Steven Loble

Disputes with States


INTRODUCTION

In this increasingly globalised and, in some ways, borderless world, an increasing amount of trade is done with sovereign governments, otherwise known as states or countries.

     •     What is a country?

     •     Can you sue a country?

     •     What can a country do if it is sued?

These questions all relate to the historical notion that a sovereign cannot be sued in the courts of his own country or the courts of a foreign country.

In many countries, the state now can be sued in its own courts.  For example, in the UK the Crown Proceedings Act 1947 made it possible to sue the Crown in civil proceedings for the first time.

As far as foreign countries are concerned the rule was that a court should not entertain proceedings against a foreign sovereign in order to protect the dignity and sovereign functions of sovereign states.


     History of state immunity

In the nineteenth century and for part of the twentieth century, the “absolute“ rule of sovereign immunity prevailed.  This rule accorded to foreign States and sovereigns immunity for all activities, whether governmental (acta jure imperii) or commercial or other non-governmental acts (acta jure gestionis).  Due to the amount of State trading in the twentieth century, a number of countries developed the “restrictive “ theory of immunity.  Under this theory, states are immune from suit in respect of acts of government, but not in respect of commercial activities.  The Brussels Convention on the Immunity of State Owned Ships of 1926 achieved only limited recognition and was not ratified by the United Kingdom until 1979.  

The House of Lords in Playa Larga (Owners of Cargo Lately Laden on Board) Appellants v I Congreso del Partido (Owners) Respondents, Marble Islands (Owners of Cargo Lately Laden on Board) Appellants v Same Respondents [1983] 1 A.C. 244 referred to that convention,

The number of states bound by it has always been limited and has not included states important in maritime commerce. Yet it is invoked, as I understood the argument, as a statement of generally accepted international law. Now there may be cases in which a multilateral convention may become part of general international law so as to bind states not parties (a proposition not uncontroversial) but at the least the convention must bear a legislative aspect and there must be a wide general acceptance of it as law-making, over a period, before this condition is satisfied. The Brussels Convention does not nearly meet these requirements…“.


The United Kingdom continued to apply the absolute theory of immunity but in 1975, the Privy Council held that a foreign government was not entitled to claim immunity in an action in rem against a ship used for commercial purposes.  This was the case of The Philippine Admiral  (Philippine Admiral (Owners) Appellants v Wallem Shipping (Hong Kong) Ltd. and Another [1977] A.C. 373).  

The Privy Council described developments in the law since the Second World war in the following terms,

“There is no doubt - as was indeed conceded by counsel for the appellants - that since the Second World War there has been both in the decisions of courts outside this country and in the views expressed by writers on international law a movement away from the absolute theory of sovereign immunity championed by Lord Atkin and Lord Wright in The Cristina towards a more restrictive theory. This restrictive theory seeks to draw a distinction between acts of a state which are done jure imperii and acts done by it jure gestionis and accords the foreign state no immunity either in actions in personam or in actions in rem in respect of transactions falling under the second head.“

In 1952,  the United States Department of State announced its adherence to the restrictive theory by means of a document called the Tate Letter.   This was referred to in the judgment of The Philippine Admiral, as follows,

“The next landmark in the shift of opinion above mentioned to which their Lordships would refer is a letter - the so-called “Tate letter“ - addressed on May 19, 1952, by J. B. Tate, the acting legal adviser of the State Department, to the then acting Attorney-General of the United States notifying him of a change in the policy of the Department of State with regard to the granting of sovereign immunity to foreign governments.”

The United States of America passed the Foreign Sovereign Immunities Act in 1976, codifying the restrictive theory.

In 1977 a majority of the Court of Appeal held that a State was not entitled to immunity in respect of commercial transactions (Trendtex Trading Corp v The Central Bank of Nigeria [1977] QB 529 (CA)).  

The State Immunity Act 1978 was passed and then in 1981, the House of Lords confirmed that the restrictive theory applied at common law (I Congreso del Partido [1983] 1 A.C. 244).

