UK Supreme Court confirms the limited scope of state and diplomatic immunity from employment claims: Benkharbouche and Reyes

In two judgments handed down on 18 October 2017, the Supreme Court (the “Court”) has allowed certain employment claims made by foreign nationals employed as domestic workers at the embassies of foreign states and a diplomat’s residence to proceed despite claims of immunity. The judgments consider important aspects of state and diplomatic immunity, the differences between the two, and wider considerations of the interplay between domestic, EU and international law.

In Benkharbouche (Respondent) v Secretary of State for Foreign and Commonwealth Affairs (Appellant) and Secretary of State for Foreign and Commonwealth Affairs and Libya (Appellants) v Janah (Respondent) [2017] UKSC 62, the Court held that certain provisions of the State Immunity Act 1978 (“SIA”) barring the claims were not justified by any rule of customary international law and were therefore incompatible with both Article 6 (right to a fair trial) of the European Convention on Human Rights (“ECHR”) and Article 47 (right to an effective remedy and to a fair trial) of the EU Charter of Fundamental Rights (the “Charter”). The Court affirmed the Court of Appeal’s decision to (i) disapply these provisions of the SIA to the extent that they conflicted with EU law (Article 47 of the Charter), thereby allowing the employment claims that derive from EU law (discrimination, harassment and holiday pay) to proceed, and (ii) to make a declaration of incompatibility in respect of the SIA provisions under Article 6 of the ECHR – this being the only remedy available in respect of the domestic claims not derived from EU law (including unpaid wages and unfair dismissal), which therefore remained barred.

In Reyes (Appellant/Cross Respondent) v Al-Malki and another (Respondents/Cross-Appellants) [2017] UKSC 61, the Court found that a diplomat’s immunity after leaving his or her post is limited by Article 39 of the Vienna Convention on Diplomatic Relations 1961 (the “Vienna Convention”) to acts performed in the exercise of their diplomatic functions, regardless of whether the diplomat was otherwise entitled to immunity at the time the relevant acts took place. The Court held that the employment and mistreatment of domestic staff does not fall under the category of acts performed in the exercise of diplomatic functions and allowed Ms Reyes’ appeal.

Please see here for our previous blog post on both Court of Appeal decisions.
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English court declines execution against state-owned property on grounds of immunity

In L R Avionics Technologies Limited v. The Federal Republic of Nigeria, Attorney General of the Federation of Nigeria [2016] EWHC 1761 (Comm), the English High Court has set aside a charging order enforcing an arbitral award and related foreign judgment made against the Federal Republic of Nigeria ("Nigeria"). The charging order had been issued over a property owned by Nigeria but leased to a private company to process Nigerian visa and passport applications. In reaching its decision, the Court followed recent case law on the circumstances in which it can be said that property is “in use or intended for use for commercial purposes” pursuant to section 13(4) of the State Immunity Act 1978 (“SIA“).

1. ​Background

The claimant, LR Avionics Technologies Ltd. (the "Claimant"), had entered into a contract with Nigeria for the supply of military equipment. The contract was governed by Nigerian law and provided for arbitration in Nigeria under domestic law. Following a dispute, an award was issued for damages and costs to the Claimant (without interest) (the "Award"). Following enforcement proceedings in Nigeria, the Federal High Court of Nigeria entered judgment in terms of the Award and also ordered the defendants to pay interest (the "Nigerian Judgment").

Nigeria did not comply with the Award or the Nigerian Judgment. As a consequence, the Claimant commenced proceedings in the UK to register the Award under s.101 of the Arbitration Act 1996, and the Nigerian Judgment under s.9 of the Administration of Justice Act 1920 (the "Administration of Justice Act").

The Claimant applied to the Court for an interim, and then a final, charging order against freehold office premises (the "Property") owned by Nigeria but leased to a company called Online Integrated Solutions Ltd ("OIS") for the purpose of providing visa and passport services in exchange for an annual rent of £150,000. Nigeria was served (albeit with some irregularities), but did not participate in the proceedings. Once the final charging order was obtained, the Claimant sought an order for sale of the property. At this stage Nigeria issued an application to discharge or set aside the final charging order, arguing that the Property was exempt from execution on the basis of state immunity.

