PublicationsA Comparative Analysis on the Doctrine of State Immunity

ABSTRACT

This paper attempts at providing a brief outlook on the doctrine of state immunity and how the Indian legal system implements it. With providing an explanation to the two approaches that have been adopted by the Courts internationally, this paper compares the jurisdiction of this doctrine within India and the United States. Further, with the help of cases, the paper makes an attempt to prove that the wordings of Section 86 of the Code of Civil Procedure makes the section very open-ended and even the courts have failed to square down the true definition of this section.

The comparison even though might prove the doctrine in India to be one that has a wide the current need of legislation would be to define update itself with the changing international laws and provide for better definitions which would help in the smooth functioning of the judiciary.

INTRODUCTION

The doctrine of state immunity is an international law practice that gives independent sovereign states protection from legal proceedings instituted in other courts of jurisdiction. It is derived from the theory of sovereign equality of states as a result which one state cannot judge the actions of another. It is underlined in the maxim, “par in parem non habet imperium” which means that one sovereign state cannot exercise jurisdiction over another sovereign state.

There are two ways in which this immunity can be conferred:

• From suit;
• From execution.

The approach towards this immunity varies internationally. The two broad approaches are:

• Absolute approach: Any proceeding against foreign state is ousted unless it is waived by express agreement.
• Restrictive approach: With increasing foreign investments, it became very important to protect the interests of the parties and minimize risks in international dealings. This lead to the application of immunity only to “actus jure imperii”, e. acts of sovereign nature. Reliance was placed on principles of natural justice, in which courts adopted the restrictive application where “actus jure gestionis”, i.e. commercial acts are not subject to the privilege. In many states the criteria for distinguishing is whether the nature of transaction involve sovereign or non-sovereign functions. This was primarily because there was an alarming rate of trade and commerce activities wherein foreign states enjoyed the immunity while private individuals who engaged in the same were not entitled to it. The English Court in one of its cases provided an illustration that “if a government department goes into the market places of the world and buys boots or cement – as a commercial transaction – that government department should be subject to all the rules of the market place”[1].

ANALYSIS

INDIA

Section 86 of the Code of Civil Procedure,1908 (hereinafter referred to as the Act), encompasses this doctrine. It is a non-obstante provision wherein a foreign state cannot be sued unless prior consent of the Government is obtained subject to conditions confined in Section 86(2) of the Act. They include:

1. If a foreign state has instituted a suit against the person who desires to sue such state;
2. If the matter of the suit is with respect to trading activities of the foreign state, by itself or on behalf of it, in India;
3. If the suit is in reference to immovable property in India that is in possession of the foreign state;
4. If the foreign state has expressly or implicitly waived the privilege of immunity.

Section 86(1) of the Act provides one instance wherein consent for suing is not required. This is when a tenant of immovable property sues for claiming or holding it.

Clause (1) and (3) protect foreign states from suit and execution respectively. Clause (5) provides protection against, arrest but is applicable only to those persons enlisted in Clause (4).

Clause (6) is based on just principles wherein the Government before refusing to accede to such request, must give the person who wants to sue a reasonable opportunity to be heard.

‘Foreign state’ is clarified under Section 87A of the Act, the meaning any state outside India recognized by the Central Government.

It is important to note that this section covers suits which are instituted as laid down in the Code, and any suit by virtue of another law such as probate, administration, etc. are beyond its scope.[2]

1. Brief Overview

One of the early cases on this doctrine was Mirza Ali Akbar Kashani v. United Arab Republic[3]. A suit for damages for breach of contract was filed against United Arab Republic which was recognised as a sovereign state by the Government of India. The issue raised was whether the state enjoyed absolute immunity because of which the suit cannot be entertained. The court stated that the effect of S.86(1) of the Act is to a certain extent to modify the absolute privilege of the doctrine of immunity in International Law. The limitation to sue is twofold: i) consent of the Central Government; ii) consent is only given if the subject-matter of the suit falls within any of the clauses enlisted in S.86(2) of the Act. This was the case whereinto a certain extent it adopts a restrictive approach to the doctrine of immunity.

