Differing Perceptions? Market Practice and the Evolution of Foreign Sovereign Immunity

Abstract

The 20th century witnessed a transformative, “tectonic” shift in international law, from “absolute” to “restrictive” theories of sovereign immunity. As conventionally understood, however, this dramatic transformation represented only a shift in the default rule. Under absolute immunity, national courts could not hear lawsuits and enforce judgments against a foreign sovereign without its consent. Under restrictive immunity, foreign sovereigns were presumptively not immune when they engaged in commercial acts. We demonstrate that market practices undermine this conventional understanding. Using an extensive, two-century data set of contracts between foreign governments and private creditors, we show that contracting parties have long treated absolute immunity as akin to a mandatory rule, which they could not reliably change by contract. By contrast, we show that the Foreign Sovereign Immunities Act in the U.S. and the State Immunities Act 1978 in the U.K. — two statutes largely overlooked by international law scholarship — fundamentally reordered a global market for contracts. We explore why the conventional narrative, which relies on analysis of traditional legal materials, is at such odds with the “law on the ground.”