Group 8: Act of State Doctrine IV – C FEB.

09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

Act of State Doctrine

“In the absence of any treaty or other unambiguous agreement regarding
controlling legal principles, courts in the United States will generally refrain from
examining the validity of a taking by a foreign state within its own territory, or
from sitting in judgment on other acts of a governmental character done by a
foreign state within its own territory and applicable here.”

The American Act of State Doctrine can be described as a non-absolute conflict of laws
rule with quasi-constitutional strength. According to the latest word on the subject from
the United States Supreme Court, it operates to prevent an American court from treating
as invalid and ineffective the official act of a foreign sovereign performed within that
state’s own territory.

In the famous Sabbatino case, it was held that an examination by an American court of
the formal validity of a taking of property by a foreign state within that state’s territory
would impede the ability of the executive to conduct foreign relations. The plaintiff had
also alleged that such a taking violated customary international law. The Supreme Court
stated that the doctrine prevented courts from commenting on sensitive and unsettled
areas of international law, leaving such areas to be determined by the foreign relations
branch of the executive.

The United States Court of Appeal (Second Circuit) has stated that if an “act of state”
was carried out by a state official in his or her official capacity, the American act of state
doctrine can be applied even if the act in question was illegal under the foreign
municipal law. (Republic vs Marcos)

This court has also stated that the American act of state doctrine does not exist for the
purpose of providing the equivalent of a sovereign immunity defence to a former head of
state. Given that the former head of state immunity exists rationae material (as a
function of the nature of the conduct in quest), this would imply that the illegality of the
acts taken by state officials in performing an official function should be considered when
deciding whether to apply the doctrine.
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

FRENCH v. BANCO NATIONAL DE CUBA

295 NY 2d
422 – 423 (1968)

FACTS: The case stems from a regulation of the Cuban Government — adopted after
Fidel Castro's accession to power in January of 1959 — which, in effect, prevented
American and other foreign investors from receiving currency other than Cuban pesos
on their Cuban investments. The investor here involved was the plaintiff's assignor,
Alexander Ritter, an American citizen, now living in Florida, who resided in Cuba at the
time of the events from which this lawsuit arises. In 1957, some two years before the
events in question, he invested about $350,000 in a Cuban farm. At that time, the
Cuban Government permitted foreign investors to turn the proceeds from their
enterprises into American dollars, or other foreign currency, and exempted such
proceeds from Cuba's tax on the exportation of money. To this end, the Currency
Stabilization Fund of the Cuban Government was authorized to issue "certificates of tax
exemption." In June, 1959, six months after the inception of the Castro regime, Ritter
acquired eight such certificates, aggregating $150,000.

Although the certificates state that their owner "will receive from [defendant bank]" the
appropriate "amount" of American dollars, they are signed by both the defendant and
the Cuban Government's Currency Stabilization Fund.

On July 15, 1959, the Currency Stabilization Fund issued "Decision No. 346." Aimed at
stopping the flow of foreign currency from Cuba and thereby preventing a situation "very
dangerous" to that country, the Decision suspended "for the time being processing of"
tax exemption certificates "until reorganization of the system of exemptions". The
redemption of such outstanding certificates, according to the president of defendant
bank, would have wiped out Cuba's dollar reserves. When, in December of 1959, Ritter
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

tendered his certificates for redemption, together with the appropriate number of pesos,
payment in American dollars was refused under the mandate of the Decision.

The plaintiff, Ritter's assignee, brought the present action, late in 1960, in Supreme
Court, New York County, and obtained a judgment against defendant bank in the
amount of $150,000, with interest. One of the claims of the defendant is that the
Decision in question "had the force of law" and was an act of the sovereign Government
of Cuba to which our courts will not deny legal effect (act of state doctrine).

ISSUE: Whether or not the Decision in issue is an act of state.

HELD: Yes. It has long been settled, and recently reaffirmed by the Supreme Court
in Banco Nacional de Cuba v. Sabbatino, that the courts in the United States will not
inquire into the validity of the acts of a foreign government done within its own territory.
As the Supreme Court stated in Underhill v. Hernandez  — quoted in Sabbatino —
"every sovereign State is bound to respect the independence of every other sovereign
State, and the courts of one country will not sit in judgment on the acts of the
government of another done within its own territory. Redress of grievances by reason of
such acts must be obtained through the means open to be availed of by sovereign
powers as between themselves."