Earlier, wherein the corporation is a separate legal entity, but is managed by a foreign ruler, it is deemed to be a department of the foreign state and immunity was given.[4] Even if it suit is not directly against a foreign but in effect is against it, S.86 of the Act is applicable.[5]

Once, the Central Government is satisfied that any of the aforementioned conditions are satisfied and consent is given, it cannot be disputed that such conditions do not exist[6]. When the Government refuses to accede, the reasons for denying consent should be clear and explicit. Giving vague justifications like ‘political grounds’ would be unacceptable[7].

In the recent case of Qatar Airways v. Shapoorji Pallonji[8], the court did not go into the fact of determining whether the ownership vested in the state due to shareholding. It based its denial of acceding immunity on the premise that it is a company with a distinct juristic personality from its shareholders. It was a contractual transaction with its activities in India and hence, competent to be tried by the courts here. This is major deviation from the Saudi Arabian Airlines case[9] wherein, the Airline was vested in the State and it was held that merely undertaking independent work does not become the grounds for denying immunity.

2. Waiver of Immunity

Section 86(2)(d) of the Act provides for the condition to waive this immunity either expressly or impliedly. In the case of Ethiopian Airlines v. Ganesh Narain Saboo[10], there was a suit instituted under the Consumer Protection Act, 1986 against a foreign airline. The question was whether consent was required under S.86 of the Code.  The court held that the legislative intent was that special statues must prevail over the general. 3 reasons that Ethiopia was not entitled to sovereign immunity were:

• Although the Act of 1986, did include certain provisions wherein the procedure of the Code is applicable, the expression unius principle when applied, it can be inferred that S.86 was intentionally excluded and hence, consent is not required.
• The Carriage by Air Act, 1972 was passed to give effect to the Warsaw Convention, to which Ethiopia was a signatory. This gives two indications: i) When the Act was enacted, the Central Government had impliedly consented under S.86; ii) By signing the Convention, Ethiopia has impliedly waived their right to immunity.
• Lastly, it was stated that the nature of the transaction was a consignment of Reactive Dyes which was a commercial or contractual activity which is in consonance with the International principle of restrictive immunity.

In the case of Kenya Airways v. Jinibhai Kheshwala[11], although the Airways was entitled to protection, participating in the proceedings without demur for around 16 years, was considered as an implied waiver of immunity.

UNITED STATES OF AMERICA

The first case where this doctrine was underpinned in US courts was in The Schooner Exchange v. McFadden[12] where the absolute approach was taken. The judgement was based on the prevailing international situation backs then where it was considered degrading to the dignity of a sovereign state to be amenable to the jurisdiction of another state as the entry of one independent state was only on the basis of an express invitation or a license for which the privilege was conferred. It dismissed the action on grounds of lack of jurisdiction, and the rationale derived is that any state’s authority within its territory must be absolute and free of external limitations. If restrictions on the state’s power came from an external source, there would be state inequality, inadvertently showing that the entity exerting limitations over the other exercises greater power and influence. From this case on, there was a general immunity from suit and execution. [13]

This approach saw a certain refinement more than a hundred years later in the case of The Roseric[14]. Here, a private vessel owned by the British Navy was held to be immune from jurisdiction only till its functional use was to serve the public. It is not the mere fact that the ownership vests within the sovereign, but rather its appropriation by the sovereign to such public service that awards exemption from judicial proceedings.

This doctrine was promulgated in 1976 with the enactment of the Foreign Sovereign Immunities Act (FSIA), codified in Title 28, Chapter 97 of the United States Code (U.S.C.)[15].  Section 1602 of the FSIA codifies the restrictive theory of sovereign immunity. S.1603 of the FSIA envisages the scope of ‘commercial activities’ and as to what would be considered within the scope of ‘foreign state’ which includes even a corporate legal entity or instrumentality of a foreign state. It is implicit here  that it the nature of the transaction that will be grounds to confer immunity. S.1603(e) of the FSIA further adds to this by stating that to deny immunity, the commercial nature alone is not sufficient, but the it is necessary that the ‘commercial transaction’ has substantial nexus with U.S.A. S.1604 and 1609 provides immunity from suit and execution respectively. However, S.1605 and 1610, provides for situations wherein this immunity will not be available during suit and execution respectively. Situations wherein immunity is not granted under S.1605 are as follows:

