Anthony Aust. Handbook of International Law

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non-commercial. The BBC and the British Council were both created, and are financed, by the

state but are not part of it. Their assets are therefore not those of the United Kingdom. Most

states have similar, so-called public corporations or parastatals.

But they, and even a purely

commercial entity, like a bank, could have immunity in respect of, say, the processing of

requests for exemption from foreign exchange control restrictions or economic sanctions. On

the other hand, a state trading organisation, even if it is part of the state, would not enjoy

immunity in respect of its commercial activities (see below). (See also Article 27 of the

European Convention; section 14 of the UK Act; and section 1603(a) and (b) of the US Act.)

‘[R]epresentatives of the state acting in that capacity.’ This covers all natural persons

authorised to represent a state, in its various manifestations, in respect of acts done by them on

behalf of the state, and includes the head of state acting in his official capacity.

If a public

official is sued for something that he did in his official capacity, this would amount to suing the

state, and so he could plead state immunity.

Diplomats also have personal immunity from

suit, and Article 3 of the UN Convention provides that the Convention is without prejudice to

the privileges and immunities enjoyed under international law by diplomatic missions, consular

posts and other diplomatic missions and delegations, and persons connected with them.

Furthermore, customary international law regulates certain special areas (such as foreign

forces).

Being lex specialis, it is not affected by the UN Convention, the fifth preambular

paragraph of which affirms that the rules of customary international law continue to govern

matters not regulated by the Convention.

Exceptions to immunity

The approach taken both in the treaties and in legislation is that acts or omissions by a state are

immune unless they fall within an exception

19. See also p. 411 below.

20. See also p. 177 below.

21. Propend v. Sing, 11 ILR 611; and Holland v. Lampen Wolfe [2000] 1 WLR 1573; [2000] 3 All ER

833; 119 ILR 367. In Jones v. Saudi Arabia [2005] 2 WLR 808, the English Court of Appeal held that,

although the defendant state was immune, its officials who allegedly tortured Mr Jones were not, although

whether a claim should lie against them depended on all relevant factors, including whether the English

courts were the proper forum. The judgment is being appealed to the House of Lords. See also p. 177

below on criminal prosecutions.

22. See p. 175 below.

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(Article 5 of the UN Convention; Article 15 of the European Convention; section 1 of the UK Act;

and section 1602 of the US Act). However, some of the exceptions have exceptions (and there are

even some exceptions to those exceptions). None of this makes understanding the subject easier.

Consent

A state can always waive its immunity by consenting to proceedings, and do so in advance. But a

contractual clause that the law of another state will govern a contract does not amount to consent to

the jurisdiction of that state’s courts. A state cannot claim immunity if it initiates or intervenes in

proceedings, unless the latter was done in ignorance of the facts entitling it to immunity, and

immunity is then claimed as soon as possible. It is not consent if the state intervenes merely to claim

immunity, or for the sole purpose of asserting a right in the property at issue, provided the state

would have been entitled to immunity if the proceedings had been brought against it. A state

instigating or intervening in proceedings does not usually have immunity in respect of a counter-

claim.

Article 17 of the UN Convention provides that a state that enters into a written agreement with a

foreign national to submit disputes concerning a commercial transaction (which includes investment

matters: see the relevant Understanding) to arbitration cannot invoke immunity before a foreign

court in a proceeding relating to that agreement, the arbitration procedure or the award, unless the

agreement provides otherwise.

The US Act provides for waiver by implication. Many contracts with states provide that disputes

will be submitted to arbitration, and this may amount to implied consent to the courts of the state

where the arbitration would be held exercising its supervisory powers over the arbitration. Under the

UK Act, when a state has agreed in writing (though not with another state) to submit a dispute to

arbitration, it is, subject to any contrary provision in the arbitration agreement, not immune from

proceedings in the UK courts that relate to the arbitration.

(Articles 7, 8, 9 and 17 of the UN Convention; Articles 1, 2 and 3 of the European Convention;

section 2 of the UK Act; and section 1605(a)(1) of the US Act.)

