Sovereign Immunity. As part of a plan to stabilize the Republic of Argentina's currency, that country and its central bank (collectively, Argentina) issued bonds that provided for repay-ment in U.S. dollars. Repayment would be made in several locations,

Question

including New York City. When the bonds began to mature, Argentina lacked sufficient funds to cover them, so it unilat-erally extended the time for payment and offered bondholders substitute instruments as a means of rescheduling the debts. Weltover, Inc, of Panama, plus another Panamanian corpo-ration and a Swiss bank (collectively, Weltover), declined to accept the rescheduling and insist-ed on repayment in New York. When Argentina refused, Weltover brought a breach-of-contract action in a U.S. district court. Argentina moved to dismiss the action, claiming immunity from the jurisdiction of the U.S. courts under the Foreign Sovereign Immunities Act. Weltover con-tended that Argentina's sale of the bonds fell under the "commercial activities" exception to sovereign immunity. What should the court decide? Discuss fully.

Answer 1

Sovereign immunity
The United States Supreme Court held that "[t]he issuance of the Bonds was a commercial ac-tivity under the [Foreign Sovereign Immunities Act (FSIA)], and the rescheduling of the maturity dates on those instruments was taken ‘in connection with' that activity within the meaning of" the FSIA. The Court reasoned that "[w]hen a foreign government acts, not as a regulator of a market, but in the manner of a private player within that market, its actions are commercial within the meaning of the FSIA. Moreover, because [the FSIA] provides that the commercial character of an act is to be determined by reference to its nature rather than its purpose, the question is not whether the foreign government is acting with a profit motive or * * * with the aim of fulfilling uniquely sovereign objectives." Instead, reasoned the Court, "the issue is whether the government's particular actions (whatever the motive behind them) are the type of actions by which a private party engages in commerce. The Bonds are in almost all respects garden-variety debt instruments, and, even when they are considered in full context, there is nothing about their issuance that is not analogous to a private commercial transaction. The fact that they were created to help stabilize Argentina's currency is not a valid basis for dis-tinguishing them from ordinary debt instruments, since, under [the FSIA], it is irrelevant why Argentina participated in the bond market in the manner of a private actor. It matters only that it did so."