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State Breaches of Contracts with Aliens and International Law

Published online by Cambridge University Press:  28 March 2017

Chittharanjan F. Amerasinghe
Chittharanjan F. Amerasinghe*
Affiliation:
Harvard University Law School, Legal Studies at Cambridge University and Trinity Hall Law Studentship
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Extract

It has not been established with sufficient clarity and certainty whether a state commits a breach of international law by breaking a contract made by it with an alien. The question needs an answer. It is not one of an entirely theoretical nature. On the answer to it will depend many important consequences. There are four of special significance. First, if the breach of contract is characterized as a breach of international law, the final arbiter of the question whether there had been a breach of contract and of the extent of that breach would be an international court whether as a court of last resort or otherwise. This is the natural consequence of the fact that it is the organs of enforcement of international society that have the power of finally determining questions relating to the breach of legal norms belonging to that society. Municipal courts would not have the final decision. Secondly, the norms applicable by an international court in making such a decision would be the norms of international law and not necessarily the rules of a municipal system of law. International rules should, of course, be applied in determining whether there has been a breach of international law. Thirdly, questions of evidence and procedure relating to the contract would be governed by international law.

Type
Research Article
Information
American Journal of International Law , Volume 58 , Issue 4 , October 1964 , pp. 881 - 913
Copyright
Copyright © American Society of International Law 1964

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References

1 Reference to breach of contract by a state in this paper must be understood to be confined to public bonds.

2 The rule of international law requiring local remedies in the delinquent state to be exhausted would necessitate reference of the particular issue to the local courts, where such reference was possible breaches of contracts of this kind only, unless otherwise stated. Contractsbetween two states and contracts between aliens and nationals are excluded from this article, and so are and not obviously futile, right up to the top of the hierarchy: see the Panavezys-Saldutiskis Railway Case, P.C.I.J., Ser. A/B, No. 76 (1939), and the Finnish Ships Arbitration, 3 Int. Arb. Awards 1479. Then the international tribunal would be a final court. But where there are no such remedies, or the requirement has been waived with the consent of the delinquent state, the international tribunal will be the first and final court.

3 That such principles do exist requires no proof, and is supported by the facts that (1) often states do ask tribunals to apply “principles of international law, equity and justice” in determining questions of contract submitted for arbitration, see U. S.Mexico General Claims Convention, 1923, Art. I, Treaty Series 1078, 43 U. S. Stat. 1730; and (2) tribunals have purported to apply such principles in making decisions under these compromis: see the Illinois Central Railroad case, note 30 below; and Meron, “Repudiation of Ultra Vires State Contracts and the Responsibility of States,“ 6 Int. and Comp. Law Q. 273 (1957). 4 Case Concerning the Factory at Chorzów (Claim for Indemnity-Merits), P.C.I.J., Ser. A, No. 17 at p. 47 (1928). The case concerned the illegal taking of property by a state. The wording and spirit of the above passage, however, indicate that the Court was speaking of illegal acts in general.

5 See p. 891 below.

6 See, e.g., 1 Fauchille, Traité de Droit International Public 529 (8th ed., 1925); Clarke, “Intervention for Breach of Contract or Tort committed by a Sovereignty,“ 1910 Proceedings, Am. Soe. Int. Law 149, 155; 1 Oppenheim-Lauterpacht, International Law 344 (8th ed., 1954); Hershey, Essentials of International Law 261 (1927); Cavaré, La Protection des Contractuels Reconnus par les Etats à des Etrangers à les Exceptions des Emprunts 27 (1956); Brandon, “Legal Deterrents and Incentives to Private Foreign Investments,” 43 Grotius Society Transactions 39, 54, 55 (1957). See also Sehwebel, “International Protection of Contractual Arrangements,” 1959 Proceedings, Am. Soc. Int. Law 266.

7 Clarke, loo. cit.155; 1 Fauchille, op. cit.529, who says: “ S i la responsabilité des Ėtats peut avoir pour origines des actes d'un caractère delictuel,elle peut résulter également d'obligations contractuelles. L'inexécution d'un engagement qu'ils ont souscrit constitue en effet un manquement à la parole donnée, c'est ádire une violation d'un de leurs devoirs internationaux… . “

8 ” State Contracts and State Responsibility,” 54 A.J.I.L. 572, 590 (1960).

