An arbitration award cannot be enforced in England against a foreign State without serving the proceedings on that State through the diplomatic channels.

In General Dynamics UK Ltd v Libya [2019] EWHC 64 (Comm), Males LJ, sitting in the Commercial Court, set aside parts of an order granting permission to enforce an arbitration award against Libya because the order was not served on the State in the manner required by the State Immunity Act 1978 (SIA). The court held that section 12(1) SIA, which provides for service through the Foreign and Commonwealth Office (FCO) of any “writ or other document required to be served for instituting proceedings against a State” is mandatory and the court is not permitted to validate an alternative method of service that does not comply with section 12 SIA.

Facts

The Claimant, a UK company, successfully brought claims in arbitration resulting in an award of nearly £16 million award against the State of Libya (Award). The underlying dispute arose out of a contract between the parties for the supply of communications systems. Although Libya had participated in the arbitration proceedings which took place in Geneva, by the time of the enforcement proceedings in England it had made no effort to satisfy the Award.

The July 2018 Order

As it was a New York Convention award, the Claimant made an application without notice to enforce the Award under section 101 of the Arbitration Act 1996 (Arbitration Act). On 20 July 2018, Teare J made an order (Order) by which he gave permission to enforce the Award as a judgment of the Court and, under CPR 6.16 and 6.28, permitted the Claimant to dispense with service of the arbitration claim form, the Order and related documents. It was considered sufficient for the Claimant to courier these documents to the Libyan authorities and to the law firm in Paris which represented Libya in the arbitration proceedings.

The State’s application to set aside the Order

Libya applied to set aside and vary parts of the Order on the basis that the Order was equivalent to a claim form and therefore constituted the document “instituting proceedings” within the meaning of section 12(1) SIA. Accordingly, it had to be served on Libya through the FCO channels. Libya’s alternative argument was that the Court’s power to dispense with service should only be exercised in exceptional circumstances under CPR 6.16, and that no such circumstances existed in this case.

Does the Court have powers to dispense with the service requirement?

Males LJ set aside the provisions of the Order that dispensed with service of the enforcement documents and permitted the Claimant to courier the documents to Libya’s representatives. Males LJ observed that even where service of the arbitration claim form was not required, section 12 SIA “contemplates that there will always be some document required to be served for instituting proceedings against a state”. He held that the order permitting the enforcement of an award is the document instituting proceedings for the purpose of SIA.

In reaching his decision, Males LJ reviewed existing case law that dealt with the Court’s power to dispense with service under section 12(1) SIA. Although he accepted that, unlike in previous cases, Libya took part in the enforcement proceedings, he disagreed with those decisions which held that the Court has the power to dispense with what are expressed to be the mandatory service requirements of SIA. Males LJ noted that the FCO, as part of the executive (the State organ tasked with conducting the UK’s relations with other sovereign States) is better placed to know “whether, when and how a foreign state should be made subject to the jurisdiction of the English courts”. Males LJ noted that any other finding would be contrary to the “clear and mandatory terms” of section 12 SIA, which when read with section 1 SIA, clearly emphasises that a foreign State’s immunity from the jurisdiction of the English courts is the default rule unless the SIA provides for an exception (on which see the conclusion below regarding the exception for contractually agreed service provisions in section 12(6) SIA).

If the Court has the power to dispense with service, should it exercise this power?

Males LJ noted that if he was wrong about the mandatory nature of section 12(1) SIA and the Court had the power to dispense with service of the Order under CPR 6.16, the Claimant would need to demonstrate that there were “exceptional circumstances” that justified such a decision. Given the difficult security situation in Libya, the strong policy in favour of honouring and enforcing arbitration awards and Libya’s awareness of the Award, Males LJ observed that there were exceptional circumstances in this case. However, this issue did not arise given the judge’s decision that service under section 12 SIA was a provision from which no derogation was possible.

Comment

The decision highlights the procedural difficulties that an award creditor can face when seeking to enforce an award against a State in England & Wales. Although the English courts are renowned for their pro-arbitration stance, pro-arbitration considerations can often conflict with and need to be balanced against other legal doctrines, such as sovereign immunity. Males LJ was keen to emphasise that the lengthy and time-consuming service provisions set out in the SIA reflect the fact that service on a State is a form of interference with its sovereignty, and therefore service needs to be effected sensitively through the diplomatic channels.

For corporates entering into commercial transactions with State or quasi-State entities, the practical takeaway from this decision is to ensure that alternative methods of service are included in their contracts. This approach is expressly permitted under section 12(6) SIA, and permits a State to designate an agent for service of process. Some States will agree to designate a particular embassy to receive originating court documents. The result is that claimants litigating against a State save considerable amounts of time that would otherwise be lost waiting for service to be effected through the diplomatic channels or in satellite litigation to determine whether service has been effective. Conversely, of course, States may wish to take the opposite approach and require counterparties to serve through the diplomatic channels.

This post was prepared with the assistance of Husni Almousli in the London office of Latham & Watkins.