abstract. Under current foreign sovereign immunity doctrine, sovereigns are not immune from suit when they engage in “private” acts, such as entering into contracts—in other words, when they act as participants in, rather than regulators of, the market. This Note argues that the distinction between a state’s public and private acts is far less stable and clear-cut than it first appears. Many acts in which sovereigns engage are of a mixed nature. Choosing to see an act or transaction as essentially private or public often obscures other features that complicate that characterization.

U.S. courts have applied foreign sovereign immunity law in such a way as to selectively recognize the private aspects of such transactions, thereby enabling private actors to bring foreign sovereigns into U.S. courts. This has disproportionately affected Global South nations, where the state is more likely to be involved in the economy and to enter into contracts with private parties to accomplish important sovereign aims. This is a dynamic that I call subordination through private-law adjudication. However, in the longer history of foreign sovereign immunity law, I also argue that simply expanding the category of public law cannot decisively end the subordination of Global South sovereigns in transnational and international law.

author. A.B., Harvard College; M.Phil, D.Phil, University of Oxford; J.D. expected 2024, Yale Law School. I would like to thank Professor Aslı Ü. Bâli, who has read more drafts of this Note than I can count, and fellow students in her Third World Approaches to International Law (TWAIL) Seminar, as well as the students in her Advanced TWAIL Directed Research Seminar. I would also like to thank Professors Amy Kapczynski, Congyan Cai, Daniel Markovits, and Samuel Moyn, as well as Ali Hakim, Chloe Miller, Doruk Erhan, Jeff Gordon, and Mark Firmani. I owe special thanks to Sachin Holdheim, a paragon of clarity, as well as to Raquel Leslie, Dena Shata, and the editors of the Yale Law Journal for their exceptionally thoughtful engagement with this Note.

Introduction

In the wake of the COVID-19 pandemic, sovereign debt in developing countries ballooned to unprecedented levels. According to one estimate from 2021, the global pandemic added $24 trillion to global debt, a number that is estimated to be even higher by the time of this Note’s publication.1 A second estimate suggests that the global debt burden increased by more in 2020 than in any other year since World War II.2 Because it is difficult for countries to service these bloated debts, commentators predict a wave of defaults across low- and middle-income countries.3 Defaults are likely, in turn, to trigger litigation against those sovereigns for repayment, initiated by private investors in the Global North who collectively hold more than half of all developing country debt.4

Litigation against sovereigns in response to debt defaults tends to follow a standard formula. According to one report published by the New York Times, about fifty percent of sovereign-debt crises involve litigation, and most of such litigation involves a hedge fund plaintiff.5 These hedge fund plaintiffs are not the original creditors of the sovereigns. Instead, they purchase “distressed” debt—debt that the debtor is unlikely to be able to repay in full—on the secondary market, for a fraction of its original value.6 By suing for full repayment on the original terms of the bonds, they can make profits of up to 300%-400%.7 These suits usually take place in U.S. courts, and specifically courts in New York such as the District Court for the Southern District of New York (S.D.N.Y.). This is because more than half of debt contracts between private creditors and developing nations are governed by New York law.8

In this most recent wave of sovereign debt crises, private creditors of indebted sovereigns have already started to bring suits for repayment. Hamilton Reserve Bank filed a suit against Sri Lanka in S.D.N.Y. after Sri Lanka defaulted on its debt in 2022.9 The bank filed this suit even before preliminary restructuring negotiations between Sri Lanka and its creditors were complete, and the bank refused to participate in any such negotiations.10 Ultimately, the court granted Sri Lanka’s request to stay the proceedings for six months while it engaged in negotiations with creditors. However, the court also recognized that the plaintiff bank could renew its motion for summary judgment after the end of the stay, and that if it prevailed on its claims it would be eligible to claim prejudgment interest.11