Although The Phillipine Admiral had decided that the absolute theory of immunity was no longer valid, it also stated that,

“There is of course no clear cut dividing line between acts done jure imperii and acts done jure gestionis and difficult border line cases may arise.“

In I Congreso the House of Lords also stated, referring to The Philippine Admiral,

“The effect of The Philippine Admiral [1977] A.C. 373 if accepted, as I would accept it, is that as regards state-owned trading vessels, actions, whether commenced in rem or not, are to be decided according to the “restrictive “ theory.

The other landmark authority (Trendtex [1977] Q.B. 529), a decision of the Court of Appeal….  Its value in the present case lies in the reasoning that if the act in question is of a commercial nature, the fact that it was done for governmental or political reasons does not attract sovereign immunity.“


     The State Immunity Act

The State Immunity Act 1978 codifies the restrictive theory of sovereign immunity, setting out the exceptions to immunity, such as in relation to the following: -

     •     Commercial transactions and contracts to be performed in United Kingdom

     •     Contracts of employment

     •     Personal injuries and damage to property

     •     Ownership, possession and use of property

     •     Patents, trademarks etc

     •     Arbitrations.

The Act also sets out who is entitled to immunity and deals with certain procedural matters, such as service of proceedings.


     Sovereign versus non sovereign acts

A key factor in whether a state is immune from being sued is whether the act giving rise to the claim is a sovereign act, such as running an army, or a non-sovereign act, such as a commercial transaction.  The characterisation of activities has exercised the courts since the time that the courts recognised that the absolute theory of immunity would no longer be applied.

In Littrell v United States of America Court of Appeal [1994] P.I.Q.R. P141 a case in which I acted for the successful government defendant, the Court of Appeal reviewed the law,

“ … the so called ‘ restrictive theory’ arises from the willingness of states to enter into commercial, or other private law, transactions with individuals. It appears to have two main foundations: (a) It is necessary in the interests of justice to individuals having such transactions with states to allow them to bring such transactions before the courts; (b) to require a state to answer a claim based upon such transactions does not involve a challenge to or inquiry into any act of sovereignty or governmental act of that state. It is, in accepted phrases, neither a threat to the dignity of that state, nor any interference with its sovereign functions.“  


At page 263H Lord Wilberforce adopted with approval a passage in the judgment of the Federal Constitutional Court of the German Federal Republic in Claim against the Empire of Iran (1963) 45 I.L.R. 57:

“As a means for determining the distinction between acts jure imperii and jure gestionis one should rather refer to the nature of the state transaction or the resulting legal relationships, and not to the motive or purpose of the state activity. It thus depends upon whether the foreign state has acted in exercise of its sovereign authority, that is in public law, or like a private person, that is in private law.“

In applying the law to the facts of the case, Hoffman LJ found as follows: -

“The question in this case is therefore whether in accordance with the common law as laid down in I Congreso del Partido [1983] A.C. 284, the act which forms the basis of the claim was jure imperii or jure gestionis. The judge, as an alternative ground for his decision, held that it was the former. I agree and I think that it would be difficult to improve upon the reasoning by which the judge came to that conclusion. In I Congreso at page 267 Lord Wilberforce said that the court:

“must consider the whole context in which the claim against the State is made, with a view to deciding whether the relevant act(s) upon which the claim is based should, in that context, be considered as fairly within an area of activity, trading or commercial, or otherwise of a private law character, in which the state has chosen to engage, or whether the relevant act(s) should be considered as having been done outside that area, and within the sphere of governmental or sovereign activity.“

The context in which the act took place was the maintenance by the United States of a unit of the United States Strategic Air Force in the United Kingdom. This looks about as imperial an activity as could be imagined. But it would be facile to regard this context as determinative of the question. Acts done within that context could range from arrangements concerning the flights of the bombers (plainly jure imperii) to ordering milk for the base from a local dairy or careless driving by off-duty airmen on the roads of Suffolk. Both of the latter would seem to me to be jure gestionis, fairly within an area of private law activity. I do not think that there is a single test or “bright line“ by which cases on either side can be distinguished. Rather, there are a number of factors which may characterise the act as nearer to or further from the central military activity.