The courts will not examine a foreign law to determine whether it was adopted in
conformity with the internal procedures and requirements of the enacting state. The act
of state doctrine, it has been well said, is not limited to situations in which "the foreign
act is committed in a manner `colorably valid' under foreign law. It should make no
difference whether the foreign act is, under local law, partially or wholly, technically or
fundamentally, illegal. So long as the act is the act of the foreign sovereign, it matters
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

not how grossly the sovereign has transgressed its own laws." (Banco de Espana v.
Federal Reserve Bank)

Consequently, there is no basis whatever for the plaintiff's contention that the action
dishonoring and repudiating the certificates held by Ritter was not an "act of state."
Regardless of whether or not Decision No. 346 was published in the Official Gazette or
otherwise complied with internal Cuban standards of regularity, it was issued by the
Currency Stabilization Fund, an official instrumentality of the Cuban Government.
Moreover, in compliance with that Decision, Banco Nacional, also an agency of the
Cuban Government, refused and continues to refuse to exchange pesos for dollars as
the certificates had required. These undisputed facts establish, as matter of law, that the
breach of contract, of which the plaintiff complains, resulted from, and, indeed, itself
constitutes, an act of state.

Hence, whatever other economic measures the Cuban Government may have taken,
there is no question that the actions complained of were aimed at protecting Cuba's
scarce "foreign exchange resources." The testimony of the defendant's president that
these actions were essential to prevent the wiping out of Cuba's foreign currency
reserves is uncontradicted.

In sum, then, the court conclude that the actions complained of constituted an act of
state; that, under the rule announced in Sabbatino, we are required to give effect to that
act of state. Consequently, the plaintiff or her assignor may seek a remedy in this
country only through diplomatic efforts by the United States and arrangements
established by Congress for the protection of the interests of all American claimants
against Cuba.

The order of the Appellate Division should be reversed, with costs, and the complaint
dismissed.
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

In Re: PHILIPPINE NATIONAL BANK v. UNITED STATES DISCTRICT

COURT OF HAWAII

No. 04-71843;
D.C. NO. MDL – 00840 – MLR
February 4, 2005

FACTS:

This mandamus petition represented one more chapter in a long-running dispute over
the right to the assets of the estate of former Philippine President Ferdinand E. Marcos.

The District Court had previously cited the Bank for contempt of court for transferring
funds to the Republic of the Philippines pursuant to a prior judgment of the Philippine
Supreme Court.

On one side was a class of plaintiffs who obtained a large judgment in the federal
district court in Hawaii against the Marcos estate for human rights violations by the
Marcos regime. The judgment included an injunction restraining the estate and its
agents or aiders and abettors from transferring any of the estate’s assets.

On the other side was the Republic of the Philippines, which independently has sought
forfeiture of the Marcos estate’s assets on the ground that they were stolen by Marcos
from the Philippine government and its people.

In an earlier related case, i.e., Credit Suisse v. U.S. Dist. Ct. for the Cent. Dist. Of
Cal. The Swiss assets of the Marcos estate had been frozen by the Swiss government
at the request of the Republic of the Philippines, which was seeking to recover them.
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

The class plaintiffs obtained an injunction from the U.S. District Court of Hawaii
requiring the Swiss banks to hold the assets for the benefit of the class plaintiffs. In that
case, the same U.S. 9th Circuit Court of Appeals issued a writ of mandamus and held
that the injunction violated the act of state doctrine, which precludes American courts
from declaring “invalid” a foreign sovereign’s official act, that is, the freeze order of the
Swiss government.

Thereafter, the Swiss government released the funds frozen in Switzerland for transfer
to the Philippine National Bank in escrow pending a determination of proper disposal by
a competent court in the Philippines. The Philippine National Bank deposited the funds
in Singapore. The Philippine Supreme Court subsequently held that the assets were
forfeited to the Republic of the Philippines.

The U.S. District Court of Hawaii then issued the orders that precipitated the present
petition for mandamus. The District Court ruled that the Philippine Supreme Court had
violated “due process by any standard” and that its judgment was entitled to no
deference. It ordered reinstatement of an earlier settlement agreement in the District
Court litigation that had been rejected when the Philippine courts refused to approve it
and the Republic of the Philippines failed to give its consent to the agreement.

The District Court then issued an “Order to Show Cause” against the Philippine National
Bank, which was not a party to the litigation in the district court, requiring the Bank to
show why it should not be held in contempt for violating the court’s injunction against
transfer of assets by the estate.

The Philippine National Bank then filed the present petition for mandamus in the U.S.
9th Circuit Court of Appeals, seeking to restrain the District Court from enforcing its
“Order to Show Cause” and from pursuing discovery against the Bank officer.

The Bank asserted that it had transferred nearly all of the funds in issue to the Republic
of the Philippines pursuant to the judgment of the Philippine Supreme
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

Court. It contended that the entire proceeding against it for its transfer of funds to the
Republic of the Philippines violated the “act of state” doctrine.

ISSUES:

1) Whether or not the District Court of Hawaii violated the “act of state” doctrine.

2) Whether or not the act of state doctrine was “inapplicable because the
judgment of the Philippine Supreme Court did not concern matters within its own
territory”.

