German corporation, to enforce three judgments entered by the Supreme Court of Hong Kong against Shanghai Foreign Trade Corporation ("SFTC"). SFTC moves to dismiss the complaint on the grounds of sovereign immunity, lack of personal jurisdiction, and failure to state a claim upon which relief can be granted. For the reasons discussed below, the complaint is dismissed.
SFTC and its Alleged Agent
According to the complaint, SFTC is an "agency or instrumentality" of the People's Republic of China ("China") within the meaning of the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1603. "Alternatively," the complaint pleads, SFTC is a "state-owned, separate legal enterprise . . . capable of suing and being sued in its own name and bearing independent legal liability." (Complaint P 3.) In July 1984, SFTC entered into a "Cooperation Agreement" with Shanghai Municipal Metallurgical Bureau and Vincor Limited ("Vincor"), a Hong Kong company, pursuant to which a joint venture called Vincor Shipping Company Limited ("VSL") was established. (Id. PP 6-7.) Pursuant to the Cooperation Agreement, the complaint alleges, SFTC "acted as the principal and beneficial owner of VSL." (Id. P 11.) VSL acted as the agent of SFTC, and was authorized to negotiate shipping deals, sell and purchase old or scrap vessels, engage in chartering and subchartering of vessels, issue bills of lading and generally engage in maritime transport. (Id. PP 11-12.)
The Transatlantic Contracts With VSL
In 1984, Transatlantic contracted to charter its vessels from VSL, which was described to Transatlantic as the agent of SFTC, one of China's leading importers. In 1984 and 1985, after an initial test shipment of steel from Hamburg and Norway to Shanghai, Transatlantic transported several hundred thousand metric tons of various cargos to Shanghai in 21 shipments, pursuant to individual voyage charter parties and contracts of affreightment (the "Contracts") with VSL. (Id. PP 13-15.)
The Contracts and related invoices provided for the payment of freight, demurrage and despatch in United States dollars. Various "Rider Clauses" of the Contracts called for freight payments to be made payable to Transatlantic's correspondent bank in New York, and such payments were so made. (Id. P 22.) The Contracts provided that all disputes were to be resolved by arbitration in Hong Kong in accordance with the laws of Hong Kong. (Id. P 23.)
Transatlantic alleges that at all times during the performance of the Contracts, VSL was authorized by and acted as the agent of SFTC, and that SFTC was the ultimate beneficiary of the Contracts. Transatlantic further alleges that VSL expressly represented to Transatlantic that VSL was acting on behalf of SFTC. (Id. PP 16-17, 21.) Moreover, according to the complaint, SFTC specifically approved all the important provisions of the Contracts, including the Contracts' arbitration clauses and freight and demurrage rates. (Id. P 19.) The complaint does not allege that SFTC was a signatory to the Contracts.
The Demurrage Costs and Subsequent Arbitration
As a result of severe congestion in the port of Shanghai in 1984 and 1985, a majority of the ships operating under the Contracts were delayed -- some for as long as six weeks -- and VSL thereby incurred substantial demurrage in favor of Transatlantic pursuant to the terms of the Contracts. (Id. P 24.) SFTC, which was to pay VSL for any demurrage pursuant to an alleged internal agreement between SFTC and VSL, failed to pay for the demurrage. VSL, in turn, failed to pay Transatlantic for the demurrage. (Id. PP 25-26.)
Between 1985 and 1989, Transatlantic pursued claims for demurrage and other claims against VSL under all 21 Contracts by way of arbitration in Hong Kong. (Id. P 27.) SFTC was not named as a respondent in the arbitration proceedings. According to the complaint, however, SFTC retained Hong Kong solicitors to participate in the defense of Transatlantic's claims. (Id. PP 27-28.) Hearings on the disputed Contracts were held before a Hong Kong arbitration panel from December 12 to 15, 1988. (Id. P 33.) VSL, which had changed its name to Harlifax Limited ("VSL/Harlifax") in November 1987, declared voluntary liquidation on December 30, 1988, purportedly in anticipation of an adverse arbitration award. (Id. PP 30, 35.) In addition, VSL previously had made three transfers of capital to SFTC between October 1986 and November 1988. (Id. P 37.) On June 30, 1989, the Hong Kong arbitrators issued an award of U.S. $ 793,984.91 against VSL/Harlifax and in favor of Transatlantic for Transatlantic's claims on two Contracts. (Id. PP 40, 41.)
Actions in the Hong Kong Courts
After VSL/Harlifax went into liquidation, Transatlantic filed a proof of debt dated May 11, 1990 listing its outstanding claims against VSL/Harlifax. (Id. P 46.) In March 1991, upon the application of Transatlantic, the Supreme Court of Hong Kong, High Court appointed the firm of Deloitte Touche Tomahatsu as liquidators to investigate "questionable circumstances" surrounding the voluntary liquidation of VSL/Harlifax. (Id. P 43.) The liquidators commenced three legal actions against SFTC and the directors of VSL/Harlifax (Id. P 45.) After SFTC failed to appear in the actions, default judgments were entered. (Id. P 50.) An August 4, 1993 judgment in the amount of HK $ 4,771,886.57 (i.e., Hong Kong dollars) was entered against SFTC for the amount awarded against VSL by the arbitrators on June 30, 1989. A September 24, 1993 judgment in the amount of HK $ 1,398,052.00 was entered against SFTC for monies transferred from VSL/Harlifax to SFTC. Finally, a May 31, 1994 judgment in the amount of HK $ 7,741,053.79 was entered against SFTC for the "amount due" under the remaining Contracts. The complaint sets the total U.S. dollar value of the three judgments at $ 1,782,419.11. (Id. P 52.) According to the complaint, SFTC was found liable under the Contracts (including the amount reflected in the June 30, 1989 arbitration award) and was directed to indemnify VSL/Harlifax for all liabilities arising under the Contracts between VSL and Transatlantic because VSL had entered into the Contracts as SFTC's agent. (Id. P 51-52.)