9 Ibid.577-588.

10 “ State Contracts in International Law,” 37 Brit. Yr. Bk. Int. Law 156, 181 (1961).

11 Ibid. 182. 12 E.g.,

12 Hyde, International Law Chiefly as Interpreted by the United States 988; Jessup, A Modern Law of Nations 104, 109 (1948); 3 Whiteman, Damages in International Law 1555, 1558 (1943); Borchard, Diplomatic Protection of Citizens Abroad, Ch. VII; 1 Westlake, International Law 331 (2nd ed., 1910); Decencière-Ferrandière La Responsabilité Internationale des Etats 174 (1925); Hoijer, La Responsabilité Internationale desĖtats 117 (1930); Feller, The Mexican Claims Commissions 174 (1935); 3 Dahm, Vőlkerrecht 210, note 2; Dunn, The Protection of Nationals 165 (1932).

13 2 Hyde, op. cit.990.

14 Dunn, op. cit.165.

15 The distinction has been used by European continental jurisdictions and to a certain extent by U. S. courts in the law of sovereign immunity to determine whether a foreign sovereign is entitled to immunity from suit and has taken the form of distinguishing between acts iure gestionisand acts iure imperii.But they have experienced difficulty in applying it to particular situations and, indeed, the answers that the courts of the different countries have arrived at in similar situations have been conflicting. See Lauterpaeht, “The Problem of Jurisdictional Immunities of Foreign States,” 28 Brit. Tr. Bk. Int. Law 220 (1951). Moreover, it must be remembered that this distinction has not been accepted by common law jurisdictions; see The Porto Alexandre, [1920] P. 30.

16 1957-1958 Proceedings and Committee Reports of the American Branch of the International Law Association 70, 71. For expressions of opinion by other international societies of lawyers see 44 Annuaire de'l'Institut de Droit International 251 ff. (II), and Report of the Conference of the International Bar Association, 1958.

17 P.C.I.J., Ser. C, No. 78, p. 32.

18 See also the Belgian argument in the Electricity Company of Sofia case, P.C.I.J., Ser. C, No. 88, p. 54.

19 2 I.C.J. Pleadings, Oral Arguments and Documents 61. See also ibid63, 181, 182, and 1 Pleadings, Oral Arguments and Documents 34, 404.

20 1 ibid.485; 2 ibid.134.

21 Pleadings, Oral Arguments and Documents 84.

22 See 4 Moore, Digest of International Law 289, 705, 723 (1906); 5 Hackworth, Digest of International Law 611 (1942). For other American practice, see 2 Wharton, A Digest of the International Law of the United States 654 (1886), and material in J. G. Wetter, “Diplomatic Assistance to Private Investment,” 29 University of Chicago Law Eev. 275 (1962).

23 2 McNair, International Law Opinions 202. For British practice see, further, Hall, International Law 334-336 (8th ed., 1924); 2 Phillimore, Commentaries upon International Law (3rd ed., 1888).

24 Drago, 1 A.J.I.L. 692 (1907). See also, for the practice of states, Dulon, 38 Am. Law Eev. 648; for France, Journal officiel du 8 Juin 1907, Débats Parlementaires, Chambre des Députés 1231; for Germany, 1 Martens, Vőlkerrecht 379 (1883). Further, see The Suez Canal Problem, U. S. State Dept. Pub. 6392.

25 Scott (ed.), Reports to the Hague Conferences of 1899 and 1907, p. 492 (1917).

26 Ibid.494, 495.

27 2 I.L.C. Yearbook (1956) 223, citing from L.N”. Doc. C.75, M.69, 1929. V.

28 These drafts are conveniently collected in the Annexes to the Report of the International Law Commission on State Responsibility, 2 I.L.C. Yearbook (1956) 221-230. For another convention, see the Abs-Shawcross Convention, 1961 Current Legal Problems 213.

