THE STATUS OF STATE TRADING ENTITIES IN FRANCE

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THE STATUS OF STATE TRADING
ENTITIES IN FRANCE
By
ANDREW REISH
Reprinted from the Symposium on
EAST-WEST TRADE : PART II
Published as the Autumn, 1972, issue of
LAW AND CONTEMPORARY PROBLEMS
Duke University School of Law
Durham, N. C.
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THE STATUS OF STATE TRADING ENTITIES IN
FRANCE
INTRODUCTION
State trading-the government conduct or control of commercial intercourse-
is not a new phenomenon conceptualized for the economic realities of the Twen-
tieth Century. Rather, it is an established institution, having been extensively em-
ployed during the Middle Ages, most notably by a number of the Italian city-states.
But with the onset of the mercantile revolution and the ensuing ascendancy of the
laissez-faire philosophy, active state trading diminished to a point of virtual extinc-
tion. However, with the advent of the Twentieth Century, sovereign states began
to venture into areas of interest to the state-economic, financial, industrial-that
bore little resemblance to the spheres of activity formerly considered to fall within
the functions of government. In addition, the Russian Revolution and the post-
World War II birth of the Socialist People's Republics in the East, with the sub-
sequent disappearance of the traditional distinction between public and private
enterprise, revitalized state trading and radically revised it to become an integral
element of a political philosophy's all-encompassing economic system.' In the past
few decades, the Western nations have begun to employ state trading as a too] of
national policy to protect the welfare of their citizens and to assure continued eco-
nomic progress.
As the volume of international commerce continually grows, the increasing utiliza-
tion of state trading for the implementation of national goals and policies has neces-
sarily caused reflection on the presently existing tenets and doctrines of national legal
systems and international law. This large-scale introduction of state trading enter-
prises into commercial markets raises important questions about the nature of these
state-created and state-controlled entities. Is the state trading enterprise considered
an organ of the state, a distinct legal entity functioning as an organization similar
to a private enterprise, or a combination of the two? In identifying the entity, must
the established legal definitions used in the identification process also be re-examined
and modified to reflect the economic realities of modern commerce? Finally, how
should the entity be treated before foreign courts and in foreign jurisdictions?
This paper will examine how the courts and jurists of one particular country,
the Republic of France, have attempted to answer these questions as seen through
the development of the judicial treatment given to Soviet and East European state
trading enterprises in France. The development will be traced through three ill-
* B.S., Lehigh University, 1970; J.D., Duke University, 1973-
'See Allen, State Trading and Economic Warfare, 24 LAw & CONTEMP. PROB. 256 (1959); Hum-
phreys, The Economic Consequences of State Trading, 24 LAW & CONTEMP. PROB. 276 (1959).
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572 LAW AND CONTEMPORARY PROBLEMS
defined periods: (i) absolute immunity, (2) the retreat to the doctrine of restrictive
immunity,' and (3) restrictive immunity under treaty law. This development will
be shown through the use of treaties and French case law. It should be pointed
out, however, that although the author applies to the French decisions the method
which he would use in analyzing a series of cases decided by common law juris-
dictions, regard must be made to the absence of such a rigid doctrine of precedent
as exists in common law jurisdictions. Even though the authority of precedent as
such in a civil law system is admittedly not the same, for courts are not bound by
previous decisions, case law probably has more influence over French courts than
French commentators are sometimes willing to admit.
Prior to examining the treatment of state companies in France, a brief overview
of the elements of an East European state trading enterprise is required. A state
trading company is basically identical to any other company except that the state
happens to be the owner. It is an owner which not only wants to direct economic
development but to control it as well. Under sections 23 to 40 of the Russian Civil
Code, which constitutes a skeletal corporation law controlling the status, powers
and functions of judicial persons, an enterprise is answerable for its own obligations
only to the extent of the property it holds; it is not liable for the debts of the state
or of other operating entities.' Comparable provisions are found in the legislation
of other East European countries.' Furthermore, since under the Soviet constitution,
the external trade of the Soviet Union is a state monopoly, Soviet entities engaged
in foreign trade are considered essentially state organs, forming part of, and directly
representing the government of the U.S.S.R. Hence, by the use of state trading
enterprises, the state attempts to attain maximum control and benefit while at the
same time limiting its liability. It was this attempt carried to the extent of claiming
sovereign immunity which embroiled the state companies in French litigation in the
192o's and 1930's.
A. Absolute Immunity
During the Nineteenth Century, the primary concept concerning the liability of
a sovereign to legal action in a foreign jurisdiction was that of absolute immunity:'
the plea of immunity is available in every instance in which the person or property
of a foreign state is impleaded in the courts of another state, irrespective of the
' See Lolive, L'Immunite' de Juridiction des Etats et des Organizations international, 84 RECUEIL DES
CouRS 205 (1953) [hereinafter cited as Lolive].
' S. PISAR, COEXISTENCE AND COMMERCE: GUIDELINES FOR TRANSACTIONS BETWEEN EAST AND WEST
265 (1970). See also Sz?szy, The Proper Law of the Contract in Trade Between Eastern Europe and
the West: The Position of East European Socialist States, 18 INT'L & COMP. L.Q. 103 (1969).
' See R.S.F.S.R. GRAZH. KoD. (Civil Code), ? 32; Hungarian Civil Code, ? 31 (1959); Polish Civil
Code, art. 40 (1964); Bulgarian Law on Enterprise, art. 6 (1960).
