July 01, 2021
Sprung Link Text
On June 25, 2021, a majority of the U.K. Supreme Court held that proceedings for the enforcement of arbitral awards against foreign States must, without exception, be served via diplomatic channels through the U.K. Foreign, Commonwealth and Development Office (FCDO). That requirement, contained in section 12(1) of the State Immunity Act 1978 (SIA), is “mandatory and exclusive,” and the courts do not have a discretion to depart from it even where diplomatic service is impossible or unduly difficult.
The decision overturns the Court of Appeal’s ruling granting General Dynamics (GD) an exemption from diplomatic service of its claim for the enforcement of a £16 million award against Libya on the basis that major civil unrest and political instability in the country would make service by diplomatic means impossible or unduly difficult. The Supreme Court also rejected GD’s argument that requiring diplomatic service where such service was practically impossible would infringe GD’s fundamental right to access the courts and a fair hearing.
The decision confirms the need for formal (and sometimes time consuming) service through diplomatic means in all circumstances to which s 12(1) SIA applies. However, the Supreme Court confirmed that the SIA should be read as imposing an obligation on the FCDO to use its “best endeavors” to effect service in accordance with the SIA. The impact of this decision may, therefore, only be felt in practice in other highly unusual cases, where the defendant State is experiencing major civil or political unrest or other circumstances which render effective local communication with and service through its foreign service particularly difficult.
In 2016, an ICC arbitral tribunal ordered Libya to pay over £16 million to GD in respect of a contract for the supply of a communications system for armored vehicles entered into by the former government of Muammar Gaddafi.
In June 2018, GD sought to enforce the award in England under the New York Convention by issuing an arbitration claim form under section 101 of the Arbitration Act 1996 (“the 1996 Act”) and Civil Procedure Rules (CPR) 6.16 and/or 6.28. The application sought amongst other things permission to dispense with service of the arbitration claim form, enforcement order and any other associated documents.
The application to dispense with service was made in part because of significant political instability in Libya. At the time, the British embassy in Tripoli had been closed since 2014. GD’s solicitors unsuccessfully took steps to notify Libya of the proceedings, including by way of multiple couriers and instruction of a private security company. Further, the FCDO informed DG that service on the Ministry of Foreign Affairs in Libya was “not at all straightforward” and “not possible” as the task was “too dangerous” in light of the violence.
At a hearing without notice, the High Court initially granted GD’s application on the basis of “exceptional circumstances,” on condition that the documents be couriered to two addresses in Tripoli and one in Paris. That decision was set aside by Males LJ (acting at first instance) on the basis that the court did not have a discretion to dispense with service of the arbitration claim form or enforcement order contrary to the mandatory terms of the SIA, although he noted that if it did have that discretion it would have been exercised in this case. The Court of Appeal reinstated the initial decision dispensing with diplomatic service. Libya appealed to the Supreme Court, which had three issues to consider:
(1) In proceedings to enforce an arbitral award against a foreign State, does section 12(1) SIA require service of the arbitration claim form (or the enforcement order) on the foreign State by transmission through the FCDO to the Ministry of Foreign Affairs of the defendant State?
(2) In exceptional circumstances, is the court able to dispense with service of the enforcement order under the CPR, notwithstanding that section 12(1) SIA applies?
(3) Must section 12(1) SIA be construed as implicitly allowing alternative service in exceptional circumstances, where a claimant’s rights of access to the court – including under article 6 of the European Convention on Human Rights (ECHR) – would otherwise be infringed?
The Supreme Court had to consider s 12(1) SIA and its interaction with the relevant service provisions of the CPR. Section 12(1) is in the following terms:
“Any writ or other document required to be served for instituting proceedings against a State shall be served by being transmitted through the Foreign, Commonwealth and Development Office to the Ministry of Foreign Affairs of the State and service shall be deemed to have been effected when the writ or document is received at the Ministry.”
A 3-2 majority of the Supreme Court overturned the Court of Appeal’s decision and held in favor of Libya on all three of the issues before it:
(1) A broad reading of section 12(1) of the SIA is appropriate, given the exercise of jurisdiction by the courts of one State over another is an act of sovereignty giving rise to “particular political sensibilities.” This means that the section applies to all documents by which notice of proceedings in England is given to a foreign State defendant, which in the case of the enforcement of arbitration awards will be the arbitration claim form or the enforcement order. Further, in cases to which section 12(1) SIA applies, the procedure which it establishes for service on a defendant State through the FCDO is “mandatory and exclusive,” subject only to the possibility of service in a manner agreed by the defendant State (under section 12(6)). In this case, therefore, the arbitration claim form had to be served via the FCDO, irrespective of the situation in Libya.
(2) The discretion of the courts to dispense with service under the CPR could not oust the statutory requirement of the SIA. Further, the SIA did not require the court to refer to the CPR to determine whether a document is one which is required to be served, within the meaning of s 12(1) SIA. Therefore, there was no discretion for the court to make an exception to the mandatory rule, even if diplomatic service was impossible in practice.
(3) The requirement for diplomatic service was a proportionate means of pursuing the legitimate objective of providing a workable service mechanism which conforms with the requirements of international law and comity, in circumstances of considerable international sensitivity. Therefore, GD’s access to justice rights under the ECHR and the common law were not infringed by the application of section 12(1) SIA and were not a further or alternative basis for permitting dispensing with diplomatic service in exceptional circumstances.
The minority would have decided all three issues in favor of GD. On the first issue in particular, it would have held that the arbitration claim form and enforcement order were not within the scope of s 12(1) SIA at all because neither document was one which was required to be served and instituted proceedings. More generally, it considered that it would be a “complete subversion” of the purpose of section 12(1) SIA to adopt the majority’s mandatory approach and thus enable a foreign State which does not benefit from State immunity to obtain it de facto by being obstructive about service, or by putting diplomatic pressure on the FCDO not to serve or to delay the service of the proceedings.
At its core, General Dynamics required a balancing act between, on the one hand, the procedural privileges to which foreign States are entitled in proceedings against them in the English courts (and the political sensibilities that underpin those privileges) and, on the other hand, access to justice for claimants seeking to enforce their rights against a foreign State, including, in particular, in respect of arbitral awards under the New York Convention. The majority of the Supreme Court decided in favor of the former consideration, on the basis of a close reading of the SIA, but also with regard to the wider political context and purpose of the SIA and its primacy over the CPR.
By contrast, by adopting a stricter reading of s 12(1) SIA and emphasizing the limits to the doctrine of state immunity, the minority considered the SIA’s requirement for diplomatic service to be implicitly dependent on the Court rules that are applicable from time to time. In addition, focusing on the competing policy considerations that underly the SIA, the minority highlighted the need to prevent potential abuse of section 12(1) by foreign States seeking to resist proceedings against them and the risk of unfairly denying claimants access to court in circumstances where diplomatic service is impossible or unduly difficult.
Whilst the decision does not avoid the potential delay in (and may even potentially result in the prevention of) the enforcement of some arbitral awards against foreign States in the U.K., its practical impact is likely to be limited. The FCDO is obliged to use its “best endeavors” to effect service in accordance with the SIA and will in practice successfully do so in many cases—situations where service is impossible due to civil unrest (or other issues) will be few and far between. Indeed, that reality was ultimately borne out even in this unusual case. Only a few days before the draft judgment was notified to the parties, solicitors for Libya informed the Supreme Court that the British Embassy in Libya had successfully served the arbitration claim form and enforcement order on the Ministry of Foreign Affairs in Tripoli.