In a decision that gives important direction on the interaction of arbitration clauses and state immunity, the English High Court has denied a requested anti-suit injunction preventing a state (Venezuela) from continuing with parallel proceedings in a non-UK jurisdiction, even though those proceedings were in breach of an otherwise valid arbitration clause, on the grounds of immunity under the UK State Immunity Act 1978. In UK P&I Club NV & UK Mutual Steam Ship Assurance Assn v Bolivarian Republic of Venezuela, [2022] EWHC 1655 (Comm), the High Court considered the two types of state immunity available under the SIA 1978 and clarified the extent to which an English court will treat a state as a private party.
Facts
The Venezuelan navy lost a patrol vessel in early 2020 as a result of a collision with a cruise liner, RCGS Resolute, which was insured by the claimants. Venezuela brought civil claims for the loss of its vessel in Dutch Curaçao and Venezuela in 2020 against the owners and managers of RCGS Resolute, and the insurers. In return, the insurers sought an anti-suit injunction in the English courts.
The insurers argued that the civil claims brought by Venezuela were claims to enforce the English-law insurance contract between the insurers and the owners of RCGS Resolute, and that those claims were therefore subject to the arbitration clause in that contract. The contract stipulated that any dispute should be referred first to the insurers and then to arbitration if necessary, with no other legal proceedings until the arbitration had concluded. The insurers claimed that the civil proceedings should therefore be stayed.
Venezuela accepted that to the extent the claim was contractual, it would be subject to arbitration under the insurance contract’s arbitration clause. However, it argued that as a matter of Venezuelan law the direct cause of action was independent of the insurance contract and therefore could be litigated. Venezuela also argued that it was immune from the requested anti-suit injunction under ss.1 and 13 of the SIA 1978.
Decision
The court first held that the claims were contractual in nature because they were direct actions against the insurer, and that they were therefore subject to the arbitration clause. The claimants had grounds for an anti-suit injunction unless immunity could be established.
The court then considered Venezuela’s two immunity claims, following accepted precedent by finding that there were two means of claiming immunity under the SIA 1978: adjudicative immunity and enforcement immunity.
Adjudicative immunity under s.1 SIA 1978
All states are given adjudicative immunity under s.1 SIA 1978, subject to statutory exceptions. The court considered that there were two applicable exceptions under the SIA 1978:
- s.3(1)(a) provides that a state is not immune from proceedings relation to a commercial transaction entered into by that state; and
- s.9(1) provides that when a state contracts to submit disputes to arbitration, it is not immune to proceedings related to that arbitration.
Venezuela argued that the s.3(1)(a) exception did not apply because it had brought the civil claims in its sovereign capacity, as they related to military or law enforcement activity. The court did not agree, finding that the claims were ordinary civil claims in private law. The claims were therefore an activity undertaken by Venezuela jure gestionis (i.e., of a kind that might be undertaken by a private individual, particularly commercial activity) rather than jure imperii (in the exercise of sovereign authority). The s.3(1)(a) exception therefore applied.
As the court had already found that Venezuela’s claims were contractual in nature, by claiming according to the terms in the insurance contract the court held that Venezuela had adopted those terms, including the arbitration clause. The s.9(1) exception also applied.
Enforcement immunity under s.13 SIA 1978
All states are given enforcement immunity under s.13 SIA 1978, subject to statutory exceptions.
The claimants argued that s.13 was incompatible with Article 6(1) of the European Convention on Human Rights, or the right to a fair and public hearing, including access to court, as it barred anti-suit injunctions for both sovereign and non-sovereign acts. Alternatively, the claimants argued that s.13 must be “read down” under s.3 of the Human Rights Act 1998 (the HRA 1998) to allow anti-suit injunctions for non-sovereign acts.
The court agreed that Article 6(1) was engaged by s.13 but found that it was justified as it pursued a legitimate objective by proportionate means. The court considered that there was no settled position in international law on the topic, which was a sensitive one raising issues of comity, and that the UK’s position was not an outlier. The court noted that during the drafting and adoption of the legislation, attempts to extend the exception were resisted and it was specifically noted by the Lord Chancellor at the time that personal remedies like injunctions for specific performance were unsuitable against a state. The court also pointed to the availability of alternative remedies – the claimants could claim for breach of the arbitration agreement and declaratory relief.
After brief consideration, the court also dismissed the claimant’s alternative argument to “read down” s.13 under the HRA 1998. The test for reading down a provision is that it must not be incompatible with the underlying thrust of the legislation. The court found that the claimants were effectively requesting a carve-out for anti-suit injunctions, which was not within the court’s power.
Held:
The court found overall that although Venezuela did not enjoy adjudicative immunity, enforcement immunity applied under s.13(2) SIA 1978. The court therefore denied the claimants’ application for a permanent anti-suit injunction.
Conclusion
Although the judgment means that a state can feel safe in the knowledge that they will not face an anti-suit injunction from an English court absent its advance consent, the decision on adjudicative immunity should stand as a warning for any state who might claim that immunity in relation to commercial transactions. For commercial parties, the court’s focus on the nature of the claim rather than the surrounding circumstances will be reassuring. And all parties should remember that a third party may become subject to the terms of an arbitration clause by adopting the terms of the contract containing that clause, despite not being a party to the contract itself.
To read the judgment in full, please click here.