2. The Decision

The Court identified three main "issues of substance" in connection with the question of whether the Property was immune from execution under the SIA. First, could the Award be enforced; second, could the Nigerian Judgment be enforced; and third, in the event that enforcement of the Award or Nigerian Judgment was permitted, was the Property being used for "commercial purposes" such that state immunity would not apply under s.13(4) of the SIA and a charging order could be made against it. The court also considered whether the Property formed part of the Nigerian diplomatic mission.

2.1 The scope of the "arbitration exception" under s.9 of the SIA

Under s.9 of the SIA, where a State has agreed in writing to submit disputes to arbitration, "the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration".  The Court disposed of the first issue quickly by following established case law, to the effect that proceedings "which relate to the arbitration" include those for the recognition and enforcement of an award (Svenska Petroleum Exploration AB v. Government of the Republic of Lithuania [2006] EWCA Civ 1529 and NML Capital Ltd. v. Republic of Argentina [2011] UKSC 11). Accordingly, the Claimant was entitled to register the Award for recognition and enforcement.

2.2 Enforcement of the Nigerian Judgment

It remained material to determine this question because the Nigerian Judgment included interest, whereas the Award did not. English courts have considerable discretion under the Administration of Justice Act in relation to the enforcement of foreign judgments, and must consider whether enforcement of a foreign judgement would be "just and convenient". The Court accepted the Claimant's submission that the Nigerian Judgment was simply the conversion of an arbitral award into a judgment under a foreign statutory provision similar to s.66 of the Arbitration Act 1996. Accordingly, the Court held that these proceedings were all part of the process of enforcement of an award, and that its discretion should therefore be exercised in favour of enforcement of the judgment, for the same reasons as set out in Svenska and NML Capital.

2.3 Use of the Property for "commercial purposes"

However, the Court decided in favour of Nigeria on the third issue. Its decision turned on whether the Property was immune from execution, or whether the Property was "for the time being in use or intended for use for commercial purposes", such that the exception from immunity contained in s.13(4) of the SIA applied.

During the proceedings and pursuant to s.13(5) of the SIA, the Nigerian High Commissioner issued a certificate stating that the Property was "in use for Consular activities" and not for commercial purposes, which had the effect under the SIA of shifting the burden to the Claimant to prove the contrary.

The Claimant presented seven arguments in an attempt to demonstrate that the Property was being used for "commercial purposes". These included use of the Property by OIS, a private company, against payment of rent, OIS' partnerships with other national diplomatic missions, and the Property's availability (at one point in time) as a property which was available to rent on the open market. The Claimant submitted that OIS was therefore an agent which was operating on a commercial basis, and that this would satisfy the "commercial purposes" requirement under s.13(4) of the SIA.

The Court held that while OIS' operations would constitute a "typical commercial activity" from OIS' point of view, the Property was "being used for a consular activity" when viewed from the Nigerian High Commission's perspective. Noting the decision of the UK Supreme Court in SerVaas Incorporated, the Court observed that "the primary consideration must be the nature or character of the relevant activity". Although the Property may be connected with a commercial transaction (the contract for the supply of services by OIS to Nigeria), but the purpose for which it was in use was the provision of visa and passport services. This provision of consular services would constitute performance of a public function "regardless of whether that function is carried out by the defendant state itself or…an agent". Accordingly, the Court ruled that the Claimant had not discharged the burden upon it of proving that the Property was in use for commercial purposes, and set aside the charging order.

3. Comment

This case provides a useful illustration of the broad scope of the arbitration exception under the English law of sovereign immunity. It upholds the consistent line of case law that immunity will not apply to defeat enforcement proceedings in relation to an arbitral award, and also clarifies that the Court will likely exercise its discretion in favour of enforcing foreign judgments that have been entered in the terms of an arbitral award.

