In TIG Ins. Co. v. Republic of Argentina,[1] the United States Court of Appeals for the D.C. Circuit, had to decide whether the arbitration exception to sovereign immunity from the Foreign Sovereign Immunities Act of 1976 (“FSIA”) applies to foreign sovereigns who are not signatories of the arbitration agreement. The D.C. Circuit decided that this exception may apply to non-signatories bound by the arbitration agreement under ordinary contract law principles and remanded the case to the District Court.

Factual background

The opinion was issued in relation to the dispute between a private insurance company, TIG Insurance company (“TIG”) on one hand, and a state-owned Argentine company, Caja National de Ahorro y Seguros (“Caja”) as well as Argentina on the other.

The facts of the case date back to 1979, when TIG and Caja concluded two reinsurance contracts. The contracts provided that any disputes under them shall be resolved in arbitration in Chicago, Illinois. Moreover, they subjected all matters under the contracts to “law and practice” “of any court of competent jurisdiction within the United States.”

TIG claimed Caja breached the contracts by not making the relevant payments. This dispute was referred to arbitration in 2000 and was won by TIG. The Northern District of Illinois confirmed this award in default proceedings in 2002.

Since the conclusion of the reinsurance contracts, Caja’s legal situation was determined by several decisions of Argentina. In 1994, Argentina initiated the process of liquidation of Caja. In 1998, Argentina “transferred to the National Treasury the liquidated liabilities and the contingent liabilities and assets” of Caja “derived from the reinsurance businesses in the private international market”. In 2003, Argentina obliged its Legal Undersecretary to handle Caja’s international disputes, including arbitrations. Then, in 2005, Argentina transferred to itself Caja’s assets and liabilities.

As such, in 2016, TIG initiated and won arbitration proceedings— this time against Argentina—again alleging the breach of the reinsurance contracts. When deciding on the jurisdiction and issuing this award, the arbitral tribunal accepted that Argentina was Caja’s successor-in-interest. Again, the Northern District of Illinois confirmed this award in default proceedings.

D.C. proceedings

In 2018, TIG initiated proceedings in the District of Columbia to register against Argentina both judgments confirming the arbitral awards against Caja and Argentina, as it learned Argentina owned real estate assets in this district. Argentina opposed this motion claiming that the property was immune from execution against it under FSIA. Argentina succeeded in the District Court, but on TIG’s appeal the District Court’s decision was vacated and the case remanded.

On remand, Argentina maintained its position, adding a new argument—that not only the property was immune from execution, but Argentina had jurisdictional immunity under the FSIA. TIG argued that Argentina was not immune, as two exceptions to jurisdictional immunity applied to the proceedings: (1) arbitration exception,[2] and (2) waiver exception. TIG argued that Argentina was bound by the reinsurance contracts either as Caja’s “successor-in-interest” or because Caja was Argentina’s “alter ego”. The District Court did not agree with TIG and decided in favor of Argentina. TIG appealed.

D.C. Circuits analysis

The D.C. Circuit in deciding the appeal had to consider whether from the outset the jurisdictional immunity protected Argentina, and as such, the judgments issued in Illinois could not be registered against it. This is because, in principle, foreign sovereigns are immune from suit in US courts,[3] unless one of the exceptions applies. In the proceedings the courts may consider only the exceptions raised by the party opposing the immunity defense. As such, the D.C. Circuit considered the two exceptions raised by TIG. However, this analysis focuses only on one — the arbitration exception.

For the arbitration exception to apply, the sovereign state must have “made” an agreement “with or for the benefit of a private party” “to submit to arbitration” disputes arising from a specified legal relationship.[4]

It was undisputed that Caja and TIG were bound by an arbitration agreement, and that the legal relationship covered by this arbitration agreement was defined. The dispute centered over the issue whether Argentina “made” the arbitration agreement with TIG, as Argentina never signed any of the contracts binding Caja and TIG.

The D.C. Circuit considered what “makes” means in the context of FSIA’s arbitration exception. It concluded that under the FSIA’s arbitration exception, an agreement can be “made by” sovereigns “other than original signatories.”

