The Act of State Doctrine Article


Introduction

History and development of the doctrine

           Underhill v. Hernandez

          Banco Nacional De Cuba v. Sabbatino

          W. S. Kirkpatrick & Co. v. Environmental Tectonics Corp., Int’l

Basis of the doctrine

  • Territorial Choice of Law
  • International Law
  • Separation of Powers

Burden of Proof

Act of state doctrine and sovereign immunity

Exceptions to the doctrine

  • State Department Intervention
  • International Law exception
  • Commercial Acts exception
  • Statutory Exception

Conclusion

Introduction

It is well established that courts in United States will refrain from examining the validity of acts of foreign governments where those acts take effect within the territory of the foreign State.  This rule, commonly known as the Act of State doctrine, has been stated and discussed by the U.S. Supreme Court in various cases. The Act of State doctrine says that a nation is sovereign within its own borders, and its domestic actions may not be questioned in the courts of another nation. The doctrine is not required by international law, but it is a principle recognized and adhered to by United States federal courts.  Its aim is not to protect other nations’ sovereignty by intervention from the U.S., but rather to protect the US Executives’ prerogatives in foreign affairs from being frustrated by a decision issued by U.S. Courts.

In deciding whether or not to apply the Act of State doctrine, and thus, grant immunity from inquiry to an act, a court must first of all consider whether the act in question is an “Act of State”.  The Act of State doctrine is applied to those acts carried out by a governmental official or body.  There are two qualities for act of State.  Firstly, the act must be that of a governmental body or of a body having governmental powers and must be carried out in the exercise of such governmental or sovereign powers.  Secondly, the act in question must be a formal act or evidenced by formal action such as legislation or an executive order. 

The acts of State officials will amount to an act of State where the official is acting in the exercise of his official functions.  In deciding whether acts of officials are acts of State, the courts consider whether the official was acting in his public capacity.  Likewise, when the official is acting for his own private benefit rather than for the benefit of the State, then such acts will not benefit from the application of the act of State doctrine.

History and Development of the Doctrine

Underhill v. Hernandez 168 U.S. 250 (U.S. 1897)  

The Act of State doctrine was initially developed in the US in cases against officials or agents of foreign governments and applied as a corollary to the personal immunity of foreign sovereigns.  This connection between the Act of State doctrine and sovereign immunity is evident from a 19th century American case, Underhill v. Hernandez 168 U.S. 250 (U.S. 1897) which established the doctrine.  In Underhill v. Hernandez, the Supreme Court held that a citizen of the United States was not entitled to recover damages in a United States court from a Venezuelan Military General who refused to issue a passport to him because the acts of the General were held to be acts of the Venezuelan government.  According to Fuller C.J., in a statement which has come to be known as the “classic American statement” of the Act of State doctrine:

“Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.”

The decision in Underhill v. Hernandez strongly indicates that the doctrine had its origins in notions of sovereign equality and was based on the view that international law imposed limits on the ability of States to exercise jurisdiction over other States.

Banco Nacional De Cuba v. Sabbatino, 376 U.S. 398 (U.S. 1964)

The leading Supreme Court decision on the Act of State doctrine came in 1964 in Banco Nacional de Cuba v. Sabbatino.  The case arose when Cuba nationalized its sugar industry, taking control of sugar refineries and other companies in the wake of the Cuban revolution.  The case involved a claim by Cuba for the purchase price of a cargo of sugar which had been expropriated by the Cuban government, and then, sold to a US commodity broker (Farr, Whitlock & Co.).  In addition to the Cuban claim, Farr was faced with a claim from the receivers of the original owner (Sabbatino) who argued that the Cuban expropriation was contrary to international law.  Both the District Court and the Court of Appeals found for Sabbatino, holding that the Act of State doctrine was inapplicable where the relevant foreign act was in violation of international law.  However, the Supreme Court reversed this decision.  Justice Harlan applied the Act of State doctrine and held that US courts could not question the validity of the Cuban expropriations even if the plaintiff alleged a violation of international law.

In Sabbatino, the court held that If a transaction takes place in one jurisdiction and the forum is in another, the court merely declines to adjudicate or makes applicable its own law to parties or property before it.  The refusal of one country to enforce the penal laws of another is a typical example of an instance when a court will not entertain a cause of action arising in another jurisdiction.  The court further held that one nation must recognize the act of the sovereign power of another, so long as it has jurisdiction under international law, even if it is improper according to the internal law of the latter state.  The court held that the justification for applying the doctrine would be weaker in cases where the relevant rules of international law are clear or where the government which performed the act is no longer in existence.  Therefore, the court further held that:

“rather than laying down or reaffirming an inflexible and all-encompassing rule in this case, we decide only that the Judicial Branch will not examine the validity of a taking of property within its own territory by a foreign sovereign government, extant and recognized by this country at the time of suit, in the absence of a treaty or other unambiguous agreement regarding controlling legal principles, even if the complaint alleges that the taking violates customary international law.”

