REUTERS | Hani Amara

UKSC holds strict rules apply to service of enforcement proceedings on foreign states

Imagine this. You are an English company. You enter into a contract with a government of another state, say Libya. You agree to provide the goods. The government agrees to provide the money. The goods are sent, but the government fails to pay. Aghast, you bring an arbitration, pursuant to the terms of the contract. You obtain an award ordering the government to pay up. Success! However, unless the government is willing to pay (unlikely), that award isn’t worth the paper it’s written on without an order of a domestic court permitting enforcement. So, you apply to the High Court, which grants the order ex parte. All that is left is for you to serve the order on the government and then proceed to enforce (assuming no challenge is brought). As English practitioners will be well aware, this invariably requires a trip down to the Foreign, Commonwealth and Development Office (FCDO), which will serve the government through diplomatic channels.

But what if that government (remember, Libya) is in the midst of a years-long civil conflict with two governments claiming legitimacy, the British embassy relocated to a nearby country and the FCDO telling you that, in the circumstances, service will take quite some time? (Or, to add a bit more colour, that service was “not possible” as the task was “too dangerous” considering that the relevant ministry was or had been surrounded by a phalanx of militia.) One might think that, having been apprised of the tremendously difficult situation, the court would order that service was disposed of or permitted to be effected in some other way. Indeed, that was what Teare J did. However, it turns out that you (and Teare J for that matter) would be wrong.

On 25 June 2021, the UK Supreme Court handed down its decision in General Dynamics United Kingdom Ltd v State of Libya, wherein it concluded (by a three to two majority) that in proceedings to enforce an arbitral award against a foreign state pursuant to the Arbitration Act 1996, section 12(1) of the State Immunity Act 1978 requires that either the arbitration claim form (where the court orders it be served) or the enforcement order should be served on the foreign state through the FCDO. This procedure is mandatory and cannot be dispensed with regardless of the circumstances in the receiving state. It appears that this approach applies even where there is no channel for communication between the FCDO and the relevant state because, for example, diplomatic relations have been severed (as Lady Arden noted, without deciding the issue).

There is always something odd about the situation where a party is present in court arguing that it has not been properly served (the main point of the service rules being to put that party on notice that it needs to be in the court where it then is appearing). While the rules of service on a foreign state serve a more high-minded diplomatic objective, there remains something discomforting. The effect of the majority’s strict reading of the State Immunity Act, is that recalcitrant states are given another tool to resist enforcement against them. Indeed, as Lord Stephens (in dissent) warned, this reading permits states to abrogate to themselves “de facto” immunity “by being obstructive about service, or by putting diplomatic pressure on the United Kingdom’s FCDO not to serve or to delay the service of the proceedings” (at paragraph 109). This result is particularly galling when one considers that enforcement inevitably follows an arbitral process which the state had consented to and, most likely, participated in. The inescapable result will be that many parties will have to wait longer, in some cases much longer, for justice. However, unless and until Parliament amends the State Immunity Act (I wouldn’t hold my breath), the Supreme Court’s majority decision is the final word and arbitration practitioners would be well-advised to bear it in mind when seeking to enforce an award against a foreign state.

 

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