HELD:

1) Yes, the District Court of Hawaii has violated the act of state doctrine. Act of
State means every sovereign state is bound to respect the independence of every other
sovereign state, and the courts of one country will not sit in judgment on the acts of the
government of another, done within its own territory. Redress of grievances by reason
of such acts must be obtained through the means open to be availed of by sovereign
powers as between themselves. (Underhill v. Hernandez, 168 U.S. 250, 252 [1897]).

The District Court’s orders in issue violated this principal. In order to obtain assets from
the Philippine National Bank, or to hold the Bank in contempt for the transfer of those
assets to the Republic of the Philippines, the District court necessarily held invalid the
forfeiture judgment of the Philippine Supreme Court.

The class plaintiffs in the district court argued that the act of state doctrine is directed at
the executive and legislative branches of foreign governments and did not apply to
judicial decisions.
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

Although the act of state doctrine is normally inapplicable to court judgments arising
from private litigation, there is no inflexible rule preventing a judgment sought by a
foreign government from qualifying as an act of state. (Liu v. Republic of China, 892
F.2d 1419, 1433-34 & n.2 (9th Cir. 1989), citing RESTATEMENT [SECOND] OF
FOREIGN RELATIONS OF THE UNITED STATES § 41 cmt. d [1965])

There was no question that the judgment of the Philippine Supreme Court gave effect to
the public interest of the Philippine Government. The forfeiture action was not a mere
dispute between private parties; it was an action initiated by the Philippine Government
pursuant to its “statutory mandate to recover property allegedly stolen from the
treasury.” (In re Estate of Ferdinand Marcos Human Rights Litig., 94 F.3d at 546).

The U.S. 9th Circuit Court of Appeals had earlier characterized the collection efforts of
the Republic of the Philippines to be governmental.

Therefore, the subject matter of the forfeiture action thus qualified for treatment as an
act of state.

2) No, the doctrine is still applicable. The U.S. 9 th Circuit Court of Appeals held that,
“generally, the act of state doctrine applies to official acts of foreign sovereigns
“performed within their own territory.” (Credit Suisse, 130 F.3d at 1346). The act of the
Philippine Supreme Court was not wholly external, however. Its judgment, which the
district court declared invalid, was issued in the Philippines and much of its force upon
the Philippine National Bank arose from the fact that the Bank is a Philippine
corporation. (Callejo v. Bancomer, S.A).

The Appeals Court further held that “even if we assume for purposes of decision that
the assets were located in Singapore, we conclude that this fact does not preclude
treatment of the Philippine judgment as an act of state in the extraordinary
circumstances of this case.”
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

Thus, even when an act of a foreign state affects property outside of its territory, “the
considerations underlying the act of state doctrine may still be present.” (Callejo, 764
F.2d at 1121 n.29).

Because the Republic of the Philippines’ “interest in the enforcement of its laws does
not end at its borders,” the fact that the escrow funds were deposited in Singapore does
not preclude the application of the act of state doctrine. 

The underlying governmental interest of the Republic supports treatment of the

judgment as an act of state. It is important to keep in mind that the Republic of the
Philippines did not simply intrude into Singapore in exercising its forfeiture jurisdiction.
The presence of the assets in Singapore was a direct result of events that were the
subject of the decision in Credit Suisse, supra, where the U.S. 9th Circuit Court of
Appeals upheld as an act of state a freeze order by the Swiss government, enacted in
anticipation of the request of the Philippine government, to preserve the Philippine
government’s claims against the very assets in issue today. (Credit Suisse, 130 F.3d at
1346-47).

In fine, the U.S. 9th Circuit Court of Appeals granted the Philippine National Bank’s
petition and vacated the orders of the U.S. District Court of Hawaii, dated February 25,
2004 (to the Philippine National Bank to show cause), and April 8, 2004 (to the Bank to
produce its employee, Rogel L. Zenarosa, for a deposition). It further directed the
District Court to refrain from any further action against the Philippine National Bank in
this action or any other action involving any of the funds that were the subject of the
decision of the Philippine Supreme Court dated July 15, 2003.

THE REPUBLIC OF THE PHILIPPINES v. FERDINAND E. MARCOS, et

al.,
862 F.2d 1355
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

57 USLW 2351, RICO Bus.Disp.Guide 7108

No. 86-6091.
United States Court of Appeals,
Ninth Circuit.

An action by the Republic of The Philippines against a former head of state to

recover funds allegedly embezzled while in office.

FACTS:

The Republic of the Philippines (the Republic) brought a civil suit against its former
president, Ferdinand Marcos, and his wife Imelda (the Marcoses), asserting claims
under the Racketeer Influenced and Corrupt Organizations Act (RICO) and other
applicable laws.