29 Art. 7. 2 I.L.C. Yearbook (1957) 116-117.

30 See Illinois Central Railroad Co. case (TJ. S. v.Mexico), XT. S. and Mexican General Claims Commission Opinions 1926-1927, p. 15.

31 Ibid.at 17, interpreting Art. I of the General Claims Convention of 1923.

32 See the Illinois Central Railroad Co. case, where the tribunal discussed at length this concept of “international character.“

33 Thus, under the Convention between the TJ. S. and Mexico of April 11, 1839, the Commission sustained a claim in contract for the furnishing of a war vessel in the Samuel Chew Case, 4 Moore, Digest of International Arbitrations 3428 (1898) (cited hereafter as Moore). See also ibid.Ch. 63 passim;1 Hyde, International Law 1004 (2nd ed., 1945); Eagleton, Responsibility of States in International Law 160 (1928); Ealston, The Law and Procedure of International Tribunals 75 (1926); Borchard, Diplomatic Protection of Citizens Abroad 298 (1915).

34 U. S. and Mexican Claims Commission Opinions 1926-1927, p. 15.

35 Ibid.

36 4 Moore 3484.

37 Treaty of Washington, May 8, 1871 (Great Britain-U. 8.), 1 Malloy, Treaties, Conventions, International Acts, Protocols and Agreements 700 (1910).

38 4 Moore 3467.

39 Treaty between TJ. 8. and Mexico, 1868, Art. I, 1 Malloy, op. cit.1128.

40 4 Moore 3467. See also the Leonard T. Treadwell and Co. case (TT. S. v.Mexico), ibid,.3468, where jurisdiction over a claim based on a contract for the sale of arms and munitions was rejected on the same grounds.

41 I n some cases the tribunal has made its jurisdiction depend on whether or not the claimant entered voluntarily into the contract. If he had, the tribunal had no jurisdiction: State Bank of Hartford case (U. S. v.Mexico), 4 Moore 3473. See also the Kearney case (U. S. v.Mexico), 'ibid.3467, where, in the case of a contract for the supply of arms and munitions of war, the tribunal refused jurisdiction. These cases were decided by the same tribunal that decided Pond's case so that the notion of involuntariness may really be a part of the concept of “gross injustice.“

42 See the Illinois Central Railroad Co. case, XT. S.-Mexican Claims Commission Opinions 1926-1927 at p. 16.

43 See, for instance, the case of the Hermon, 4 Moore 3425; Eldredge's case, ibid.3460; Manasse & Co.'s ease, ibid.3462; Boulton, Bliss and Dallett's case, Morris, Report of U. S. and Venezuelan Claims Commission 105.

44 The following treaties are examples of this category. Contract claims were accepted under them: IT. S.-New Granada, 1857, Art. 1, 1 Malloy, op. cit.319; IT. S.Ecuador, 1862, Art. 1, ibid.432; IT. S.-Peru, 1863, Art. 1, 2 ibid.1408; IT. S.-Costa Rica, 1860, Art. 1, 1 ibid.346; IT. S.-Venezuela, 1866, Art. 1, 2 ibid.1856; IT. S.-Peru, 1868, Art. 1, ibid.1411; IT. S.-Mexico, 1868, Art. 1, 1 ibid.1128; IT. S.-France, 1880, Art. 1, ibid.535; IT. S.-Venezuela, 1885, Art. 2, 2 ibid.1860; U. S.-Chile, 1892, Art. 1, 1 ibid.185; France-Venezuela, 1902, Art. 1, Declerq, 22 Becueil des Traitéis de la France (1901-1904) 68; IT. S.-Venezuela, 1903, Protocol, Art. 1, 2 Malloy, op. cit. 1870; IT. S.-Great Britain, 1910, Treaty Series No. 573; IT. S.-Mexico, 1923, Art. 1, ibid. No. 678; IT. S.-Great Britain, 1927, ibid.No. 756 (exchange of notes); IT. S.-Panama, 1926, Art. 1, ibid.No. 842. The following treaties did not admit contract claims as such: IT. S.-Mexico, 1868, Art. 1 (Umpire Thornton's subsequent interpretation based on expediency, which changed the course of decisions), 1 Malloy, op. cit.1128; U. S.-Great Britain, 1871, Art. XII, ibid.700, 705; U. S.-Spain, 1871, par. 5, 2 ibid.1661, 1662; U. S.-Haiti, 1919, Protocol, Art. Ill (4 classes of fiscal claims were excepted in this treaty), Treaty Series No. 643. See also 2 Hyde, op. cit.306.

