Alfred Dunhill of London, Inc. v. Republic of Cuba

1976-05-24

Headline: Court limits act-of-state defense (rule barring courts from questioning foreign government acts) for foreign commercial transactions, allowing U.S. companies to recover mistaken payments from state-run businesses.

Holding: The Court held that U.S. courts may decide claims about a foreign government's commercial debts and that Cuba's refusal to keep mistakenly paid sums for its state-run cigar business was not an act of state immune from judgment.

Real World Impact:

Makes it easier for businesses to recover commercial debts from foreign state-run enterprises.
Limits the act-of-state defense for purely commercial transactions.
Clarifies that commercial repudiation need not block U.S. court judgments.

Topics: act of state, sovereign immunity, commercial disputes with foreign states, recovering mistaken payments

Summary

Background

A British seller and U.S. importer, Alfred Dunhill of London, paid Cuban interventors for cigars after Cuba seized five Cuban cigar companies in 1960. Dunhill paid $148,600 for pre-intervention shipments and later received post-intervention shipments; dispute arose when the former Cuban owners sued for pre-intervention accounts and Dunhill sought return of mistaken payments after courts found those pre-intervention accounts belonged to the former owners, not the interventors. The interventors and Cuba intervened and asserted that refusal to return the payments was an act of state shielding them from U.S. court judgments.

Reasoning

The Supreme Court asked whether statements by Cuban counsel or Cuba’s conduct amounted to an untouchable "act of state" and whether the doctrine covers repudiation of commercial debts. The Court concluded that nothing in the record proved a sovereign act to repudiate the debts and that the act-of-state rule should not be extended to purely commercial obligations. It relied on the long-standing distinction between governmental and commercial acts, the United States’ restrictive sovereign-immunity policy, and a State Department letter saying commercial acts need not be treated as acts of state. The Court reversed the appeals court and allowed Dunhill’s recovery in this commercial context.

Real world impact

The ruling makes it easier for businesses to recover money from foreign state-run commercial enterprises in U.S. courts. It narrows the shield of an act-of-state defense in ordinary commercial disputes, while preserving prior rulings about seized property and other noncommercial acts.

Dissents or concurrances

Justice Marshall dissented, arguing the interventors’ retention and refusal to return funds were a sovereign act and should bar recovery; other Justices wrote brief concurrences emphasizing judicial responsibility to weigh foreign-relations effects.