'See Lauterpacht, The Problem of Jurisdictional Immunities of Foreign States, 28 BRIT. Y.B. INT'L
L. 220, 221 (1951) [hereinafter cited as Lauterpacht].
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nature of the act which gave rise to the proceeding. This obligation of the courts
to not only decline jurisdiction over foreign states, but also to decline execution on
the property of foreign states, is firmly grounded in the principles of the inde-
pendence, the equality, and the dignity of states. Following from these principles,
the maxim, par in parem non habet imperium, meaning no state could claim sover-
eignty over any other state, required courts to decline jurisdiction over foreign
states or necessarily violate the fundamental canons of international law. These
principles which underlie the immunities from jurisdiction and from execution
received broad application in France when the Cour de cassation, after numerous
lower court decisions,E pronounced in Le Gouvernement espagnol v. Casaux7 the vi-
ability of absolute immunity in France.
In Casaux, the court, in granting the Spanish government immunity from juris-
diction on the basis of the reciprocal independence of sovereign states, rejected the
attempted distinction between Etat puissance publique (state as a public power)
and Etat personne privae (state as a private person). The court held that the con-
tracted purchase of boots by the Spanish government for use of the Spanish army
could not be distinguished as a private act so as to render Spain amenable to the
jurisdiction of the French courts. The court announced that any and all con-
tractual obligations of a foreign state, regardless of the nature, are immune from
jurisdiction. However, the holding of absolute immunity is not all-encompassing
because Casaux pertains only to the purchase of goods and not to the commercial
activities of a foreign state. Thus, since buying is not necessarily trade unless the
goods are purchased for the purpose of commercial resale, Casaux cannot definitely
be cited as authority for the adoption of absolute immunity vis-a-vis trading ac-
tivities.'
B. Restrictive Immunity
About rgoo, a judicial practice began to evolve in various West European jurisdic-
tions which denied immunity from jurisdiction and from execution to a foreign state
when it was made a respondent with respect to an act of a commercial or, so-called,
private nature. The new practice appeared principally as a result of the increasing in-
volvement of the sovereign state in the international market place as merchant, in-
dustrialist, banker, and transporter in direct competition with private enterprise.9
This enlarged role of states as entrepreneurs in international trade exposed a major
weakness in the traditional rule of absolute immunity: the inequality before the law
'Solon v. Gouvernement egyptien, [1849] Recueil Periodique et Critique [D.P.] I. 7 (Trib. civ.,
Seine); Le Gouvernement d'Espagne v. La Maison Bolguerie de Bordeaux, [1849] D.P. I. 6-7, [1849]
Recueil General de Lois et des Arrets [S. Jur.] II. 85 (Trib. civ., Seine); Blanchet v. Gouvernement
d'Haiti, [1849] D.P. I. 6, [1849] S. Jur. II. 83 (Trib. civ., Havre).
' [1849] D.P. I. 5, [1849] S. Jur. I. 81 (Cass. civ. Ire). (This case is often cited as Le Gouvernement
espagnol v. Lambege et Pujol.)
' S. SUCHARITKUL, STATE IMMUNITIES AND TRADING ACTIVITIES IN INTERNATIONAL LAW 209 (1959)
[hereinafter cited as SUCHARITKUL].
9Lolive 214.
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574 LAW AND CONTEMPORARY PROBLEMS
arising from the exemption of state enterprises from suit and law. To alleviate this
denial of right to redress for breach of contract or related abuses, and to meet the
exigencies of international business, jurists formulated the theory of restrictive im-
munity.
The theory of restrictive immunity, as elaborated by the early courts, is founded
on the basis of a legally significant distinction between the acts of the state effected
in its status as sovereign or in the exercise of public power, jure imperil, and those
acts performed as a private person, jure gestionis? According to this theory, a
foreign state may invoke immunity in the courts of another sovereign state if the
litigation arises in connection with transactions of the former type but is denied
immunity in actions concerning transactions of the latter type. This distinction is
based on the theory that the sole function of the state is to govern: to exercise
executive, legislative, and judicial authority. By entering the market place in a
capacity normally reserved for individual enterprise, the state forfeits its claim to be
accorded the dignity and equality of a sovereign state, either because its transactions
fall outside the scope of sovereign immunity or because the state is presumed in law
to have waived its immunity when engaged in such activities. But the seeming
simplicity of the theory belies the difficulty encountered in its actual application.
An initial difficulty concerning the doctrine of restrictive immunity is found in
the lack of dependable criteria upon which to truly distinguish transactions jure
gestionis. In attempting to distinguish between acts jure imperii and acts jure
gestionis, the courts of different countries-and occasionally courts of the same coun-
try-have treated the same kind of activity in different ways. Upon what conditions
does one base the distinction ? 11 A deeper underlying difficulty of implementation
is that the concept of the state at the time of the theory's formulation has been al-
tered. With the rise of socialist states and the growing involvement of nations in
their domestic economies, it is no longer accepted that the economic activities of the
state-such as state management of industry-are necessarily of a purely private-law
nature, that they are lure gestionis or that in them, a state acts like a person.l2
Under the new political interpretation of the state, the state acts as a public person
for the general purpose of the community as a whole, and thus, especially in socialist
economies, all acts jure gestionis are acts jure imperii to the extent that the dis-
tinction between the two cannot be placed on a sound logical basis.
