Court of Appeal provides clarity on serving arbitral enforcement proceedings against states

Court of Appeal provides clarity on serving arbitral enforcement proceedings against states

Court of Appeal provides clarity on serving arbitral enforcement proceedings against states

A recent Court of Appeal judgment has clarified the requirements under the State Immunity Act relating to the service of proceedings for the enforcement of an arbitration award against a state.

Enforcement of the Award

In January 2016 General Dynamics UK Ltd (“GDUK”), a UK company and part of the General Dynamics Group who specialise in the production and supply of military equipment, was successful in an ICC arbitration in Paris against Libya. The dispute related to a contract between the parties for the supply of military communications equipment. The tribunal awarded £16,114,120 in favour of GDUK, together with interest and costs.

Libya made no payment, or proposal for payment, of the sum awarded. Therefore, in accordance with the procedure set out at s. 101 Arbitration Act and Part 62.18 of the Civil Procedure Rules, GDUK commenced enforcement proceedings by filing an arbitration claim form at court.

Granting permission to enforce the arbitration award, Mr Justice Teare agreed to GDUK’s request that service of the claim form on Libya be dispensed with on account of service being very difficult due to internal conflict within the country (at the time Libya was in the midst of civil war). Dispensation from service under the UK’s procedure rules is otherwise rare and only granted in exceptional circumstances.  The court did, however, require GDUK to make Libya aware of the award by sending copies of the arbitration claim form by courier to three named individuals (two of which were officials within government departments in Tripoli, and the third was their lawyer in Paris).

Libya sets aside the decision

Having been made aware of GDUK’s intention to enforce the arbitration award, Libya applied to set aside the order that had been made to dispense with service. Libya’s argument was that under s.12(1) of the State Immunity Act 1978 (the “Act”):

“Any writ or other document required to be served for instituting proceedings against a State shall be served by being transmitted through the Foreign and Commonwealth Office to the Ministry of Foreign Affairs of the State and Service shall be deemed to have been effected when the writ or document is received at the Ministry” (emphasis added).

At a hearing of Libya’s application, Lord Justice Males sided with Libya determining that there will always be a need to serve some documents on a state party, and in this case that document was the order from Mr Justice Teare formally recognising the award. It was this document that had to be served via the FCO channel. In light of the mandatory nature of s.12 of the Act, in cases involving proceedings against states, and following legal precedent, there was no possibility of applying the rules on dispensing with service. 

GDUK’s successful appeal

GDUK appealed the decision to set aside Mr Justice Teare’s order. The Court of Appeal held in favour of GDUK. Service of the order permitting enforcement of the award need not be conducted through the FCO and therefore s. 12(1) did not apply. Importantly, the court clarified that when a foreign state is first sued, such service must be via the FCO. However, an order permitting enforcement of an award (in cases where the state has participated in the arbitration or has declined to participate) is not a document “for instituting proceedings against a State” under s. 12(1), and therefore in this instance service need not be through the FCO. As such, the English procedural laws relating to service (and therefore the dispensation of such service) were back in play and in the present case such dispensation was justified.

Comment

It is not clear whether Libya will pursue a further appeal. As it stands, the decision will bring clarity and relief to parties likely to encounter difficulties effecting service on a state through the FCO. Further, the decision should discourage foreign states from seeking to frustrate enforcement of arbitral awards in the English Courts. 

For any further information, contact Michael Stocks or your usual S&B contact.

General Dynamics United Kingdom Ltd v The State of Libya [2019] EWCA Civ 1110 (3 July 2019)

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