The Federal Republic of Nigeria (the “State”) granted a lease of a state-owned office premises (the “Premises”) to OIS, a private company, for the purpose of outsourcing the handling of passport and visa applications. Separately, OIS had a contractual agreement with the State for the supply of military equipment. The agreement contained an arbitration clause subjecting all disputes that may arise to Nigerian law. When a dispute arose under this separate contract, the Nigerian arbitrator awarded costs and damages against the State for its breach of the contract. OIS also obtained a judgment from the Federal High Court ordering the State to pay the sums awarded with interest.
The State failed to comply with the order of the Nigerian court, so OIS obtained orders in England to register the award and judgment under s. 101 of the Arbitration Act 1996 (“AA”) and s. 9 of the Administration of Justice Act 1920 (“AJA”) respectively. When the State still did not comply with the orders, OIS obtained a charging order with respect to the Premises. The State once again refused to acknowledge service of the charging order. Thus, OIS sought an order for the sale of the property.
The State applied to discharge or set aside the charging order on grounds that the Premises were used for consular activities and therefore immune from execution under s. 13 of the State Immunity Act 1978 (“SIA”).
II. Issues before the Court
In determining whether the Premises were immune from any process for the enforcement of a judgment or arbitration award against the State, three issues of substance arose. They were:
- whether the arbitral award could be enforced against the State;
- whether the Nigerian court judgment could be enforced against the State; and
- whether the Premises were “in use…for commercial purposes” within the meaning of s. 13(4) of the SIA such as to be immune from enforcement.
III. The Court’s Decision
Enforcement of the award
Dismissing the State’s application, Mr Justice Males found that since the State was a party to the arbitration agreement, it was barred under s. 9 of the SIA from claiming immunity in respect of proceedings that relate to the arbitration. Further, he found that proceedings to enforce an award under s. 101 of the AA fell within the meaning of s. 9 as “proceedings which relate to the arbitration”. This was the position established in Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (“Svenska”), which was in turn approved in NML Capital Ltd v Republic of Argentina (“NML”). Importantly, in Svenska, the Court of Appeal drew a distinction between an application for the enforcement or recognition of an arbitration award and the enforcement by execution on property of the State: unless the commercial exception under s. 13 of the SIA applied, only the latter attracts immunity. Accordingly, OIS was entitled to enforce the arbitration award against the State.
Enforcement of the Nigerian judgment
The Nigerian judgment could only be enforced, if at all, under s. 9 of the AJA. This provision accords to the court discretion to order the enforcement of a judgment where it deems it just and convenient to do so. In this case, Mr Justice Males found that the application to enforce the judgment was effectively an arbitration award converted into a judgment under a foreign statutory provision equivalent to s. 66 of the AA. This application therefore fell within the ambit of a proceeding that relates to arbitration, being merely a part of the process of enforcing the arbitration award. Hence, the ratio of Svenska and NML could equally be applied here to reach the conclusion that the Nigerian judgment should be registered and enforced against the State.
Whether the property is used for commercial purposes
13 of the SIA governed the execution of state-owned property. It prevents the enforcement of any proceedings on such property, except where the property is “in use or intended for use” for a commercial transaction. In light of the certificate issued by the Nigerian High Court under s. 13(5) of the SIA guaranteeing the use of the Premises for consular purposes, the burden of proof lay on OIS to show that the property was in use for “commercial purposes” within the meaning of s. 17(1) of the same act, such as to be barred from the immunity that the State was claiming.
While the court acknowledged that OIS had indeed used the Premises for a commercial activity, it held that the relevant consideration must be the purposes of the State against whose property execution is sought. As such, since the nature and character of the relevant act had not changed as a result of it being outsourced, it must remain the case that the property was being used for consular purposes, as the same act would have been so considered had it been carried out by the State itself.
Moreover, although the court acknowledged that there could have been a commercial contract between OIS and the State within the meaning of s. 3(3)(a) of the SIA, it did not follow ipso facto that the property was used for commercial purposes. Rather, Mr Justice Males found that while the property may be connected to a commercial transaction, the relevant transaction for which the property was in use remained a public rather than a commercial one.
Therefore, the court held that OIS had not discharged the burden of proof that the property was used for commercial rather than consular purposes. Accordingly, the state-owned property remained immune from any enforcement or execution proceedings.
Arbitration and state immunity
An increasingly prevalent problem faced by commercial parties entering into contracts with states is attempts by the latter to raise the defense of sovereign immunity in order to challenge the arbitral jurisdiction or avoid the enforcement of arbitration awards. In light of that, this is a welcome case that reaffirms the general pro-arbitration trend established in recent like cases in the UK. In short, it underscores the underlying principle of arbitration as a consensual process, and so it follows that any state that has entered into a valid arbitration agreement must then be barred from attempting to frustrate the proceedings necessary to render the arbitration successful.
However, it is worthy to note that foreign sovereign immunity from jurisdiction is a distinct – though related – question from remedial immunity. While it is clear that a state’s submission to arbitration is evidence of an implicit or explicit waiver of sovereign immunity at the jurisdictional level, the same is not to be presumed for the execution of the judgment or award against state-owned assets, unless they fall within the narrow exception of being used or intended for use for commercial purposes. As a result, the practical effect of the arbitration may oftentimes be diminished, with commercial parties being unable to receive effective relief because courts are unlikely to order execution against certain categories of state-owned property.
The position in Singapore
In Singapore, a similar position appears to have been adopted by the courts. In Maldives Airport Co Ltd and another v GMR Malé International Airport Pte Ltd, the Court of Appeal held that the Singapore courts have jurisdiction to grant an injunction against a foreign sovereign state under s. 12A(4) of the International Arbitration Act (Cap 143A, 2002 Rev Ed). Although the case was ultimately decided on a balance of convenience, Sundaresh Menon CJ clarified that the effect of the arbitration clause in the underlying agreement between the two parties is that any sovereign immunity that the Maldives government might have had is taken to have been waived. Furthermore, s. 11 of the IAA mirrors s. 9 of the SIA in that once a state has submitted itself to arbitration, it is effectively debarred from claiming immunity for any proceedings that relate to the arbitration.
What commercial parties should look out for
In this modern capitalist era where commercial parties frequently engage in transactions with state-owned enterprises, government related entities and sovereign wealth funds, it would only be prudent for such parties to turn their minds to the issue of sovereign immunity. For instance, they should err on the side of caution by identifying ways that the doctrine might hinder the protection and relief they would otherwise be entitled to, and incorporating an express waiver clause that includes immunity from both jurisdiction and enforcement in an unequivocal a manner as possible.
This article may be cited as follows: Clara Khoo, “Case Update: English Court Considers Application of State Immunity in Award Enforcement (LR Avionics Technologies v Nigeria  EWHC 1761)” International Arbitration Asia (10 October 2016) <www.internationlarbitrationasia.com/English_Court_Considers_Application_of_State_Immunity_in_Award_Enforcement>.