A separate, express waiver of immunity from execution of the judgment is necessary (see below).

Commercial transactions

At the heart of the modern restrictive approach is the principle that a state is not immune in respect

of its commercial transactions (Article 10

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of the UN Convention; Articles 4 and 7 of the European Convention; section 3 of the UK Act; and

section 1605(a)(2) of the US Act). The problem – for which no completely satisfactory solution has

yet been found – is how to define ‘commercial’.

Since we are here concerned with the activities of

a state, a distinction has to be drawn between those transactions which anyone can do (acta jure

gestionis) and those which only a state can do (acta jure imperii). One can distinguish between these

two types of transaction according to either the nature of the transaction or its purpose. The

purchase by a state of uniforms for its army is obviously commercial in nature, but is done for a

public purpose since only states have (real) armies. The main problem with the purpose test is that

all acts by a state are necessarily for some public purpose. Thus, in 1963, the

Bundesverfassungsgericht (the German Federal Constitutional Court), in the leading case of the

Empire of Iran,

preferred to look at the nature rather than the purpose of the transaction.

Article 2(1)(c) of the UN Convention defines a ‘commercial transaction’ as:

any commercial contract or transaction for the sale of goods or the supply of services;1.

any contract for a loan or other transaction of a financial nature, including an obligation of

guarantee or of indemnity in respect of any such loan or transaction;

any other contract or transaction of a commercial, industrial, trading or professional nature, but

not including a contract of employment of persons (dealt with in Article 11: see below).

The UN Convention then avoids choosing between the nature and purpose tests by adding in

paragraph 2:

In determining whether a contract or transaction is a ‘commercial transaction’ under paragraph 1(c),

reference should be made primarily to the nature of the contract or transaction, but its purpose should

also be taken into account if the parties to the contract or transaction have so agreed, or if, in the practice

of the state of the forum, that purpose is relevant to determining the non-commercial character of the

contract or transaction.

[Emphasis added]

23. See the comprehensive comparative survey in Fox, pp. 272–303.

24. 45 ILR 57, at pp. 80–1.

25. The formula was originally inserted to help, in particular, developing countries making bulk contracts

for food or medicine for humanitarian purposes. It is almost the same as in the 1991 draft of the

International Law Commission: see its own commentary in Watts, The International Law Commission

1949–1995, Oxford, 1999, vol. , pp. 2017–21.

In paragraph 3, the statement that ‘[t]he provisions of paragraphs 1 and 2 regarding the use of

terms in the present Convention are without prejudice to the use of those terms or to the meanings

which may be given to them in other international instruments or in the internal law of any state’,

means that the definitions are for the purpose of state immunity only and do not affect similar terms

in treaties or domestic law on other subjects.

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Thus a court should first consider the nature of the contract or transaction. If it is clearly non-

commercial (e.g. a prohibition on food imports due to a health scare), there should be no need to go

further. But if it appears to be commercial, then it is open to the defendant state to argue that its

purpose is non-commercial, and this would apply even to contracts for the sale of goods or services,

and loans etc. The purpose test would normally have to be carried out by applying the practice of the

forum state, and so this takes one back to the jurisprudence of its courts. It has proved impossible for

courts to avoid completely inquiring into the purpose of a state’s transaction in order to evaluate its

nature; they just have to look at the whole context.

Although the commercial exception is already applied by most legal systems, both common law

and civil, how this is done varies. The UK and US formulas, as construed and applied by their

courts, are not necessarily better or worse than, or even that different from, the one in the UN

Convention, which is a compromise between the different approaches taken by states.

Section 3(3) of the UK Act defines ‘commercial transaction’ as any contract for the supply of

goods and services, any financial loan or indemnity and:

similar character) into which a state enters or in which it engages otherwise than in exercise of sovereign

authority.

[Emphasis added]

Subparagraph (c) covers not only contracts but all other activities that are not essentially of a public

character, such as regulatory acts. The English courts have interpreted the italicised words as

requiring an examination of the nature of such transactions or activities, not their purpose: has the

state acted in exercise of its sovereign authority (in public law) or like a private person (in private

law)?