In reaching this conclusion, it considered the following:

1. In the context of an agreement, “to make” is understood to include “later adoptions of that agreement.” As such, even if a sovereign is not an original signatory of the contract, but “takes actions that cause it to become subject to the agreement” the FSIA’s text as a whole “does not suggest” that it should not be considered as a party making the agreement. At the same time, it would be against statutory interpretation principles to focus on the word “make” in isolation from the wording of FSIA.
2. The District Court’s focus on the tense of the verb “to make” in the arbitration exception’s wording is not wrong under the standard of statutory interpretation. However, the tense used in this particular exception (“made”) is not conclusive of the intent of the lawmakers, as the agreement always needs to be made before it is enforced. As such, in the timeline of events, the agreement will always be made in the past ­ before the date of commencement of the court proceedings.
3. The FSIA was expressly meant to codify the restrictive theory of sovereign immunity. Under this theory, immunity applies only to public acts of the sovereign, and not its private actions. And the FSIA exceptions have been drafted to comply with this approach. The dispute between TIG and Argentina pertains to successorship in private contracts, and not to public acts of Argentina. As such, nothing in principle prevents applying the successorship doctrine or any other relevant doctrine, as otherwise the FSIA’s basic aims would be frustrated. The existence of these doctrines will be determined by the law applicable to the arbitration agreement.
4. Nothing indicates that the FSIA was enacted to displace the common law on specific subjects, such as contract law. At the same time, the silence of FSIA about how agreements are made indicates that guidance has to be found in “external bodies of law.” As such, there is nothing that would indicate that “making” of a contract should exclude the enforcement of a contract by or against a non-signatory under the ordinary contract law principles, including alter ego, and assumption. Therefore, the sovereign cannot claim immunity if it is bound by the arbitration agreement under ordinary principles of contract law applicable to the arbitration agreement.

The D.C. Circuit also considered the approach proposed by the United States Court of Appeals for the Second Circuit in dicta in Gater Assets Ltd. v. AO Moldovagaz.[5] In Gater Assets, the Second Circuit signaled that the possibility for courts to apply equitable doctrines, such as estoppel, to bind a party benefiting from contracts does not necessarily mean that the party made the agreement. The Second Circuit’s view assumed that the FSIA arbitration exception has been enacted to comply with the Panama Convention,[6] and the Panama Convention applies only to signatories of arbitration agreements. The D.C. Circuit concluded that the Second Circuit’s position in Gater Assets is not persuasive, and there is nothing in the Panama Convention that would support the view that it only applies only to original signatories of the arbitration agreement.

In the end, the D.C. Circuit concluded that the District court erred in applying the law. As such, the case was remanded to the District Court for further analysis and factfinding. On remand, the District Court will have to establish, among others, the law governing the question of enforcement of the arbitration provision from the reinsurance contracts. This law, in turn, will determine the rules of successorship (if any) applicable to TIG and Caja’s reinsurance contracts.

Takeaways

For private parties contracting with entities closely connected to foreign sovereigns (including state-owned entities), this opinion may serve as a welcome confirmation foreign sovereigns will be bound by the arbitration agreements in commercial contracts if the applicable law yields such a conclusion. If so, the foreign sovereigns will not be able to rely on sovereign immunity to avoid the enforcement of the arbitration agreement or award stemming from arbitration, even if they did not sign the original agreement.

For foreign sovereigns indirectly engaged in commercial undertakings with private parties, they should be aware of the consequences of such activities and potential risk of losing the protections of sovereign immunity. It does not mean that with respect to all indirect activities involving an arbitration agreement, the immunity will be lifted. However, the laws applicable to the contracts entered into by the state-owned entities or contracts to which the state is a successor should be considered when assessing the state’s risks.

The parties should note though that in other Circuits, courts are not required to follow this interpretation of FSIA. For example, the Gater Assets case from the Second Circuit indicates that different interpretation of the FSIA may be applied by the courts in this Circuit. At the same time, even in the same Circuit, in different cases the outcome may be different, depending on the facts of the case and applicable laws.

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[1] TIG Ins. Co. v. Republic of Argentina, 23-7064 (D.C. Cir. 2024).

[2] 28 U.S.C. § 1605(a)(6), “A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case” “in which the action is brought, either to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration all or any differences which have arisen or which may arise between the parties with respect to a defined legal relationship” “or to confirm an award made pursuant to such an agreement to arbitrate.”

[3] Id. § 1604

[4] Id. § 1605(a)(6).

[5] Gater Assets Ltd. v. AO Moldovagaz, 2 F.4th 42, 67 (2d Cir. 2021).

[6] Inter-American Convention on International Commercial Arbitration, Jan. 30, 1975, O.A.S.T.S. No. 42, 1438 U.N.T.S. 245 (Panama Convention).