However, the fact that the distinction underlying restrictive immunity is open
to serious objections does not mean that the principle of absolute immunity-a
principle which is productive of inconvenience and resentment in international
commerce-is the alternative.13 With this in mind, the French experience with re-
strictive immunity will be considered.
10 Id. at 215.
31 For a searching attempt to establish criteria see Weiss, Competence ois I'incompetence des tribunaux
a I'egand des Etats Etrangers, i RECUEIL DES COURS 525 (1923).
Lauterpacht 224.
13 Id. at 226.
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Growing governmental intrusion into economic life everywhere and the emer-
gence of a country practicing total state commerce provoked a French reaction against
the concept of absolute sovereign immunity. The French courts, which had begun a
retreat to a restrictive immunity posture prior to the full scale invasion of Soviet
Trade Delegations into Western Europe, took the position of segregating govern-
mental activities which warranted immunity from those which did not.14 In regard
to the Soviet Trade Delegation, the French courts began to draw distinctions be-
tween sovereign acts and commercial acts, despite the disputations of the Soviet
Union that all acts of its Delegation, as an integral arm of the state, were acts of
the state and thus immune to the jurisdiction of French courts.15 The disinclination
to grant immunity in matters lure gestionis reached clear expression in Societe
de Gostorg et la Representation Commerciale de l'U.R.S.S. v. Association France-
Export.Is
In Association France-Export, a Russian trust based in Moscow entered into a
commercial lease with a French company, using as intermediary the Trade Delega-
tion in France. This lease related to the Association's participation in a trade exhibi-
tion to be held in Moscow. Upon default by and judgment against the gostorg, the
Tribunal Civil de la Seine allowed an attachment of the Trade Delegation funds,
through somewhat strained agency reasoning, for the acte de commerce of the gos-
torg.17 The Cour de cassation, in affirming the attachment by a succinct opinion,
justified the denial of sovereign immunity on the widespread commercial activities
of the Trade Delegation. However, it should be noted that the court extended juris-
diction only to the assets of the Trade Delegation, an organ of the Soviet state, while
not extending jurisdiction to any other assets of the Soviet state. Thereby, the Trade
Delegation was endowed with a special status, a suable state organ.
Once approved by the Cour de cassation, the amenability of the Trade Delegation
to the local French jurisdiction was followed by a series of decisions known as the
Soviet Cases. In Representation Commerciale de l'U.R.SS. V. S.A. des Entreprises
Gere et Banque Commerciale pour l'Europe du Nord,18 Rudmetalltorg, a Soviet
corporation, made a contract with Gere through the Russian Trade Delegation in
Paris. When Rudmetalltorg defaulted on the contract, the court allowed attachment
of the Delegation's assets. In rejecting a motion by the Delegation to quash the
attachment, the court selectively examined Soviet law to conclude that, despite Rud-
metalltorg's corporate articles, the corporation had so little actual independence that
the Trade Delegation was not an agent, but a principal liable under the contract. In
14 Lakhowsky v. Gouvernement Federale Swisse et Col. Reynieur (1919), in 48 JOURNAL Du DROIT
INTERNATIONAL 179 (1921) [hereinafter cited as - JOURNAL -].
"Bishop, General Course of Public International Late, 7965, 115 RECUEIL DES COURS 152, 226
(1965).
16 [1929] D.P. I. 73, [1930] S. Jur. I. 49 (Cass. civ. Ire). This case was appealed from Cour d'appel
de Paris, Judgment of Nov. 19, 1926, [1927] Recueil Habdomadire de jurisprudence [D.H. Jur.] 56, 56
JOURNAL 1042 (1929).
17 SUCHARITKUL 158.
"Judgment of Jan. 7, 1931 (Trib. civ., Seine), in 58 JOURNAL 413 (1931)
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576 LAW AND CONTEMPORARY PROBLEMS
extending liability to the Trade Delegation, however, the court did not examine
Soviet law for the purpose of determining whether the Trade Delegation was truly
a governmental organization entitled to immunity. In Magasins Universels de la
R.S.FS.R. v. Kahn,19 Kahn obtained an attachment against both the Trade Dele-
gation and Magasins Universels in respect to a debt owed him by Magasins Uni-
versels. Rejecting Magasins Universels' defense of not having been properly served
with notice of the attachment, such notice having been served upon the Trade Dele-
gation in Paris, the court held that under Soviet law the Trade Delegation oblig-
atorily represents all Soviet corporations abroad and as such, service on it is
service on Magasins Universels.
