The US Supreme Court made a lot of headlines in its latest session, from affirming a right to gay sex to allowing affirmative action. But of much more importance for the world of international finance was an almost-unnoticed ruling handed down at the end of April that could change the way that bond contracts have to be written.
In Dole Food Co v Patrickson, a group of farm workers sued Dole for using pesticides that made them sterile. They sued in the Hawaii state court, which, like all state courts, allows jury trials that can result in enormous damages being awarded.
The pesticide was, however, produced in Israel by the Dead Sea Bromine Company, a subsidiary of Israeli Chemicals, a company owned by the Israeli state. Under the Foreign Sovereign Immunities Act (FSIA) of 1976, any company owned by a foreign government has several rights and immunities. These include the right to be tried in a federal rather than a state court, thereby avoiding the risks inherent in a jury trial.
This legislation helps to smooth diplomatic relations between the US and other countries, especially because a sovereign state, unlike a commercial defendant, cannot claim bankruptcy if a jury awards large damages against it.