Legal Update
Nov 22, 2019
Who Has Authority? Risks in Signing Contracts with Foreign Sovereigns
Imagine your client, a real property owner, asks you to draft an enforceable agreement with the owner of the neighboring property. It seems relatively easy, right? Well, no, not if the neighboring property is owned by a foreign governmental entity. These entities are generally protected from private US lawsuits by the federal Foreign Sovereign Immunities Act, or “FSIA.” Unless the foreign government waives its immunity, or the particular suit would fall within certain exceptions, any action against the entity cannot be successfully brought.
The FSIA1 precludes US courts from exercising jurisdiction over foreign sovereigns unless: (a) the sovereign has waived its immunity, either explicitly or by implication; or (b) the subject litigation arises from one of the exceptions to the immunity, such as where the foreign sovereign is engaging in “commercial activity” in the United States and the dispute directly flows from that activity. As to what constitutes a foreign sovereign’s domestic commercial activity, these are, predictably, fact specific inquiries for a court. The federal courts are unanimous on what factual analysis to apply in that instance because the Supreme Court held that a foreign government engages in “commercial activity” where it “acts, not as regulator of a market, but in the manner of a private player within it.” In our hypothetical, one could characterize the neighbor as acting as a private player within the market.
But that only solves half the problem. There is the key question of whether the individual signing the agreement has the authority from the foreign government to engage in the “commercial activity” or to otherwise waive the immunity on its behalf—for example, by including a waiver of immunity in the contract itself. If it turns out that individual does not have authority, your client ultimately may be unable to enforce the agreement. And, as it happens, the federal courts are not unanimous as to when an individual has the authority to waive a government’s sovereign immunity. Specifically, some federal courts require that the representative of the foreign state have actual authority to waive immunity, while others require only an appearance of authority.
In New York, Connecticut, Vermont, Alabama, Florida, and Georgia, a contractual waiver of immunity typically is effective where the individual signing the waiver had “apparent authority” to do so. In other words, did the non-foreign party reasonably believe that the foreign official signing the agreement had the authority to do so? Courts in these states have noted that the existence of apparent authority often requires a factual investigation into the nature of the position held by the foreign representative who signed the agreement, representations made to the non-foreign party, and whether that party reasonably relied upon such representations.
For example, the Second Circuit Court of Appeals, which has jurisdiction over Connecticut, New York and Vermont, held that Antigua’s ambassador did not have apparent authority to sign a loan and waive sovereign immunity based upon his title as ambassador alone. Instead, his title was only one factual consideration in determining whether apparent authority existed. The Second Circuit sent the case back to the lower court to examine: (a) the representations of authority made to the bank regarding the ambassador’s authority; and (b) whether the bank satisfied its duty of inquiry.2
More recently, a New York federal district court recently reaffirmed this reasoning, holding that further discovery was required where a contract was signed on behalf of Qatar by that country’s New York Consul General, and it was unclear whether a “lower level foreign official” had even apparent authority to waive immunity on behalf of Qatar. The complaint alleged that apparent authority existed because: (1) Qatar’s Minister of Foreign Affairs inspected the property at issue in the contract; (2) Qatar’s consulate requested approval from the U.S. State Department to purchase the property at issue; and (3) the consulate hosted an event at the property with numerous Qatari diplomats, including the Minister of Foreign Affairs and the Consul General. The court held that further discovery was warranted as to the Consul General’s duties, the representations that he made to the plaintiff, and whether plaintiff had a duty to inquire into the scope of his authority.3 Recently, the Eleventh Circuit Court of Appeals joined the Second Circuit in requiring the existence of only apparent authority to waive immunity under the FSIA.4
The Fourth Circuit, Fifth Circuit, and Ninth Circuit Courts of Appeals, and the US District Court for Washington, DC, however, have taken a stricter approach, requiring that the individual signing the waiver has actual authority.5 Another recent decision, this time from the Ninth Circuit, is instructive.6 There, the lower court held that the Director General of a Mexican government-owned corporation did not have actual authority to enter into a contract to sell the briny residue of its salt and, therefore, could not have waived the Mexican government’s immunity. The Ninth Circuit rejected the argument that the actual authority requirement should only apply to “public and sovereign” acts, but not “private and commercial” acts.7 The court noted that the Ninth Circuit expressly rejected the Second Circuit’s approach, and reasoned that: (1) the language of the FSIA explicitly required actual authority regardless of whether the activity was commercial or noncommercial; (2) a distinction between “public” and “private” acts would lead to the inconsistent application of sovereign immunity that the FSIA was designed to eliminate; and (3) the third party bears the risk “that the agent is acting outside of the scope of the agent’s authority, even if the third party reasonably believes the agent has authority.”8 Thus, when contracting with a foreign agent in the states within the Fourth, Fifth, and Ninth Circuits,9 or in Washington, DC, contracting parties must be certain that the foreign agent has express authority to enter into such agreement. Courts in federal circuits that have not yet addressed this issue could decide either way, depending on which line of cases they find more persuasive.
In sum, whether an individual has either apparent authority or actual authority is a gate-keeping factual question. There are likely few instances where an individual indisputably has either. But parties contracting with a foreign sovereign can take steps to protect themselves. For example, the non-sovereign party could demand that a high-ranking official such as an ambassador sign the agreement, if possible. Moreover, parties contracting with a foreign sovereign should seek documentation from the country’s ministry of foreign affairs or equivalent department confirming that the individual in question has authority to enter into the agreement. They might also consider hiring an expert in the foreign country’s law to see if the country has statutes or regulations empowering the individual in question to enter into this kind of agreement. None of these methods is foolproof. But they could potentially give a party contracting with a foreign official a better chance at enforcing the agreement in court.
1. 28 U.S.C. §§ 1602 et seq.
2. First Fidelity Bank, N.A. v. Government of Antigua & Baruda-Permanent Mission, 877 F.2d 189 (2d Cir. 1989).
3. 1964 Realty LLC v. Consulate of the State of Qatar-New York, 2015 WL 5197327 (S.D.N.Y. Sept. 4, 2015) (Ramos, J.).
4. Devengoechea v. Bolivarian Republic of Venezuela, 889 F.3d 1213 (11th Cir. 2018).
5. See, e.g., Packsys v. Exportadora De Sal, S.A de C.V., 899 F.3d 1081 (9th Cir. 2018); Dale v. Colagiovanni, 443 F.3d 425 (5th Cir. 2006); Velasco v. Gov’t of Indon., 370 F.3d 392 (4th Cir. 2004); SACE S.p.A. v. Republic of Para. (D.D.C. 2017).
6. Packsys v. Exportadora De Sal, S.A de C.V., 899 F.3d 1081 (9th Cir. 2018).
7. Id. at 1090.
8. Id. at 1090-1092 (internal quotation marks omitted).
9. Maryland, North Carolina, South Carolina, Virginia, West Virginia, Texas, Louisiana, Mississippi, California, Arizona, Nevada, Idaho, Oregon, Washington, and Montana.