Finally in Banque Arnus, & Cie v. La Representation Commerciale de
l'U.RSS.,20 in an action for damages for repudiation of a contract signed by a
Soviet syndicate and countersigned by the Trade Delegation, the court held the
Trade Delegation jointly liable with the syndicate, notwithstanding contract terms
which seemed to exonerate it. Furthermore, the court held the Trade Delegation
responsible for all commercial transactions concluded by any Soviet agency outside
the U.S.S.R. on the grounds that the foreign trading activities of the Soviet Union
were defined in Soviet laws as state acts. Thus the court held the Trade Delegation
was necessarily the commercial agency of the Soviet state trading monopoly. There-
fore, the Trade Delegation got the worst of both worlds; it was sufficiently a sep-
arate entity to be distinguished from the Soviet state, but it was not sufficiently a
separate entity to distinguish itself from other commercial entities of that state21
The conclusion of this series of cases was La Representation Commerciale de
l'U.R.SS. v. Societe francaise Industrielle et Commerciale des Petroles (Groupe
Malopolska) 22 It was precipitated by the Soviet Army's seizure of French owned
oil wells situated in Poland. In taking these commercial assets for the benefit of
the state trade monoply, the court concluded that the Soviet Union acted not as a
sovereign state but as a merchant. Thus, the court upheld an attachment of the
Trade Delegation's assets, deeming the Delegation to have an existence and in-
dividuality capable of having executions placed upon it as an organ of a state which
had acted in the capacity of an entrepreneur.23
The special treatment given by French courts to cases involving the Soviet gov-
ernment can also be seen in Societe Tefimo v. Representation Commerciale de
l'U.RS.S24 and in Chaliapine v. W.R.S.S. et Librarie Brenner.25 In Ste Tefimo,
1B Judgment of Feb. 10, 1931 (Trib. civ., Seine), in 58 JOURNAL 412 (1931).
20 Judgment of Mar. 16, 1931 (Trib. civ., Seine), in 58 JOURNAL 426 (1931).
21 Hamson, Immunity of Foreign States: The Practice of the French Courts, 27 BRIT. Y.B. INT'L L.
293, 313 (1959) [hereinafter cited as Hamson].
22 [1940] D.H. Jur. 68, [,94o] Gazette du Palais I. 44 (Trib. civ., Seine).
as Hamson 313.
24 Judgment of May 17, 1934 (Cour d'appel, Paris), in 61 JOURNAL 633 (1934)?
2B [1937] D.P. I. 63, [1937] S. Jur. I. 104 (Cass. civ. Ire). See also Dunbar, Controversial Aspects
of Sovereign Immunity in the Case Law of Some States, 132 RECUEIL DES CouRS 197, 2,5-16 (1971)
[hereinafter cited as Dunbar].
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STATE TRADING ENTITIES IN FRANCE 577
a contract concluded in Paris between the director of Tefimo and a representative
of the nationalized Jewish Theater of Moscow had been breached. The Cour
d'appel de Paris held that although the Jewish Theater was an organ of the state,
commercial transactions engaged the commercial responsibility of the state to which
there was no jurisdictional immunity 28 Hence, any liabilities of the Jewish Theater
were liabilities of the state which, in administering foreign trade through the Trade
Delegation, caused the Delegation to be answerable before French courts27
In Chaliapine, the singer, Chaliapine, brought an action for damages for breach
of copyright against the Russian Trade Delegation in Paris, which had introduced
into France and had sold through the Librarie Brenner in Paris, an abridged and
mutilated edition of his book, Pages de Ma Vie. In applying the principles of
limited immunity, the Cour de cassation rejected the Delegation's plea that the
control exercised by the Soviet government over the export of books made such an
export an act of sovereignty. Furthermore, the court held that these were acts not
of sovereignty, but those that arose from commercial transactions. Hence, the Trade
Delegation, which was responsible for those transactions, was not immune from the
jurisdiction of the French courts. The court said: "This is not a question within
the domain of political affairs, but of operations of a strictly commercial character
which the courts can consider without interference with Russian State admin-
istration. The publication of the memoirs of a singer is in no way a political
act ...."2$
The Chaliapine case represents the culmination of French judicial efforts to
find a solution to the problem of immunity of an Etat commercant which had
monopolized its foreign trade. By the application of the acte de commerce theory
the French courts discovered sound basis not only for assuming jurisdiction over
the Trade Delegation and permitting the execution of judgments against its assets,
but also for holding the Trade Delegation, admittedly a state organ, responsible
for all commercial activities of the U.S.S.R. Therefore, the Delegation was deemed
responsible for all commercial activities of the U.S.S.R. in France even though
the transactions in question were not effected by or through it, but by other sep-
arate incorporated agencies of the Soviet Union 29
Despite this practical solution, the French courts recognized certain limitations
on their jurisdiction. In La Representation Commerciale de W.R.S.S. v. Sakharotj,30
the Cour d'appel de Paris overturned a lower court decision which held that the
French courts could exercise jurisdiction over an employment contract between the
Trade Delegation and one of its Russian employees. The court of appeals, while
recognizing its jurisdiction in actions concerning cases arising out of matters trans-
acted by the Trade Delegation in buying and selling of goods, disclaimed jurisdiction
29 Dunbar 2, 8.
27 SUCHARITKUL 16o.
se (19371 D.P. I. at 64, 119371 S. Jur. I. at Io5.
a0 SUCHARITKUL 216.
"Judgment of Nov. 30, 1933 (Cour d'appel, Paris), in Gazette des tribunaux, June 24-26,
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578
in matters where the Delegation conducted itself in its official capacity. Thus, the
Trade Delegation had retained its character as an organ of a sovereign state and not
its commercial character in its relations with Sakharoff, a former Trade Delegation
official.