Although the Sabbatino decision was reached by a nearly unanimous Supreme Court, confusion arose which presently surrounds the doctrine.  Congress expressed its displeasure about the decision by enacting legislation 22 U.S.C. § 2370 – the Second Hickenlooper Amendment.  This legislation requires US courts not to refuse on act of State grounds “to make a determination on the merits giving effect to the principles of international law” in cases involving claims to property expropriated by foreign States after 1958.

W. S. Kirkpatrick & Co. v. Environmental Tectonics Corp., Int’l, 493 U.S. 400 (U.S. 1990)

Although the Act of State doctrine was applied more broadly in the early cases, in 1990, the Supreme Court strictly limited its application to cases in which a court is required to determine the legality of a sovereign state’s official acts under that sovereign’s own laws.  W. S. Kirkpatrick & Co. v. Environmental Tectonics Corp., Int’l, 493 U.S. 400 (U.S. 1990).  In this case, the Court held that the doctrine applies only when a suit requires a court to declare invalid a foreign governmental act performed within its territory and does not preclude inquiry into the motivations of a foreign government.  Although the plaintiffs alleged that the defendants had procured a contract from the Nigerian government by bribing officials of the Nigerian government, the court held that nothing in the case required a determination of validity of the foreign governmental act.  In Kirkpatrick, the Court reconfirmed that “Courts in the United States have the power, and ordinarily the obligation, to decide cases and controversies properly presented to them.”  To the extent that a case involves the “official act of a foreign sovereign,” the Act of State doctrine applies only when a U.S. court must declare such official act “invalid, and thus ineffective as a rule of decision for the courts of this country.’”

The Basis of the Doctrine

There are three principal theories to justify the application of the Act of State doctrine.  Two of these theories, the “international law” and “territorial choice of law” theories, are theories of external deference which gained approval in the early Supreme Court cases establishing the doctrine.  However, the third, the “separation of powers” theory is based on the theory of internal deference.

  • International Law

In the early act of State cases, the courts were of the clear view that the Act of State doctrine was required by the universal comity of nations and the established rules of international law.  In the opinion of the court, relief for wrongs committed abroad was to be sought either in the courts of the country where the wrong was committed or through international (i.e. diplomatic) means.

  • Territorial Choice of Law

It has been argued that the early act of State cases utilised the Act of State doctrine as an aspect of the territorial choice of law principle.  This is the principle that the validity of an act is to be determined by the law of the territory where the act took place.  Thus, acts of the sovereign, or acts of state, done within the sovereign’s own territory, are legally valid everywhere.

  • Separation of Powers

The Act of State doctrine is based on separation of powers and reflects notions of internal deference.  The Supreme Court in Sabbatino took the view that the basis of the doctrine was not external deference but internal deference, holding that the doctrine concerns “a basic choice regarding the competence and function of the Judiciary and the National Executive in ordering our relationships with other members of the international community.  However, the Supreme Court has stated in Kirkpatrick that:

“Courts in the United States have the power, and ordinarily the obligation, to decide cases and controversies properly presented to them. The act of State doctrine does not establish an exception for cases and controversies that may embarrass foreign governments, but merely requires that, in the process of deciding, the acts of foreign sovereigns taken within their own jurisdictions shall be deemed valid.”

 Burden of Proof

When applying the balancing test to determine applicability of the Act of State doctrine, the party asserting the applicability of the doctrine bears the burden of proof.  The party is required to offer some evidence that the government acted in its sovereign capacity and some indication of the depth and nature of the government’s interest.  Although precedent is not very much clear about the parameters of the official acts limitation, the Supreme Court has distinguished between public and governmental acts of sovereign states on the one hand and their private and commercial acts on the other.  When the facts presented are not sufficient to demonstrate that the conduct in question was the public act of those with authority to exercise sovereign powers, the court should not presume that the conduct at issue was an official act of the foreign sovereign.

