Document Type

Article

Disciplines

International Law

Abstract

The act of state doctrine, in its traditional formulation,' precludes inquiry by the courts of this country into the validity of the public acts committed by a recognized foreign sovereign power within its own territory. One of the situations in which the doctrine commonly is invoked by non-American litigants arises where a foreign sovereign purports to confiscate a debt or obligation owed to a national of the foreign country by an American bank or owed by some other party but held by an American bank. A related problem with respect to which the doctrine is also raised involves actions taken by a foreign government to repudiate or restructure debts and obligations owed by citizens or legal entities of the foreign country to American nationals. In both cases, the question of whether a United States court will give effect to the foreign sovereign's acts may ultimately depend on the court's determination of the situs of the debt at issue. When the situs of a debt is found to be in the United States, the act of state doctrine is held not to apply, and the acts of the foreign sovereign purporting to affect the debt are not recognized. While the act of state doctrine has been predictably employed in some areas, the application of the doctrine by United States courts to cases involving a foreign sovereign's acts with respect to a debt has been consistent only in that the American litigant, more often than not, has been the successful party. Regardless of whether the United States citizen has been the debtor or the creditor, United States courts have determined the situs of the debt to be within United States territory.

Early debt-related cases, many of which arose out of the Cuban government's nationalization of businesses and assets in the 1960's, questioned the application of foreign nationalization decrees to obligations owed by American debtors to a foreign national.' These cases were easily resolved by applying a debtor-oriented test to locate the debt in the United States with the debtor. In the early 1980's, a different type of act of state case presented itself to the courts. The situation was reversed: foreign governments were attempting to repudiate or restructure debts owed by those governments to American creditors." Once again the courts determined the situs of the debt to be in the United States, this time with the creditor. Because the territoriality requirement' of the act of state doctrine was not satisfied under either factual situation, the foreign confiscation decrees were not given legal effect in this country.

The circuit courts of appeal, while consistent in placing the debt in United States territory, have not been consistent in the tests adopted to determine the situs of the debt. This inconsistency can be seen clearly in recent decisions of the Second and Fifth Circuits. In Allied Bank International v. Banco Credito Agricola de Cartago 7 the Second Circuit Court of Appeals ignored the established precedent of its own jurisdiction and instead applied the situs test of the Fifth Circuit.' Shortly thereafter, the Fifth Circuit, in Callejo v. Bancomer, S.A.,, explicitly rejected its situs test as unworkable in factual situations similar to that involved in Allied Bank, and developed a new test. The problem of such unpredictability is exacerbated by the fact that the Supreme Court has never had the opportunity to rule on the proper test for determining the situs of a debt for act of state purposes.

This comment describes the various tests developed over the last twenty years to determine the situs of a debt in act of state cases. The comment then analyzes the approaches in light of the type of cases presently facing the courts. The comment concludes that the traditional debtor-oriented test is no longer workable and suggests that the courts adopt a more flexible approach, a "factors analysis" test.

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