When worlds collide

THE failure of many government-owned shipping lines over the last decade has been a matter of concern to private-sector shipowners, charterers, lenders, equipment lessors and suppliers who have conducted business with them. Long before their inevitable march to the courthouse begins, companies having potential maritime claims against foreign government-owned shipping lines must consider at least two issues involving the pursuit of such claims in the United States. First, what rights and remedies are available to them under US law? Second, how are those rights and remedies affected, if at all, by the foreign governmental identity of the shipping line?

Traditional maritime rights and remedies

As a general rule, a maritime claimant has a broad range of rights and remedies in the US. First, a maritime claimant may start a civil action in a US federal court under the admiralty and maritime jurisdiction of the court.

Second, a maritime claimant who brings an action in a US federal court may obtain security for its claim by attaching moneys or assets belonging to its opponent pursuant to Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure.

Third, as an additional or alternative remedy, a maritime lien claimant may bring an arrest action under Rule C of the supplemental rules against a ship or other maritime property which may have independent in rem liability with respect to the underlying claim.

Finally, a maritime claimant who obtains a federal court judgment can enforce the judgment with relative speed and efficiency against assets, property, moneys and credits belonging to the judgment debtor located throughout the US. These powerful rights and remedies make the US federal courts the forum of choice for many maritime claimants around the world.

The Foreign Sovereign Immunities Act

Traditional maritime rights and remedies available in the US can be delayed or effectively denied, however, when their enforcement is sought against a foreign state which enjoys immunity under the Foreign Sovereign Immunities Act. Originally enacted in 1976, the FSIA is a comprehensive federal statute which regulates the jurisdiction of courts to hear and decide cases against foreign states. The FSIA provides the sole basis for obtaining jurisdiction over a foreign state in the US. (Argentine Republic v Amerada Hess Shipping Corp, 488 US 428, 434, 1989).

Foreign states under the FSIA

The FSIA applies to "foreign states." Under the FSIA, a foreign state is broadly defined to include a "political subdivision of a foreign state" or an "agency or instrumentality of a foreign state." The FSIA defines an "agency or instrumentality of a foreign state" to mean any entity:

  • (i) which is a separate legal person, corporate or otherwise, and
  • (ii) which is an organ of a foreign state or a political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and
  • (iii) which is neither a citizen of a state of the United States, nor created under the laws of any third country.

Foreign government-owned shipping lines are often established as agencies or instrumentalities of a foreign state for FSIA purposes. (O'Connell Machinery Co v MV Americana, 1984 AMC 2200, 2202, 2d Cir 1984). Second, so-called "controlled carriers" regulated by the Federal Maritime Commission are considered "foreign states" for FSIA purposes.

Jurisdictional immunity

The FSIA provides foreign states with general immunity from the jurisdiction of US federal and state courts. Such immunity is subject to "existing international agreements to which the United States is a party." Jurisdictional immunity is also subject to certain codified exceptions.

Exceptions to jurisdictional immunity

The FSIA contains a number of exceptions to the general grant of jurisdictional immunity. These include the following, which often come into play in maritime cases involving an FSIA defendant:

Waiver of immunity by foreign state. A foreign state may waive jurisdictional immunity "either explicitly or by implication." An implicit waiver usually occurs in one of several situations: (a) the foreign state has agreed to arbitration in another country; (b) the foreign state has agreed that the underlying contract is governed by the laws of a particular country; and (c) the foreign state has filed a responsive pleading without raising immunity as a defence. (Coleman v Alcolac, Inc, 888 F Supp 1388, 1403, S D Tex, 1995).

Commercial activity by the foreign state. There are three variations on the so-called commercial activity exception. First, a foreign state is not immune from suit which is "based upon a commercial activity carried on in the United States by the foreign state." Second, a foreign state is not immune from suit which is based upon "an act performed in the United States in connection with a commercial activity of the foreign state elsewhere." Third, a foreign state is not immune from suit which is based upon an "act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that effect causes a direct effect in the United States."

A recurring issue in commercial activity cases involves the question of whether a particular commercial activity performed by the foreign state outside the US has a "direct effect" in the United States. In Republic of Argentina v Weltover, 504 US 607, 1992, the US Supreme Court established that "an effect is 'direct' if it follows 'as an immediate consequence of the defendant's . . . activity.' " The Supreme Court rejected an additional requirement - previously adopted by several of the courts of appeals ­ that the effect be "foreseeable" or "substantial." (Voest-Alpine Trading USA Corp v Bank of China, 142 F 3d 887, 893, 5th Cir, cert denied, 119 S Ct 591, 1998). Notwithstanding the Supreme Court's consideration of the direct effect requirement, disagreement still exists in the lower courts concerning its application.
Agreements to arbitrate. A foreign state is not immune from suit which, as a general matter, is brought in the US to enforce an arbitration agreement or confirm an arbitration award. (US Titan v Guangzhou Zhen Hua Shipping Co Ltd, 1999 AMC 863, 868, SDNY, 1998).

Personal injury or death and property damage. A foreign state generally is not immune from suit "in which money damages are sought against the foreign state for personal injury or death, or damage to or loss of property, occurring in the United States and caused by the tortious act or omission of that foreign state or of any official or employee of that foreign state while acting within the scope of his office or employment."

