1998
STATE TRADING ~1\l) STATE CONTRACTS IN INTERNATIONAL LAW
ISMAEL SAKA ISl\tAEL.
INTRODUCTION
It is a trite principle of International Law that states are sovereign and enjoy notional equality amongst
themselves. In spite of these characteristics, States like human being, do not exist in vacuum nor in isolation.
They interact in a number of ways. The interaction of States in economic sphere of life can loosely be refen'ed
to as State trading and State contracts.
Though, definition of ternlS and concepts are usually associated with problem(s) of adequacy and or
u..'..liversal acceptance amongst others. However, notwithstanding these problems, it is not totally out of
context to make some attempts at defining the telm state trading and State contracts from a narrow
perspective. Some writers use the tenn State trading and State contract interchangeably to consist of the
activities of the State or the State-controlled agencies providing goods or services in exchange for some
counter-value without necessarily seeking profit from these transactions.1 Such activities of the State have in
the course of history been perfonned by different regimes of varying economic and political complexion? In
this context, state trading need not necessarily be operated at a profit as the ta."\. payers may be required to
pay the bill of deficit operations undertaken for the sake of long tenn pol itical gains3
At times. the phrase "State enterprise" is substituted for state tmding and when such is used, it is generally
understood to incluJe inter 81ia any
. Lecturer. Facultv of La\\, USI1l:mu dan Fodio Uni\'ersitv. SOb,lO
I Ignaz Seidl-H~hen\eldcm, "'The Imract of State-Trading on Classical International Law". The rear Roo/; of World ..jjl<lirs. (196~), r
I,q
2 Hazard. "State Trading in History and Theory". 24 r{JI\' and ("OI);(I/1/,01'<1IT Problems. (1959). p, 2.B,
3 Seidl-Hohen\'eldern. or cit. r 160,
Journal ()flnl('rnull()nlll und ('0111/"11""111'<' l,nt' rVolume :2
agency of governmcnt that cng;lgcs in ptllch;lsin~ or selling.1 In other
\vords, it is Public ( 'oll1ll1crcial cnterprisc which entails both agencies of
govermnent in so br as they are engaged in trade, and trading activities
Imlinly or wholly owned hy public authorities. provided that the memher
concerned declares that it has dfective' control over or assumes
responsihility for the enterprise'
I'hese kinds of glwellll11ent agencies en!..'a~ed III State trading ahound not
on Iy in capita I ist oriented cuuntries bllt a Isu in Soei;1! ist and COll11l1un ist
countries For example, the ddililct Soviet [Inion had constituted a
number of State Trusts organised as indepcndent entities with separate
legal personality, Such trusts and corporations exist also in non-socialist
conntries and their main /Catmes are autonomy of legal and financial
status, non-political management. I()ni,'.-term Iinancing hy government
appropriations hy shares subscribed h\ the gl wernment and ahsence of
control by private shareholders. this latter heing e\:crcised by gmerl1l11ent
depm1ments, To properl:-.' come undcr the category of "Public Commercial
Enterprise", these agencies should CIIT) on trade ()n hehalf of the
govcl1lmenl.
Another writer. .l.LS, lawcclt, de1incs Slate trading in his m1iclc titled "Legal Aspects ofStatc Trading". as:
"The purchase of sale or goods It)r I111pl'11 or expI)\1, or the supply or
commercial services hy the stale""
while a state contract is generally speakilli,'. one «I which the state is a pal1y
and which concems all its citizens'"
HISTORICAL OllTLINE AND S« WE OF STATE TRADING
AND STATE CONTRACTS
----------------------------- ~~--------------------------------------------------~-
~I
------
!:l\a118 Reports. section \ n. p 114
, V A Scvid !\1ohaI11111ad, 111" /.egal rrulll"l! "I'~ u,t If'ol'/d /'I'adl'.( 19(2). 1'. 22') (, .I I.: S Fa\\cctt. ,,' cgal A,;pccts o!" St~JIC !radin\c'. (I'H6) 25 The
/Jl'Ilish },'III'
nook o(II1/!>1'I70Iion'111,uH'. P 34.