In the present case I think that the most important factors are the answers to the following questions. First, where did it happen? In cases in which foreign troops are occupying a defined and self-contained area, the authorities on customary international law attach importance to whether or not the act was done within the “lines “ or “the rayon of the fortress.“ (Oppenheim, International Law(1st ed., 1905) p. 483. Rayon: radius.) Secondly, whom did it involve? Acts involving only members of the visiting forces are less likely to be within the jurisdiction of local municipal courts than acts involving its own citizens as well. Thirdly, what kind of act was it? Some acts are wholly military in character, some almost entirely private or commercial and some in between.

In this case, RAF Lakenheath was, in spite of its name and the presence of an RAF officer for liaison duties, wholly within the control of the United States Air Force. The act took place at the military hospital within the base. It involved only United States personnel. And the operation of a military hospital, although no doubt requiring much the same skills as the operation of a civilian hospital, is a recognised military activity. If the case had concerned an assault within the base by one American serviceman on another, I think that under customary international law the English courts would have declined both civil and criminal jurisdiction. Why should it exercise civil jurisdiction because the injury was inflicted by negligence? Mr. Mendelson, Q.C. says that the reason is that an assault would have been a disciplinary offence and an assertion of jurisdiction would have interfered with the foreign sovereign's right to discipline his own troops. An action for medical negligence, on the other hand, involves no interference with military matters.

I do not agree. First, the United States engages its troops on the basis of the Feres (1950) 340 U.S. 135 doctrine by which it is immune from suit by servicemen for injuries incident to service. For an English court to allow visiting United States servicemen to sue their government would clearly be an interference with this aspect of the relationship between the troops and their sovereign. Secondly, the plaintiff's action involves the claim that the treatment which he received in the Military Hospital fell below the standard which an English court would consider reasonable. In my judgement, however, the standard of medical care which the United States affords its own servicemen is matter within its own sovereign authority.

In my judgement, therefore, the act of which Mr. Littrell complains was clearly on the jure imperii side of the line and the judge was right to dismiss the action.”


Similar issues were discussed in a case in the House of Lords (Holland v Lampen-Wolfe [2001] I.L.Pr. 49).

In that case Lord Hope said,

“In the present case the context is all important. The overall context was that of the provision of educational services to military personnel and their families stationed on a U.S. base overseas. The maintenance of the base itself was plainly a sovereign activity. As Hoffmann L.J. (now Lord Hoffmann) said in Littrell v. United States (No. 2), this looks about as imperial an activity as could be imagined. But that is not enough to determine the issue. At first sight, the writing of a memorandum by a civilian educational services officer in relation to an educational programme provided by civilian staff employed by a university seems far removed from the kind of act that would ordinarily be characterised as something done jure imperii. But regard must be had to the place where the programme was being provided and to the persons by whom it was being provided and who it was designed to benefit — where did it happen and whom did it involve? The provision of the programme on the base at Menwith Hill was designed to serve the needs of U.S. personnel on the base, and it was provided by U.S. citizens who were working there on behalf of a U.S. university. The whole activity was designed as part of the process of maintaining forces and associated civilians on the base by U.S. personnel to serve the needs of the U.S. military authorities. The memorandum was written on the base in response to complaints which are alleged to have been made by U.S. servicemen about the behaviour of the appellant, who is also a U.S. citizen, while she was working there. On these facts the acts of the respondent seem to me to fall well within the area of sovereign activity.“

Lord Hobhouse, when commenting on Littrell said,

“In a careful review of the facts, Hoffmann L.J. observed that the acts complained of took place at a military hospital within the control of the United States Air Force. They involved only United States personnel. The operation of a military hospital, although no doubt requiring much the same skills as the operation of a civilian hospital, is a recognised military operation. He concluded that the standard of medical care which the United States should afford its own servicemen was a matter within its own sovereign authority.

The Court of Appeal could find no material distinction between the medical treatment provided in that case and the educational services provided in the present one. I agree with them that the provision of education for members of the armed forces and their families is, in modern conditions, as much a normal and necessary part of the overall activity of maintaining those forces as is the provision of medical treatment.“


     Commercial Activities

In relation to commercial activities, the state is not immune if

     (i)     it submits to the jurisdiction of the UK courts;

     (ii)     the proceedings relate to a commercial transaction; or

     (iii)     the state has agreed to submit the dispute to arbitration;  

     (iv)     where a state has a contractual obligation that is to be performed wholly or partly in the UK.