II
RESTRICTIVE IMMUNITY UNDER TREATY LAW
A. The Treaties and Their Interpretation
After the destruction of absolute immunity and the special treatment given the
Trade Delegation, the Soviet Union sought to remove certain fact situations from
the jurisdiction of the general principles of international law. In this regard, the
Soviet government concluded bilateral treaties, beginning with the Franco-Soviet
Commercial Agreement of January it, 1934,31 and continuing in renewals thereof
until December 31, 1939. A provision of the Agreement which sought to limit the
liability of the Trade Delegation provided that all disputes relating to commercial
transactions entered into by the U.S.S.R. Commercial Delegation in France should
be within the jurisdiction of French tribunals and resolved according to French
law 32 With a standard by which to gauge their accountability before the French
courts, the Soviets altered their contracting procedure so as to fall outside the reach
of the provision. During the effectiveness of the Treaty, the Cour d'appel d'Aix,
reflecting the restrictive nature of the new Treaty provisions, decided Socifros v.
l'U.R.S.S33 The court held that it would be contrary to French notions of public
order to allow execution against the Soviet Union when execution against the Trade
Delegation had been limited by the Treaty. However, after the expiration of the
Agreement of December 31, 1939, the French courts, returning to their holdings prior
to the Agreement, held that acts of the Trade Delegation could only be considered
as acts of commerce to which the principle of state sovereignty could not be ap-
plied 34 Then the war intervened.
Shortly after the war, a reciprocal trade agreement was signed with an accom-
panying provision relating to the status of the Trade Delegation in France 35 The
Soviet Union by the agreement assumed responsibility only for those guaranteed
transactions concluded in the name of the Trade Delegation and by an authorized
person thereof. An unguaranteed transaction bound only the particular Soviet
corporation to the extent of its assets. In addition, a guaranteed contract, unless it
contained a compromise or forum-selection clause, was allowed to be brought be-
fore French courts and resolved by French laws with any execution being chargeable
33167 L.N.T.S. 349-
"Decree of Jan. 23, 1934, [19341 Journal Officiel de la Republique Francais [J.O.], Jan. 24, 1934.
See Dunbar 217 n. 22.
[19391 D.P. II. 65, 66 (Cour d'appel, Aix).
as Representation Commerciale de M.R.S.S. v. Societe francaise Industrielle et Commerciale des
Petrole, [1940] D.H. Jur. 68, [1940] Gazette du Palais I. 44 (Trib. civ., Seine).
"'Decree of June 20, 1946, [1946] J.O. 1505, 73-76 JOURNAL 402 (1946-49)-
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STATE TRADING ENTITIES IN FRANCE 579
to all Soviet interests in France, with certain exceptions. Furthermore, the Trade
Delegation was not required to register pursuant to French business registration
laws.
A similar Franco-Soviet agreement on trade was signed on September 3, 1951, of
which article io read:
The Commercial Representation of the U.S.S.R. in France shall enjoy privileges
and immunities ... with the following exceptions:
Disputes in connection with commercial transactions concluded or guaranteed
on French territory by the Commercial Representation of the U.S.S.R. . . . shall
... fall within the competence of French tribunals and shall be decided in accor-
dance with French legislation, unless there be any provision to the contrary in
the clauses of each particular contract or in French law36
In addition, although the agreement disavowed interim measures of protection
against available assets of the Trade Delegation in France, it reaffirmed the rule
that execution may be levied against such assets as were not properly used in
diplomatic representation, provided the guaranteed contract provision of the agree-
ment was followed.
Shortly after the agreement, a case arose which was reminiscent of the Socifros
case decided during the treaty period of the 1930's. In Captaine de Volochaevsk v.
Societe Nouvelle des Apparaux de Rouen,37 as in Socifros,. the Soviets opposed the
attachment of a ship owned by the U.S.S.R., claiming that it was immune from
execution. In Soci f ros immunity from execution was granted on the grounds that
the ship was the property of a sovereign state. The court in Captaine de Volo-
chaevsk, while agreeing in principle that execution could not be levied against a
state, held that the attachment was legally justified since the ship was not being
employed in a public service of the foreign state but on lease to a third party 38
Again the French courts took the view previously expressed in Chaliapine that the
dispute arose from a commercial operation which should not be protected by im-
munity from execution.
B. The Nationalization Decisions
At the same time as France re-established its commercial accords with the
U.S.S.R., more nations were fast becoming homes for socialist state trading com-
panies. As the new communist regimes in Eastern Europe were developing their
state trading corporations, the governments were also nationalizing the private in-
dustry of their respective countries. The usual method of nationalization was ex-
propriation or confiscation without indemnification of the private owners. Though
the effect of the nationalization without indemnification on the firm's assets located
within the country of nationalization is not a matter within the jurisdiction of
36 Decree of Sept. 3, 1951, in 8o JOURNAL 502, 506 (1953).
3z Judgment of Apr. I1, 1953 (Trib. civ., Rouen), in LE DROIT MARITIME FRANCAIS 405 (1953).
se Dunbar 254-55.
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580 LAW AND CONTEMPORARY PROBLEMS
foreign courts, these courts are competent to consider the effect of the nationaliza-
tion on the foreign-based assets of the nationalized firm within the court's j urisdic-
tion. This matter has been the subject of frequent litigation in France.
In Societe Hardmuth,39 the Cour d'appel de Paris had occasion to consider this
question in connection with the nationalization of a Czech firm by the Czech gov-
ernment. The French-based assets of the firm were organized under French law
into a company considered by its creators to be the successor of the nationalized
company. A suit was brought by the nationalized Czech firm to have an admin-
istrator appointed to supervise and preserve all the French assets for the benefit
of the Czech firm. The court divided the French assets into two categories: (1)
corporal property for which no administrator was appointed because of the inter-
national law tenet that property located outside of the country of nationalization is
not effected by the nationalization when there is no indemnification, and (2) in-
dustrial property which required an administrator because both countries were
signatories of the Convention of Paris of 1883 which protected industrial property
rights 40
A second case which dealt with the extraterritoriality of nationalization was
the French branch of the Zeiss litigation, Fondation Carl Zeiss, Meidenheim V.
