Share it

In this post, Karen Denny, Zainab Hodgson and Kristyna Muhlfeitova, who all work at CMS and have a special interest in public international law, preview the decision awaited from the UK Supreme Court in the matter General Dynamics United Kingdom Limited  v State of Libya, which concerns questions about how to enforce an arbitral award against a foreign state. 

On 15 December 2020, the Supreme Court heard the parties’ submissions in the case of General Dynamics United Kingdom Limited v State of Libya. The case concerns the enforcement of an arbitral award made in favour of the claimants, General Dynamics, against a foreign state, the state of Libya (“Libya”).

The Supreme Court is to decide whether s.12(1) of the State Immunity Act 1978 (the “State Immunity Act”) requires either: (i) an arbitration claim form, or (ii) the judge’s order giving permission to enforce the award to be served through the Foreign and Commonwealth Office (the “FCO”) and, if so, whether a court may dispense with such service under English civil procedure rules. The Supreme Court ruling will have a significant impact on the ability of private parties to enforce arbitral awards against foreign states in the English courts, where service of proceedings through the FCO is difficult or even impossible to achieve.

Background

General Dynamics, a global defence conglomerate, entered into a contract for the supply of communication systems to Libya. A dispute arose in relation to the contract and the parties referred the dispute to an ICC tribunal in Geneva. On 5 January 2016, the ICC arbitral tribunal rendered an award in favour of General Dynamics in the sum of approximately £16 million (the “Award”). Libya has not paid nor made any proposals to pay the sum awarded. The Court of Appeal found that it is “a reasonable inference that it [Libya] does not intend to meet its obligations to pay”.

General Dynamics made an application to enforce the award in the English courts by following the procedure set out in CPR 62.18 which allows a party to make an application without notice using an arbitration claim form to enforce an arbitration award. Subsequently, Teare J made an order permitting  enforcement of the Award in the same manner as a judgment or order of the court and to the same effect, and gave General Dynamics permission to dispense with service of the arbitration claim form and the court order pursuant to CPR 6.16 and 6.28. The order also made provision for the proceedings to be brought to Libya’s attention by requiring General Dynamics to courier the arbitration claim form, Teare J’s order and associated documents to the Ministry of Foreign Affairs in Tripoli and two other addresses.

Libya applied to set aside the parts of Teare J’s order dispensing with service on the basis that s.12(1) of the State Immunity Act requires service though the FCO of “any writ or other document required to be served for instituting proceedings against a State”. Libya argued that since service of the arbitration claim form and the judge’s order had not been effected, the order must be set aside and any assets held by Libya in the jurisdiction could not be used to satisfy the Award.

Although service through the FCO should usually be straightforward, the Court of Appeal and the High Court acknowledged that General Dynamics would face severe difficulties serving the arbitration claim form and the order through the FCO to Libya. Both courts accepted the evidence that there are two parallel governments operating in Libya and there is a risk of a full scale civil war, making service through the FCO difficult, too dangerous and, even if possible, likely to take over a year.

Judgment of the High Court

In the High Court, Males LJ concluded that the State Immunity Act contemplates that there will always be some document which is required to be served for the purposes of instituting proceedings and that document must be served through the FCO.  Otherwise, foreign states would lose the protection that s.12(1) of the State Immunity Act was intended to secure and the executive could no longer control whether, when and how a foreign state should be brought before an English court. Further, Males LJ concluded that the State Immunity Act had to be construed consistently with the European Convection on State Immunity 1972 (the “European Convention”) which required the document instituting proceedings against a foreign state and the copy of any judgment to be transmitted through diplomatic channels. Males LJ reasoned that s.1 of the State Immunity Act grants immunity to foreign states “except as provided in the following provisions”, which includes s.12(1), and since the requirements of s.12(1) had not been satisfied, the immunity provided under s.1 applied.

Males LJ considered the application of CPR 6.16 which allows the court to dispense with service of a claim form in “exceptional circumstances”.  The court held that it did not have jurisdiction to dispense with service through the FCO because the service requirement was a statutory requirement and thus the court could not avail itself of the CPR to dispense with it. However, if the court did have such jurisdiction, Males LJ considered that it would have dispensed with the service requirement because the precarious political situation in Libya was sufficiently exceptional to justify the dispensation under the rule.

General Dynamics appealed to the Court of Appeal.

The parties’ submissions before the Court of Appeal

General Dynamics’ submissions to the Court of Appeal were as follows:

  1. 12(1) of the State Immunity Act only requires service of a document instituting proceedings and which is required to be served. The arbitration claim form institutes proceedings for enforcement of an arbitral award, however, it is not required to be served and, therefore, s.12(1) does not apply to it. The order permitting enforcement of the Award has to be served but it is not a document instituting proceedings so s.12(1) does not apply to it either.
  1. In any event. the court has the power to dispense with service of any such document, and once the court dispenses with service the document is no longer “required to be served” under s.12(1).

