For hundreds of years, the world’s sovereign nations refused to allow any other foreign sovereign to be sued in their courts without the sovereign’s consent. The guiding principle was “absolute sovereign immunity,” an outgrowth of the ancient legal precept rex non potest peccare, understood to mean “the king can do no wrong.” The principle also was recognized as wise foreign policy because it extended "grace and comity" to other sovereigns.    

In 1976, Congress enacted the Foreign Sovereign Immunities Act of 1976 (FSIA) at 28 USC §§ 1330, 1332, 1391(f), 1441(d) and 1602-1611, which, for the most part, is the basis for obtaining jurisdiction over a foreign state in our courts. The FSIA imposes a brightline rule: Foreign states and their instrumentalities are immune from suit unless one of the act’s enumerated exceptions applies. These exceptions include claims based on commercial activities with a specified nexus to the United States and claims in arbitration and enforcement of arbitration awards involving such foreign entities.

Such claims are likely to become increasingly prevalent, given the significant economic growth in international commerce and construction activities involving public states, agencies and companies in the delivery of complex engineering and construction work necessary to plan and build the world's major projects. Entities owned or controlled by sovereign nations, as well as their agents or employees, already are active in the global construction field as owners, financers, designers, subcontractors, material suppliers, equipment providers and other functions. The global industry also is becoming legally more entwined by legal arrangements involving public and private entities, such as public/private partnerships, joint ventures, government-owned contractors and subcontractors, state supply of labor and materials, partnerships and agency relationships, and new "fast track" project delivery approaches.

As a result, a growing number of construction- and commercially related disputes in the United States will require resolution of foreign sovereign immunity issues. Procedurally, once personal jurisdiction over a foreign state or its instrumentality is established by service of process under FSIA section 1330b, that foreign defendant may raise sovereign immunity by motion to dismiss. In response, the plaintiff will invoke one of the FSIA’s eight statutory restrictive exceptions to immunity so the case can proceed. The burden to disprove grounds for application of any alleged exception to immunity shifts to the party claiming immunity. 

Of the eight exceptions listed in this statute, the three discussed below are most likely to apply in commercial or construction disputes. In addition, certain nondischargeable domestic governmental obligations that foreign states cannot evade, regardless of the FSIA, may also be relevant to construction activities.

The Commercial Activity Exception

This exception applies when a foreign sovereign engages in commercial activity in the United States, or outside the United States with a “direct effect” in the United States. In construction disputes, this exception may include defective project development, construction work or construction materials. However, the project, materials or other activity must occur in the United States or otherwise satisfy the required U.S. nexus.

The Expropriation Exception

This exception applies when property is “taken” in violation of international law, provided the property is present in the United States in connection with commercial activity by the foreign state, or is owned or operated by a foreign-state agency or instrumentality engaged in U.S. commercial activity. Construction-related examples include expropriated jobsite equipment, foreign oil drilling rigs and business assets.

The Arbitration Exception

There is no FSIA immunity when a foreign sovereign has agreed to arbitrate disputes or in an action to enforce a foreign arbitral award that is subject to an international treaty, such as the New York Convention, requiring recognition and enforcement of arbitral awards.

For example, In Zhongshan Fucheng Industrial Investment Co. v. Federal Republic of Nigeria, 112 F.4th 1054 (D.C. Cir. 2024), the court held that the FSIA’s arbitration exception allowed confirmation in a U.S. court of a $65 million London arbitral award in favor of a Chinese company against Nigeria arising from a Nigerian industrial park construction dispute, even though the dispute lacked any U.S. connection.

Non-FSIA Exception to Sovereign Immunity.

In addition to the FSIA exemptions, certain nondelegable or nondischargeable obligations in the form of governmental liabilities may be imposed on foreign sovereigns in the U.S., several of which also may arise in construction-related disputes. One illustration is Harvey v. Permanent Mission of the Republic of Sierra Leone to the United Nations, 97 F.4th 70 (2d Cir., 2024), in which the defendant, Sierra Leone’s representative to the United Nations, was denied immunity in connection with a dispute concerning construction work performed on its headquarters in a New York townhouse.

The Harveys owned and lived in a townhouse located next door to the Mission; their respective units shared a common wall. The Mission decided to renovate its unit and hired contractors to add two additional floors and a new roof. During this project, the Harveys alleged that the Mission’s renovation work had significantly damaged their common wall, roof and chimney, and in 2021, they commenced suit against the Mission and its contractors for damages. The Mission sought dismissal of the Harveys’ claims by alleging immunity under FSIA. The Federal District Court and Second Circuit both ruled that the Mission was not entitled to immunity under the FSIA. The Second Circuit explained that once the renovations began, the Mission acquired “certain nondelegable duties” under New York City construction codes relating to the shared party wall, roof and chimney, and therefore could be responsible for damage resulting from the renovations. Given the projected increase in global economic growth, the U.S. court system is likely to be more involved in resolving issues of foreign sovereignty immunity. The international construction industry is similarly likely to experience more complex immunity issues, based on the intertwined relationships among parties from different states and perspectives, which emphasizes the need to understand when a foreign sovereign is subject to suit in the United States.