." (iirl110\\' (cd.). ('o,'!JIIS .111 I' is SeClIIldlll/1. (I '.1"7. 'rd ,'d.). \,,,\ 81 A. p. 605
19981 ,"'1£111.' Trolling '/lltl ,<"Ii/II' ('"nlrodl (n InlernOl/tinoll,i/1I 1 U 1
The pal1icipation \)1' Sta!l' in State trading and state contracts is b\ \ll) means an unprecedentcd phcn\Jll1enon Prior to 19th Century
So\c'lcil,'.ns
and states had p;\l1aken in international trade on a large scale and it
\\ ;15
only during the 19th
Century that state trading and contracts reached a 10\\
ebb,g This is largely borne out by historical facts and cconnl1lic theories which h:1\'e not been unil10uenccd by
political doctrines and snci;ll conditions. There was an ideology which \vas predominant in the l(jth Century
that trading was 110t included
amongst the recogl1ised runctil1115 01 State, The beginning of that
Centwy really marked perhaps the dawn
Oil
an epoch of laissez-faire It was almost a general belief,
shared by pl1litical leaders and backed by the teachings of conternporary economists. lhal. (0
put it crudely.
if the self-interest of every individual was left uncontrolled by the State, it would by "natural
forces" develop towards perfection and \l1 the best public interest of the community as a whole. Owing
l1lail1l~ W this doctrine, commercial undel1akings as well as international tr;lde were lel1 in the hands of
individuals without any direct wnlrol hy thc' State.
Social conditions. however, led political theorists to sug,gest that SL\le should control or at least maintain and
regulate the developmellt 111 sOCIal conditions, particularly those or the lower classes, In EnglamL !\)r instance. these
theories ultimately led to legislation protecting labnlll. such
as the Factories
Acts and the Poor law Acts in the 30's. Nevcl11Jl'1ess. b:lhat time. the Government had not
yet assumed direct control nr Ihc~ economic developments of the country, and almost all forms or Iradc' \\
ere
still in the free hands of private enterprise9 This period was marked by great progress in evely field of
trading activity, for example tnti\c manufacture, agriculture, iron, coal and engineering industries,l!) rhis
progress continued
and it began to look as though the laissez-faire d\1ctrine
\\as going to remain in vogue, At any rate in the middle
\11' lite 19th
doctrine had gained an almost decisi\ e
------.----, B FenSler\\ald. "Sovereign Immunily and Sovi<::l Slate Irading", \ 1')\<),'11'1 hI
I/arvard L(II" Revi('\I', p 614.
S, Su(harilKul. Siale Iml1lullilies olld Trodillg ..Iclivilies ill IIIIC/'I10UIIII';; [;/11.
( 1959), P 15
H Jones. el. al.. (cds) A l1undred rears O/ECOIlOl11iC {)('\'CIOpI1lCIIIIII (;/'('()! I1rJit/(}1.
(1948). P (,7
Century it \\as clear that this
102 Journal of Illlernational and Comparative Law [Volume 2
international acceptance. But the last quarter of the 19th Century witnessed the eve of the downfall and
continuous decline oflaissez-faire in practically every State. II There were three international trends: a shift
fi.om liberal trading policies towards protectionism, the rise of a new
worId-embracing imperialistic rivalry, and a movement trom reliance upon laissez-faire towards government
intervention in economic life.12 This was probably the result of a general decline in international trade and
economy, which was bound to lead directly to self-defence and fmally to militate against the prevailing ~Iief in
liberal policies.13
This period witnessed many attempts on the part of the British
Government to assume direct control of certain trades and to regulate internal as well as external trade through
the Board of Trade. The State
began to own shares in private Companies, and most important of all was the compulsory take-over by the State
of certain major industries.14
The Great War of 1914-18 necessitated State control offood supplies and other imports and home produce.
