Case Preview: NML Capital Ltd v The Republic of Argentina
22 Tuesday Mar 2011
(1) Whether proceedings to enforce a foreign judgment in England on sovereign bonds relate to the bonds in a manner within the terms of the State Immunity Act 1978, s 3.
(2) Whether the Civil Jurisdiction and Judgments Act 1982, s 31 provides a comprehensive code for the recognition and enforcement of foreign judgments against a sovereign state.
(3) Whether on a proper construction of the bonds there was a submission to the jurisdiction of the English courts.
(4) Whether a court has discretion to uphold permission to serve out of the jurisdiction on a basis not argued for on the original application.
In 1994 the Republic of Argentina issued a series of sovereign bonds. The bonds contained a clause dealing with jurisdiction and immunity in relation to claims on the bonds and were subject to New York law. Between June 2001 and September 2003 NML Capital Ltd bought a number of bonds at between 55.37% – 62.82% of their face value.
In November 2003, NML declared “events of default” based on the subsequent failures by Argentina to pay interest as it fell due on the bonds. Argentina sought to restructure its external debt to a sustainable level in 2005 but NML refused to take part in any restructuring offer, instead bringing a claim in New York seeking payment of the principal amount of the bonds that had fallen due (US$284,184,632.30). On 18 December 2006 the US District Court of the Southern District of New York entered judgment against Argentina in favour of NML for the sum claimed.
On 2 April 2008, Mr. Justice David Steel made an order granting NML permission to serve the proceedings out of the jurisdiction.
Argentina sought to set aside this order as well as seeking a declaration that the Court had no jurisdiction in respect of the claim brought against it by NML arguing that as a sovereign state, it was immune from suit under section 1 of the 1978 Act which says that a “State is immune from the jurisdiction of the courts of the UK except as provided in the following provisions of this Part of the Act”.
NML said that the matter was governed by s 31(1) of the 1982 Act which provided for the circumstances in which a foreign judgment may be enforced in the UK against a state. NML also added that the terms applicable to the bonds meant that Argentina had submitted to the jurisdiction of the English court and thereby waived any immunity from suit.
Decision of the High Court
Mr. Justice Blair held that section 31 of the 1982 Act comprehensively dealt with the recognition and enforcement of the judgments of foreign courts against states and Argentina was not entitled to claim sovereign immunity and dismissed the application. Under section 31(1), a foreign judgment would be recognised and enforced in the British court if (i) the foreign court would have had jurisdiction applying sovereign immunity rules corresponding to those applicable in the United Kingdom in the 1978 Act and (ii) if it would be so recognised and enforced had it not been given against a state. It was found that the requirements of section 31(1) were met, that Argentina could not claim jurisdictional immunity and the application to set aside the judgment for service of proceedings out of the jurisdiction was dismissed.
Decision of the Court of Appeal
Argentina appealed submitting that (1) the judge was wrong to hold as a matter of procedure that NML could obtain permission to serve the proceedings on a basis of jurisdiction not advanced at the time of the original application; (2) NML had to show that the case fell within one of the exceptions to the rule of sovereign immunity under the 1978 Act; (3) section 31 of the 1982 Act was only relevant to the substantive merits of a claim for recognition and enforcement of a foreign judgment against a state and was not relevant to the prior question of whether the English court had jurisdiction to hear the claim in the first place; and (4) as a matter of interpretation of the bonds, Argentina had not “submitted” to the jurisdiction of the English Courts under section 3 of the 1978 Act.
The Court of Appeal allowed the appeal and held that a court had no jurisdiction to permit a claimant to serve proceedings on a foreign state unless it was satisfied that there was, at the very least, a good arguable case that the defendant state was not immune from suit. Section 31 of the 1982 Act remained subject to the provisions of the 1978 Act and a claimant had to show distinctly why the defendant was not absolutely immune from suit before a UK court could exercise jurisdiction over a foreign sovereign state in proceedings for the recognition and enforcement of a foreign judgment against that state. The court was not satisfied that that the proceedings fell within one of the exceptions to immunity in sections 2-11 of the 1978 Act and also held that Argentina had not “submitted” to the jurisdiction of the English courts under section 2(1) of the 1978 Act within the terms of the bonds. The order of Steel J was made upon an incorrect basis and therefore had to be set aside.
The appeal to the Supreme Court is due to be heard by Lord Phillips, Lord Walker, Lord Mance, Lord Collins and Lord Clarke.