45 See also the ease of the Hermon, 4 Moore 3425.

46 Ibid.3488. The tribunal was set up by the IT. S.-French Convention of Claims 1880.

47 See Nielsen's reference to this view in his dissenting opinion in the International Fisheries Co. case (U.S.A. v.Mexico), U. S.-Mexico Claims Commission Opinions 1930- 1931, pp. 207, 241, and Commissioner Findlay in the Venezuelan Bond eases, 4 Moore 3616, 3649.

48 The Aboilard case, 12 Rev. Gén. de Droit Int. Public, Documents 12 (1905), and Hemmings case, Nielsen's Report 617 (1926), 15 A.J.I.L. 292 (1921), seemto support this view, but even they can probably be explained.

49 25 A.J.I.L. 554 (1931).

50 This was the first conclusion stated above, p. 881, which must follow, if a breach of contract were a breach of international law.

51 25 A.J.I.L. 554 (1931).

52 This was the second conclusion stated above, p. 881, which followed if a breach of contract were a breach of international law.

53 “The Arbitral Tribunal will now examine the question whether ‘in the action brought against Martini & Co., before the Federal Court of Cassation … there was a denial of justiceor manifest injustice.’ “25 A.J.I.L. 564, at 565 (1931).

54 Italics added.

55 U. S.-Mexican Claims Commission Opinions 1926-1927, p. 17.

56 U. S.-Mexico Claims Commission Opinions 1930-1931, p. 207.

57 Ibid.at 218.

58 Ralston's Report of the French-Venezuelan Mixed Claims Commission, 1906, p. 244.

59 Ibid. 185.

60 Ealston's Report 771 (1904).

61 Ibid. 63.

62 La Fontaine, Pasicrisie Internationale 544 (1902).

63 Ibid 606.

64 Ibid.397.

65 1897 IT. S. Foreign Relations 461.

66 1900 U. S. Foreign Relations 659.

67 The important cases on which considerable reliance has been placed by the authorities, such as Eagleton, op. cit.at 167, are the International Fisheries case, note 56 above (Commissioner Nielsen's dissenting opinion), and the Venezuelan Bond eases, 4 Moore 3616 (Commissioner Findlay's opinion).

68 Morris, Report of U. S. and Venezuelan Claims Commission 415.

69 Ibid,at 423.

70 Ibid.at 423, 426.

71 Hid.at 426.

72 Ibid.at 431 and especially at 432.

73 4 Moore 3548.

74 Ibid.3555. It would seem that Commissioner Findlay was more concerned with the question whether the state of the injured national has an obligation to intervene— a different aspect of state responsibility. In stating that there is such an obligation, as opposed to a right or power to intervene, the learned Commissioner is unorthodox, to say the least. .

75 Italics added.

76 ‘ ‘Conceding now … that good faith as between nations binds the state as a personality to fulfil the terms of its private contracts, or pay damages for their non-fulfillment … “ (Italics added). laid.3555.

77 “But, however this question may stand on principle it cannot be doubted that, if the present claim was valid in other respects, it would be the duty of the commission, under the convention between the TJ. 8. and Venezuela, to make an allowance of damages sufficient to compensate for the wrong, notwithstanding that it originated in a breach of private contract between a citizen of one state and the government of another.” 4 Moore 3555.

78 Analogy is not a panacea in the law. The relevance and success of its use depends, among other things, on the similarity of purpose between the relevant fields of law. The relevance of this analogy is discussed below at p. 899.

79 4 Moore 3616.