Fondation Carl Zeiss, Jena 41 Eighty-four Zeiss trademarks were registered in
France between 1926 and 1944. They were sequestered for the benefit of France as
war reparations by the Law of March 21, 1947, and were authorized for return to
their rightful owners by the Law of January 4, 1955? Zeiss, Heidenheim, which
represented directors who moved from the Russian occupied zone and set up the
company in Heidenheim, West Germany, claimed the trademarks as did Zeiss, Jena,
which represented the company which remained in Jena and which was confiscated
by the state and later re-organized by the Russian authorities. The Cour de cassation
held that Zeiss, Heidenheim was the proper successor to the trademarks because
Zeiss, Heidenheim represented the continuation of the original Zeiss, Jena, the East
German branch of which was destroyed by Soviet confiscation and re-organization.
Further, it ruled that even if the Soviet confiscation had vested the state with the
company's rights, trademarks are territorially bound and hence those in France
could not automatically pass by confiscation. The court announced the general
principle that nationalization without indemnity is against the public order of
France and hence would be without effect in France.
C. Recent Trade Agreements
In the early 196o's, France turned increasingly towards the East in pursuit of
markets and trading partners. To aid in its trade offensive toward Eastern Europe,
"Judgment of Dec. 2, 1950 (Cour d'appel, Paris), in 44 REVUE CRITIQUE DE DROIT INTERNATIONAL
PRIVE 500 (1955) [hereinafter cited as - REVUE -1.
"Each member country owes the individuals and companies of the other signatories the same de-
gree of protection as it provides for its own.
41 [1966] Bull. Civ. III. 126, 56 REVUE 147 (1967) (Cass. civ. com.). See Treves, Les nationalisation
en Allemagne de 1'Est et le fondation Carl Zeiss, 56 REVUE 23 (1967).
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STATE TRADING ENTITIES IN FRANCE 591
France had sought to minimize all legal obstacles to commercial intercourse. By
virtue of their judicially eventful past regarding the treatment of state trading in-
terests, the French realized, not surprisingly, that merchants have a tendency to trade
in an inverse proportion to the degree of uncertainty in their contractual rights and
obligations with state trading enterprises. To minimize the uncertainty and thereby
maximize commercial interaction, the French have entered into numerous bilateral
agreements of a consular or commercial nature with the U.S.S.R. and every nation
of Eastern Europe 42
The trade agreements entered into by the French government were of wide
variety, but with many similar provisions. Possibly in an attempt to contain the
French courts' expansion of the limitations on the immunity of foreign state trading
interests, the agreements usually contained articles pertaining to the rights and the
obligations of consular or commercial representatives in the respective signatory
countries. With those countries with which France has consular relations, the
treaties provided for legal immunities for the consular or commercial representatives,
unless they enter into private activities of a commercial nature43 France has
executed with every nation of Eastern Europe economic or commercial treaties which
most commonly provided for a mixed commission consisting of Frenchmen and
nationals of the other signatory nation. The commission is to implement and aug-
ment the economic or commercial interchange; that is, to work for the elimination
of legal impediments to unobstructed trade. Numerous examples of the above
mentioned provisions are illustrated in trade agreements concerning technology,44
patents,45 shipping,46 and commerce and economics47 which were entered into by
France and the Soviet Union.
RECENT JUDICIAL REFINEMENTS
At the same time as the French executive and legislative branches of government
were executing trade agreements defining the bounds of sovereign immunity ac-
corded foreign states before domestic courts, the French judiciary itself was an-
nouncing decisions bearing on the same issue. In Societe S.A.P.V.I.N. V. Agro-
Export,48 the parties signed a contract which contained a provision commonly used
" Consular conventions: Bulgaria, Czechoslovakia, Hungary, Rumania, U.S.S.R. Scientific, tech-
nological, and economic cooperation accords: Bulgaria, Czechoslovakia, Hungary, Poland, Rumania,
U.S.S.R., Yugoslavia. Commercial accords: Albania, Bulgaria, Czechoslovakia, East Germany, Hungary,
Poland, Rumania, U.S.S.R., Yugoslavia.
48 Decree Of Oct. 22, 1967, [1967] J.O. 19412, RECUEIL DES TRAITES ET ACCORDS DE LA FRANCE
ANNEE 1967, at 644-48 (1971).
" Decree of Feb. 28, 1968, [1968] J.O. 2893.
4e Decree of Apr. 21, 1967, [1967] J.O. 4589, [1967] Recucil Dalloz [D.S.L.] 210.
4s Decree of Apr. 20, 1967, [19671 J.O. 9499, 56 REVUE 804 (1967)-
" Decree of Oct. 6, 1969, [1969] J?O. 10250, 58 REVUE 819 (1969).
48 [1968] Bull. Civ. I. 74, 58 REVUE 97 (1969) (Cass. civ. Ire).
