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The Immunity Conundrum

Document Cited authorities 5 Cited in Related
Vincent
Pages258-272
AuthorFrancis N. Botchway
Date01 June 2014
DOI10.3366/ajicl.2014.0092
Published date01 June 2014
INTRODUCTION

In the closing decade of the last century and in the early part of the twenty-first century, there has been a plethora of publications that proclaimed the end of the sovereign state or sovereignty as we knew it. Francis Fukuyama famously announced the ‘End of History’ in 1992, postulating that with the end of the Cold War the rivalries and competitiveness that were founded on or shored up the sovereignty of individual states had come to a close or were moribund at best.1

Francis Fukuyama, The End of History and the Last Man, Free Press (1992). He made the specific reference to transnational rule and the end of sovereignty in an article in The Guardian on 3 April 2007. Others have used similar language even if not on the same trajectory. See for example Tanisha M. Fazal, ‘State Death in the International System’, 58 International Organization (2004): 311; Stephen D. Krasner, Sovereignty: Organized Hypocrisy, Princeton University Press (1999); Martin Wolf, ‘Will the Nation-state Survive Globalization?’, Foreign Affairs, January/February (2001).

His position was that of a political scientist, but there have been legal scholars, lawyers and other academics who shared his position from a legal perspective. Ofran Badakhshani asked whether globalisation is the end of state sovereignty.2

Ofran Badakhshani, ‘Globalization: The End of State Sovereignty?’, assignment for Free University of Amsterdam, Faculty of Social Sciences (n.d.).

 He argued that there is a ‘demising process in the sovereignty of [the] nation state’3

Ibid., p. 5.

 and that ‘globalization will lead to the demise of [the] nation state and its sovereignty’.4

Ibid., p. 6.

 This is attributed to globalisation in the field of business, crime control, the emergence of transnational institutions, and the integration of laws.5

Ibid.

 In the same vein, Martti Koskenniemi asked, ‘What use for sovereignty today?’6

Martti Koskenniemi, ‘What Use for Sovereignty Today?’, 1 Asian Journal of International Law (2010): 61–70.

 saying there is no longer any magic in sovereignty. ‘It is merely a functional power to rule a population for its own good.’7

Ibid., at 62.

 Drawing from his work on crime, David Garland described sovereignty as a ‘myth’.8

David Garland, ‘The Limits of the Sovereign State: Strategies of Crime in Contemporary Society’, 36 British Journal of Criminology (1996): 448.

 Other scholars have called for a more nuanced understanding or description of sovereignty. Adam Gearey admitted that ‘global processes such as trade and financial flows transcend the nation state, however, the need for strong central institutions to enable the market to operate, cannot be underestimated’. What is needed, therefore, is a ‘reinscription, rather than the rejection, of sovereignty’.9

Adam Gearey, Globalization and Law, Rowman and Littlefield (2005), p. 11.

 Almost a generation after the pronouncement of the demise of state sovereignty and its derivatives such as immunity, it is about time to ask: whither state immunity

This article pursues that question in the light of the recent monumental cases decided by national and international courts and tribunals. It identifies the contrasting positions between the national and international courts, particularly in relation to the varying emphasis on form and substance in the cases before the adjudicatory bodies, and offers an explanation of the same. It concludes that, despite these points of contrast, there is significant cross-fertilisation of the sources and application of the law in a way that restrains fragmentation of the jurisprudence. That apparent unity is reflected in the convergence of the various courts’ positions regarding the substantive status of sovereign immunity and its limitations. Immunity is limited but not moribund.

 2012, YEAR OF SOVEREIGNTY CASES

In three cases in the year 2012, various national and international adjudicatory bodies made landmark decisions regarding the immunity and sovereignty of the state in litigation before them. These are the NML v Argentina cases that went through national courts in the United States, the UK and Ghana, and then to the International Tribunal for the Law of the Sea (ITLOS) in Germany, and the Italy v Germany and the Nicaragua v Colombia cases decided by the International Court of Justice (ICJ). All three cases have maritime law features and implications. The most intriguing of these cases are the NML v Argentina or the Ara Libertad cases.10

For NML v Argentina case see http://blogs.reuters.com/felix-salmon/files/2012/04/2011-12-07-Equal-Treatment-Liability-Order.pdf (accessed 23 February 2014); for Ara Libertad case see http://www.itlos.org/index.php?id=222 and http://www.itlos.org/fileadmin/itlos/documents/cases/case_no.20/C20_Order_15.12.2012.corr.pdf (accessed 23 February 2014).