However, the case also highlights that recognition and enforcement of an arbitral award can be a pyrrhic victory if that Award cannot also be executed against that State's property. Notwithstanding the numerous links in this case between the Property and the private sector, the Court was clear that the Property ultimately was in use for public, consular, purposes, and should enjoy immunity.  

Here, the court continued the line of case law begun in Servaas Incorporated by interpreting the "commercial purposes" exception narrowly, thus demonstrating the difficulties associated with executing arbitral awards and court judgments against state-owned property. The Claimant's inability to proceed with execution in this case therefore highlights the importance of including a well-drafted waiver of state immunity in contracts which involve state parties to ensure that a clear written waiver for execution against State property is included, removing the need to rely upon the "commercial purposes" exception.

For further information, please contact Andrew Cannon, Partner, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+33 1 5357 6552
Vanessa Naish
Vanessa Naish
Profession Support Consultant
+44 20 7466 2112

Herbert Smith Freehills hosts Panel Discussion and Seminar on “The State of State Immunity” in conjunction with the British Branch of the International Law Association

Herbert Smith Freehills, in conjunction with the British Branch of the International Law Association, is hosting a Seminar entitled “The State of State Immunity”. The Seminar will address Recent Developments, the “Commercial Purposes” Exception and provide practical guidance on negotiating immunity issues.

Date:Tuesday 29 September 2015
Time:6pm to 7pm, followed by drinks (Registration from 5:45pm)
Venue:Exchange House, Primrose Street, London, EC2A 2EG
Please click here to view map

 

Speakers:

Adam Johnson, Partner, Herbert Smith Freehills (Chair)

Chanaka Wickremasinghe, Legal Counsellor, UK Foreign & Commonwealth Office

Michael Stock, Senior Group Legal Counsel, Dispute Resolution, Standard Chartered Bank

Andrew Cannon, Partner, Herbert Smith Freehills

The immunity of states and their assets from the reach of national courts is an area of law with considerable practical implications in the context of contracts between states and commercial parties.

In this panel discussion, the speakers will consider recent developments on state immunity in the English courts, as well as the exceptions to the immunity of states granted by the State Immunity Act 1978. They will consider how effective waivers of immunity can be negotiated, and how immunity may apply to state-owned entities and other bodies. The speakers will draw on their considerable experience from the public and private sectors to offer practical guidance and insights into this significant area of law.

The event will be held under the Chatham House Rule.

Places are limited.  To register your interest in this event, or for further information, please contact Paul McKeating.

English Court of Appeal confirms that the estate of a head of state who dies in office enjoys immunity only in respect of official acts

In the recent decision of Harb v HRH Prince Abdul Aziz Bin Fahd Bin Abdul Aziz [2015] EWCA Civ 481, the English Court of Appeal (the Court) confirmed that the immunity afforded by the UK State Immunity Act 1978 (the SIA) applies to a head of state who dies in office in the same way as it applies to a head of state who stands down from office during his or her lifetime. In short, if the estate is sued, immunity exists only for official acts, and not private acts, committed before the head of state’s death in office. As noted by the Court of Appeal, the case was not covered directly by authority and appears to have been the first case of its kind to have dealt directly with this question of public international law.

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The need to act strategically to preserve state immunity: States lose immunity by taking steps in proceedings in the English courts to challenge a Tribunal’s jurisdiction

In an appeal in a case considering the interrelation between arbitration and state immunity, on an application by France and Spain (the States), the English Court of Appeal (the Court) refused to reverse the decision of the High Court which granted permission to enforce two arbitral awards (the Awards) against the States under s66 of the English Arbitration Act 1996 (the Act). The background to the case and the decision of the High Court is described in our blog post here.

The States argued that they benefitted from immunity from the jurisdiction of the English courts under the State Immunity Act 1978 (the SIA). The Court found that in bringing an application challenging the jurisdiction of the tribunal under s67 and s72 of the Act, the States had taken steps in the proceedings other than for the sole purpose of preserving immunity. The States had been deemed to have submitted to the jurisdiction.

On a practical level, the decision demonstrates the need for states to consider carefully their strategy in responding to proceedings brought against them, if they do not wish to risk losing the general immunity granted by the SIA.

