Sovereign Immunity

• Author: International Law Group

In May 1996, S & Davis, an Alabama company, agreed to supply 300,000 metric tons of wheat to the General Corporation for Foreign Trade and Grains ("General Corporation") of Yemen. According to S & Davis, the parties drew up and signed the contract in Yemen "according to the instructions of the Ministry of Supply & Trade," and "all aspects of the contract were reportedly discussed with the Minister of Supply who appeared to [be] the principal in the transaction." The contract specified that the parties would arbitrate contract disputes using the Grain and Feed Trade Association (GAFTA) in London.

As it turned out, however, General Corporation, could not obtain a letter of credit as the contract demanded. S & Davis next invoked the arbitration clause. Although the original GAFTA arbitration panel found that General Corporation had breached the contract by failing to open a letter of credit, it nevertheless found that the Ministry was not liable and that no damages were due to S & Davis.

The appellate arbitration panel affirmed the finding of contract breach but awarded S & Davis approximately $17,000,000 in damages against General Corporation.

In December 1998, S & Davis sought enforcement of the award in federal district court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards [21 U.S.T. 2517, T.I.A.S. 6997; 330 U.N.T.S. 3] ("New York Convention"). The Ministry claimed immunity under the Foreign Sovereign Immunities Act of 1976 (FSIA).

The district court, however, found that there was sufficient FSIA subject matter jurisdiction and personal jurisdiction to proceed.

The Ministry filed an interlocutory appeal but the U.S. Court of Appeals for the Eleventh Circuit affirms.

This appeal involves the denial of sovereign immunity based on the "commercial activity exception" to sovereign immunity which has a "direct effects" component. See 28 U.S.C. Section 1605(a)(2). The "direct effects" component of the commercial activity exception to sovereign immunity, the Court declares, is inextricably intertwined with the "minimum contacts" component of personal jurisdiction.

Here, General Corporation had admitted that it was an agency or instrumentality of the Republic of Yemen. The Ministry, however, denied this relationship without providing evidence that General Corporation was an independent entity, such as incorporation papers and other specific information about the company. Therefore, the Ministry did not sufficiently...