But even this approach may well involve some inquiry into purpose.

26. See Lord Wilberforce in I Congreso del Partido [1983] AC 244 at 269; 64 ILR 307, at 320. For the

facts and a discussion of the case, see Shaw, pp. 635–6.

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Section 1603(d) of the US Act provides that the commercial character of an activity

shall be determined by reference to the nature of the course of conduct or particular transaction or act,

rather than by reference to its purpose.

[Emphasis added]

The italicised words have been relied upon by US courts ‘only so far as is absolutely necessary to

define the nature of the act’,

an approach not unlike that of the UK courts. Thus, if a state does

something that a private person can do (e.g. issues bonds), it is not immune even when done for a

public purpose. If it is something that only a state can do (e.g. regulate a bond market), it is immune.

The US Act’s commercial exception also requires that in respect of the activity there is a

jurisdictional link with the United States (section 1605(a)(2)).

The European Convention is much concerned with the reciprocal enforcement of judgments

against state parties. But, although Article 4 is formulated differently to the equivalent provisions in

the UK and US Acts, or the UN Convention, the end result may be similar: if an activity is one

which only a state can do, it may have immunity.

Contracts of employment

Under Article 11 of the UN Convention, unless the states concerned agree otherwise, a foreign state

has no immunity from proceedings relating to a contract of employment for work to be performed

for it in the forum state. This exception to immunity has itself exceptions that provide for immunity

in the following cases (and to which there are some exceptions):

The work is ‘in the exercise of governmental authority’. It would have to be of a non-

commercial nature, and so would include acts of a regulatory nature, such as verifying that

certain products are suitable for import into the employer state.

The employee is a diplomatic agent or other person enjoying diplomatic immunity or a

consular officer. These are almost always nationals of the employer state and can usually

instigate employment proceedings in that state.

Recruitment, renewal or reinstatement issues.

27. Republic of Argentina v. Weltover, 504 US 607 (1992); 100 ILR 509. See Fox, pp. 197–202.

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Dismissal or termination issues if the head of state, head of government or foreign minister of

the employer state has determined that the proceedings ‘would interfere with the security

interests’ of the state. The Understanding on this provision says that this refers primarily to

national security and the security of diplomatic missions and consular posts.

The employee is a national of the employer state when the proceeding is instituted, unless he

has permanent residence

in the forum state. Despite the poor drafting of this last exception,

the intention would seem to be that there would be no immunity unless one of the (main)

exceptions in (a) to (d) or in (f) applies.

The employer state and the employee have otherwise agreed in writing, unless, by reason of the

subject matter of the proceedings, there are public policy reasons conferring exclusive

jurisdiction on the courts of the forum state.

The provisions, with their exceptions to exceptions, mainly reflect the varied state practice, making

them complex and lacking in coherence.

Article 5 of the European Convention accords no immunity where the employment is performed

in the forum state, unless (a) the employee is a national of the employing state, (b) when the contract

was signed he was neither a national of the forum state nor habitually resident there, or (c) the

parties to the contract agreed in writing otherwise, unless under the law of the forum state its courts

have exclusive jurisdiction by reason of the subject matter. Sections 4 and 16(1)(a) of the UK Act

generally follow the European Convention.

The US Act has no specific provision for state

employment contracts, which for state immunity purposes therefore have to be treated in the same

way as other contracts.

Disputes about employment by a diplomatic mission or consular post of a locally engaged person

are a particular and constant problem.

Torts (delicts)

Under Article 12 of the UN Convention, there is no immunity in respect of proceedings for

pecuniary compensation for death or personal injury, or damage or loss of tangible property, caused

by an act or omission

28. See p. 149 above on permanent residence.

29. However, that Convention has only eight parties, including Belgium and Switzerland, whose courts

have not always followed the Convention on employment matters.

30. See p. 149 above; and (2005) ICLQ 705–8.