Interpreting Choice-of-Law Clauses Waiving Sovereign Immunity
February 11, 2025
The Foreign Sovereign Immunities Act provides that a foreign state shall not be immune if it has “waived its immunity either explicitly or by implication.” Over the past forty years, U.S. courts have consistently held that a choice-of-law clause selecting the law of a U.S. state constitutes an implied waiver of foreign sovereign immunity. In this post, I first explain why this line of cases is based on a flawed premise and should be overruled. I then argue that, even if one accepts that choice-of-law clauses may impliedly waive a foreign sovereign’s immunity, the courts should generally interpret these clauses to waive immunity only for breach of contract claims.
The Problem of Implied Waiver
Courts in the United States have consistently held that a foreign nation impliedly waives its sovereign immunity when it signs a contract containing a choice-of-law clause selecting the law of a U.S. state. In a prior post, Ingrid Brunk and I detailed the many problems with these cases. Our argument ran something like this:
- No other 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 plain text of the typical 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.
- Courts have long held that a finding of waiver requires “strong evidence” that the foreign state intended to consent to suit. A mere choice-of-law clause is not enough to satisfy this strict requirement.
We also pointed out that the cases holding that a choice-of-law clause constitutes a waiver of sovereign immunity all rely on a single sentence that appears in the House Report prepared in connection with the enactment of the Foreign Sovereign Immunities Act in 1976:
With respect to implicit waivers, the courts have found such waivers in cases where . . . a foreign state has agreed that the law of a particular country should govern a contract.
The problem is that this sentence lacks any basis in the historical record. Scholars have been unable to locate a single case decided by a U.S. court prior to 1976 where a choice-of-law clause was deemed to waive sovereign immunity by implication. This fact notwithstanding, the courts routinely invoke the House Report to hold that choice-of-law clauses impliedly waive sovereign immunity. In our prior post, Ingrid and I strongly encouraged them to rethink this practice.
The Problem of Interpretation
Even if one accepts that a contract provision selecting the law of a U.S. state impliedly waives sovereign immunity, it is still necessary to interpret the clause to ascertain the precise scope of the waiver. It is necessary to determine, in other words, whether the clause waives sovereign immunity for all claims or just a subset of claims.
Clause Interpretation in Regular Cases
In prior work, I have written about the ways that courts interpret choice-of-law clauses outside the context of sovereign immunity. Some clauses are drafted so narrowly that they clearly apply only to claims for breach of contract. Other clauses are drafted so broadly that they clearly apply to any and all claims that may arise between the contracting parties, including tort and statutory claims. In many cases, however, the scope of the clause is ambiguous. In these cases, courts must interpret the clause to ascertain whether it encompasses the specific claims asserted by the plaintiff.
To assist in this interpretive task, courts in the United States have developed rules relating to the scope of ambiguous choice-of-law clauses. The courts in New York have held that ambiguous provisions are presumptively narrow and only cover claims for breach of contract. The courts in California, on the other hand, have held that ambiguous provisions are presumptively broad and cover contract, tort, and statutory claims.
Clause Interpretation in Sovereign Immunity Cases
These conflicting interpretive rules raise an important question. How should the courts go about interpreting a choice-of-law clause when that clause functions as an implied waiver of sovereign immunity? Unlike the cases discussed above, this interpretive question presents an issue of federal law because it requires the court to interpret and apply the Foreign Sovereign Immunities Act. The choices available to the court are, however, essentially the same. The clause can either be interpreted narrowly to waive immunity only for claims for breach of contract. Or it can be interpreted broadly to waive immunity for contract, tort, and statutory claims.
When asked to interpret the scope of explicit waivers of sovereign immunity, the courts have long held that they should be narrowly construed “in favor of the sovereign” and should not be “enlarged beyond what the language requires.” In a recent decision, the Third Circuit rejected a plaintiff’s argument that “any waiver [by the foreign sovereign] should effect a waiver of attachment immunity as to all a foreign state’s commercial property in the United States” (emphases in original). The court reasoned that such an approach would run contrary to precedent “recognizing that the scope of a waiver under the FSIA is delimited by evidence of the foreign state’s intent.”
These principles lead inexorably to the conclusion that the courts should interpret implied waivers in the form of choice-of-law clauses narrowly. The courts should, in other words, interpret the clause to waive immunity only for breach of contract claims absent some language to the contrary. This is, however, not what they do in practice. In case after case, the courts have interpreted ambiguous choice-of-law clauses to waive sovereign immunity for tort and statutory claims even when there is nothing in the text of the clause suggesting that it was intended to sweep so broadly.
In Ghawanmeh v. Islamic Saudi Academy (2009), for example, the U.S. District Court for the District of Columbia (DDC) was presented with the following clause: “All disputes under this Agreement and in the interpretation or validity of any provision, shall be governed by the laws of the Commonwealth of Virginia.” There is nothing in the text of the clause stating that it applies to non-contractual claims; disputes sounding in tort or statute do not arise “under” the Agreement in the same way that contract claims do. Nevertheless, the court held that the clause amounted to an implicit waiver of the foreign sovereign’s immunity with respect to the plaintiff’s claims under the Family and Medical Leave Act and Title VII (statutory claims) and the claims for intentional infliction of emotional distress and slander (tort claims).
In Ashraf-Hassan v. Embassy of France in the United States (2014), the DDC was called upon to interpret the following choice-of-law clause: “This document relies upon local law for its application.” Again, there was nothing in the text of the clause clearly stating that the parties intended it to cover anything other than breach of contract claims; it merely refers to the “document” without further elaboration. Again, the court construed the clause broadly. It held that the clause impliedly waived France’s sovereign immunity with respect to the plaintiff’s statutory claims under Title VII.
Most recently, in Vallecillo v Embassy of Republic of South Africa (2024), the DDC was asked to interpret the following clause: “[This Agreement] shall be governed by and construed in accordance with the laws of the District of Columbia.” Again, there is nothing in the text of the clause clearly stating that it applies to non-contract claims. This fact notwithstanding, the court held that the clause waived the immunity of a foreign sovereign in a lawsuit alleging violations of the Age Discrimination in Employment Act.
Conclusion
Courts have long held (wrongly) that a foreign sovereign impliedly waives its immunity when it signs a contract that contains a U.S. choice-of-law clause. This needs to stop. So long as the practice continues, however, the courts should refrain from construing ambiguous choice-of-law clauses as impliedly waiving sovereign immunity for any and all claims the plaintiff wishes to assert. If explicit waivers of immunity are to be narrowly construed “in favor of the sovereign” and not to be enlarged “beyond what the language requires,” the narrower interpretive rule should be applied when the courts are interpreting implied waivers of sovereign immunity. It follows that the courts should generally construe ambiguous choice-of-law clauses as only waiving foreign sovereign immunity only with respect to claims for breach of contract.