State-Funded Companies: Can States Sue?

International law is a complex field, and the ability of a state to sue a state-funded company varies across jurisdictions. In the United States, for instance, a state can sue a foreign company funded by a federal agency if the company has a physical presence in the state, such as a corporate office or a registered agent. However, the basis for the suit, such as a breach of contract, is more critical than the source of the company's funding. Internationally, an investor-state dispute settlement (ISDS) system exists, allowing foreign investors to challenge government decisions affecting their investments. This has resulted in multinational corporations suing countries for significant damages, including for alleged lost profits and expected future profits. Understanding the specific laws and jurisdictions involved is crucial before initiating any legal action.

Can a state sue a state-funded company (international law)?

Suing a foreign state

However, there are exceptions to this rule, and under specific circumstances, it may be possible to sue a foreign state. One such exception is when the foreign state has waived its sovereign immunity. This can occur through express or implied waiver, where the state voluntarily agrees to submit to the jurisdiction of another state's courts or takes an action that indicates its willingness to do so.

Another factor to consider is the nature of the dispute and the applicable law. International investment treaties and free-trade deals, such as the Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States, often include provisions that allow foreign investors to challenge government decisions affecting their investments. This is known as investor-state dispute settlement (ISDS) and has been the subject of controversy, with critics arguing that it gives foreign companies more rights than domestic companies and hinders a state's ability to regulate in the public interest.

Additionally, the location of the lawsuit is crucial. In most cases, to sue a foreign state, one must initiate the legal process within the borders of the country being sued. This can be a challenging and complex process, requiring expertise in international law and an understanding of the local legal system. Seeking legal advice from attorneys or international law lawyers familiar with the laws of the foreign state is highly recommended.

It is worth noting that the ability to sue a foreign state may also depend on the specific circumstances and the relationship between the countries involved. For example, a US citizen suing a foreign company that has raised funds through the US Development Finance Corporation may have a basis for a lawsuit in the event of a breach of contract. However, this would depend on the specifics of the case and the jurisdiction of the US courts over the foreign company.

Investor-state dispute settlement

ISDS is typically granted through international investment agreements between the investor's home state and the host state. These agreements can be found in bilateral investment treaties (BITs), international trade treaties, or other treaties. For example, the 2019 United States-Mexico-Canada Agreement includes ISDS provisions. To bring an ISDS claim, both the home state of the investor and the state where the investment was made must have agreed to ISDS. The investor must also have an investment in a foreign state and must argue that the state has violated rights granted to them under a treaty or agreement.

ISDS cases are often brought under the rules of various international arbitration institutions, such as the International Centre for Settlement of Investment Disputes (ICSID) of the World Bank, the London Court of International Arbitration (LCIA), and the United Nations Commission on International Trade Law (UNCITRAL).

ISDS has been criticised for its perceived failures, including investor bias, inconsistent or inaccurate rulings, high damage awards, and high costs. There have been calls for reform, particularly in Europe, where it has become a contentious issue in negotiations over the Transatlantic Trade and Investment Partnership (TTIP) deal between the European Union and the United States.

Despite the criticism, proponents of ISDS argue that it provides speedy dispute resolution, which is critical in modern economic environments. Additionally, according to the International Bar Association (IBA), as of June 2017, states have won a higher percentage of ISDS cases than investors, and only 8% of proceedings are commenced by very large multinational corporations. IBA also notes that ISDS is necessary even in countries with sophisticated domestic legal systems because those domestic courts rule according to domestic laws, not international law.

Sovereign immunity

The doctrine of sovereign immunity is not absolute and has several exceptions. For example, if state or local government entities receive federal funding, they cannot claim sovereign immunity if they are sued in federal court for discrimination. Additionally, under the Foreign Sovereign Immunities Act, foreign governments and state-owned companies are immune from lawsuits except in relation to certain actions related to commercial activity in the United States.

In some cases, sovereign immunity may be waived by law or voluntarily by the state. For example, in C & L Enterprises, Inc. v. Citizen Band, Potawatomi Indian Tribe of Oklahoma, the Supreme Court held that sovereigns are not immune under the Federal Arbitration Act. In another case, Doe v. Nebraska, the appellate court held that as long as the state entity receives federal funding, sovereign immunity for discrimination cases is waived.

The Supreme Court's decision in Ex parte Young serves as an exception to the general doctrine of state sovereign immunity, allowing plaintiffs seeking prospective relief to sue state officials. However, in Ex parte New York, the Court held that states are immune to lawsuits based on admiralty jurisdiction, meaning private citizens generally cannot sue a state in federal court without the state's consent.

Jurisdiction

In the context of international law, jurisdiction typically addresses questions of criminal law, leaving civil jurisdiction to national control. The territorial principle grants states exclusive authority to handle criminal matters arising within their territories. However, this principle has been modified to permit officials from one state to act within another state in certain circumstances. For example, the passive personality principle allows states to claim jurisdiction to try a foreign national for offences committed abroad that affect their citizens. This principle has been used by the United States to prosecute terrorists and arrest foreign leaders, such as the leader of Panama, Manuel Noriega.

International law provides various methods for settling disputes peacefully, and certain bodies, such as the International Court of Justice (ICJ), have advisory jurisdiction to offer opinions on legal questions put to them by authorised bodies. The ICJ has ruled on significant cases, including territorial disputes between nations, while other international judicial bodies, such as the European Court of Human Rights and the International Tribunal for the Law of the Sea, also play crucial roles in international dispute resolution.

In the specific scenario of a state suing a state-funded company, jurisdiction becomes more complex. While a state's courts may have jurisdiction over a company established under its laws or headquartered within its territory, the mere existence of funding from a state agency does not automatically grant its courts jurisdiction over a foreign company. The concept of “specific jurisdiction” comes into play, requiring the party being sued to have purposefully availed itself of the laws of the state where the court is located.

Additionally, in the case of a breach of contract between a state-funded entity and a foreign company, the basis for the suit and the specific jurisdiction involved would be crucial factors in determining the potential for a lawsuit in that state.

International law lawyers

One area of focus for international law lawyers is international trade and regulatory issues. They assist clients in understanding and complying with the laws governing the import and export of goods, facilitating cross-border commercial transactions. This includes helping clients navigate the intricate web of policies and agreements that shape international trade, such as free-trade deals and international investment treaties.

In recent times, a notable aspect of international law has been the ability of corporations to sue sovereign states. This development has raised concerns, with some arguing that it has gotten "dangerously out of control." International law lawyers play a crucial role in this context, representing either multinational corporations or sovereign states in these complex disputes. These lawsuits often involve significant financial stakes, with corporations seeking compensation for actual or expected lost profits.

The work of international law lawyers is further enhanced by their cultural understanding and linguistic capabilities. Recognized law firms in this field, such as Dickinson Wright, emphasize the importance of cultural sensitivity in international business transactions. Their teams often include foreign-licensed lawyers, foreign law authorities, and members fluent in multiple languages, ensuring effective representation for clients operating in diverse cultural and legal environments.

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