While it may seem unsurprising that litigation against debtors often takes place in the location of one of the world’s largest financial markets, such litigation in domestic courts against sovereign states is a relatively new phenomenon. The legal framework for it was only established in the 1980s, in the wake of an earlier wave of defaults by indebted sovereigns.12 For creditors and investors to sue sovereign states in U.S. courts, they had to overcome the legal principle of foreign sovereign immunity: the idea that sovereigns could not be sued in the domestic courts of other countries. Until the 1950s, this doctrine posed a nearly insurmountable barrier to suing foreign sovereigns in U.S. courts. That reality was disrupted when U.S. law established a “commercial exception” to foreign sovereign immunity, which abrogated foreign sovereign immunity when states acted in their “private” or commercial capacities, such as by entering into contracts. Such contracts may include agreements between states and private parties to extract natural resources or build infrastructure.13 Even after the commercial exception to foreign sovereign immunity was established, it was by no means clear that sovereign debt contracts were indeed purely commercial acts.14 Actions to recover money from indebted sovereigns were ultimately only made possible after the Supreme Court of the United States declared in Republic of Argentina v. Weltover, Inc. that sovereign debt contracts were indeed commercial, or private, acts that abrogated states’ sovereign immunity.15

The current legal framework governing foreign sovereign immunity distinguishes between acts that are carried out in a state’s sovereign and nonsovereign, or public and private, capacities—in other words, between those acts that are unique to sovereigns (e.g., legislation, regulation) and those that private parties could carry out (e.g., entering into a contract). Drawing this distinction has high stakes because it is the basis for determining which acts are governed by public international law—the law governing the relation between sovereign states—and which acts are governed by the private, domestic jurisdiction of individual states. But this distinction between a state’s public and private acts is also difficult to draw conclusively, given the mixed nature of the many acts in which sovereign states engage. As scholars have long pointed out, a contract for the purchase of military supplies or for the issuance and repayment of sovereign bonds has both features of a commercial transaction and an act of a sovereign.16 While any actor could enter into an agreement to buy goods in general, sovereigns enter contracts for military supplies because of their uniquely sovereign prerogatives of protecting the integrity of their territory. Likewise, while any actor could enter into an agreement to borrow and repay money, when sovereigns do so, it is with the regulatory purpose of financing essential governmental functions.17

In light of the difficulty of characterizing an act as solely public or private, there has been a doctrinal shift in the second half of the twentieth century as U.S. courts have expanded the category of the “private” through a selective highlighting of the facts of an act or transaction. This Note argues that this selective recognition of certain features of an act over others has subjected Global South nations to the judgment of domestic courts in the United States even when they are, at least in part, acting in their sovereign capacity.18 The expansion of jurisdiction through characterizing sovereign states’ acts as purely private disproportionately affects Global South sovereigns because they are more likely to be involved in the economy through contracts with private parties based in the Global North, given the imperative of economic development.19 Such exercise of jurisdiction by domestic courts in the Global North, most notably in New York, betrays the principle of sovereign equality in international law, under which par in parem non habet imperium—equals do not have authority to judge one another.20

In making this argument, I draw on a long line of legal theorists who have critiqued the public/private distinction in the law. Scholars have argued that categorizing some issues as matters of private law (e.g., in the domestic context, contracts and property) and others as matters of public law (e.g., antidiscrimination or voting rights) insulates what is considered the realm of private, economic transactions from political critique and reimagination.21 Such insulation prevents us from seeing domination and hierarchy within the economic sphere, which then has public and political consequences. The doctrine of foreign sovereign immunity is an important site in which this distinction is drawn and articulated, but it has been underexamined relative to other areas of law, and even other areas of international law.

In Part I, I introduce the doctrine of foreign sovereign immunity and its commercial exception. Although the principle of foreign sovereign immunity is part of customary international law, it is implemented through domestic legislation. The U.S. Foreign Sovereign Immunities Act of 1976 (FSIA) plays an outsized role in foreign sovereign immunity doctrine globally. The FSIA establishes a list of exceptions to the general rule of foreign sovereign immunity, under which foreign sovereigns can be subject to the jurisdiction of U.S. courts. The most important of these is the commercial exception. This raises the question: why is foreign sovereign immunity abrogated when a sovereign acts in its so-called commercial capacity? The most plausible justification, within the terms of the doctrine itself, is based on protecting a state’s regulatory powers. However, beginning in the latter half of the twentieth century, U.S. courts have drawn the distinction between public and private acts in ways that undermine states’ powers to regulate, and that instead privilege efficiency and certainty. This turn perpetuates an imbalance between capital-importing Global South nations and the investors that file suit in Global North jurisdictions.

