In order for a party to be sued in the United States, it is necessary for a court in the United States to have jurisdiction or control over the party. To assert jurisdiction over a party in the United States, there must be both (1) a sufficient relationship between the party and the court’s forum, and (2) a statutory basis for service of process on the party so that the court can exercise its jurisdiction. Mwani v. Bin Laden, 417 F.3d 1, 8 (D.C. Cir. 2005). The Foreign Sovereign Immunities Act (“FSIA,” 28 U.S.C. §§ 1602-1611) is a federal law that provides immunity from suit in the United States to a foreign state for public acts, but not private acts. Generally, the FSIA provides the sole basis for obtaining jurisdiction over a foreign state in the courts of the United States , including its agents and instrumentalities such as foreign public corporations. An exception to this immunity is the “commercial activity” exception, which provides that a foreign state that conducts commercial business within the United States loses its sovereign immunity under the FSIA.

The recent case GSS Group Ltd. v. Nat’l Port Authority, 2011 WL 1195775, *1 (D.D.C. 2011), is a good example of the analysis conducted by the courts in the United States involving the issue of whether a foreign corporation, owned by a foreign government, can be subject to personal jurisdiction in the United States or have awards enforced against assets in the United States. GSS Group Ltd. (“GSS”), a British Virgin Islands corporation, contracted with the National Port Authority (“NPA”), a Liberian public corporation, to construct and operate a new container park in Liberia. The contract contained an arbitration clause that referred arbitration to London, England, in accordance with the laws of England and Wales. GSS initiated arbitration proceedings claiming that the NPA breached their agreement, and was awarded over $44 million in damages. GSS petitioned to confirm and enforce the arbitration award in the United States pursuant to the Federal Arbitration Act (9 U.S.C. §§ 201 et seq.) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (reprinted in 9 U.S.C. § 201) (“the New York Convention”). NPA opposed GSS’s efforts on the grounds that the courts in the United States did not have jurisdiction over it.

The D.C. Circuit ruled that the NPA did not have sufficient “minimum contacts” with the United States to confirm and enforce the arbitration award in the United States. The D.C. Circuit found that the NPA was more like a private foreign corporation rather than part of the Liberian government, and therefore not subject to suit under the FSIA’s commercial activity exception. As a result, the D.C. Circuit analyzed whether NPA had its own independent minimum contacts with the United States to be subject to the courts of the United States. In concluding that NPA did not have sufficient minimum contacts with the United States, the D.C. Circuit considered several factors.. Those factors were: (1) under the foreign law, NPA was a legal entity distinct from the government, able to sue and be sued in its own name; (2) NPA was responsible for its own finances that are separate from the government and NPA did not receive or commingle its finances with government funds; (3) NPA’s primary purpose was commercial in nature; (4) NPA operated as a standalone economic enterprise; and (5) the Liberian government was not involved in the day-to-day management and operation of the NPA. (GSS Group at *3).

State-owned foreign corporations that are established as distinct and independent entities from their foreign government may not be subject to the jurisdiction of the courts of the United States. The analysis will depend upon the facts and circumstances of each situation, so these issues should be carefully considered both when structuring overseas business relationships and arrangements, and also when assessing the risks of potential litigation and enforcement of awards inside the United States.

For further information, please contact:  Nicholas P. Connon, Managing Partner and Chair of the Middle East Practice Group;

Tel:  +1.626.638.1757;
email: nconnon@connonwood.com