This was followed by State regulation of prices and rationing and distribution.I5 TIlis experintent in State
control proved that quite contrary to the 19th Century belief, the State could and did with some measure of
success intervene in the economic affairs.16 Shipping was one of the businesses which came under direct State
control and indeed the control of a group of States. I 7 An English judge once described this State of affairs:
"ill 1917 -18 any ship-owner \\ ho had a tanker tree trom
Government control could have become "rich bevond the dreams of
.
avance.
,,18
...
II E. RoiL A Histol)' of Economic Thought, (1938). pp. 253-29 I.
12 Ellsworth. The International Economy. (1938 L p. 437.
IJ Ells\yorth. The GrO\\'th ofNationalislll and Prolt'clionislll. pp. 348-548.
I' Ibid. p. 340.
I' H. Beveridge. Brilish Food COlllrol. (1928). p. 30.
16 Salter. Allied Shipping Control. (192 I). p. 63.
17 Lloyd. L,perime11ls in State Control at the War Oa;ce and the Ministry of
Food. (1924). p. 15.
I~ Per HilL J. in The Sylvan Arrow. (1923) 2 Ch. 0220.
19981 State Trading and State Contracts in International Lall 1
(J 3
Meanwhile, in Russia, the Soviet Revolution of 1917 was followed by
State monopoly of foreign trade. The post war years saw thc crumbling of
intemational structure. Intelllational economy in this period, "resembled a
dilapidated automobile, suffering from lack of repairs and damaged by
collision and tinkering of amateur mechanics."I? It became a nccessity for
States to assume not only control but also the monopoly of imports and
exports of certain products and goods.
This at the outset secmed to lack the theoretical suppol1 of economists.
since prevailing theory was still very much in favour of laissez-faire.
Economic theorists were rather slow in accepting and rationalising
economic facts. It was not until 1920 that public opinion in England
began to change to the theory that it would be better for the State not
merely to intervene and control the economic life but also to manage and
nationalise impol1ant industries, factories, manufactures and other hig
business enterprises and more particularly foreign Trade. Scru!ton 1"..1 in
The Porto Alexandre has some justification for stating that "the Fashion ()f
nationalisation is in the air"2° This challenge of the theory orthe harmony
of interest gave a theoretical economic basis for State 1110nopoly which
gradually extended it s field in the ensuing decades.
EIs;ewhere, State control of production, of exports, in pat1icular the
exports, of war materials and raw materials, of railways and other means
of transportation, and of finance and banking21 began to appear as
common features. A new era of State control began to develop into State
monopoly of intemational trade. The deh.ll1ct Soviet Union was
outstanding among State-traders. Every State was to greater or less extent engaged in trading by the beginning
of the 2nd World War.
1° Ellsworth, The InternatiOllal Ecollomy. 01' cit. p. 437
20 The Porto Alexandre (1920) 1 K.B. 20 at pp. 38-39
21 Freidman, "The Growlh of Slate Control Over The Individual And Its [llCet
Upon The Rules of International State Responsibility". (1938) British lear nonk
oflnternatlonall.mL Vol XIX. 1\8 atpp. \21-123.
1~ Journal of Jntemarional Qnd Comparatil'e Law [Volume 2
In Great Britain, the 2nd World War, Icd to the establishment of the Ministries ofFo(){l, of Supply, of Fuel
and Power, and of War Transport,22.
The Dritish Overseas Airways Corporation was granted a Charter in 1940. Two pre-war public corporations,
the Electricity Board and the London
Transport, as well as other local authority gas and electricity undertakings have been absorbed by post-war
nationalised undertakings.23 Major
industries have practically all been nationalised, notably coal in 1946. Nationalisation has been believed to be
the best means of ensuring that an industry is run in the public interest. Today, Great Britain, like other
modem states, is engaging in trading activities in spheres as multifarious perhaps as those of private traders.
Since the War, new techniques and new systems of State-trading have developed as States can only act
through their human agencies. In Great Britain, like anywhere else, this has been achieved mainly through,
States organised entitles and trading
agencies as shall be seen later.
