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

76 Pages Posted: 2 Mar 2016 Last revised: 27 Apr 2016

Mark C. Weidemaier

University of North Carolina School of Law

G. Mitu Gulati

Duke University School of Law

Date Written: February 28, 2016

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.”

Keywords: soveriegn immunity, sovereign debt, international law

JEL Classification: F34, K12, K33

Suggested Citation

Weidemaier, Mark C. and Gulati, G. Mitu, Differing Perceptions? Market Practice and the Evolution of Foreign Sovereign Immunity (February 28, 2016). UNC Legal Studies Research Paper No. 2739423; Duke Law School Public Law & Legal Theory Series No. 2016-21. Available at SSRN: https://ssrn.com/abstract=2739423 or http://dx.doi.org/10.2139/ssrn.2739423

Mark Weidemaier

University of North Carolina School of Law ( email )

Van Hecke-Wettach Hall, 160 Ridge Road
CB #3380
Chapel Hill, NC 27599-3380
United States
919.843.4373 (Phone)

Gaurang Gulati (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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