of $200,000 which was deposited in the National City Bank New York branch in 1948.
  • The bank imposed a counterclaim in the Federal District Court suing for $1,634,432 on defaulted treasury notes of Republic. 
  • The Republic pleaded for sovereign immunity over the counterclaim imposed by the American bank.
  • The bank’s counterclaim was dismissed and the Republic of China was recognized as a sovereign by the executives. The Republic of China and its official government agency Shanghai- Nanking Railway Administration enjoys foreign sovereign immunity.
  • Certiorari was granted by The US Supreme court. The Republic is admissible to judgment in the federal courts of the US.
  • The court also adds that the immunity enjoyed by the Republic is to the same extent as any other country would enjoy if recognized under foreign sovereign immunity.

Court’s decision 

As per the court’s opinion, China’s claim of immunity was invalid according to the facts and circumstances of the case. Court highlighted the fact that China’s decision to sue in U.S. federal courts waived its immunity.

China’s decision to bring the suit in U.S. courts was dependent on the fact that there was a continuing business relationship between the bank and China, as the counterclaims made were found to be relevant to the facts. Again, this resulting in eliminating sovereign immunity in this case. The consent to immunity was denied by the court, and therefore the counterclaims were rejected and the case was returned back to Federal District courts for evaluation.

Conclusion on the case

The case is unique in the fact that sovereign immunity can be waived on the mere grounds that China decides to bring the suit to the United States. As per the court’s opinion, if the United States would bring a claim in Chinese courts, it is expected to receive fair and just judgment in accordance with those laws under which it chose to sue. Or if the United States decides to bring the original claim, then Chinese authorities have the right to seek immunity. Since China was the original suitor and decided to represent their case in US courts, they willingly waived their right to protection from sovereign immunity.   

Comparison of the act of state and sovereign immunity

Before starting with the comparison, it is essential to know what is an Act of State?

One should not confuse the Act of state with sovereign immunity. An Act of State is exactly what the words imply: “It is the imposition of the national will upon the people and the property within the national domain. Any law, customary or statutory, which is enforced in any country is an act of state. It is a display of the right to govern. It is a doctrine developed by the Court as a principle of judicial restraint, essentially to avoid disrespect by foreign states.”

But outside the territory of one state, an act of a state is not effective since each state guards its territories and sovereign privileges. The U.S. Supreme Court recognizes that the two doctrines have a common origin and close interdependence.

It is a well-established fact that an act of a state, though it is recognized as per court, has no extraterritorial effects. It does not recognize the rights of persons in the jurisdiction of another state unless the two states are willing to exchange such recognition.

Sovereign immunity under Federal law

The origin of the doctrine of sovereign immunity is not clear. The popular opinion appears to be that it originated early in English history and reached its maturity with the divine right of the king’s theory. It is derived from the British common law principle, ‘rex non potest peccare’, which means that ‘the king can do no harm.

But later the English themselves have rejected this doctrine and have created a system with a statute that would serve the needs of an evolving society. This Statute is the Crown Proceedings Act, 1947

The Doctrine of sovereign immunity is not a part of the US Constitution. The text of the US constitution is silent about sovereign immunity. A claim in the Eleventh Amendment provides sovereign immunity to state and federal government.

In the case of Chisholm v. Georgia, 2 U.S. 419, 1793, The Supreme court recognized that a citizen of one state can sue a citizen of another state. However, this by-law was later superseded by the Eleventh Amendment which states that “The Judicial power of the United States shall not be construed to extend of any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state”. This means that a citizen of one state can no longer sue the citizen of another state.

In the US the sovereign immunity mainly relies on the Federal government and state government, but not on municipalities. The federal government, however, has the right to waive its sovereign immunity. This was initiated by the federal government when they passed The Federal Torts Claims Act, which waived federal immunity on various types of torts.

Conclusion

As per the discussion highlighted above, criticisms of sovereign immunity are not new. Debates related to sovereign immunity are not only complex but also differ from the jurisdiction of one state to another. President Abraham Lincoln declared “It is as much the duty of the government to render prompt justice against itself in favor of citizens as it is to administer the same private individuals”. Unfortunately, the supreme court is unpersuaded by such criticisms and is expanding the reach of sovereign immunity. Sovereign immunity is also inconsistent with a central maxim of the American government which states that no one, not even the government, is above the law.

Failing to recognize and consider adequately the question of sovereign immunity can have serious consequences. Therefore, parties dealing with foreign states or state-owned entities must ensure that they have comprehensive research and covering all relevant jurisdictions, including the jurisdiction where proceedings might be brought in case of dispute as well as where enforcement against state assets might be beneficial. Contractual terms must be carefully drafted to avoid waiving the sovereign immunity.

  References

  1.  https://supreme.justia.com/cases/federal/us/348/356/
  2.  https://core.ac.uk/download/pdf/268431488.pdf
  3. https://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1408&context=mjil
  4. https://www.law.cornell.edu/supremecourt/text/2/419

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