Disputes With States

Published date15 September 2021
Subject MatterLitigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Sovereign Immunity: Public Sector Government, Trials & Appeals & Compensation
Law FirmW Legal
AuthorMr Steven Loble


In this increasingly globalised and, in some ways, borderless world, an increasing amount of trade is done with sovereign governments, otherwise known as states or countries.

  • What is a country?
  • Can you sue a country?
  • What can a country do if it is sued?

These questions all relate to the historical notion that a sovereign cannot be sued in the courts of his own country or the courts of a foreign country.

In many countries, the state now can be sued in its own courts. For example, in the UK the Crown Proceedings Act 1947 made it possible to sue the Crown in civil proceedings for the first time.

As far as foreign countries are concerned the rule was that a court should not entertain proceedings against a foreign sovereign in order to protect the dignity and sovereign functions of sovereign states.

History of state immunity

In the nineteenth century and for part of the twentieth century, the "absolute" rule of sovereign immunity prevailed. This rule accorded to foreign states and sovereigns immunity for all activities, whether governmental (acta jure imperii) or commercial or other non-governmental acts (acta jure gestionis). Due to the amount of state trading in the twentieth century, a number of countries developed the "restrictive" theory of immunity. Under this theory, states are immune from suit in respect of acts of government, but not in respect of commercial activities. The Brussels Convention on the Immunity of State-Owned Ships of 1926 achieved only limited recognition and was not ratified by the United Kingdom until 1979.

The House of Lords in Playa Larga (Owners of Cargo Lately Laden on Board) Appellants v I Congreso del Partido (Owners) Respondents, Marble Islands (Owners of CargoLately Laden on Board) Appellants v Same Respondents [1983] 1 A.C. 244 referred to that convention:

"The number of states bound by it has always been limited and has not included states important in maritime commerce. Yet it is invoked, as I understood the argument, as a statement of generally accepted international law. Now there may be cases in which a multilateral convention may become part of general international law so as to bind states not parties (a proposition not uncontroversial) but at the least the convention must bear a legislative aspect and there must be a wide general acceptance of it as law-making, over a period, before this condition is satisfied. The Brussels Convention does not nearly meet these requirements.".

The United Kingdom continued to apply the absolute theory of immunity but in 1975, the Privy Council held that a foreign government was not entitled to claim immunity in an action in rem against a ship used for commercial purposes. This was the case of The Philippine Admiral (Philippine Admiral (Owners) Appellants v Wallem Shipping (Hong Kong) Ltd. and Another [1977] A.C. 373).

The Privy Council described developments in the law since the Second World War in the following terms:

"There is no doubt - as was indeed conceded by counsel for the appellants - that since the Second World War there has been both in the decisions of courts outside this country and in the views expressed by writers on international law a movement away from the absolute theory of sovereign immunity championed by Lord Atkin and Lord Wright in The Cristina towards a more restrictive theory. This restrictive theory seeks to draw a distinction between acts of a state which are done jure imperii and acts done by it jure gestionis and accords the foreign state no immunity either in actions in personam or in actions in rem in respect of transactions falling under the second head."

In 1952, the United States Department of State announced its adherence to the restrictive theory by means of a document called the Tate Letter. This was referred to in the judgment of The Philippine Admiral, as follows:

"The next landmark in the shift of opinion above mentioned to which their Lordships would refer is a letter - the so-called "Tate letter" - addressed on May 19, 1952, by J. B. Tate, the acting legal adviser of the State Department, to the then acting Attorney-General of the United States notifying him of a change in the policy of the Department of State with regard to the granting of sovereign immunity to foreign governments."

The United States of America passed the Foreign Sovereign Immunities Act in 1976, codifying the restrictive theory.

In 1977 a majority of the Court of Appeal held that a State was not entitled to immunity in respect of commercial transactions (Trendtex Trading Corp v The Central Bank of Nigeria [1977] QB 529 (CA)).

The State Immunity Act 1978 was passed and then in 1981, the House of Lords confirmed that the restrictive theory applied at common law (I Congreso del Partido [1983] 1 A.C. 244).

Although The Philippine Admiral had decided that the absolute theory of immunity was no longer valid, it also stated that:

"There is of course no clear cut dividing line between acts done jure imperii and acts done jure gestionis and difficult border line cases may arise."

In I Congreso the House of Lords also stated, referring to The Philippine Admiral:

"The effect of The Philippine Admiral [1977] A.C. 373 if accepted, as I would accept it, is that as regards state-owned trading vessels, actions, whether commenced in rem or not, are to be decided according to the "restrictive" theory. The other landmark authority (Trendtex [1977] Q.B. 529), a decision of the Court of Appeal. . Its value in the present case lies in the reasoning that if the act in question is of a commercial nature, the fact that it was done for governmental or political reasons does not attract sovereign immunity."

The State Immunity Act

The State Immunity Act 1978 codifies the restrictive theory of sovereign immunity, setting out the exceptions to immunity, such as in relation to the following:

  • Commercial transactions and contracts to be performed in United Kingdom
  • Contracts of employment
  • Personal injuries and damage to property
  • Ownership, possession and use of property
  • Patents, trademarks etc.
  • Arbitrations

The Act also sets out who is entitled to immunity and deals with certain procedural matters, such as service of proceedings.

Sovereign versus non-sovereign acts

A key factor in whether a state is immune from being sued is whether the act giving rise to the claim is a sovereign act, such as running an army, or a non-sovereign act, such as a commercial transaction. The characterisation of activities has been exercised by the courts since the time that the courts recognised that the absolute theory of immunity would no longer be applied.

In Littrell v United States of America Court of Appeal [1994] P.I.Q.R. P141 a case in which I acted for the successful government defendant, the Court of Appeal reviewed the law:

". the so called 'restrictive theory' arises from the willingness of states to enter into commercial, or other private law, transactions with individuals. It appears to have two main foundations: (a) It is necessary in the interests of justice to individuals having such transactions with states to allow them to bring such transactions before the courts; (b) to require a state to answer a claim based upon such transactions does not involve a challenge to or inquiry into any act of sovereignty or governmental act of that state. It is, in accepted phrases, neither a threat to the dignity of that state, nor any interference with its sovereign functions."

At page 263H Lord Wilberforce adopted with approval a passage in the judgment of the Federal Constitutional Court of the German Federal Republic in Claim against the Empire of Iran (1963) 45 I.L.R. 57:

"As a means for determining the distinction between acts jure imperii and jure gestionis one should...

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