Acts of State and Immunities

Introduction

Companies doing business in the South East Asian, Asian Pacific and Greater Asian region may find themselves intereacting with the state itself even in commercial matters. This is due to the prevalence of state owned enterprises, government linked entities and sovereign wealth funds in Asia. There are two fairly well known doctrines which may prohibit the courts of one state from (a) adjudicating on the domestic acts of another state; or (b) asserting jurisdiction or permiting enforcement against another sovereign or its property. The former is known as the Act of State Doctrine while the later is known as State Immunity or Sovereign Immunity.

Courts have taken divergent positions on whether State or Sovereign Immunity applies in respect of acts by state which are of a commercial nature and whether judicial acts of a foreign state are acts of state for the purposes of these doctrines.

England – Yukos v Rosneft (2012)

The situation faced by the English Court of Appeal in the recent case of Yukos Capital SARL v OJSC Rosneft Oil Company [2012] EWCA Civ 855 was rather peculiar. The respondent to the appeal and the claimant in the arbitration, Yukos, had obtained a Russian arbitral award against the appellant, Rosneft, which is owned by the Russian Federation. Rosneft succeeded in setting aside the arbitral award before the Russian Arbitrazh court.

Notwithstanding that the award had been set aside, Yukos succeeded in enforcing the award in a foreign country (The Netherlands) pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Before the Amsterdam Court of Appeal the award was recognised for enforcement, while the Russian court’s decision setting aside the award was refused recognition.

Yukos proceeded to the English court seeking enforcement of the award (or more accurately post award interest as the award sum was paid in the interim) on the basis that the annulment of the awards by the Russian court should not be recognised. Yukos sought for the English courts to uphold the finding of the Amsterdam Court of Appeal that “[t]he refusal of recognition is on the ground that it [could] be inferred, from the general nature of the subservience of the Russian courts to state influence in matters of state importance, that the decision of the Russian court in setting aside the award was ‘partial and dependent’, in other words was dictated by bias or intimidation” (see paragraph [6]). Yukos succeeded at first instance.

On appeal, Rosneft argued, inter alia, that the Act of State Doctrine prohibited the English courts from adjudicating on whether in general the judicial acts of the Russian courts were indeed “partial and dependent” on the state and therefore that the specific annulment of the awards should be recognised. Rosneft failed on that ground.

The Court of Appeal noted that the Act of State Doctrine was a uniquely common law doctrine which did not have a parallel in civil law jurisdictions (see paragraph [40]) and was one which had limitations inherent to its language and rationale (see paragraph [67]). Critically for Rosneft, the Court of Appeal considered that judicial acts will not be regarded as acts of state for the purposes of the act of state doctrine (except in cases for e.g. in human rights law: see paragraph [73]). They held that, “the act of state doctrine does not prevent an investigation of or adjudication upon the conduct of the judiciary of a foreign state, whether that conduct lies in the past, or in the future, and whether or not its conduct in the past is relied upon as the foundation for an assessment of the risk as to its conduct in the future” (see paragraph [86]).

Hong Kong – Congo v FG Hemisphere

At this stage, it is helpful to recall the 2011 Hong Kong Court of Final Appeal’s preliminary decision in Democratic Republic of the Congo v. FG Hemisphere Associates FACV Nos. 5, 6 & 7 of 2010 (final decision here). Briefly, FG Hemisphere sought execution of two ICC awards made in Paris and Zurich against the Democratic Republic of Congo (“Congo“) pursuant to certain financial guarantees that had been given by Congo for the purposes of certain infrastructure works. In particular, FG Hemisphere sought to enforce against certain monies that were to be paid by the other appellants (Chinese state owned enterprises) to Congo. Congo asserted state immunity for itself to resist enforcement and execution of the two awards against its properties (the monies owed by the other appellants). By a majority of 3 to 2, the Court of Final Appeal held (alongside the definitive interpretation of Hong Kong’s Basic Law by the Standing Committee of the National People’s Congress) that under China’s doctrine of absolute (state) immunity, there could be no exceptions to the rule that the Hong Kong courts could not assert any jurisdiction over a foreign sovereign or its properties. As a result, FG Hemisphere’s application for leave to enforce the two foreign arbitral awards against Congo and for an attachment of Congo’s monies had to fail.

The Hong Kong Court of Final Appeal also held that the mere fact that Congo had agreed to submit to ICC arbitration in Paris and Zurich previously was insufficient to constitute a waiver as to its immunity before the Hong Kong courts in the Hong Kong enforcement proceedings (see paragraphs [390] and [392]). However, given that these arbitration clauses were for arbitration in a foreign jurisdiction (i.e. Paris and Zurich), this decision does not resolve the issue of whether a state’s submission to an arbitration seat in Hong Kong will suffice for the Hong Kong courts to assert jurisdiction over that state or its entities.

Singapore – State Immunity Act

In contrast to the absolutist position in Hong Kong, Singapore has adopted the so-called restrictive state immunity approach which is encapsulated in the State Immunity Act (Cap. 313).

Generally, while a State is immune from proceedings in Singapore, there are a number of substantial carve-outs from that immunity. One of them is where the proceedings relate to a commercial transaction entered into by the State or where it is an obligation of the State which by virtue of a contract (whether a commercial transaction or not) falls to be performed wholly or partly in Singapore (see s. 5 as well as s. 12 in relation to admiralty matters). The second material carve out is that where the state has submitted to arbitration, that state is no longer immune to proceedings in the Singapore courts which relate to the arbitration (see s. 11).

It should also be noted that state owned enterprises (as a “separate entity“) will only be entitled to immunity if the proceedings relate to anything done by it in the exercise of sovereign authority and the circumstances are such that a State would have been so immune (see s. 16(2))

Conclusion

The takeaways for parties are as follows:

  1. When dealing with a state party or state owned enterprise, parties should take into account the jurisdictions where enforcement of any arbitral award is likely.

  2. On that basis, it would be prudent for parties to take legal advice on the enforceability of awards against state parties or state owned enterprises in those likely jurisdictions for enforcement.

  3. At the very least, parties should seek express waiver of sovereign immunity provisions in the contractual agreements between themselves and the state party. However, the efficacy of such express waivers is doubtful in jurisdictions which require that sovereign states submit “in the face of the court” in respect of proceedings i.e. when proceedings have been initiated against such parties and not on a prior pre-contractual waiver (see again, Congo v FG Hemisphere)

About Shaun Lee

International Dispute Resolution and Arbitration lawyer. Fellow of the Chartered Institute of Arbitration. Panel of Arbitrators and Panelist for DNDR at the KLRCA.
This entry was posted in Arbitration, Asean, China, Singapore and tagged , , , , , , , , , . Bookmark the permalink.

4 Responses to Acts of State and Immunities

  1. Pingback: State Immunity – State Owned Enterprises | Singapore International Arbitration Blog

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