Contractual Waivers of Foreign Sovereign Immunity
September 20, 2022
The Foreign Sovereign Immunities Act (FSIA) provides that foreign states are immune from suit in the United States unless an exception applies. An important and long-standing exception to immunity is consent (the more common term in international practice) or waiver (the term used in the United States). The FSIA provides that a foreign state shall not be immune if it has “waived its immunity either explicitly or by implication.” States sometime waive their immunity though express contractual language. The extent to which other contractual language provides the basis for an implied waiver of immunity is less clear. In this post, we first discuss express contractual waivers of sovereign immunity. We then examine several other contractual provisions that may function as implied waivers of that immunity.
Express Contractual Waivers
Foreign states may waive their immunity through an express contractual waiver. Here is an example from an online collection of sample waivers:
To the extent that the Republic may be entitled to claim for itself or its assets immunity from suit, execution, attachment (whether in aid of execution, before judgement or otherwise) or other legal process relating to this Agreement and to the extent that in any such jurisdiction there may be attributed to itself or its assets such immunity (whether or not claimed), the Republic irrevocably agrees not to claim and irrevocably waives such immunity to the full extent permitted by the laws of such jurisdiction.
If the clause is broad enough to cover the dispute and the person who signed the contract had the authority to bind the state—issues we do not address in this post—then the waiver of sovereign immunity will be given effect in U.S. courts. Note that a waiver from jurisdiction to adjudicate is distinct from a waiver of jurisdiction to enforce. The example provided above explicitly waives both kinds of immunity.
Implied Contractual Waivers
The United States, like other countries, recognizes implied consent to jurisdiction when a foreign state participates in litigation. Less certain are the circumstances under which consent may be inferred from contractual language that does not explicitly waive immunity. In the United States, the issue may arise in three kinds of contractual provisions: (1) choice-of-law clauses, (2) arbitration clauses, and (3) forum selection clauses.
On its face, a choice-of-law clause selecting the laws of a state in the United States may seem irrelevant to the determination as to whether a foreign nation has waived its sovereign immunity. Over the years, however, a number of U.S. courts have held that a choice-of-law clause may, in fact, function as an implied waiver of sovereign immunity. We think these decisions are incorrect.
In contrast to an arbitration clause or a forum selection clause that names a U.S. forum, a choice-of-law clause does not convey a willingness to engage in dispute resolution in the United States. It is perfectly possible for a foreign court or a foreign arbitral tribunal to apply U.S. law to resolve a dispute. So far as we can determine, no foreign nation has taken the position that a choice-of-law clause waives sovereign immunity. The United Nations Convention on Jurisdictional Immunities of States and Their Property (not in force) provides in Article 7.2 that: “Agreement by a State for the application of the laws of another State shall not be interpreted as consent to the exercise of jurisdiction by courts of that other state.” The immunity statutes in the United Kingdom, Australia, Singapore, and other countries include similar language. Only U.S. courts interpret choice-of-law clauses as implied waivers of sovereign immunity.
Why have U.S. courts adopted this approach? The answer lies in the legislative history of the FSIA. The House Report prepared in connection with that Act contains the following sentence:
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 a contract.
This scrap of legislative history is cited by virtually every U.S. court to have held that a U.S. choice-of-law clause operates as an implied waiver of immunity. It cannot, however, bear the weight that the courts have placed upon it. There is nothing in the text of the typical choice-of-law clause that references sovereign immunity. There is likewise nothing in the text of the FSIA directing courts to treat choice-of-law clauses as de facto waivers of sovereign immunity. A single sentence in the legislative history is not enough to override the intent of the parties as expressed in their agreement or the intent of Congress as expressed in the text of the FSIA.
This conclusion is buttressed by the fact that the history recounted in the legislative history appears to be wrong. Although the House Report states that the “courts have found . . . waivers” in prior cases where a foreign state “agreed that the law of a particular country should govern a contract,” scholars have been unable to find a single U.S. case decided prior to the enactment of the FSIA where a court announced such a holding. If there were, in fact, no prior decisions announcing this rule, the argument for treating choice-of-law clauses as sovereign immunity waivers collapses.
Finally, courts have generally construed exceptions to immunity narrowly. That reasoning extends to both explicit and implicit waivers. Courts have long held that the waiver language in the FSIA should be construed narrowly and that a finding of waiver requires “strong evidence” that the foreign state intended to consent to suit. There is little reason to think that foreign states intend to waive immunity through choice of law clauses since, as noted above, there is nothing in those clauses that addresses immunity or conveys a willingness to engage in dispute resolution in the United States.
The text of the FSIA—as revised in 1988—makes clear that a foreign state shall not be immune from certain suits when it agrees to arbitrate in the United States. Section 1605(a)(6) provides that a foreign state which agrees to arbitrate in the United States shall not be immune from the jurisdiction of U.S. courts in actions to enforce the arbitration agreement or to confirm the arbitral award. Section 1610(a)(6) provides that a foreign state shall not be immune from attachment in aid of execution, or from execution, when a judgment is based on an order from a U.S. court confirming an arbitral award. Because the FSIA specifically addresses the relationship between arbitration clauses and sovereign immunity in Section 1605(a)(6), there is no need to consider the issue of whether an arbitration clause constitutes an implied “waiver” of sovereign immunity under Section 1605(a)(1), although courts did consider this question in the years before the 1988 amendments to the statute.
Forum Selection Clauses
Whether a forum selection clause choosing a U.S. court would qualify as an implied waiver of sovereign immunity presents a closer question. Unlike a choice-of-law clause, a forum selection clause suggests that the foreign sovereign has consented to suit in the United States. Unlike arbitration clauses, forum selection clauses are not addressed by the text of the FSIA.
There are only a few U.S. cases considering whether a U.S. forum selection clause—standing alone—amounted to an implied waiver of sovereign immunity under the FSIA. Many sovereign contracts containing forum selection clauses also contain express waivers of sovereign immunity, arbitration clauses, or choice-of-law clauses, and courts and litigants tend to focus on those other clauses when the issue arises in litigation. The United Nations Convention on Jurisdictional Immunities of States and Their Property (not in force) says nothing about forum selection clauses.
There are some reasons to treat forum selection clauses as implied waivers of immunity. By agreeing to such a clause, a state arguably conveys a willingness to engage in dispute resolution in the courts in the United States. In one of the few cases where this issue was litigated in the FSIA context, the District Court for the Southern District of New York held that the Republic of the Congo had waived its sovereign immunity by entering into a contract with a New York forum selection clause. Outside the FSIA context, some U.S. courts have similarly held that a forum selection clause may function as an immunity waiver. Multiple courts have held that U.S. states waive their sovereign immunity under the Eleventh Amendment by consenting to suit in federal court. And the District Court for the District of Alaska has suggested that Indian tribes may, at least in principle, waive their sovereign immunity via a forum selection clause. The historical willingness of U.S. courts to treat an arbitration agreement as implied consent to litigation related to the arbitration may also suggest that forum selection clauses should also be treated as consent to jurisdiction.
On the other side of the ledger, the fact that courts generally construe exceptions to immunity narrowly cuts against the argument that anything other than an express waiver (or explicit language in the FSIA) should operate as a waiver of sovereign immunity.