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582
in an effort to prevent the assertion of the claim of sovereign immunity. Under
the provision, the parties agreed to resolve any differences before a pre-selected arbi-
tration board rather than before a court of law. In this case, S.A.P.V.I.N., a French
company contracting to purchase Yugoslav wine, specified that differences were to
be arbitrated in Belgrade. When S.A.P.V.I.N. was ordered by the arbitration
court to pay damages for its breach of contract, it sought to nullify the arbitration
provision so as to prevent the execution of the award on its French assets. The
Cour de cassation held that since S.A.P.V.I.N. had entered into the contract will-
ingly, the court would not alter the arbitration award unless it was procedurally
erroneous or substantially fraudulent.
Banque d'Etat Tche'coslovaque et Statni Banka v. Englander49 presented a more
refined question of immunity from execution. In 1948 a Czech citizen in Czecho-
slovakia deposited funds in the Tatra Bank to be sent to Englander who was domi-
ciled in France. In 1950, the Statni Bank, which had been created as a state bank
to carry out all measures connected with the Czechoslovakian monetary and finan-
cial system, including that of state payments abroad, assumed the rights and obliga-
tions of the Tatra Bank which had been unable to send abroad the funds belonging
to Englander. On the failure of the Statni Bank to pay him, Englander obtained
a judgment from the Cour d'appel d'Aix, declaring that the Statni Bank was in
his debt to the extent of the funds originally deposited. In pursuance of this judg-
ment, the Tribunal de grand instance de Marseille authorized the attachment of the
funds belonging to the Statni Bank which were in the custody of the Banque Com-
merciale pour l'Europe du Nord.
When this order was presented to it, the Cour d'appel d'Aix took a different view
and refused to permit execution of the judgment against the funds of the Statni
Bank, choosing instead to grant the Bank immunity from execution .50 The court
considered that the funds of the Statni Bank deposited in foreign countries belonged
in part to the Czech state. These included monies used in connection with Czech
commercial enterprises, the upkeep of diplomatic missions, and the payment of
financial contributions of the state to various international organizations 51 Since,
in this suit, it was impossible to distinguish between the public and private funds
held by the Banque commerciale in France, to allow attachment would threaten to
deprive a foreign state of resources necessary to meet obligations incurred in the
exercise of its puissance publique.
Upon appeal to the Cour de cassation, the decision of the Cour d'appel d'Aix
was annulled. The court held that in basing immunity from execution on (i) the
impossibility of discriminating between public and private funds kept by a state
bank and (2) the possibility of depriving a foreign state of resources needed for its
public functions, the court of appeals failed to give une base legale for its decision.
4D [19691 Bull. Civ. I. 52, No. 69, 96 JOURNAL 923 (1969) (Cass. civ. Ire).
60 Judgment of Feb. 14, 1966, in 93 JOURNAL 846 (1966).
"Dunbar 235?
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STATE TRADING ENTITIES IN FRANCE 583
Consequently the decision below was quashed and the case sent down for rehear-
ing before the full court of appeals in Nimes 52
In Clerget v. Representation commerciale de la Republique democratique du
Vietnam,53 Clerget sued for wages earned while he had been employed by the
Democratic Republic of Vietnam (North Vietnam) in a mining enterprise. The
Cour d'appel de Paris, prior to a trial on the merits of the claim, rejected the
defendant's contention that a conseil de prud'hommes was incompetent to hear this
litigation. The court concluded that this kind of employment contract did not
amount to un acte de puissance publique (an act of public power), but was un acte
de gestion (an act of management) such as a commercial or industrial enterprise
would pursue in the course of its normal activities. In pursuance of the above deter-
mination, Clerget obtained a default judgment against the defendant.
In order to obtain a provisional attachment to satisfy the default judgment,
Clerget proceeded against funds which were held by the Banque commerciale pour
1'Europe du Nord. These funds were held for the benefit of the Democratic Re-
public of Vietnam or its commercial representation and, most notably, for the
Banque du commerce exterieur du Vietnam, an emanation of the Democratic Re-
public of Vietnam. The Tribunal de grande instance de la Seine decided that the
exception to the rule of immunity from jurisdiction and execution in commercial
transactions with states which have a monopoly over external commerce should not
be invoked by the plaintiff.54 The court held that the debt did not arise from a
commercial transaction entered into with the commercial delegation of the Demo-
cratic Republic. The debt arose from a contract of management and direction
signed in Hanoi by the plaintiff and a vice-minister of the Democratic Republic
without any participation of the commercial delegation which, in fact, did not come
into existence until later. Moreover, the plaintiff considered himself as the repre-
sentative in France of the Democratic Republic. The Cour d'appel de Paris affirmed
the lower court decision but recognized that foreign states and their organs when
acting on their account enjoy immunity only in respect of public acts. In the
court's view, immunity is based on the nature of the activity and not on the char-
acter of the person performing it 55
After eight years of litigation, the Cour de cassation apparently settled the issue
of the reach of immunity from execution when it announced its affirmation of the
decision pronounced by the court of appeals 56 The court declared that in the name of
sovereignty and independence of foreign states, immunity should be granted even for
the payment of debts having their origin in acts of management relating to private
enterprise. However, the court, in upholding immunity from execution, took care to
52 No record of the decision of this court could be found.
6s [1971] Bull. Civ. I. 237, No. 278, 61 REVUE 310 (1972) (Cass. civ. Ire).
"Judgment of Mar. 15, 1967, in 95 JOURNAL 55 (1968).
"judgment of June 7, 1969, in 96 JOURNAL 894 (1969).
" [1971] Bull. Civ. I. 237, No. 278, 61 REVUE 310 (1972).
