State Responsibility in Transnational Actions - Part 1 Chapter 2 - The Practice of International Litigation - 2nd Edition
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
Foreign governments are increasingly entering the commercial marketplace. Today, state-owned oil, banking and trading companies are common. Private enterprise must be prudent in entering into transactions with instrumentalities of a foreign state. In the event a dispute arises with a foreign state’s instrumentality, the instrumentality will likely attempt to avoid accountability on the grounds of sovereign immunity or act of state.
Even assuming these typical defenses can be overcome, a foreign state’s instrumentality is still a formidable adversary. It will often rely on the nuances of its country’s internal law to defeat the prosecution of claims against it. These defenses may be difficult to overcome, especially when the instrumentality is in a position to rewrite its country’s internal law to its advantage.
The question is when may a foreign state’s instrumentality avail itself of its country’s laws in prosecuting or defending claims involving private companies? For example, when may a creditor hold the foreign state itself responsible for the obligations of one of its instrumentalities which is admittedly regarded as distinct from the government under local law?
Two cases decided by the United States Supreme Court and the Iran-United States Claims Tribunal (established pursuant to the Algiers Declarations entered into by President Carter for the release of the fifty-two American hostages) provide some insight into these questions and deserve close inspection.
In June 1983, the United States Supreme Court rendered its decision in First National City Bank v. Banco para el Comercio Exterior de Cuba. This action was originally commenced on February 1, 1961, in the name of Banco para el Comercio Exterior de Cuba (Bancec) against First National City Bank, now Citibank. Bancec was a Cuban government instrumentality created on May 4, 1960, as the legal successor to the Banco Cubano del Comercio Exterior, a trading bank established by the Cuban government in 1954 and jointly owned by the government and private banks. Bancec’s stated purpose was “to contribute to, and collaborate with, the international trade policy of the Government and the application of the measures concerning foreign trade adopted by the ‘Banco Nacional de Cuba,’” Cuba's central bank. The Cuban government supplied all Bancec’s capital and owned all its stock. Bancec was empowered to act as the Cuban government's exclusive agent in foreign trade. A governing board consisting of delegates from Cuban governmental ministries governed and managed Bancec. Its president was Ernesto Che Guevara, who also was Minister of State and President of Banco Nacional.