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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.