1. immunity is waived off;
2. rights in immovable property situated in the U.S.;
3. property is taken in violation of international law;
4. commercial activities in the U.S.;
5. a commercial activity outside the territory of the U.S. but has a direct effect on U.S. [S.1605(a)(2)]
6. personal injury, death or loss of property in the U.S.;
7. admiralty proceedings
8. claim against the foreign state that rises from a counterclaim;
9. monetary damages for tortious acts occurring in the U.S.; a
10. action that is brought forward to enforce agreements made by the foreign state ‘with or for the benefit of a private party to submit to arbitration, etc.[16]

The Eleventh Amendment further solidified the immunity available to federal and state governments by protecting them from any suit in law or equity brought upon by citizens of any US or foreign state. Thus federal and state governments in the states generally enjoy sovereign immunity but possess the ability to waive their immunity.

In the case of the Republic of Argentina v. Weltover Inc[17], the Argentina Government had defaulted on bond payments. When a suit was instituted the Government claimed immunity. The plea was dismissed stating that, S.1605(a)(2) of the FSIA is triggered by which immunity is not conferred upon. It stated that even if the activity is outside the U.S. shores, but it has tandem with commerce and a direct impact on the U.S., immunity will not be given. It provided a two-fold test to ascertain whether the exception under S.1605(a)(2) of the FSIA applies:

• if a foreign government enters the marketplace, the first question is whether it undertakes commercial activity within the definition given in S.1603;
• If (1) is in the affirmative, the next question that arises is whether it is in the nature of a private player or sovereign regulator. If it is the former, the exception to immunity will apply.

In the recent case of OBB Personenverkehr AG v Sachs[18], a citizen of California who had purchased a Eurorail pass in U.S. injured herself on the tracks in Austria. She sued Eurorail in the U.S. court on the grounds that the ‘commercial transaction’ took place there. However, the court rejected this stating that it is barred by sovereign immunity and it doesn’t fall within the scope of commercial activity exception as it is based on the railway’s conduct in Austria.

COMPARISON

The doctrine of sovereign immunity as codified under the aforementioned jurisdictions show a lot of differences. Under the provisions of FSIA, the procedure for application is very elaborate and leaves a very narrow scope for interpretations. It prima facie shows the restrictive approach. From the early outlook of the courts to date, this doctrine has undergone various refinements which the U.S.C. is in consonance with. The interpretation of foreign state and commercial activity has changed radically which is clearly defined under S.1603 of the FSIA.

However, when we look at the S.86 of the CPC, the provisions are in practicality to some extent obsolete as it leaves a wide room for judicial interpretation. The foreign state as defined for this doctrine purposes is problematic in itself. A mere definition that it is a territory outside India is not aligned with international law principles. As seen from the courts’ holdings, it is the test of functionality and nature if transaction which is the main ground for acceding immunity. U.S. has added another provision that is absent from India which is that commercial acts outside the territory of the U.S. can also be tried provided a sufficient jurisdictional nexus exists. Although courts in India are applying the wide approach, it can be anticipated that if this section is not amended, it could create grey areas for interpretations in the future.

CONCLUSION

It can be inferred from precedents, that Indian courts have tried to make decisions in line with the prevailing reality, but S.86 of the Act limits the courts to some extent from advancing the doctrine of state immunity. Further, the need of the hour for the legislation would be to formulate the following the changes so as to make the approach Section 86 of the Code of Civil Procedure, 1908 more limited and help in the free flow of justice :

• A more limited definition of ‘commercial activity’ and ‘foreign state’ in light with its application to sovereign immunity.
• Enumerate situations through the help of illustrations in which immunity should not be given.

The mere act updating of the legislation would not ensure that grey areas and gaps between the provision and current international practice are bridged but the courts also must take a pro-active role. As it has already been noted by the apex court in the case of Vishaka v State of Rajasthan[19] that the apex court utilising the authority provided under Article 141 of the Constitution has the authority to suggest competent laws that would be adequate for our legal system. Joint action by the legislation and the executive would be an ideal way to simplify the laws for the citizens of the country.

REFERENCES-