CAP ACITIES IN 'VIDCH STATES ENGAGE IN TRADING ACTIVITIES
Generally, because States are unlike human beings, they have developed techniques and systems by trading
through their human agencies. In the light of this, the States engage in international trade in both developed
and developing countries through their human agencies which can be grouped into three main classes. Thus,
the first consists of those trading activities carried on through statutory boards or corporations which are under
Ministerial Control but do not always or necessarily act as ministerial agents. The Second Class consists of
those carried on by Ministers of the State in the exercise of their general executive powers, and thirdly those
conducted through Statuto!}' boards or Corporations or limited Companies which are not under Ministerial
Control but which act as governmental agents.
:: r3ritish f:)od control during the I st World War ended \\ith the formal demise of
the 1\1mistfY of Food on March 31 1911.
:' \\'orsick and Andy. The British Economy. (19.15-50). PI'. .11.1-451.
:~ Fawcett. 01' cit. at p. 36.
'
199X1 ,','lu(' rl'uding (//Id ,"'((1(,' ('(In(I'''<'I, //1 1//(('1'1/,11/111/(1/ L'I1\ lU'7
II
It is a COl111110n phenomenon thaltlH: StatL's (lL';'1c L'cTt:,in statutol) h('anb or corpnrations under Ministerial conllOl[(I
set up hy Section I,
The Coallnclustry Nation:ilis:lll<\n Act oll(),lh as" hody corpnrate \\lith perpetual succession and po\\crlo
hold bnd \\ilhOlII licence in mOltmain. The British FtIlOPL',lIl /\in\:\\s C()tp()rati(1!l and I:: 8ritish South American
opcr,llc \arious industries and servicl's llsing Ihis technique. thl' National (',)all\();lId ((II' illstallL<.:. \\:\.
Airways are Statlltory C( )rpolatlons ne,lll'l1 hy the Civil A\iation Act, 1946 and British Overseas Airways
Corporatioll IS assimilated to them by that Ac\.2' An important cl1aracterist ic ollhc~c bodies is their relationship to
Minister or Fuel and Power :1I1d t() 111l' Minister or Civil Aviation respectively. They do not need or possess a
monopoly of the import of particular goods and materials but tile)' arc ncvcI1helcss bound to make isolated or
continuous purchases abroad 01 machinery. goods, and materials for the use or the nationalised industry PI service
(1)1' which they arc responsihle
In Unill'd Kingdom, the 1110st active capacit~ ill which the Slate l'nt'-ages ill trading and contracts is through the
Iwo f\:linisters 01 the ('roml TI1l' Minisler of Food and the Minister of Supply. Tlll'se Ila\'c Illonopoly powers as
the Sole importers or cCl1ain products. fhL' i'vl illisler oll'(1od has nt)\' it appears, been declared to be a corporation
Sole. capahle 01 sllin~ and being. sued, and within his sphere or respollsibility. l1e prl'sulllahJ~ e\.en::iscs the
general executive authority of the Crown 'I, Ihe M illistry lit Food has concluded a number or long.-tcllll or
bulh plllcliase cllntracl' with other govemments in the ConllIlLJI1\\'calth. as \\ell asfl)ud purchase
contracts with foreign private traders- The portion III Ihe I !nited Kingdom's Wheat requirements arc met
by a Itlllt'--ler11l contract wit II Canada which runs until 1950. Long-term cuntracts II)! the plilchase of
meal have also been concluded with Australia. Ncw /e;ilal1ll. and the Argent ine. prices being subject to
review evny tWt) years rhe M inistr\ of Supply is similarly the Sole impol1er ofcer1;lin!;1\\ In:llL'!ials. \d
II Ie the Board of Trade is a large bl1~'CI of Sisal. hides and Shins fro1J] th, Colonies,
106 Journal of International and Comparative Lall' [V olume 2 Another capacity in which the State
engages in trading is through Commissions such as the Raw Cotton Commission established by the Cotton
(Centmlised Buying) Act 1947. Its monopoly not subject to direct ministerial control, which procures raw
cotton through its purchasing agents abroad and imports it into the United Kingdom for Sale to the Cotton
industry. The Cable and Wireless Limited is a Company operating overseas telecommunication Services as
a monopoly; Her Majesty's Treasury acquired all the Stock under the Cable aTid Wireless Act 1946, but its
directors are responsible as in any otller Company, for its policy and operations are tree of Ministerial
control. Examples of State trading through an export monopoly are to be found in tlle collective marketing
boards established by legislation in Nigeria and tlle former Gold Coast now Ghana West African Cocoa
indus1Jy one of its principal purposes was to improve the bargaining position of tlle individual Cocoa
producer, which has hitherto been weak in tlJe face of Strong Cocoa buyers' association.