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The erosion of state and diplomatic immunity by European law? Two recent English Court of Appeal cases

In the case of (1) Benkharbouche and (2) Janah v (1) Embassy of the Republic of Sudan and (2) Libya, the English Court of Appeal (the Court) considered the claims by employees of the embassies of Sudan and Libya, that s16(1)(a) and 4(2) of the English State Immunity Act 1978 (the SIA) were incompatible with Art. 6 of the European Convention on Human Rights (the ECHR) and Art. 47 of the Charter of Fundamental Rights of the European Union (the EU Charter). Both Art. 6 and Art. 47 relate to the right to a fair trial.

In its judgment of 5 February 2015, the Court determined that ss.4(2) and 16(1)(a) were incompatible with Art. 6 of the ECHR and a declaration of incompatibility would be made indicating to Parliament that the SIA requires amendment. Further, the Court found that these sections also violated Art. 47 of the EU Charter and that they should be disapplied where the claimants’ claims were derived from EU law measures. As described in more detail below, the Court’s decision indicates that state bodies and diplomatic missions that anticipate benefitting from immunity under the SIA may find that such immunity does not shield them from civil law claims, where it is incompatible with provisions of EU law. This case arose in the context of employment claims against the embassy employers but its application may be felt more broadly in other civil claims which are derived from EU law.

In another recent case involving employment claims, Reyes and Anor v Al-Malki and Anor, the respondent Saudi diplomatic agent and his wife claimed diplomatic immunity pursuant to Arts. 31 and 37 of the Vienna Convention on Diplomatic Relations 1961 (the Vienna Convention). In contrast to Benkharbouche (in which the focus of the Court’s consideration was the UK domestic law, the SIA), the Court of Appeal in Reyes was considering international law. In its judgment in Reyes of 5 February 2015, the Court found that: the claims brought were covered by diplomatic immunity pursuant to the Vienna Convention, on the basis that the activity of employing someone was incidental to life as a diplomatic agent for which the immunity was granted; the Vienna Convention remains an authoritative statement of international law on diplomatic immunity; the compatibility of the limitation on access to a court with the state’s international law obligations was determinative as to whether the restriction on access to a court was proportionate; and those obligations were not incompatible with Art. 6 of the ECHR.

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English High Court provides guidance on waiver of sovereign immunity

In a recent decision in the case High Commissioner for Pakistan In the United Kingdom (“Pakistan“) v National Westminster Bank (the “Bank“), the English High Court considered the scope of sovereign immunity provided by section 1 of the English State Immunity Act 1978 (the “1978 Act“).

The case concerned competing claims by India, descendants of an Indian Prince (together, the “Interested Parties”), and Pakistan on a sum of money deposited into a bank account in 1948, following the end of British rule in India.

It was not necessary for the court to decide the question of whether Pakistan had waived sovereign immunity in order to answer the questions before it. However, the Court took the opportunity to examine whether Pakistan’s conduct in the proceedings had amounted to a waiver of immunity under s.2 of the 1978 Act with respect to the Interested Parties as well as the Bank.

The Court considered that once sovereign immunity is waived by a State instituting proceedings, it is waived for the duration of those proceedings, including any new claims that the State could have predicted would arise from the original proceedings.

The Court’s discussion in this case sheds some light on the boundaries of an area of law that has seen limited judicial consideration. It remains to be seen whether Pakistan will appeal, and so give a higher court an opportunity to provide further guidance.

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English High Court says that a head of state who dies in office enjoys immunity only in respect of official acts

Introduction

In the recent decision of Harb v HRH Prince Abdul Aziz Bin Fahd Bin Abdul Aziz [2014] EWHC 1807 (Ch), the High Court found that the principles of state immunity apply to a head of state who dies in office in the same way as they apply to a head of state who stands down from office during their lifetime. The Court found that both enjoy immunity only in respect of their official acts whilst in office. There was no justification for treating the estate of a head of state who dies in office in a more favourable way than (i) a living former head of state or (ii) the estate of a former head of state who dies some time after leaving office.

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