A recent decision of Males LJ in the English Commercial Court, General Dynamics United Kingdom Ltd v Libya, held that service of an order permitting the claimant to enforce an arbitral award against a sovereign state must be effected through the Foreign and Commonwealth Office (FCO). This blog concentrates on the practical implications for clients and practitioners.
Sovereign immunity
By section 1 of the State Immunity Act 1978 (SIA), sovereign states are immune from the jurisdiction of the courts of the United Kingdom except as otherwise provided in the SIA. By section 12 of the SIA, any document “required to be served for instituting proceedings” against a state must be served by being transmitted through the FCO to the Ministry of Foreign Affairs of the State.
General Dynamics v Libya
In General Dynamics United Kingdom Ltd v Libya, Males LJ held that:
- On a proper construction of section 12 of the SIA, in any, and all, proceedings brought against a state in the English courts, a document must always be served on that state to institute proceedings (paragraphs 24–36).
- If, in a claim to enforce an arbitral award, no order has been made requiring the arbitration claim form itself to be served, then the order granting permission to enforce the award must be regarded as the document instituting proceedings for the purposes of the SIA (paragraphs 37–44, 78). This is so notwithstanding that the arbitration claim form is, as a matter of English procedural law, the document instituting proceedings and need not be served on the defendant unless the court so orders.
- The court has no power to dispense with service. CPR 6.16 and 6.28 are expressly subject to any enactment to the contrary (CPR 6.1). This would in any event be the case since rules of court cannot override primary legislation. The power of the court to dispense with service under CPR 6.16 and 6.28 is overridden by the mandatory requirements of section 12 (paragraphs 20, 45, 46, 79).
Procedure to be followed when effecting service on a state
In General Dynamics, Teare J had previously permitted the claimant to dispense with (proper) service and bring the order to the attention of the state of Libya by couriering it to Libyan government officials in Tripoli and Libya’s lawyers in Paris. This part of his order was set aside by Males LJ, since he concluded that the court had no power to dispense with service.
The immediate takeaway for practitioners seeking to enforce an arbitral award against a sovereign is to have regard to CPR 6.44, which prescribes the procedure to be followed in order to serve a document via the FCO. The importance of effecting good service by adhering strictly to this procedure cannot be overstated, since failure to do so will render the defendant state immune from jurisdiction, absent agreement to the contrary under section 12(6) of the SIA.
The wider implications
As to the wider implications, Males LJ expressly acknowledged, at paragraph 91, that his decision:
“… may be regarded as an unsatisfactory outcome. It means that there will at best be considerable delay in the enforcement of the award, a result which flies in the face of the established policy of the law to promote the speedy and effective enforcement of arbitration awards.”
The reason for the considerable delay in that case was because:
“… the evidence suggests that the stated view of the Foreign & Commonwealth Office is that service of documents on the Ministry in Libya is not at all straightforward, too dangerous, and (assuming it to be possible at all) likely to take over a year.”
Thus, it seems, parties seeking to enforce an arbitral award against a state with a volatile domestic situation should be advised that doing so in the English courts may be a more long-winded process than previously anticipated.
There are only a handful of states which are so dangerous that service via the FCO is likely to take a year or more. However, obstacles arising from the need to serve via the FCO may apply in cases involving defendants other than volatile states.
In Westminster City Council v Iran, referred to in General Dynamics at paragraphs 48–50, Peter Gibson J reluctantly concluded that:
- If section 12 of the SIA applied, there could be no question of alternative service.
- The Iranian government’s refusal to accept service did not mean it could be treated as having failed to attend, since it had never (validly) been served.
It would seem, potentially, that a sovereign state could frustrate enforcement of an arbitral award in England by refusing to accept service of the arbitration claim form or the permission order.
Matters of politics may also arise. As Males LJ stated at paragraph 29 of General Dynamics:
“… the Foreign & Commonwealth Office is not merely an unthinking conduit but has a legitimate role to play in the process of bringing the foreign state before the English court.”
The simple point here is that the courts must tread exceedingly delicately in matters which may affect international relations and diplomacy: the executive is responsible for the UK’s international relations, not the judiciary. Whilst one hopes that such a decision would not be taken likely, it is possible to conceive of a situation in which the FCO might decline to attempt to effect service of a permission order where to do so would upset a relationship with a key ally.
Conclusion
As Males LJ acknowledged, this decision will make enforcement, in some cases, slower and more difficult. It remains to be seen whether the decision will be appealed.
No sensible practitioner would advise a client to embark on an arbitration without an enforcement plan in mind. The potential implications outlined above should be kept in mind from the inception of a matter and throughout its life.