Another capacity in which a State engages in trading and contracts is through the interesting case or means
of a limited company, arganised in the nannal way but having some of the characteristics of a State trader, is
United Kingdom - Dominion Wool Disposal Limited. It main task Was to be the liquidation tlJrough commercial
channels of Stocks of Wool acquired during the War by tlle United Kingdom and otlJer members Oftl
Commonwealth, who joined in organ.ising the company. This task was to be carried out by the Company
fLxing tlle total quantities of Wool to be offered for Sale trom time to time concurrently in the
Commonwealth or elsewhere, preparing schedules of reserve prices at which tlle Company would itself be
willing to purchase ne\\' Wool and holding and disposing o[the Stocks Wool as the agent of the go\'enunent
concerned.
STATE 11\ IMUNIIT AlVD ITS E)..TENT L1\T STATE TRWJJ\G AND STATE CONTRACTS
Tk origin of the international law rule of Sovereign immunity remains shf()udcd in Semantics. One school
of thought maintains tlJat "tlJe
1998]
Slale Trading and Slale COl/fracls in Il/len1OlIol/al Law 107
imlllunity from the jurisdiction of local courts enjoycd by foreign States is usually based on the Illutual equality
and independcncc of States,,,n According to this theory, "the purely practical argulllcnt that to pelll1it process to
issue would "vex the pcace of nations' "has gcnerated a rulc of customary intemationallaw which bestows upon
all States illlmunity from the jurisdiction of another State's Courts.28
A Second School contends that "it is very difficult to give an)' mOil' substantial rationalisation for the
doctrine of sovereign immunity than the refercnce to intemational comity."n This School takes the view that
while Illany states have granted jurisdictional imlllunities to I()reign states no rule of intemationallaw Compels
thcm to do 5030 Hackwol1h takes thc middle ground by concluding that the doctrine, having its origin in comity
gradually ripened into a rule of customary intematjonal Law,11
Whatever could be the origin of State immunity, it is this Writer's humhle observation that there is a sort of
general consensus that certain principle of international law exists in accordance with which a Sovereign Stale is
accorded immunity from the jurisdiction of another Sovereign Slate This probably influenced Lord Dcnning
M.lC when he said, inhcl/(lfCY Trading Corporation Ltd v Centrallhmk of Nigr>ria" that:
"The doctrine of Sovereign imlllunity is based on intel1l;ltional law, It is one of the rules of
intemationallaw that a sovereign should not be impleaded in the courts of another Sovereign
State against its will"
17 Allen,
The Posilion of Foreign States het/we IVational ('o/lrts. ( I <}J.\). r 34 18 Angell, "Sovereign Immunity - The Modern
trend". (1925) .15 }de (<Ill' )o/lrl1<1i
150 at pp. 151-153.
29 Ricsenfield, "Sovereign Immunity or Foreign Vesseb in !\nglo-..\lI1cl iean la\\ The Evolution of a Legal Doctrine". (1940\ 25
,\finnesofa 1.<111 Nel"'l1 I. ill P 3 n. 12.
30 Lauterpacht, "The Problem of lurisdielional Imfllunitles of Forl'ign Slale<'
(1951) 28 British Year Book of Internatimwl Law 220-228 J I Ilacksworth, Digest of In/emotional LOlL (, 941). p 393 \2 (llJ77) I
All LR. 881, at 888.
