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Distinction between sovereign and commercial acts in adjudicative jurisdiction

Empire of Iran
With the adoption of the restrictive theory of immunity, the appropriate test becomes whether the activity in question
is of itself sovereign (jure imperii) or non-sovereign (jure gestionis). In determining this, the predominant approach
has been to focus upon the nature of the transaction rather than its purpose.

Cues: The claim was for the cost of repairs to the heating system of the Iranian Embassy

Principle: As a means for determining the distinction between acts jure imperii and jure gestionis one should rather
refer to the nature of the state transaction or the resulting legal relationship, and not to the motive or purpose of the
state activity. (81) This court has concluded that the contract for repairs is to be regarded as a non-sovereign function
of the foreign state.

In Claim against the Empire of Iran (1963) 45 ILR 57, the plaintiff sued the Empire of Iran for the payment of a bill for
repairing the heating system in the Embassy of the Empire in Cologne, Germany. Following the extensive review of
state practice, the German Constitutional Court concluded that Iran did not have immunity even though the
transaction related to repairs essential for the functioning of a diplomatic mission: “As a means for determining the
distinction between acts jure imperii and jure gestionis one should refer to the nature of the state transaction or the
resulting legal relationships, and not to the motive or purpose of the state activity. It thus depends on whether the
foreign state has acted in exercise of its sovereign authority, that is in public law, or like a private person, that is in
private law… The qualification of state activity as sovereign or non-sovereign must in principle be made by national
(municipal) law, since international law, at least usually contains no criteria for this distinction.

This Court has therefore examined the argument that the conclusion of the contract for repair is to be regarded as a
non-sovereign function of the foreign state, and has accepted this proposition as correct. It is obvious that the
conclusion of a contract of this kind does not fall within the essential sphere of state authority. It does not depend..
on whether the conclusion of the contract was necessary for the regular transaction of the Embassy’s affairs and
therefore stood in a recognizable relationship with the sovereign functions of the sending state. Whether a state is
entitled to immunity does not depend on the purpose of the function which the foreign state is thereby pursuing….the
exercise of German jurisdiction would not prejudice diplomatic rights and privileges.

EXCERPTS
Summarizing, an assessment of the case law, some treaty arrangements, efforts at codification and international legal
doctrine show that unrestricted State immunity can no longer be regarded as a rule of customary international law.
The Austrian Supreme Court should be agreed with when it states in its decision of 10 May 1950 (SZ vol.XXIII p.304
[322]) that "...it can today no longer be said that on recognized international law the so-called acta gestionis are
excepted from domestic jurisdiction".

1. Even if according to general international law foreign States are not exempt from domestic jurisdiction for acts iure
gestionis, they are nevertheless, on a general legal conviction reflected in the practice of States, the draft codifications
and doctrine of international law, due immunity for activities which are of a sovereign nature.
The fact that it is hard to distinguish sovereign from non-sovereign acts of State is no reason to abandon the
distinction. International law is familiar with similar difficulties elsewhere too. And for the question whether a
particular act of State abroad is permissible without the consent of the State concerned, it is relevant whether this
action is of a sovereign or a non-sovereign nature

2. The distinction between sovereign and non-sovereign acts of State cannot be drawn according to the purpose of
the State's action, nor whether the action is recognizably connected with sovereign functions of the State. For
ultimately the State's activity will if not entirely then at least in by far the greater part serve sovereign purposes and
functions and be in some still recognizable connection with them. Nor can it depend on whether the State has acted
commercially. Commercial activity of States does not differ in essence from other non-sovereign activity of States.
The criterion for distinguishing between acts iure imperii and iure gestionis can instead only be the nature of the
State's action or the legal relationship that has arisen, but not the motive or purpose of the State's act. It therefore
depends on whether the foreign State has acted in exercise of the sovereign power inherent in it, that is in public law,
or as a private person, that in private law.
Thus or similar are: the case law of the courts of Italy, Belgium, Switzerland, Austria and Egypt;
the codification endeavours of the International Law Association and Institut de Droit International;

3. The qualification of State action as sovereign or non-sovereign will in principle have to be effected according to
national law, since international law does not, at any rate as a rule, contain criteria for this demarcation (on recourse
to national law cf. Herndl, loc.cit. p.20 f. with references). The general rule of public international law that foreign
States enjoy immunity from domestic jurisdiction for their sovereign action does not become devoid of substance and
lose its character as a legal norm because it is national law that is decisive for the demarcation between acts iure
imperii and iure gestionis. Instead, its more detailed content results from the national law applicable in the given case.
Nor is it unusual for norms of international law to refer to national law.

Thus, for instance, certain rights and duties of States are according to customary international law and international
treaty law dependent on the nationality of a person. But acquisition and loss of nationality are as a matter of principle
determined by national law.

Finally, it cannot be a decisive point that reference to national law theoretically gives the national legislator the
possibility of influencing the scope of the rule of international law by suitably shaping national law. The demarcation
between sovereign and non-sovereign State activity by national law primarily serves other purposes than the
definition of the extent of the immunity of foreign States. Abusive shaping of law by the national legislator could,
moreover, be opposed through the legal principle, recognized in international law, of loyalty and good faith.

4. It must be admitted that it hampers the application of general international law and acts against the desirable unity
in law for the demarcation of sovereign from non-sovereign acts to be decided according to the nature of the State
activity, but the classification thereof to be decided by national law. This drawback is however mitigated by the fact
that the classification in national law of a State action as an act iure gestionis is subject to bounds set by international
law. National law may not be adduced for the distinction from sovereign and non-sovereign activity of a foreign State
only on the criterion that those actions of States may not be excluded from the sovereign area and therefore from
unity which are in the overwhelmingly accepted view of States part of the area of State power in the narrower and
proper sense. Part of this generally recognized area of sovereign activity will be the exercise of foreign and military
power, legislation, the exercise of police power and the administration of justice (cf. Dahm, Völkerrecht, vol.1 p.235
f., and Festschrift für Arthur Nikisch, p.166 f.).
Exceptionally, it may also be required in international law that an activity of a foreign State be classified as an act iure
imperii, as being attributable to the core area of State power, even though by national law it were to be regarded as
an action in private law and not in public law.

5. The submitting court has accordingly rightly considered whether conclusion of the repair contract is to be regarded
as a non-sovereign activity of the foreign State, and correctly answered this question in the affirmative. It is evident
that the conclusion of a such a contract does not fall within the core area of State power. It is not, as against the view
of the Federal Minister for Justice, relevant whether conclusion of the contract was necessary for the orderly conduct
of embassy business and therefore recognizably connected with the sovereign activity of the sending State. Whether
a State is due immunity does not depend on the purpose of the activity that the State is pursuing by it. The
demarcation of sovereign activity according to the nature of the act and its classification in national law may not yet
have secured the comprehensive recognition indispensable for a general rule of public international law; it is however
so widespread that any granting of immunity beyond that can no longer be regarded as required by general
international law.

The "special issue of the immunity of diplomatic missions" is of no significance in the present case. The exercise of
German jurisdiction would not encroach on diplomatic privileges and immunities.