Whilst these factors mean that a state is subject to the jurisdiction of the English courts, they do not override a state’s immunity from enforcement of any judgment or award which may be given.


     What is a State?

In cases where state immunity is claimed, it is not always clear whether the defendant invoking the claim to immunity is a state.  In Wilhelm Finance Inc v Ente Administrador del Astillero Rio Santiago [2009] EWHC 1074 (Comm) Teare J dealt with the issue.


50 “For these reasons I am unconvinced … that the Defendant is a department of government, at any rate in the sense in which that expression is used in s.14(1) of the State Immunity Act 1978 . On the contrary I consider, on the balance of probabilities, that it is not a department of government and is an entity distinct from the executive organs of the government of the State, for these reasons:  


i) The Defendant was created with the object of managing the shipyard (or more accurately the assets transferred by the national to the provincial state) until the time when the shipyard was privatised.


ii) It determines and carries out the commercial policy of the shipyard (see article 5 of the 1993 decree).  


iii) It has power “to act either in the public or private areas“ (see article 2 of the 1993 decree) and does so.


iv) The Defendant is, as Professor Citara accepts (see paragraph 57 of his first statement), “an organisation aimed at the production of goods and services“ .  


v) The work the Defendant does is not work of a type associated with the executive organs of government. It is on the contrary work such as a private company might do.

51 I have not overlooked the facts that the Defendant is owned by the state, that the government nominates the board of directors, that the Chief of Cabinet of the Province of Buenos Aires was assigned the responsibilities of the President of the board, that the Defendant is responsible to the government through the Ministry of Production or that financial support is provided by the government. These factors show that the entity is “of the state“ but the English authorities to which I have referred make clear that such characteristics are insufficient to make the Defendant a department of government or an entity which is not distinct from the executive organs of government of the state in circumstances where its functions or activities are those which a private company might have in trade or commerce.“


     Separate entities

Central banks and other monetary authorities are accorded special treatment.  Even entities separate from the state benefit from immunities against enforcement, whether or not their acts are sovereign (see section 3 above).  Unless there has been a waiver of immunity, the commercial exception to immunity does not apply when the property belongs to a central bank or other monetary authority.

It is not always clear whether a body is an entity separate from the state.  

In Tsavliris Salvage (International) Limited -v- Grain Board of Iraq [2008] EWHC 612 (Comm) Gross J, held that the Grain Board of Iraq  (GBI) “possessed a separate identity, together with financial and administrative independence. “ He compared the relationship between the GBI and the relevant Iraqi government department to that of “an autonomous subsidiary and a parent company“ rather than “a head office and a branch office.“

In Wilhelm Finance (above), the court held that an Argentine shipyard set up by government decree which built ships for the Argentine navy as well as private ship owners, was an entity separate from the state and not immune from suit.

     WHAT IS A COUNTRY?

As far as English law is concerned, that question was only answered in 1988, in a case in which I acted.  The case was Adams -v- Cape Industries [1990] CH. 433.  Scott J said,


“In Dicey's & Morris's Conflict of Law”, 11th ed. (1987), p. 26 there is this statement:


     “Meaning of 'country.' This word has from long usage become almost a term of art among English-speaking writers on the conflict of laws, and it is vitally important to appreciate exactly what it means. It was defined by Dicey as 'the whole of a territory subject under one sovereign to one body of law.' He suggested that a better expression might be 'law district': but this phrase has never found much favour with English-speaking writers, who prefer the more familiar word 'country.' England, Scotland, Northern Ireland, the Isle of Man, Jersey, Guernsey, Alderney, Sark, each British colony, each of the American and the Australian states and each of the Canadian provinces is a separate country in the sense of the conflict of laws, though not one of them is a state known to public international law.“


     Is the United States of America a country?

Scott J continued his judgment in Adams v Cape,

I find it difficult to accept that for some private international law purposes the United States may not be a “country.“ ….