108 Journal of International and Comparatire Law [V olume '2
Though State trading had been an old age activity, the classic doctrine of immunity arose at a time
when all the commercial activities of States in foreign Countries were connected with their political
activities, either by the purchase of commodities of their diplomatic representatives abroad, or by the
purchase of war material for war purposes33 e.t.c. This classic doctrine of immunity was one of
general immunity ITom the jurisdiction of other States and the locus classicus often cited is the
judgement of the U.S. Supreme Court in the case of T71e Schooner Exchange v Mfaddon34
where Marshall, CJ. declared:"111e jurisdiction of the nation \\ithin its territory is necessarily
exclusive and absolute. It is susceptible to no limitation not imposed
by itse]L..This full and absolute territorial jurisdiction being alike
the attribute of every sovereign, and being incapable of conferring extra territorial powers,
would not seem to contemplate foreign
sovereigns nor their sovereign rights as its objects. One sovereign
being in no respect amenable to another, and being bound y
obligations of the highest character not to degrade the dignity of this
nation by placing himself of its sovereign rights within the
jurisdiction of another, can be supposed to enter a foreign territory
only under an express license, or in the confidence that the
inlInunities belonging to his independent sovereign station, though
not expressly stipulated, are reserved by implication, and will be
extended to him. His common interest compelling them to mutual
intercourse, and an interchange of good offices with each other, have
given rise to a class of cases in which every Sovereign is understood
to waive the exercise of a part of that complete exclusive tenitorial
jurisdiction, \vhich has been stated to be the attribute of every
nation."
The decision in The Schooner E'(chonge case (supra) opened a floodgate to others where absolute sovereign
immunity was raised and upheld in State trading and State contracts. A cursory look at the following cases
33 l!uY'1made, "The Soyereign in the ~1arket: The Nigerian Cement Cases" in Ajomo {ed.). Proceedings of the ,",:imh
Annllal Conference of Nigerian Sociery
of International Law, 1975 - 1978. (~igerian Institute of International AtTairs.
1<)82).190 at p. 199.
34 (1 S 12) 7 Cranch 116.
1998] Slale Trading and State Contracts in/nlemational Law 109
provides a clearer picture. In Berrizzi Brothers Co v s.s. Pessaro35, 30 cargo owners brought an action
against the Pessaro, a merchant vessel owned and operated by the government of Italy and engaged in
carrying Olive oil from Italy to the United States, for damage to a shipment. Tile Italian Ambassador
claimed state immunity on the ground that the vessel was owned and operated by the Italian government.
The U.S. Supreme Court upheld Italian claim of immunity. TI1e Court reviewing V1e Schooner Exchange
Case (supra) concluded that:
"The principles are applicable alike to all ships held and used y a
government for a public purpose, and that when, for the purpose ofd
advancing the trade of its or providing revenue for its treasury, a
government acquires, mans and operates ships in the carrying trades,
they are public ships in the same sense that war ships are, we know
of no international usage which regards the maintenance and
advancement of economic welfare of a people in tinle of peace as
any less a public purpose than the maintenance and training of a
naval force.'''
\In Parlement Belge,37 the British Court of Appeal upheld the plea of absolute sovereign immunity in respect
of a mail, merchandise and passenger ship belonging to the King of the Belgians. Also, in Weber vUnion of
Soviet Socialist Republics/8 the claim of Sovereign immunity from Suit was held in an action brought by a
Dutch resident against the defunct USSR in respect of a contract entered into with a trade organ of the defunct
USSR. This had been the practice of nearly all the States prior to the era of States large scale involvement in
commercial activities. The dawn of a new era39 where it is now a vogue amongst the Sovereign States not
only to engage in commercial activities but to also enter into competition with their own nationals and with
foreigners40 alike in trading
35
(1962) 227 US 562.
36
Cited in Lillich, The Protection a/Foreign Investment, (1962), p.8-9.31
110 Journal oflnternatinnal and Comparative Law [V oillme 2
activifies (which could have been the exclusive reserve of the nationals and the like), have made many States to
tilt a little to the left by applying the principle of restrictive immunity. Thus, for the purpose of granting irnmun
ity to the acts of a Sovereign State, acts perfomled in the exercise of Sovereign authority retained immunity
while private acts of the sovereign were denied immunity.41 In other words, sovereign acts attract immunity
while non-sovereign acts are denied immunity under the restrictive immunity principle.