Argentina issued sovereign bonds in October 1994 based on a Fiscal Agency Agreement (FAA) that the country signed in 1994.11

NML v Argentina case, ibid.

 The crucial section of this agreement is section 22, which provided that the ‘Republic waives sovereign immunity and consents to jurisdiction in any state or federal court in the borough of Manhattan in the city of New York’. Argentina also made its obligations under the FAA and the bonds unconditional and agreed that failure to make any payment of principal or interest for a month constituted default which could entitle the creditors to demand full and immediate payment of the outstanding debt. A number of creditors, including hedge funds, subscribed. In 2001, Argentina faced financial crisis and defaulted on its debts. NML, Aurilius and other fund managers, often known as ‘vulture funds’,12

See Martin Schubert, ‘When Vultures Attack: Balancing the Right to Immunity Against Reckless Sovereigns’, 78 Brooklyn Law Review (2013): 1097.

 became beneficial owners of the bonds when they bought some of the debts at almost 50 per cent discount with the objective of recovering the full amount from Argentina.13

United States District Court Southern District of New York, NML Capital, Ltd., Plaintiff, against Republic of Argentina, Defendants, Opinion, 21 November 2012, available at http://ftalphaville.ft.com/files/2012/11/Opinion.pdf (accessed 23 February 2014).

 In 2005, Argentina reached agreement with her creditors, allowing the country to pay only 85 per cent of the outstanding debt.14

Ibid.

 Three of the creditors, including NML, held out and insisted on recovering the full outstanding amount.15

Ibid.

 This is the genesis of what has become known as the NML–Argentina saga, which is ongoing at the time of this writing. NML initiated action in the federal district court of Manhattan in New York to restrain Argentina from honouring the renegotiated and restructured debt to the other creditors unless those who held out were also paid in full. The district court, basing its jurisdiction on an express provision in the FAA prescribing New York as the jurisdiction for any disputes, agreed with NML and ordered Argentina to pay those who held out.16

Ibid.

 Argentina appealed to the federal court of appeal for the second district, which, in the main, upheld the lower court's ruling.17

Ibid. See also P. Hurtado, ‘Argentina Sovereign-immunity Argument Rejected by Court’, BloombergBusinessweek, 20 August 2012, available at http://www.businessweek.com/news/2012-08-20/argentina-sovereign-immunity-argument-rejected-by-u-dot-s-dot-court (accessed 23 February 2014).

 Argentina again applied for certiorari from the US Supreme Court but the Court refused to hear the case.18

http://www.france24.com/en/20131007-us-supreme-court-refuses-take-argentina-debt-case (accessed 8 October 2013).

Meanwhile, NML sought to enforce the trial court orders against Argentinian assets which happened to be in England. Argentina raised objections to the process in the High Court, which were dismissed. The High Court also ignored Argentina's argument that as a sovereign it was immune from the jurisdiction of the English court and ruled in favour of NML. Argentina appealed to the Court of Appeal, which held that Argentina was protected by sovereign immunity. NML appealed to the Supreme Court. The main issue before the Supreme Court was whether or not Argentina was immune to the jurisdiction of the English courts. The Court was unanimous in its conclusion that if Argentina had immunity, it had waived it by virtue of the provisions in the FAA as well as the bonds.19

NML Capital Limited (Appellant) v Republic of Argentina (Respondent), [2011] UKSC 31, Judgment of 6 July 2011, available at http://www.supremecourt.uk/decided-cases/docs/UKSC_2010_0040_Judgment.pdf (accessed 23 February 2014).

A particular issue that the Court had to deal with was whether the immunity related to the application for the enforcement of the New York district court's judgment or to the merits of the underlying bond transaction. This was important because it also affected the legal process required for service out of the jurisdiction on Argentina. A minority, led by the President of the Court, Lord Philips, were willing to extend the non-immunity not only to the underlying commercial transaction but also to the application for the enforcement of the New York judgment on the transaction. The majority, however, rejected the expansive interpretation of section 3(1) of the 1978 State Immunity Act to cover the foreign judgment against a foreign sovereign as commercial in itself. They argued that section 31 of the later 1982 Act was the relevant provision, and that provision cured the limitations of the 1978 Act in a way that made the expansive interpretation of the ‘relating to’ clause in section 3(1) of the 1978 Act superfluous. It is important to note, though, that the Court took judicial notice of the fact that Argentina appeared in the New York court and unsuccessfully defended the action. In fact, throughout the NML v Argentina cases, Argentina was represented and defended the cases in all the...

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