Republic of Argentina v. Weltover, Inc.

504 U.S. 607

Facts
a. In 1981, Argentina engaged in a foreign exchange insurance contract
program (FEIC). Because the Argentine currency is not one of the accepted
mediums of foreign exchange this allowed them to exchange a contractually
determined amount of local currency and to repay these debts in US dollars.
b. By 1982, when the debts were due, Argentina could not pay back enough of
the debts in US dollars. Consequently, the Argentine Government issued
bonds, called Bonods to provide for interest payment and principal in US
dollars. However, in 1986 when the Bonods matured, the Argentine
government unilaterally extended the time for payment and created
substitute instruments to reschedule debt payment.
c. Two Panamanian corporations and a Swiss Bank Holder, owed $1.3 million of
Bonods demanded full payment in New York. Argentina refused and was
brought to the US District Court for the Southern District of New York on the
Foreign Sovereign Immunities Act of 1976 (FSIA).
d. Argentina claimed that the case lacked subject matter jurisdiction, personal
jurisdiction and raised questions of sovereignty. Argentina also argued that
finding jurisdiction in this case would be in violation of the Due Process
Clause of the Fifth Amendment.
Questions
a. Do US Courts have jurisdiction over this case involving the breach of
contract?
b. Is the issuance of Bonods by the Argentine government to cover debts to be
handled in New York sufficient enough to constitute a commercial activity
and direct effect?
c. Does Argentina qualify for sovereign immunity?
d. Does finding jurisdiction in this case violate the Due Process Clause of the
Fifth Amendment, as claimed by Argentina?
Decisions
a. The Court ruled that it did indeed have jurisdiction for the case. Under the
FSIA, a foreign state can be subject to American courts when there are acts
taken in connection with a commercial activity and which have a direct
effect in the United States.
b. The issuance of the Bonods is the government action constituting a
commercial activity since it could be purchased by private parties, were
negotiable and traded on the international market. The government was
acting as a private actor in commerce rather than as a State. Unilaterally
rescheduling these bonds directly affects the US because their accounts for
repayment were located in New York. Additionally, Argentina had a financial
agent in New York where all debt negotiations and instruments were also
located.

c. Argentina does not qualify for sovereign immunity under the FSIA. The
Argentine government was acting as a private actor engaged in commerce,
rather than a State.
d. Finding jurisdiction does not violate the Due Process Clause. The Court ruled
that Argentina fulfills the minimum contacts test established in
International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) case. The
issuing of negotiable debts in US dollars, payable in New York and by
appointing a financial agent in New York qualifies as enough activities within
the US to suffice as minimum contacts.
Principles
a. The key international law principles in this case are sovereign immunity
(more specifically, restrictive immunity) under the Foreign Sovereign
Immunities Act.
b. The US Courts affirmed that Argentina was indeed engaging in a commercial
activity that directly affected the US, citing the third clause of section 1605 in
the Foreign Sovereign Immunities Act.
c. This being confirmed, Argentina no longer was acting as a State and
sovereign immunity is restricted under the Foreign Sovereign Immunities
Act allowing US courts to hear the case.
Conclusion
Under the FSIA, Argentina does not receive sovereign immunityit is restricted due
to its demonstrated participation in a commercial activity. This act establishes that
all states should be immune independent of defined areas of exception. Commercial
activity is one of those exceptions allowing for suit to be brought under US courts.
This case helps to clarify the definition of commercial activity. It is the nature of
this activity that countsnot the purpose. The nature of Argentinas action was
commercial (issuing bonds). The purpose of achieving profit and other sovereign
objectives are not the focus of the FSIA. The case fundamentally demonstrates the
nature of restrictive sovereign immunity when a foreign state engages in a
commercial activity.
Bibliography
Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992).
International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
Submitted
Khara Boender, October 8, 2009