80 Ibid.3649. Eagleton places much reliance on this passage, op. cit.167.

81 As the reference to “ a refusal to pay an honest claim” indicates.

82 Commissioner Findlay: “The great question that confronts us on the threshold of this case is: Whether by the use of the terms under which this commission has been created it was the intention of the United States to demand and Venezuela to assent to a submission of a portion of her public debt to the decision of this body as one of the claims agreed to be referred within the clear intent and purview of the treaty!“ 4 Moore 3643; also Commissioner Little, ibid.3626.

83 See note 1 above.

84 Such as any that international law may provide.

85 See the Serbian Loans case, P.C.I.J., Ser. A, No. 20 (1929), at p. 41. Those cases in which tribunals decided cases by reference to “principles of international law, equity and justice” in virtue of the compromis(see above, at p. 888), probably did so by the use of what may be called general principles derived by analogy; see Cheng, General Principles of Law as Applied by International Courts and Tribunals passim, especially at 143. However, it has been contended that general principles of law may govern a contract between a state and an alien; see Meron, loc. cit.note 3 above, at 276. In that case it may be argued that, where international law is the law governing the contract, a breach of contract is a breach of international law as well. No cases have arisen, however, in which this solution has been offered. The idea raises numerous difficulties such as, inter alia,what law governs the choice of “international law” as the governing law.

86 Commissioner Findlay in the Venezuelan Bond eases, p. 896 above

87 U. S.-Mexico Claims Commission Opinions 1930-1931, p. 207.

88 Ibid.at 219.

89 Morris, op.cit.451 at 500.

90 Ibid.at 462, 505.

91 lbid.at 472.

92 Ibid,at 505.

93 1902 U.S Foreign Relations 859.

94 Ibid.at 871.

95 Ibid,at 870. On the facts of the case the correctness of this conclusion is open to doubt, but this is not in issue for our present purpose.

96 1 Hyde, op. cit.at 549, note 1.

97 Walter's case (U.S.A. v.Venezuela) (1885), 4 Moore 3567; Moses case (U.S.A. v.Mexico) (1868), ibid.3465.

98 lbid.

99 U. S.-Mexico Claims Commission Opinions 1930-1931, at 241. See also Nielsen in the Cook case (U. S. v.Mexico), 4 Int. Arb. Awards 213 at 214, in the Dickson Car Wheel Co. case (U. S. v.Mexico), ibid.669 at 686, and in the American Bottle Co. case (U. S. v.Mexico), ibid.435 at 438; and see statements in the following cases decided under the American-Turkish Claims Settlement of 1923, which required that the Commission proceed to a “summary examination of the claims“: the Ina M. Hoffman and Dulcie H. Steinhardt case, American-Turkish Claims Settlement 286 at 287; Socony Vacuum Oil Co. Inc. case, ibid,at 374, Singer Sewing Machine Co. case, ibid,at 491; Malamatinis case, ibid,at 605. No attempt is made to distinguish all these statements individually but they can all be distinguished on the basis of the terms of the compromisor as dissents, or the statements in them are acceptable as applied to breach by legislation which was the issue in the case (see p. 908 below for this).

100 see p. 893 above for majority opinion.

101 The Peter D. “Vroom case (IT. S.-Mexico) 1841, 1 Lapradelle-Politis, Reeueil des Arbitrages International!* 461,

102 See p. 908 below

103 ‘ ‘ The Proper Law of Contracts Concluded by International Persons,'’ 35 Brit. Yr. Bk. Int. Law 34, 43 (1959).

104 1 Int. and Comp. Law Q. 247, 251 (1952).

105 A Modern Law of Nations 139 (1948).

106 Private International Law 417 (1950), and “Some Observations on the Autonomy of Contracting Parties in the Conflict of Laws,” 35 Grotius Society Transactions 143, 150-152 (1950).

107 “Legal Aspects of State Trading,” 25 Brit. Yr. Bk. Int. Law 44, note 3 (1948).

108 Law in a Changing Society 472 (1959), and 50 A.J.I.L. 483, 484 (1956).

109 U. S.-Mexico Claims Commission Opinions 1930-1931, p. 219.

110 Commission of Arbitration, Ambatielos Case, Greece v.U.K., Award March 6th 1956 at p. 20 (H.M. Stationery Office).

111 Ibid.

112 50 Brit. & For. State Papers (1859-1860) 1288 at 1290.