In Part II, I expand this claim beyond the context of foreign sovereign immunity to argue that the expansion of the category of states’ private acts works more generally against the interests of those Global South nations in international and transnational law. This is a dynamic that I term subordination through private law adjudication. When foreign sovereign immunity law presumptively treats a contract that a sovereign state enters into as a “commercial” act, it ignores the political dimensions of that act and subjects it to the seemingly technocratic judgment of depoliticized private law. In this Part, I draw on and bring together the insights of different traditions of legal theory, including Law & Political Economy (LPE) and Third World Approaches to International Law (TWAIL), both of which have made similar claims in other contexts. I situate foreign sovereign immunity law in two adjacent procedural and substantive areas of law—international arbitration and sovereign debt—to show how the designation of certain acts as private relies on selective factual analysis that subordinates Global South nations. I then return to the foreign sovereign immunity context, where I demonstrate that the designation of state contracts as purely private acts that do not give rise to foreign sovereign immunity disproportionately impacts the Global South, where states are more likely to play a greater role in the economy given the imperative of development.22 This brings Global South sovereigns into the domestic courts of the North and especially the United States, which place these sovereign nations on equal footing with private actors.

In Part III, I argue that the expansion of private law in transnational and international adjudication is but one way in which the boundary between public and private law has been drawn to subordinate non-European nations. In the broader history of foreign sovereign immunity law, this boundary has been drawn and redrawn in a variety of configurations that have functionally served similar ends. This means that the antidote to what I term subordination through private-law adjudication cannot simply be the expansion of the category of public law.

To illustrate this point, I examine two central moments, centuries apart, in the evolution of foreign sovereign immunity doctrine within the common-law tradition. These two moments represent different configurations of the boundary between a sovereign’s public and private acts, but they lead to similar outcomes: the empowerment of private actors vis-à-vis non-Western sovereigns. The commercial exception to foreign sovereign immunity in the Anglo-American common law finds its roots in the case Nabob of the Carnatic v. East India Company.23 This case concerned a dispute between the Nawab of the Carnatic, an Indian ruler, and the British East India Company over a debt. The Court of Chancery refused to take jurisdiction over the Nawab’s bill on the grounds that the debt was a treaty between sovereigns, rather than a private contract. This case has surprising resonances with a later U.S. case that marked another crucial moment in the evolution of foreign sovereign immunity doctrine, Republic of Argentina v. Weltover, Inc.: the case that enabled suits in U.S. courts against foreign sovereigns for failure to repay their debts.24 This case, which emerged out of the Latin American debt crisis of the 1980s, expanded the jurisdiction of U.S. courts by characterizing sovereign debt contracts as commercial rather than sovereign acts. In doing so, it elevated the status of private lenders to that of quasi-sovereign actors that could thwart Argentina’s sovereign ability to set economic policy.

Informed by these lessons, Part IV canvasses two possible reforms to the troubled public/private distinction: first, allowing courts to consider possible regulatory purposes behind sovereign acts and transactions; and second, moving foreign sovereign immunity determinations from domestic courts to the international arena through a treaty and/or adjudicatory mechanism. While I conditionally endorse both reforms as improvements to the status quo, I also suggest that, as the preceding Part implies, simply expanding the category of states’ “public” acts cannot adequately address the subordination of Global South nations. Instead, we must be cleareyed about the constraints that make such reforms difficult to realize in practice, and about the possibility that well-intentioned reforms can also have unintended consequences.

Any attempt to reform international and transnational adjudication must take into account the geopolitical shifts we are witnessing today, including the rise of new regional and global hegemons. These shifts bring with them both new possibilities and new challenges, in light of which categorizing the world into “North” and “South,” or “First World” and “Third World,” may seem increasingly oversimplistic.25 While such shifts may create an opportunity for negotiation over mutually acceptable rules governing states’ jurisdiction over other sovereign states, they also present the possibility that the same dynamics of subordination will replicate themselves, even with a new cast of dominant players, in a multipolar world.