The sovereignty of the United States in its own territory is, of course, recognised by English law. The entitlement of the United States to establish in its territory courts in which issues arising under its laws may be adjudicated upon and disposed of is an attribute of its sovereignty. It is also an attribute of its sovereignty that the United States is entitled to invest its courts with jurisdiction over any persons resident in its territory. If Congress had chosen to establish a federal district court at Washington D.C. for the purpose of dealing with federal anti-trust cases, and with in personam jurisdiction over any persons resident in the United States, the proposition that, under English law, that jurisdiction was excessive, would, in my view, have been unarguable. Under English law a resident in Alaska would owe the same obligation of obedience to such a court as would a resident of Washington D.C. The “country “ of the court would, unarguably, be the United States as a whole.“

I am glad that I played a part in establishing that as a matter of English law the United States of America is a country.


     Immunity from enforcement

States are immune both in relation to the adjudication of disputes and to the enforcement of judgments (and arbitration awards) as a result of the State Immunity Act 1978 ( “the Act“).  

Even if a state is not immune from adjudication, section 13(21) of the Act states:

     (a)         relief should not be given against a State by way of injunction or order for specific performance,     or for the recovery of land or other property; and

     (b)        the property of a State shall not be subject to any process of enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale.“

Whilst the State can consent to such relief, such consent must be express and provision in a contract merely submitting to the jurisdiction of the courts “is not to be regarded as a consent for the purposes of this sub-section“.

State-owned property is not immune from enforcement if it is used or intended to be used exclusively for commercial purposes (Alcom v Republic of Colombia [1983] AC 580).

The Supreme Court has considered this issue again recently.  Please see the case of Servaas v Rafidain Bank (Difficulties in Enforcement of Judgments against a Sovereign State).

     Recent Developments in the Law

Consent to arbitration

A case in 2006 dealt with the question of whether or not a government had consented to arbitration and thus waived immunity.  The case is Svenska Petroleum Exploration AB v Lithuania (No.2) 2006 WL 3206205.

Section 9 of the State Immunity Act 1978 provides,

“(1) Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration.

(2) This section has effect subject to any contrary provision in the arbitration agreement and does not apply to any arbitration agreement between States.“

An arbitration award was made in favour of Svenska against the appellant, the Government of the Republic of Lithuania ( “the Government“), and AB Geonafta, which, until it was privatised on 16th June 2000, was an organisation owned and controlled by the state of Lithuania but which enjoyed separate legal personality.”


The agreement which included the arbitration provision stated as follows,

“GOVERNING LAW AND SOVEREIGN IMMUNITY

35. 1 GOVERNMENT and EPG hereby irrevocably waives [sic] all rights to sovereign immunity.

35. 2 This Agreement shall be governed by the laws of Lithuania supplemented, where required, by rules of international business activities generally accepted in the petroleum industry if they do not contradict the laws of the Republic of Lithuania. “


The Court of Appeal said,


“… it is necessary to bear in mind two things: first, that the particular terms in which a state has appended its signature to the document in any given case are likely to be highly significant; and second, that in the present case it is necessary to ascertain what the parties really intended the Government's signature to represent.

What matters is whether by putting its signature to the document with the attached explanation of its purpose in so doing the Government incurred legally binding obligations towards Svenska.

In the present case by agreeing to ICC arbitration the parties conferred on the arbitrators jurisdiction to determine that question and are therefore bound by their award.

It is quite clear that it was the intention of Parliament in formulating section 9 of the Act in unrestricted terms that applications for leave to enforce arbitration awards should not attract sovereign immunity, whether the award was domestic or foreign.“

Accordingly, the Court of Appeal found that the government intended to submit to arbitration and to enforcement of any award made in the arbitration.


Enforcement of a foreign judgment


Earlier this year the Court of Appeal had to deal with a new point on state immunity.


“5 By 2001 Argentina was in serious financial, social and political difficulties. There was a huge withdrawal of capital from Argentina, both internally and by foreign investors. On 24 December 2001 Argentina was compelled to declare a moratorium on interest and principal on all its debt, including its sovereign debt, which thus included the bonds. The result of the collapse in confidence in Argentina's ability to pay on its sovereign debt was that the market value of the bonds fell considerably.