113 For an analogous situation exempting the alien from exhausting local remedies where there has been violation of an international obligation, see The Robert B. Brown case (U. S. v.Great Britain), 19 A.J.I.L. 193 (1925).

114 4 Moore 3491.

115 Whether the obligation of the state and the corresponding right of the alien are changed in whole or part or a different obligation and right substituted for the old one, in any of these cases the existing right is taken away.

116 It is clear that this amounts to a rejection of the theory that contracts can never be regarded as property for the purposes of the international rules relating to confiscation (c/. Friedman, Expropriation in International Law 153 (1955)), at any rate as far as breach of contract by legislation is concerned.

117 For rules of international law relating to confiscation of property, see 1 Lauterpacht, Oppenheim's International Law 351 and note 1 (8th ed., 1954).

118 This would not affect the rule relating to exhaustion of local remedies, which would in this case be a procedural requirement, prior to the presentation of claims before an international tribunal: see Judge Lauterpacht's approach in the Case of Certain Norwegian Loans, [1957] I.C.J. Rep. at 39.

119 2 Int. Art. Awards 1083.

120 Ibid.1095.

121 4 Int. Art. Awards 41 at 46.

122 Ibid.213 at 215.

123 Illinois Central Railroad Co. case, note 34 above.

124 4 Int. Art. Awards at 217.

125 P.C.I.J., Ser. A/B, No. 76.

126 P.C.I.J., Ser. A, No. 20, at 41.

127 [1957] I.C.J. Rep. at 36. See also Judge Basdevant, dissenting, ibid,at 48, and Judge Bead, dissenting, ibid,at 86. The majority of Court upheld the objection to its jurisdiction based on a reservation to the declaration by one of the parties accepting the Court's jurisdiction under Art. 36 (2) of the Statute. It did not, therefore, consider the point discussed above.

128 See also the British Government's argument in the Anglo-Iranian Oil Co. case —Pleadings, Oral Arguments and Documents, I.C.J., 1952, 83, at 93.

129 International Fisheries Co. case, U. S.-Mexico Claims Commission Opinions 1930- 1931 at p. 218; see p. 893 above

130 [1957] I.C.J. Rep. at 33

131 This does not mean that local remedies need not be exhausted. But the reference to state courts will serve a preliminary procedural function; see Fawcett, “The Exhaustion of Local Remedies: Substance or Procedure?”, 31 Brit. Yr. Bk. Int. Law 452 (1954). The state courts will be the first in the hierarchy of courts and the international tribunal the last. The proceedings in the international court will be by way of quasi-appeal on the merits.

132 Above at pp. 891 ff.

133 “The Arbitral Tribunal hence is only competent to judge whether, by its decision in the Martini Case, the Federal Court of Cassation of Caracas has rendered “Venezuela liable according to the treaty of 1861. It is a question for the Arbitral Tribunal to judge the attitude of the Court of Caracas by reference to the treaty.” 25 A.J.I.L. 564 (1931). This competence was held to exist as opposed to the general competence to examine the question whether the treaty had been infringed dehorsits relation to the contract. The language of the tribunal seems to indicate that it is the decision that would have rendered Venezuela liable, while in fact the decision could only have continued the liability but could not have destroyed it by pronouncing the original act not a breach of contract and so not a breach of treaty. It is in this sense that the tribunal's pronouncements must be understood, notwithstanding the actual words used.

134 The tribunal decided the point regarding the treaty in the defendant state's favor on the grounds that (1) the claimant had not raised it in the proceeding before the Caracas court; and (2) the treaty did not give the claimant a right on which he could rely at international law without his state's actually claiming it before such proceedings. Both grounds relate to the question whether local remedies had been exhausted in relation to the breach of treaty and not as to whether there had, in fact, been a breach of international law by the granting of the monopoly which caused the breach of contract, which is the aspect of the case that concerns us here. Both the above points relate to the procedural methods to be followed in obtaining redress for a breach of international law. The correctness of these points is not in issue.