Applying this principle of restrictive immunity, immunity was refused in Borga \' Russian Trade Delegation-l2
where the defendants appealed from the judgement of an inferior court which had held that the Delegation was
subject to the jurisdiction of the Italian courts in respect of its commercial activities. The Italian Court of
Cessation affirmed the decision stating inter alia that:
"When a foreign State, in order to obtain a result of an economic
nature, performs in the territory of another State, an activity which any
citizen of the latter State could perform, it becomes for this reason
alone asubdilus temporarius Of its own free will it becomes subject
like a private person, to all these rules of the legal system of that other
state which regulate and generate, through ad hoc judicial
bodies, legal activities connected with economic interest."
Another case in which immunity was refused applying the restrictive immunity principle is the case of
Trendtex Trading Corporation v CB.N (supra) where Lord Denning M.R reasoned that England should move
along with tide by adopting the principle of restrictive immunity as many other States had already done and
stated that: " It was suggested that the original contracts for cement were made by the Ministry of Defence of
Nigeria and that the cement was for the building of banacks for the army. On this account, it was said that
the contracts of purchase were acts of a govemmental nature, jure imperii, and not of a commercial nature,
jure gestiones. They
41 Lillich. op cit, p. 10.
41 (J 9~3) International Law Report 35.
1998]
State Trading and State Contracts in International Law
111
were like a contract of purchase of boots for the anny. But I do not think this should affect the question of immunity.
If a government department goes into market places of the World and buys boots or cement as a commercial
transaction - that government department should e subject to, all the rules of the market place. The seller is
not concerned with the purpose to which the purchaser intends to put the goods.'''')
The foregoing cases have merely shown that there is a general departure by majority of States fi-om the
principle of absolute immunity to that of restrictive immunity.
CONCLUSION
So far, the doctrine of State immunity, as far as can be ascertained, was sufficiently well established in the
practice of States to justify its claim to become a principle of international law in the 19th Century. TIle
original version, as stated by Marshall C.J. in The Schooner Exchange v. Mfaddoll (supra) is generally
considered to be representative of absolute immunity. But the better view appears to suggest that the
Chief Justice himself had never intended immunity to be absolute, for in that as well as in subsequent
cases the exception of trading was either expressly stated or at least implied. Moreover, immunity is only
an exception to a more fundamental rule of territoriality. The grant of immunity in certain circumstances
represents an implied or tacit waiver, on the part of the territorial State, of the right to exercise its
territorial jurisdiction.
The present trends in State practice in favour of restrictive immunity reflect:, in large measure, the CUlTent
ubiquitous phenomenon of State trading. Most modem States are now engage in trading activities. These
facts call for a reconsideration of the doctrine of State immunity and the extent and desirability of its
application in modem environment. Even
43 (1977)
I All E R 881
112 Journal of International and Comparative Law
[V olume 2
though some states still jealously guard their sovereignty, it is observed that it is fast becoming a thing of the
past as most enlightened governments are now prepared to sacrifice what little factual independence and
sovereignty they have in exchange for peaceful and fTuitful international cooperation. This is because it is now
commonly undisputed that under the present economic conditions of the World, there is hardly any State(s) that
can survive in absolute isolation as participation in international trade and economic cooperation is absolutely
essential.
The real obstacle to international trade and justice remains the none availability of an internationally recognised
criteria or criterion to differentiate between governmental and non-governmental transactions. The present
practice where States leave their Courts to decide each case as circumstances and the socio-political climate
prevail is not in the best interest of international trade.
Finally, it is submitted that absolute immunity should be completely discarded in the practice of civilised
nations because in spite of its
practical convenience and certainty, its application creates hardship, injustices and inequality before the law. It
promotes distrust and discourages trading with foreign governments.