 Libya argued that:

  1. Males LJ was correct in holding that the order permitting the enforcement of the Award, which was required to be served, must be treated as the document instituting the proceedings on the basis that Parliament must have intended that s.12(1) contemplates that no proceedings could be instituted without service through diplomatic channels.
  1. Males LJ was correct to hold that the court did not have jurisdiction to dispense with service.
  1. Males LJ was incorrect in holding that there were exceptional (or any) circumstances justifying dispensing with service pursuant to CPR 6.16.

Court of Appeal Judgment

The Court of Appeal allowed the appeal, set aside the order of Males LJ in the High Court and restored the order of Teare J.

It was held that:

  1. 12(1) of the State Immunity Act did not require, in this case, for the arbitration claim form or the order permitting enforcement of the award to be served through the FCO.
  • The Court accepted that although the arbitration claim form was a document instituting proceedings, there was no requirement to serve the arbitration claim form, hence it did not fall within s.12(1). Before a foreign state is first sued, it is understandable that such a claim should be transmitted through the FCO.  Whereas, once a foreign state has fully participated in (or intentionally refused to participate in) proceedings in litigation or arbitration, that foreign state no longer needs the protection of enforcement proceedings being transmitted through the FCO.
  • CPR 62.18(8)(b) and CPR 6.44 (which deals with service of documents on a foreign state) require the order permitting the enforcement of the Award to be served. Such an order must set a period within which the foreign state may apply to set aside the order and provide for it to not be enforced (CPR 62.18(9)).  The order permitting the enforcement of the award is not the document instituting proceedings and therefore it did not need to be served through the FCO.
  • The court could dispense with such service under CPR 6.16 and/or 6.28 because this was a CPR requirement rather than a statutory requirement.
  • If service was dispensed with, it would always be appropriate to notify the state that the order has been made and Teare J was right to make such arrangements in his order. However, such notification does not constitute alternative service.
  • If an order enforcing an arbitral award is to be served on a foreign state for the first time giving notification of the claimant’s attempt to enforce, the correct test to apply when considering whether to dispense with service is under CPR 6.16 which requires “exceptional circumstances” to justify the dispensation. The court should take into account policy considerations such as the benefit of ensuring that arbitral awards should be honoured, particularly where a state has fully participated in the arbitration, and the sensitive issues about impleading a foreign state.
  1. An order permitting enforcement of arbitral proceedings is not an order instituting proceedings under s.12(1) of the State Immunity Act. However, if it was, the court would not have jurisdiction to dispense with the need for service through the FCO as a court cannot dispense with a statutory requirement. CPR 6.16 and 6.28 – which allow the court to exercise discretion and dispense with a service requirement – could not prevail over a statute requiring service.
  1. The Court of Appeal agreed with the High Court’s exercise of discretion in dispensing with the requirement for service of the order permitting enforcement of the award on the basis that there were “exceptional circumstances” meriting dispensation. In particular, the Court of Appeal’s judgment highlighted the FCO’s palpable lack of enthusiasm for service in Libya.

In reaching its decision the Court of Appeal observed that:

  • In 1978 when the State Immunity Act was enacted, Parliament would have been aware that there was a procedure for instituting registration of foreign judgments and foreign awards which did not require service of the initiating document.
  • When a foreign state is first sued, it is natural to require service through the FCO. However, if the foreign state has already participated in litigation or arbitration proceedings or deliberately declined to participate in them, it is difficult to see why the FCO would have any particular interest in being involved in the process.
  • Once it is enacted that a foreign state is not immune to proceedings in respect of commercial transactions and/or arbitrations (s.3/s.9 of the State Immunity Act) and no immunity is conferred in respect of enforcement, there is no reason why the ordinary procedural laws should not apply in the ordinary way.
  • The State Immunity Act was not intended to replicate the European Convention. The State Immunity Act applies to all states, not just European states that are signatories to the Convention and is more comprehensive. Furthermore, Article 16 of the European Convention – which requires a copy of a document instituting proceedings against a foreign state and a copy of any judgment given by default against a State to be transmitted to the state through “diplomatic channels” -is in different terms to s.12(1) of the State Immunity Act. If Parliament wanted to replicate Article 16 of the Convention, it would have easily done so.

Appeal to the Supreme Court

 Libya appealed to the Supreme Court to decide whether:

  1. The State Immunity Act requires service of certain documents to the state concerned through the FCO.
  2. An arbitration claim form is within the category of documents required by section 12(1) of the State Immunity Act to be served on a state through the FCO.
  3. The court can make use of certain rules of English civil procedure to dispense with such service in “exceptional circumstances”.

Conclusion

Although service through the FCO may be straightforward in many cases, in some instances such as the present case, it may prove to be extremely onerous or even impossible. Therefore, the requirement to serve through the FCO is an issue of practical importance because in some cases it may determine whether an arbitral award can be enforced against a foreign state. It remains to be seen whether the Supreme Court will give confidence to private parties dealing with foreign states to “put their trust in princes” or whether it will agree with Males LJ that those who do so are liable sometimes to be disappointed.