10 On 11 May 2006, Judge Thomas P Griesa granted NML a motion for summary judgment against Argentina on NML's claim under the bonds. On 18 December 2006, the judge entered judgment against Argentina and in favour of NML for US$284,184,632.30 plus continuing interest compounded annually. Proceedings to enforce that judgment have been started by NML in New York.


11 NML decided that it also wished to enforce the New York judgment in England. Because there is no treaty between the United States and Great Britain for the mutual recognition and enforcement of judgments, there is therefore no simple statutory method for the recognition and enforcement of a United States judgment in the English courts. A person who is a judgment creditor of a United States judgment who wishes to enforce it in England must bring an action on the foreign judgment in the English courts. If judgment is obtained, then it is the English judgment that can then be enforced in England.“


Republic of Argentina v NML Capital Ltd. [2010] EWCA Civ 41


The judgment continued,


“51 Section 13 deals with foreign states' immunity from what Lord Diplock called, in the Alcom case, the UK courts' ‘enforcement jurisdiction’.  For present purposes the most important provision is in section 13(2)(b) , which stipulates that, subject to section 13(3) and (4) , ‘the property of a state shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale’ . It is clear, in my view, that section 13(2)(b) is aimed at cases where a party has obtained a judgment against a state (whether in the UK or elsewhere) and seeks to enforce it against the ‘property’  of a state within the jurisdiction of a UK court. The section is not concerned with a case where a party has obtained a judgment against a state in the courts of a foreign country and then attempts to have that judgment recognised or enforced in the UK courts by means of an application or action to make that judgment into a judgment of the UK court.“


The judgment goes on to find that even if a separate entity of the state submits to the jurisdiction of a UK court when it would otherwise have been immune, the “procedural privileges” set out in section 13(1) - (4) of the State Immunity Act 1978 are still available to it.

It is necessary to obtain permission to serve the proceedings on the state out of the jurisdiction showing that the claim falls within one or more of the grounds necessary for such permission, and also to show that the claim is one in respect of which there is arguably no immunity from suit for the reason stated in the application for permission to serve out of the jurisdiction.

The Court of Appeal went on to consider section 31 of the Civil Jurisdiction and Judgments Act 1982.

“The consequence of my conclusion is that the UK courts will not have jurisdiction over a foreign state to recognise and enforce a judgment of a foreign court within the terms of section 31 unless it can be shown that, in respect of the state, one of the exceptions in sections 2–11 has been fulfilled. In practice this is likely to mean that the foreign state must have submitted to the jurisdiction of the UK courts in accordance with section 2 of the SIA.”

The Court of Appeal found that the terms of the bonds did not constitute a positive submission to the jurisdiction of the English courts within the terms of section 2(1) of the State Immunity Act 1978 and that therefore the New York judgment was not enforceable in England.  When drafting any contract involving a state, care must be taken by the other party to ensure that the state submits both to the adjudicative jurisdiction of the court or arbitral tribunal and to the jurisdiction of the court in relation to enforcement.  There must also be assets available against which enforcement can be levied.

     THE COROLLARY OF IMMUNITY - WHERE BEING A STATE MAY BE A DISADVANTAGE

Enforcement of penal judgments

The English court will not entertain an action to enforce (either directly or indirectly) a penal or revenue law. This is essentially part of the conflict of law rule that penal laws will not be enforced in an English court. The application of this rule to enforcement of foreign judgments by the English court has lead to confusing outcomes.                                                                                                                                       

The foundation for this rule was explained by Lord Watson in Huntington v. Attrill [1893] AC 150,

“The rule has its foundation in the well-recognised principle that crimes, including in that term all breaches of public law punishable by pecuniary mulct, or otherwise, at the instance of the State Government, or of some one representing the public, are local in this sense, that they are only cognizable and punishable in the country where they were committed.“

In USA v Inkley [1988] 3 All ER 144, the US Government sought to enforce in England a default judgment obtained in Florida. In this case, a British subject, Mr Inkley, had been arrested in Florida on fraud charges and had been released on bail on the condition that he entered into an “appearance bond“.  He was given permission to leave the United States for 30 days but did not return. The United States obtained judgment in civil proceedings in the USA for the sum payable pursuant to the bond. A civil action was then commenced in England to enforce the American civil judgment. In England, the High Court gave judgment in favour of the United States but was reversed on appeal. The Court of Appeal held that notwithstanding the civil form of the enforcement proceedings, in substance the purpose of the civil action was the execution of the United States own penal laws. English courts therefore had no jurisdiction to hear the claim.

