Business disputes involving States and State actors: International and U.S. law perspectives on sovereign immunity and liability
A fundamental principle of international law and U.S. law provides that a sovereign can be sued only with its consent. In the case of investor-state disputes, express advance consent may be stated in a provision of domestic law, in an investment protection treaty, or in a contract. In the case of U.S. court proceedings, consent to be sued may be implied when the State engages in certain forms of commercial activity. This panel will cover two distinct but related topics: the first devoted to U.S. court proceedings involving private parties and states and the second to the investment arbitration. Both provide examples of scenarios in which a state may be held liable to pay damages to a private party outside of its own jurisdiction
The concept of the government’s consent to be sued applies to both suits against foreign governments as well as the US government itself. This practice with respect to foreign states has now been codified in the Foreign Sovereign Immunity Act (FSIA). Furthermore, as the US Supreme court stated in Underhill v. Hernandez “the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory.” This concept is called the “act of state doctrine,” which provides additional defenses to claims based on the adverse governmental actions. Nevertheless, despite broad grant of immunity and the “act of state” defense, foreign governments and government officials are named as defendants in US courts based on the alleged breaches of business contracts. Moreover, with respect to claims against its own government, US even created a special court where the federal government stands as the defendant and may be sued by citizens seeking monetary redress. In the words of President Lincoln, “It is as much the duty of Government to render prompt justice against itself, in favor of citizens, as it is to administer the same between private individuals.”
So what are the jurisdictional grounds for suits against governments? Is there a tension between the antiquated concept of sovereign immunity, which is rooted in the times of monarchs, and modern-day democracies? Why should the governments be allowed to be immune from suits at all? What exception does FSIA provide and how courts interpret them? What is a commercial activity exception? How can a government and its officials waive sovereign immunity? What are the limitations of the “act of state” doctrine? Can a foreign citizen sue the US Government in the US court? What about a foreign company or even a foreign government? Do they have standing to sue? What are the ramifications of such suits? What is the role of the US Government in suits implicating sovereign immunity? How to structure relationship between the contractual parties in light of the sovereign immunity and the act of states doctrines?
The number of disputes between foreign investors and host governments resolved through arbitration has grown drastically over the past several decades. For example, the ICSID caseload in the 70’s and 90’s was 2-4 cases per year while in 2011 it reached 33 cases. To date, approximately 2,700 bilateral investment agreements, free trade agreements, as well as a number of other treaties and national legislation, provide for arbitration of investment disputes. The advantages of the investment arbitration to the investors are clear: the proceeding is governed by internationally recognized standards and procedures, and the resolution does not rely on the national legal system of the host state which could have local bias or be subject to influence by local government. At the same time, states, in competition for investors’ funds, try to provide regulated and transparent investment regime, including arbitrability of investment disputes, which is an important consideration in making the investment decision. In fact, in some instances, investments are structured to use companies in treaty countries as investment vehicles. On the other hand, some have criticized investment arbitration as an unaccountable and non-transparent dispute resolution mechanism that is lengthy, expensive and produces decisions that are arbitrary or fail to give proper deference to legitimate national interests. So what are the mechanisms that allow investors to bring claims against states? What is the procedure to follow when an investor takes a government to arbitration? What forums exist for bringing investment claims and what are their advantages? What are the key recurrent jurisdictional and substantive issues in investment arbitrations? How do arbitrators deal with them? Can a claim be brought against the government based on the actions of a state owned corporation? Can the investor in a non-treaty country use a treaty country company to bring investment claim against a state? What do terms like “bifurcation” and “fork-in-the-road” mean in the context of investment disputes? Is mediation an option for investment disputes? What kind of relief is usually awarded? How are the decisions enforced? Are they appealable? Do the decisions which touch upon them create precedent? Do they contribute to the creation of a consistent body of jurisprudence?
The panel of internationally recognized experts will address above issues and engage in discussion with the audience regarding arbitration of investment disputes.
Burd Gene - Counsel at Arnall Golden Gregory
Evseev Dmitri - Partner at Arnold & Porter
Braden Susan - Judge, US Court of Federal Claims, Washington, D.C.
Wordsworth Samuel, QC - Essex Court Chamber, London, UK
Ivanyan Khristophor - Partner, Ivanyan & Partners law firm
Kudelich Ekaterina - Deputy Head of International Law and Cooperation of the RF
Lamm Carolyn - US Attorney, Eastern District of NY
Legum Barton - Partner, Salans & Associes
Lynch Loretta - US Attorney, Eastern District of NY
Hendrix Glenn - Partner, Arnall Golden Gregory, LLP, Atlanta, GA