Act of State doctrine and sovereign immunity

Both the Act of State and the Sovereign Immunity doctrines are judicially created to effectuate general notions of comity among nations and among the respective branches of the Federal Government.  Unlike a claim of sovereign immunity, which merely raises a jurisdictional defense, the Act of State doctrine provides foreign states with a substantive defense on the merits.  Under the Act of State doctrine, the courts of one State will not question the validity of public acts performed by other sovereigns within their own borders, even when such courts have jurisdiction over a controversy in which one of the litigants has standing to challenge those acts.  The Foreign Sovereign Immunities Act of 1976, in no way, affects application of the Act of State doctrine.

  Exceptions to the Doctrine

  • State Department Intervention

 In certain instances, the State Department may indicate, by letter to the Court, that U.S.’ interests favor or disfavor application of the Act of State doctrine to a particular case or issue affecting a group of cases.  The use and effect of such letters are sometimes referred to as the Bernstein and reverse-Bernstein exceptions; the former involving a letter indicating that the doctrine should not apply and the latter involving a statement that, in the view of the State Department, courts should presume that the doctrine does not apply to certain categories of cases unless the State Department affirmatively says so.

  • Commercial Acts Exception

There is also a commercial activity exception to the Act of State doctrine.  The state of the law concerning this exception varies from jurisdiction to jurisdiction.  The Act of State doctrine does not cover private and commercial acts of sovereign states.  It is necessary to balance a judiciary’s interest in hearing a case involving a commercial activity with its desire to avoid matters of foreign affairs controlled by the executive or legislative branches.

  • International Law Exception

The most popular exception to the Act of State doctrine is an exception which would permit US courts to adjudicate on the validity of foreign acts of State under international law.  The international law exception originates from Justice Harlan’s opinion in Sabbatino.  Justice Harlan suggested that the Act of State doctrine would not apply if there was a “treaty or other unambiguous agreement regarding controlling legal principles” and that:

“the greater the degree of codification or consensus concerning a particular area of international law, the more appropriate it is for the judiciary to render decisions regarding it, since the courts can then focus on the application of an agreed principle to circumstances of fact rather than on the sensitive task of establishing a principle not inconsistent with the national interest or international justice.”   

  • Statutory Exceptions

It is not only the courts that have created exceptions to the Act of State doctrine.  Congress, dissatisfied with the application of the doctrine in some cases has also created exceptions to the Act of State doctrine.  The exceptions include: 

1.  The Second Hickenlooper Amendment Exception

In Sabbatino, the Supreme Court held that the Act of State doctrine barred U.S. courts from holding invalid an official act of expropriation by a sovereign state within the sovereign’s own territory.  In response, Congress passed the so-called “Hickenlooper Amendment,” 22 U.S.C. § 2370(e)(2), which generally provides that the Act of State doctrine shall not apply to claims concerning alleged expropriations in violation of international law, “including principles of compensation.”  However the Hickenlooper Amendment can be overcome by executive-branch intervention.

2.  Section 15 of the Arbitration Act                                                                     Under this section passed in 1988, enforcement of arbitral agreements, confirmation of arbitral awards, and execution upon judgements based on order confirming such awards shall not be refused on the basis of the Act of State doctrine.

3.  Helms Burton Act

In 1996 Congress passed the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act [the Helms Burton Act] with a view to further tightening sanctions against Cuba. Under, 22 USCS § 6082 states that anyone who traffics in property confiscated by the Cuban government after January 1, 1959 is liable in US courts for damages to former owners of the property resident in the US.  Trafficking is defined as including, knowingly and intentionally selling, transferring, distributing, managing, purchasing, leasing, receiving, possessing and using confiscated property.  The Act further states that “No court of the United States shall decline, based upon the act of state doctrine, to make a determination on the merits in an action brought under paragraph (1).”  22 USCS § 6082(6).

Conclusion

According to Supreme Court’s decision in Sabbatino, application of the Act of State doctrine is dependent on whether the courts perceive the judicial action would interfere in the conduct of foreign relations.  This has led courts to believe that they can pick and choose the factors to be taken into consideration in determining whether or not they should adjudicate on the validity of a foreign governmental act.  As a result the courts have suggested various factors, limitations and exceptions to be taken into account in making this assessment.  The history of the Act of State doctrine and many of its established features suggest the doctrine is better explained by international law considerations.  The doctrine represents deference to the superior exercise of jurisdiction by the territorial State and prevents the U.S. from unlawfully extending its jurisdiction to situations and acts authoritatively determined by the territorial State.  As such, the doctrine represents an acknowledgment that the US does not possess the legal competence to reverse the acts of foreign sovereigns carried out abroad.  The doctrine therefore recognises the co-equal status of foreign States and prevents an unwarranted intervention into the affairs of those States.