The English appeal court stated that:

“... the whole purpose of the bond was to ensure, so far as it was possible, the presence of the executor of the bond to meet justice at the hands of the State in a criminal prosecution.  The fact that the obligations under the bond were the subject matter of the declaratory judgment in a civil court does not affect, in our judgment, the basic characteristic of the right which that judgment itself enforced, namely the right of the State as the administrator of public law and justice to ensure the due observance of the criminal law or the exaction of pecuniary penalties if that course was frustrated.  Notwithstanding its civil clothing, the purpose of the action initiated by the writ issued in this case was the due execution by the United State of America of a public law process aimed to ensure the attendance of persons accused of crime before the criminal courts. “(per Purchas LJ, in US v. Inkley [1988] 3 WLR 302, at 312)

There would seem to be two questions at the back of the court’s mind when dealing with an application to set aside the registration of the foreign judgment.

Would its enforcement, directly or indirectly, involve the execution of the penal law of another State?

If so, then that right should not be enforced in England.

The enforcement of the civil judgment in USA v Inkley would not have forced Mr Inkley to return to the USA.  I acted for the United States of America in this case and I am of the view that the case was wrongly decided.     

In its judgment, the Court of Appeal stated,

“Before parting with this matter we would like to draw attention to the fact that it is open to the parties in appropriate cases to ask for a court of three judges, notwithstanding that the appeal is one which under statute can be determined by two judges….  The present appeal, though technically an interlocutory appeal, raised legal questions of some international importance and nothing could be more final than the result at which the court has arrived.  It was eminently a case which merited the attention of three judges.“

The judgment of the Court of Appeal refers to the judgment of the Gatehouse J, which was being appealed, in the following terms,

“After considering the authorities … and the standard text books… the judge came to the conclusion that the proceedings were civil proceedings and enforceable by action in the English courts, although he found the question a nicely balanced one.“

The Court of Appeal concluded that “the general context and background against which the appearance bond was executed was criminal or penal“.

I consider that the context and background, whilst relevant, should not be determinative.  If, as often happens, the bond had been provided by a third party, there would have been no question of the bond being of a criminal or penal nature.  If the defendant had failed to appear, there would simply have been proceedings to collect a sum of money pursuant to the bond from the executor of the bond.  In my opinion, the identity of the executor of the bond cannot be determinative of the nature of the bond.

There remains a real question as to whether a foreign civil judgment such as the one in USA v Inkley, should in fact be characterized by the English Court as “penal“ in nature when it has no penal effect by itself.


Assisting other countries to enforce their own laws

However, the House of Lords found in Re State of Norway’s Application (nos 1 and 2) [1990] 1AC 723 that it was not an exercise of extra-territorial sovereignty for a foreign state to seek the assistance of the English court to obtain evidence for the enforcement of its revenue laws in its own country.

     Comments

The law has developed so that states no longer have blanket immunity.  This protects parties trading with states and provides some protection for parties involved in commercial activities with states.

For parties dealing with a state

It is important for parties entering into a contract with a state to ensure that that the contract is clear in relation to submission to the jurisdiction of the courts or arbitral tribunal where it is agreed that any claims may be brought, and that there is a waiver of immunity not just in relation to jurisdiction to adjudicate any dispute, but also to enforce a judgment or arbitral award arising out of such adjudication.

Care should be taken in relation to particular entities with which contracts are made.

For a state

From the perspective of the state or state-owned entity, advice should be sought so as to limit any waiver of immunity to the minimum extent required to give business efficacy to the contractual arrangements and not waive immunity further than absolutely necessary for the purpose of the particular transaction.

See also Difficulties in enforcement of judgments against a sovereign state.

Steven Loble

steven@loble.co.uk





State immunity, sovereign immunity