With foreign sovereigns participating increasingly in the commercial marketplace, either directly or through controlled entities, transnational litigation involving foreign sovereigns and their instrumentalities has become commonplace. The rules governing such litigation, particularly those relating to sovereign immunity, have thus attracted considerable interest.

The Foreign Sovereign Immunities Act of 1976 (the “FSIA”), principally governs when and how parties can maintain an action against a foreign state or its agencies or instrumentalities in the courts of the United States and when a foreign state is entitled to sovereign immunity. Against a background of over 250 judicial decisions interpreting this statute, a proposal was made for correcting the statute’s defects. On August 8, 1984, the American Bar Association's House of Delegates approved proposed amendments to the FSIA recommended by the ABA section of International Law and Practice (the “ABA Proposal”). This chapter analyzes some of the key amendments suggested by the ABA Proposal.

Agreements to Arbitrate

When a private party and foreign state negotiate a contract, they often agree to arbitrate future disputes. This agreement commonly results from the parties’ unwillingness to be subject to one another’s courts rather than a preference for the arbitral process. But when a dispute arises and a foreign state party refuses to abide by its agreement to arbitrate or pay an arbitral award against it, what can one do in a U.S. court?

Under section 1330(a) of the FSIA, a federal court has subject-matter jurisdiction over actions against a foreign state as to any claims for which the foreign state is not entitled to immunity under sections 1605-1607. Section 1605 provides that a foreign state shall not be immune in any case where it has waived its immunity either explicitly or by implication. The FSIA’s legislative history states that an “implicit waiver” would arise “where a foreign state has agreed to arbitrate in another country . . . .” The courts have had no difficulty in holding that a party may compel a foreign state to arbitrate (or may enforce an arbitral award) when the parties agreed to arbitrate in the United States. Where the arbitration is to take place abroad, however, some courts have expressed an unwillingness to conclude that the foreign state implicitly waived its immunity from suit in the United States. This concern is made greater when the plaintiff seeking to enforce the agreement to arbitrate or the arbitral award is an alien. Absent a U.S. nexus, it could be questioned whether the exercise of jurisdiction would even be constitutional. In these circumstances, it might be argued that it simply would be unfair, and unforeseeable by the foreign state, to attach U.S. consequences to a foreign state’s willingness to arbitrate with an alien abroad.