Bank of Hawaii v Balos

• Date: 12 December 1988
• Court: U.S. District Court — District of Hawaii

United States District Court, District of Hawaii.

(King, Senior District Judge)

Bank of Hawaii

and

Balos

States Creation of States Trust territories United Nations trusteeship system Trust territories of the Pacific Islands Marshall Islands Whether ceasing to be a trust territory Whether a foreign State for purposes of United States law Nature of relations between the United States and the Marshall Islands

International organizations United Nations Trusteeship system Independence of part of trust territory Whether requiring consent of United Nations Security Council Relations between trust territory and administering authority Marshall Islands The law of the United States

Summary: The facts:A loan was made by a branch of the Bank of Hawaii (the Bank) in the Marshall Islands to an organization situated in the Marshall Islands which the Bank mistakenly believed was an incorporated entity. The Bank brought an action in the United States District Court against certain residents of the Marshall Islands whom it alleged had guaranteed the loan. The action was brought under a provision1 which gave the District Court jurisdiction in motions between citizens of a State and citizens or subjects of a foreign State. One of the defendants moved to dismiss the action on the ground that the citizens of the Marshall Islands were not citizens of a foreign State.

The Marshall Islands were part of the Trust Territories of the Pacific Islands which were administered by the United States under the United Nations trusteeship system. In 1976, in anticipation of the termination of trusteeship, a Compact of Free Association was concluded between the United States and the people of the Marshall Islands. In 1979 the United States recognized the Government of the Marshall Islands and delegated administrative, legislative and judicial functions to that Government, and in 1986 the President of the United States announced that the Republic of the Marshall Islands was self-governing and no longer subject to trusteeship. A United States diplomatic representative for the Marshall Islands was appointed in 1987, and the Governments of the United States and the Marshall Islands announced that their future relations would be governed by international law. Representatives of the Marshall Islands in the United States were accorded diplomatic status.

The defendant submitted that the Republic of the Marshall Islands did not constitute a foreign State within the meaning of the legislation upon

which jurisdiction in this action was based because the termination of the Trusteeship Agreement had required the consent of the United Nations Security Council and this had not been received

Held:The motion to dismiss for lack of subject-matter jurisdiction was denied.

For the purposes of jurisdiction, it was necessary to look to the substance of the relationship between the United States and the Marshall Islands, rather than the form. It was clear that although the formal Trust Agreement subsisted, the relationship between the United States and the Republic of the Marshall Islands was in substance a relationship between two independent sovereign States. This conclusion was confirmed by actions of the United States Executive which had since demonstrated that the Republic of the Marshall Islands was to be treated as an independent sovereign State. The Republic of the Marshall Islands was a foreign State within the meaning of the legislation.

The following is the text of the judgment of the Court:

This matter came on for hearing on November 21, 1988, on defendant Imata Kabua's Motion to Dismiss Complaint for Lack of Subject Matter Jurisdiction. Having carefully considered the written and oral arguments presented by counsel, the Court finds as follows:

I. FACTS

The relevant jurisdictional facts are not disputed. This action arose from loans made by Plaintiff's Marshall Islands branch to the Kwajalein Atoll Corporation (KAC). Certain residents of the Marshall Islands, defendants herein, allegedly guaranteed the loans. At the time the loans were made, Plaintiff apparently was led to believe that KAC was a duly authorized entity under the laws of the Republic of the Marshall Islands (RMI)...