High Court rules that the principle of non-justiciability, unlike state immunity, cannot be waived

In a recent judgment of 21 June 2016 on a number of summary judgment applications in the case of High Commissioner for Pakistan in the United Kingdom ("Pakistan") v National Westminster Bank (the "Bank"), the English High Court considered the doctrines of act of state and non-justiciability, concluding that these doctrines, unlike state immunity, cannot be waived. The High Court dismissed the summary judgment application brought by India against Pakistan's arguments that the act of state and/or non-justiciability doctrines applied, and clarified their practical application.  

Background

The case concerned competing claims by India, Pakistan, and descendants of an Indian Prince in relation to a sum of money deposited into a bank account in 1948 (which now sits with the Bank), following the end of British rule in India.  In 2015, the English High Court issued a decision on a number of applications arising in the case, in which it considered the concept of sovereign immunity under section 1 of the English State Immunity Act 1978, and more specifically, whether Pakistan had waived sovereign immunity by way of its conduct in the proceedings.  The concept of sovereign immunity was considered in the context of Pakistan having commenced proceedings against the Bank in 2013, following which Pakistan sought to serve a Notice of Discontinuance in respect of those proceedings.  The High Court concluded that once sovereign immunity is waived by a state in instituting proceedings, such immunity is waived for the duration of those proceedings, including in respect of any new claims that the state could have predicted.  The High Court set aside Pakistan's Notice of Discontinuance.  For further information on that decision and the background to the case, see our previous blog post.

The High Court's assessment of the act of state doctrine

The act of state doctrine is founded on the principles of sovereign equality of states and international comity.  Pursuant to the doctrine, a national court will not adjudicate upon the acts of a foreign state or their agents where the validity of those acts is directly challenged

In the High Court's 21 June 2016 judgment, it considered various applications for summary disposal of significant parts of the rival claims to beneficial ownership of the account funds.  Amongst the applications considered by the High Court was an application on the part of India for summary judgment or strike-out relief in relation to a plea of non-justiciability and/or act of state advanced by Pakistan in its particulars of claim.

Pakistan had asserted that the court was obliged to decline jurisdiction over the dispute on the grounds of non-justiciability and application of the doctrine of act of state.  This argument was based upon Pakistan's contention that the deposit of the funds in the account in 1948 and related financial dealings constituted transactions of a governmental nature engaged in by two sovereign states (namely Hyderabad and Pakistan), giving rise to the application of the act of state doctrine.   

In considering the act of state doctrine, and the related principle of non-justiciability, the High Court undertook a review of previous relevant case law and related academic commentary.  The Court did not seek to draw any particular distinction between the two doctrines, which have often been used interchangeably. The Court concluded that for the present case, the important point emerging from such review was the potential breadth of the doctrine, and the absolute nature of the bar to jurisdiction that it imposes where the court deems that it properly applies.  In particular, the High Court referred to two important Court of Appeal cases that considered the act of state doctrine, namely Yukos Capital Sarl v OJSC Rosneft Oil Co (No. 2) [2012] EWCA Civ 855, [2014] QB 458, and Belhaj v Straw [2014] EWCA Civ 1394, [2015] 2 WLR 1105 (for more information on the Court of Appeal's assessment of the doctrine, see our previous blog post). 

In its decision, the High Court dismissed India's application to strike out or otherwise summarily dispose of Pakistan's reliance upon non-justiciability / act of state, and set out a number of observations with regard to the nature and effect of the doctrines.

First, the High Court concluded that the fact that the transactions in question led to the opening of an account in London, and therefore outside the territories of the states concerned (Pakistan and Hyderabad), did not rule out the applicability of the act of state doctrine.  In the High Court's view, territoriality should not determine the applicability of the doctrine; the true question for consideration is whether the transactions were effected at governmental level: "What matters is the nature and quality of the transactions in question, not where they took place" (paragraph 86).    

Second, the High Court rejected India's argument that having commenced the present proceedings and subsequently failed to succeed in effecting its Notice of Discontinuance (as explained above), it would be an abuse of process if Pakistan were now to prevent the court from adjudicating on the proceedings it had commenced, by relying on the alternative ground of the act of state doctrine.  It concluded that:

1. Whereas sovereign immunity is capable of being waived, the principle of act of state or non-justiciability is not;
2. Sovereign immunity and the act of state doctrine are fundamentally different concepts and do not have the same effect: sovereign immunity operates as a procedural bar, which may be waived by the party entitled to invoke it, whereas the doctrine of act of state impacts the substantive adjudicative competence of the court; and
3. Consequently, it was not an abuse of process for Pakistan to advance the argument of non-justiciability at this stage in the proceedings, as a claim of non-justiciability could not be considered in the same way as a claim of sovereign immunity.

Third, the High Court dismissed India's argument that the act of state doctrine could not apply on the basis that Hyderabad had ceased to exist as a state since the time of the transactions in question.  The High Court confirmed that the act of state doctrine must be applied to the facts as they were at the time of the disputed transactions, at which time Hyderabad was a state.

Comment

The High Court's observations in this decision provide interesting commentary on the act of state doctrine and its scope of application, as interpreted by the English courts.  In particular, the conclusion that the question of territoriality did not represent a bar to the applicability of the doctrine contrasts with the approach in some previous cases, which limited the doctrine to acts effected within the territory of the state or states in question.  The High Court's approach also serves to reinforce and clarify the distinction between the act of state doctrine and the principle of sovereign immunity.

However, the decision also appears to have been influenced by the fact that these proceedings were at an early, summary judgment, stage.  The High Court noted that the decision of the Court of Appeal in Belhaj v Straw is under appeal to the Supreme Court, which is expected to provide a comprehensive assessment of the act of state doctrine.  The High Court expressly recognised that this area of law is still in the course of development at the highest level of the English court system. This accordingly provided a "powerful reason" in favour of allowing Pakistan's reliance upon the doctrine to go to trial, when it could be fully explored in the light of the anticipated Supreme Court judgment.  

For further information, please contact Andrew Cannon, Partner, Elizabeth Reeves, Associate, or your usual Herbert Smith Freehills contact.