Enforcement of maritime liens. A foreign state is not immune from suit in the US which is brought to enforce a maritime lien against a vessel or cargo of the foreign state, which is based upon a commercial activity of the foreign state, provided that notice of the suit is delivered in the manner and time prescribed by the FSIA. This exception to jurisdictional immunity, however, does not authorise the pre-judgment arrest of a vessel or cargo owned by a foreign state in contravention of the attachment and arrest immunities contained elsewhere in the FSIA. (Coastal Cargo Co v M/V Gustav Sule, 1997 AMC 193, 198-99, E D La 1996).

Foreclosure of preferred ship mortgages. A foreign state is not immune from suits which are brought to foreclose a preferred ship mortgage under the Ship Mortgage Act. Suits to foreclose preferred ship mortgages against vessels owned by a foreign state shall be "brought, heard and determined in accordance with the provisions of . . .the Ship Mortgage Act and in accordance with principles of law and rules of practice of suits in rem, whenever it appears that, had the vessel been privately owned and possessed, a suit in rem might have been maintained."

Venue for FSIA suits

The FSIA does not specify the appropriate venue for FSIA suits. Venue issues are addressed in Section 1391(f) of the Judiciary Act, which provides that an action against a foreign state may be brought:

  • (i) in any judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated;
  • (ii) in any judicial district in which the vessel or cargo of a foreign state is located, if the claim is brought to enforce a maritime lien;
  • (iii) in any judicial district in which the agency or instrumentality is licensed to do business or is doing business, if the action is brought against an agency or instrumentality; or
  • (iv) in the United States District Court for the District of Columbia if the action is brought against a foreign state or political subdivision thereof.

Service of process and time to answer

The FSIA has one set of internal requirements governing service of the summons and complaint upon a foreign state or a political subdivision of a foreign state. The FSIA has another set of internal requirements governing service of the summons and complaint upon an agency or instrumentality of a foreign state. These requirements are the exclusive means by which service of process may be made upon an FSIA defendant. (Seramur v Saudi Arabian Airlines, 934 F Supp 48, 51-2 ,EDNY, 1996).

In the case of actions against foreign state-owned shipping lines, which qualify as agencies or instrumentalities of a foreign state, there are two principal service of process points to remember. First, the FSIA allows delivery of the summons and complaint in accordance with "any special arrangement for service" between the plaintiff and the defendant. Second, in the absence of a "special arrangement," service may be made by certain other methods, including "delivery of a copy of the summons and complaint either to an officer, a managing or general agent, or to any other agent authorised by appointment or by law to receive service of process in the United States" or "in accordance with an applicable international convention on service of judicial documents."

In most cases under the FSIA, service "shall be deemed to have been made . . . as of the date of receipt indicated in the certification, signed and returned postal receipt, or other proof of service applicable to the method of service employed." The FSIA defendant must serve its answer or other responsive pleading within sixty days after service has been made.

Default judgments are not permitted against FSIA defendants "unless the claimant establishes his claim or right to relief by evidence satisfactory to the court." A copy of any such default judgment must be sent to the FSIA defendant "in the manner prescribed for service" under the FSIA. A default judgment which is not served on an FSIA defendant is voidable by the court because, as one court has stated, the "requirement of service is a condition subsequent to the entry of judgment." (Antoine v Atlas Turner, Inc, 66 F 3d 105, 109, 6th Cir, 1995).

Liability of a foreign state

In cases where a foreign state is not entitled to jurisdictional immunity under the FSIA, the foreign state "shall be liable in the same manner and to the same extent as a private individual under like circumstances." The principal exception to this rule involves the award of punitive damages. Although the FSIA allows punitive damages against agencies or instrumentalities of a foreign state, it prohibits punitive damages against a foreign state, except in limited circumstances.

Immunity from attachment and execution

The FSIA provides foreign states with general immunity from attachment, arrest or execution of or upon their property in the United States. A vessel which is bareboat-chartered to a foreign state may be treated as property of the foreign state for purposes of Section 1609. The general grant of immunity under Section 1609 is subject to "existing international agreements to which the United States is a party." The immunity from attachment and execution is also subject to certain codified exceptions.

Exceptions to immunity from attachment or execution

The exceptions to immunity from attachment and execution are organised around three distinct concepts: (i) post-judgment attachments and executions; (ii) pre-judgment attachments; and (iii) foreclosures of preferred ship mortgages: There is one important footnote to the exceptions to immunity from attachment and execution contained in the FSIA. The statute specifically provides that property of a "foreign central bank or monetary authority held for its own account" is immune from execution and attachment unless "such bank or authority, or its parent foreign government, has explicitly waived its immunity from attachment in aid of execution, or from execution."

There are two points to emphasise with respect to this provision. First, it only immunises from attachment and execution funds which are held or used in connection with central banking activities. It does not immunise from attachment and execution funds held by central banks "to finance the commercial transactions of other entities or of foreign states."

Second, the provision does not permit a foreign central bank to waive immunity from pre-judgment attachment of bank funds held for its own account.