Page 137 - Law of Peace, Volume ,

Pam 27-161-1

international court or arbitral tribunal implies a choice as (c) the state entered into the contract with the alien (or an alien
to governing law, or, at least, a rejection of municipal law assignor of the contract) in his capacity as an alien, or
of the contracting state as controlling. In speaking to the (d) the circumstances indicate that, when the alien became a party to
the contract, the parties contemplated that performance of the contract
body of law which regulates the performance of state con- would involve to a substantial degree foreign commerce, use of foreign
tracts, a noted publicits has observed: resources, or activity outside the territory of the state.
It is today becoming increasingly accepted that a new body of law, (2) Subsection (1) (a) and (1) (b) are not applicable to a contract for
differing from both international and municipal law, is in the process of the repayment of money borrowed on the domestic market of the state.
developing.. . . This body of law, variously named "extranational" or (3) Breach by a political subdivision of a state, whether or not it is a
.. . "transnational," governs those situations where neither municipal federal state, of a contract to which the central government or an agency
law nor the traditional public international law would be wholly appropri- of that government isnot a party, does not, as such, give rise to respon-
ate. .. . sibility on the part of the state under international law. 81
It is not yet quite clear under what conditions transnational law is ap-
plicable to particular state contracts. There is little doubt as to its ap- b. There exist differing opinions whether one govern-
plicability when the parties include in the contract itself a provision to ment of a state may restrict the state's future legislative
the effect that the "proper law of the contmct" is transnational law or freedom. The following appears to reflect the generally
the general principles of law recognized by civilized nations. Apart from held view.
such express statements, a similar intent of the parties may be inferred While it may be said that a State is unable to restrict its future legis-
when the parties provide that any dispute is to be adjudged by an inter- lative freedom for an indeffite period, there is neither principle nor
national court. Provision for arbitration may also be an indication of the authority to prevent it from so doing for a limited number of years. If a
existence of such intent, though probably not in all cases. Fially, State violates such a promise made to a foreign concessionaire, its action
transnational law may sometimes be applied when no other system of may be valid on a municipal level within its own territory, but on the in-
law may be said to govern the contract, or in order to supplement other
ternational level it is sufficient ground for interposition by the alien's na-
applicable rules of law. 80
tional State. The nationalismg state in these circumstances has infringed
7-19. State Breach as a Violation of International Law. a limitation of its sovereignty voluntarily assumed by it. 82
a. Choice of law. As indicated by the foregoing, under the c. The Department of State has often maintained that it
applicable principles of conflict of laws, the law governing would not espouse cases of breach of contract except
the interpretation, validity, and performance of the con- when the breach is of a "tortious nature" or when there
tract may be determined to be the municipal law of the has been a denial of justice. However, both of these ex-
contracting state, principles of law applied in common by pressions have been rather flexibly interpreted, and the
two or more municipal law systems, public international only typesof claims that seem to be generally deemed un-
law, general principles of law applied in common by two qualified for espousal are those wherein the breach does
or more municipal law systems, public international law, not constitute a violation of international law or the action
general principles of law, some other body of law, custom, is for default in payment of public debt. The general un-
or some combination of all of these. Indeed, various wihgness of the Department to serve as "a collection
aspects of the contractual relationship may be governed by agency" also appears to be a factor in minor commercial ,
different bodies of law. Once having determined the transactions. Contract claims are often included in lump-
governing law, the problem shifts to seeking the content sum settlements negotiated by the United States.
of that law as applied to the particular contractual under- 7-20.Waiver by Individual Claimant (Calvo Clause) .,,
taking involved. To what extent under the governing prin- a. Background. It is generally agreed that if an alien in-
ciples are contracting parties held absolutely to their under- jured by a state in such a way as to constitute a violation of
takings under an inflexible application of pacta sunt ser- [a typewrongful under] international law, waives or settles"
vanda? To what extent, if at all, is either party afforded the claim prior to diplomatic intervention by the state of
some leeway in meeting its obligations? What is the rele- which he is a national, then the waiver of settlement ". . ,
vance of traditional principles of private and public law is effective as a defense on behalf of the respondent state,
when applied to various agreements between states and provided the waiver or settlement is not under duress." 83
aliens? Then, assuming that a breach of contractual More troublesome problems have been raised, however, ,
obligation is established under the law governing the by the efforts of Latin American states to avoid foreign,
agreement, when, in the absence of a treaty violation or a diplomatic intervention through various devices, includ-
denial of procedural justice, will a breach by the contract- ing waivers required of aliens in advance, which limit their ;
ing state constitute a violation of international law provid- rights to those available under domestic law and secured '
ing the substantive basis for a claim of state responsibility? by domestic legal remedies. These ~tates,~,by means qf
Restatement, Second, 4 193 offers this answer: their constitutions, statutes, and executive gction, make it,
(1) The breach by a state of a contract with an alien, except as indicated a condition precedent to the entry of a foreign contractor
in Subsection (2) and (3), is w~ongful under international law if either or direct investor that the alien undertakes at the time of.:
(a) the breach is effected in an arbitrary manner without bona fide entry and in consideration therefor not to invoke the dip:"
claim of excuse,
(b) the law and practice of the state in effect at the time of the breach I
do not make reasonable provision for reparation for the breach, 81. Restatement, supra, note 11 at 8 193. -
82. H. White, Nationalization of Foreign Property. 178 (1961).
80. Fatouros, supra, note 71 at 283-94. 83. Restatement, supra, note 11 at 8 203. \