SFTC did not appeal the judgments within the time allotted under Hong Kong law, and has refused to satisfy the judgments. (Id. PP 53-54.) According to the complaint, the judgments are valid, final, conclusive and enforceable under Hong Kong law. (Id. P 54.) Transatlantic, to whom VSL assigned its rights against SFTC (Id. P 64), now brings this action to enforce in this court the three unsatisfied judgments.
SFTC asserts several grounds in support of its motion to dismiss. First, SFTC argues that subject matter jurisdiction is lacking because it is immune from suit under the Foreign Sovereign Immunities Act.
SFTC further argues that it is not subject to personal jurisdiction in this forum. Finally, SFTC argues that Transatlantic fails to state a claim for relief because Article 53 of the New York Civil Practice Law and Rules ("CPLR"), under which Transatlantic seeks enforcement of the Hong Kong judgments, applies only to judgments of "foreign states." Hong Kong, SFTC contends, is not recognized by the United States as a "foreign state."
Subject Matter Jurisdiction
The FSIA "provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country." Saudi Arabia v. Nelson, 507 U.S. 349, 355, 123 L. Ed. 2d 47, 113 S. Ct. 1471 (1993). The FSIA generally recognizes the immunity of foreign states and their agencies and instrumentalities from the jurisdiction of American courts except under specific circumstances as provided in 28 U.S.C. §§ 1605-1607. See 28 U.S.C. §§ 1330, 1604. 28 U.S.C. § 1330(a) states that the district courts have jurisdiction "of any non-jury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement." 28 U.S.C. § 1604 provides, subject to existing international agreements, that "a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter."
Sections 1605 to 1607 set out several exceptions to the immunity from suit recognized by the FSIA. Particularly relevant to this action are the exceptions which provide that a foreign state:
shall not be immune from the jurisdiction of the courts of the United States or of the States in any case -- (1) in which the foreign state has waived its immunity either explicitly or by implication . . . ; (2) in which the action is based . . . upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.
28 U.S.C. § 1605 (a) (1) and (2). Transatlantic argues that both of the above exceptions to the FSIA apply here.
A. Agency or Instrumentality
To enjoy immunity from suit under the FSIA, SFTC first must qualify as a "foreign state" within the meaning of that act. 28 U.S.C. § 1603(a) defines "foreign state" to include "a political subdivision of a foreign state or an agency or instrumentality of a foreign state." Subsection (b) of § 1603 defines "agency or instrumentality of a foreign state" as:
any entity -- (1) which is a separate legal person, corporate or otherwise, and (2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and (3) which is neither a citizen of a State of the United States as defined in section 1332(c) and (d) of this title, nor create under the laws of any third country.
"Once the defendant presents a prima facie case that it is a foreign sovereign, the plaintiff has the burden of going forward with evidence showing that, under exceptions to the FSIA, immunity should not be granted." Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993). The ultimate burden of persuasion remains with the alleged foreign sovereign. Id.
Here, however, Transatlantic itself alleges that SFTC is an agency or instrumentality of China, and, alternatively, that it is a "state-owned, separate legal enterprise." (Complaint P 3.) It is not seriously disputed that SFTC is an agency or instrumentality of China. These allegations are sufficient to establish, for purposes of this motion, that SFTC is a "foreign state" within the meaning of the FSIA.
B. Applicability of FSIA Exceptions
1. The Implied Waiver Exception
Transatlantic argues that China (and thus SFTC) implicitly waived immunity by becoming a signatory to the Convention on the Recognition and Enforcement of Arbitral Awards (the "Convention"). Transatlantic argues that this case is controlled by the Second Circuit's decision in Seetransport Wiking Trader Schiffarhtsgesellschaft MBH & Co. v. Navimpex Centrala Navala, 989 F.2d 572 (2d Cir. 1993). In Seetransport, a German company entered into a contract with a Romanian company that was an "agency or instrumentality" of the Romanian government. A dispute arose which was arbitrated in Paris pursuant to the contract. The Romanian company appealed to the Court of Appeals of Paris for annulment of the arbitration award, but the appeal was dismissed. The German company then filed an action in this court to enforce the arbitral award and to convert the decision of the Paris Court of Appeals into a United States judgment.
The Second Circuit held that the Romanian company had waived any sovereign immunity defense and explained that:
when [the defendant] entered into a contract with [the plaintiff] that had a provision that any disputes would be submitted to arbitration, and then participated in an arbitration in which an award was issued against it, logically, as an instrumentality or agency of the Romanian Government -- a signatory to the Convention -- it had to have contemplated the involvement of the courts of any of the Contracting States in an action to enforce the award.