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584 LAW AND CONTEMPORARY PROBLEMS
note that the objects of the attachment action, the bank funds, could not be attached
since the origin and destination of the funds could not be determined.
CONCLUSION
How does one balance the needs of international business, which requires that all
enterprises engaged in international transactions be recognized as equal before the
law, against the reality of co-existing legal systems which provide that enterprise
constitutes a state function? It appears that the French courts, though cognizant
of the difficulties encountered when the state penetrates into spheres of activity
normally reserved to private entrepreneurs, are inconsistent in their solution to this
balancing.
In the early Igoo's the French judiciary began to articulate its retreat from a
blind adherence to the doctrine of absolute immunity. Beginning with the judg-
ment of the Cour de cassation in Association France-Export, the French have shown
their willingness to construe certain acts of state trading interests as jure gestionis
and consequently to deny immunity from jurisdiction in those instances. The
French courts have shown themselves predisposed to attach liability upon a state-
created entity in activities defined within the jure gestionis category. This is espe-
cially true if the state as a matter of policy has transformed commerce into a state
monopoly and seeks to clothe the monopoly agency with the immunity belonging
to the state.
But the treatment of immunity from jurisdiction is only a partial solution to
the larger balancing problem. The French courts have divided the immunity
claimed by state trading interests into two distinct segments, one being immunity
from jurisdiction mentioned above, and the other being immunity from execution b7
The distinction operates to the extent that a denial or waiver of the former does not
necessarily constitute a denial or waiver of the latter. Thus, a court which will
deny immunity from jurisdiction may later reverse itself and grant immunity from
execution in the same litigation. Hence, though the courts are amenable to a
denial of immunity from jurisdiction, litigants must continually face the prospect
of a denial of execution on a previously awarded judgment.
The most recent pronouncement on the issue of immunity from execution was
contained in the Clerget case. This case would appear to put an end to the juris-
prudential uncertainty surrounding a state trading interest's claim to immunity from
execution. And without a doubt, the Cour de cassation approved the court of
appeal's having, in the name of the sovereignty and independence of a foreign state,
declared unacceptable the execution of the judgment on the funds of the Democratic
Republic. Furthermore, the Cour de cassation specifies that immunity from execu-
tion should be granted even for the payment of debts having their origin in acts
of management relating to private rights.
57 See Freyria, Les limites de l'immunits de juridiction et d'sxecution des Etats strangers, 4o REVUE
449 (1951)?
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STATE TRADING ENTITIES IN FRANCE 585
But the treatment of immunity from execution claimed by a state trading interest
is far from settled. The judgment as reported in Clerget is very precise in noting
that the funds held by the Banque commerciale could not be attached, since their
origin and their use could not be determined. Can one not legitimately infer that
if a distinction could be made between the funds used for public activities and the
funds serving commercial activities, the Cour de cassation would not have allowed
immunity from execution over the entire funds?" To suggest otherwise would
allow the simplistic solution of the Cour de cassation to remove previously enunci-
ated restrictions on immunity from execution and reinstate the absolute character
of immunity from execution in France, a result of uncertain contribution to the
security of legal transactions with foreign states.
se Compare Englander v. Statni Banka Czechoslovaka, (19691 Bull. Civ. I. 52, No. 69, 96 JOURNAL
923 (1969) (Cass. civ. Ire).
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VOLUME 37 AUTUMN, 1972 NUMBER 4
EAST-WEST TRADE: PART II
JOHN C. WEISTART, Editor
ROBINSON O. EVERETT, Associate Editor
STEPHEN A. HILDEBRANDT, JOHN K. KELLER, JOHN R. MILLER,
AND PETER D. WEBSTER, Student Editorial Assistants
EDITORIAL ADVISORY BOARD
WILLIAM G. ANLYAN, ARTHUR LARSON, JOHN C. MCKINNEY, A. KENNETH PYE,
MELVIN G. SHIMM, JOSEPH J. SPENGLER, AND CLIVE M. SCHMITTHOFF (London).
MARXISM-LENINISM AND SOVIET-AMERICAN ECONOMIC
RELATIONS SINCE STALIN .................................. Jerry Pubantz
RECENT DEVELOPMENTS IN EAST-WEST TRADE:
THE U.S. PERSPECTIVE ................................. A. Peter Parsons
LEGAL ASPECTS OF SOVIET-JAPANESE TRADE ................ Tokusuke Kitagawa
THE STATUS OF STATE TRADING ENTITIES IN FRANCE ............. Andrew Reisli
YUGOSLAV TRADE WITH EEC AND COMECON COUNTRIES ..... Mihalo Jovanovic
ARBITRAL TRIBUNALS FOR FOREIGN TRADE IN
SOCIALIST COUNTRIES .............................Kazimierz Grzybowski
PROCEDURAL RIGHTS OF ALIENS BEFORE TRIBUNALS
IN POLAND ............................ Ludwig Kos-Rabcewicz-Zubkowski
FOREIGN TRADE LAW OF ROMANIA .......................... George J. Roman
A SELECTIVE BIBLIOGRAPHY OF EAST-WEST COMMERCIAL RELATIONS ............
LAW AND CONTEMPORARY PROBLEMS
A Quarterly Published by the
DUKE UNIVERSITY SCHOOL OF LAW
DURHAM, N. C.
Subscriptions: U.S. & Possessions, $12.00; Foreign, $13.00.
Copyright ? 1972, 1973 by Duke University
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