The Republic alleges that the Marcoses engaged in mail fraud, wire fraud, and the
transportation of stolen property in the foreign or interstate commerce of the United
States. 

The Republic further alleges that the Marcoses and the other defendants arranged for
the investment in real estate in Beverly Hills, California of $4 million fraudulently
obtained by the Marcoses; that the Marcoses arranged for the creation of two bank
accounts in the name of Imelda Marcos at Lloyds Bank of California totaling over
$800,000 also fraudulently obtained by the Marcoses; and that the Marcoses
transported into Hawaii money, jewels, and other property worth over $7 million also
fraudulently obtained by them.

The gravamen of the Republic's entire case is the allegation that the Marcoses stole
public money.
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

ISSUES:

1. Whether or not the acts were insulated because they were acts of state not
reviewable by the American courts;
2. Whether or not the adjudication of these acts would involve the investigation of
political questions beyond our courts' competence.

HELD:

1. NO.

In the instant case the Marcoses offered no evidence whatsoever to support the
classification of their acts as acts of state. The burden of proving acts of state rested
upon them. They did not even undertake the proof. The United States, invited by the
court to address this matter as an amicus, assures us that the Executive does not at
present see the applicability of this defense. The act of state doctrine, the Executive
declares, has "no bearing" on this case as it stands. As the doctrine is a pragmatic one,
we cannot exclude the possibility that, at some later point in the development of this
litigation, the Marcoses might produce evidence that would warrant its application. On
the present record, the defense does not apply.

Jurisdiction to hear the Republic's claims and to enter the preliminary injunction exists.
A serious question of liability has been presented and the Republic has a fair chance of
success on the merits of its case. The Marcoses have not presented any preclusive
defense. The scope of the injunction is justified. It was imperative for the district court to
preserve the status quo lest the defendants prevent resolution of the case by putting
their property beyond the reach of the court. Hardship to the Republic would have been
great and irreparable if the district court had not taken its prudent, amply justified action
to keep the Marcoses' assets from disappearing.

“Acts of State”
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

The classification of certain acts as "acts of state" with the consequence that their
validity will be treated as beyond judicial review is a pragmatic device, not required by
the nature of sovereign authority and inconsistently applied in international law. Banco
Nacional de Cuba v. Sabbatino, 376 U.S. 398, 421-22, 84 S.Ct. 923, 936-37, 11
L.Ed.2d 804 (1964). The purpose of the device is to keep the judiciary from embroiling
the courts and the country in the affairs of the foreign nation whose acts are challenged.
Minimally viewed, the classification keeps a court from making pronouncements on
matters over which it has no power; maximally interpreted, the classification prevents
the embarrassment of a court offending a foreign government that is "extant at the time
of suit."

As a practical tool for keeping the judicial branch out of the conduct of foreign affairs,
the classification of "act of state" is not a promise to the ruler of any foreign country that
his conduct, if challenged by his own country after his fall, may not become the subject
of scrutiny in our courts. No estoppel exists insulating a deposed dictator from
accounting. No guarantee has been granted that immunity may be acquired by an ex-
chief magistrate invoking the magic words "act of state" to cover his or her past
performance.

The act of state doctrine is supple, flexible, ad hoc. The doctrine is meant to facilitate
the foreign relations of the United States, not to furnish the equivalent of sovereign
immunity to a deposed leader.

2. YES

Bribetaking, theft, embezzlement, extortion, fraud, and conspiracy to do these things are
all acts susceptible of concrete proofs that need not involve political questions. The
court, it is true, may have to determine questions of Philippine law in determining
whether a given act was legal or illegal. But questions of foreign law are not beyond the
capacity of our courts. The court will be examining the acts of the president of a country
whose immediate political heritage is from our own.
Group 8: Act of State Doctrine IV – C FEB. 09, 2015

Welhelm Sefri M. Wacas

Mary Louise Reyes

According to Supreme Court’s decision in Sabbatino, application of the Act of State

doctrine is dependent on whether the courts perceive the judicial action would interfere
in the conduct of foreign relations.  This has led courts to believe that they can pick and
choose the factors to be taken into consideration in determining whether or not they
should adjudicate on the validity of a foreign governmental act.  As a result the courts
have suggested various factors, limitations and exceptions to be taken into account in
making this assessment.  The history of the Act of State doctrine and many of its
established features suggest the doctrine is better explained by international law
considerations.  The doctrine represents deference to the superior exercise of
jurisdiction by the territorial State and prevents the U.S. from unlawfully extending its
jurisdiction to situations and acts authoritatively determined by the territorial State.  As
such, the doctrine represents an acknowledgment that the US does not possess the
legal competence to reverse the acts of foreign sovereigns carried out abroad.  The
doctrine therefore recognizes the co-equal status of foreign States and prevents an
unwarranted intervention into the affairs of those States.