SUPREME COURT DECIDES PROCESS FOR SERVICE OF DOCUMENTS INSTITUTING PROCEEDINGS ON A STATE IN GENERAL DYNAMICS V LIBYA

In General Dynamics United Kingdom Ltd v State of Libya [2021] UKSC 22 the Supreme Court (the "Court"), by a majority of 3 to 2, held that s12(1) State Immunity Act 1978 (the "SIA") contains a "mandatory and exclusive" procedure for the service of documents instituting court proceedings on a State through the Foreign, Commonwealth & Development Office ("FCDO"). This cannot be dispensed with or altered even in exceptional circumstances, and it applies to proceedings to enforce an arbitral award under the New York Convention pursuant to s101 Arbitration Act 1996.  In the particular context of enforcement of arbitration awards against a State, the document that was required to be served for the purposes of s12(1) would be the "arbitration claim form where the court requires it to be served" or "otherwise it will be the order granting permission to enforce the award". The Court was unanimous in deciding that the FCDO has no discretion on whether to effect service, and must use its "best endeavours to effect service in accordance with section 12".

The judgment overruled the unanimous decision of the Court of Appeal and marks a departure from what had been regarded as a more pragmatic approach in a series of cases in which alternative service had been permitted, or service had been dispensed with. The 3-2 division of the Court demonstrates the tension between respect for the sovereignty of States and principles of international comity on the one hand, and enabling commercial trade between States and private parties on the other, including allowing private parties effectively to enforce their contractual bargain.

What are the practical implications of this case?

The key practical message from this case is that when attempting to enforce an arbitral award against a State in the UK, the award creditor must serve the arbitration claim form in accordance with s12(1) of the SIA if directed to effect service of the claim form by the court. Where no such direction is made, then the order granting enforcement will be a "document required to be served for instituting proceedings" and must be served via the FCDO in accordance with s12(1) of the SIA. The procedure set out in s12(1) is mandatory and exclusive and cannot be dispensed with or altered, even in exceptional circumstances.

Award creditors should therefore be aware that, unless another method of service has been agreed by the State under s12(6) (as discussed below), where the FCDO is unable to effect service notwithstanding its best endeavours obligation to do so, then service will not be possible. This may be the case, for example, with regard to States which deliberately refuse to accept service, where there is armed conflict, and/or with whom the UK does not maintain diplomatic relations. In these circumstances, the award creditor may need to seek enforcement of the award in another jurisdiction in which the State has assets.

A commercial party entering into a contract with a State may avoid this potential problem by agreeing an alternative method of service for the purposes of s12(6) of the SIA. The optimum position would be for the State to appoint a process agent, although practical experience suggests that many States are reluctant to do so. A State may, however, be prepared to agree to service on its embassy in the UK. The possibility of service under s12(1) should nonetheless be preserved in the contract, giving the award creditor as many options as possible.

What was the background?

S12(1) of the SIA provides:

"Any writ or other document required to be served for instituting proceedings against a State shall be served by being transmitted through [the Foreign, Commonwealth and Development 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."

A dispute arose between General Dynamics Ltd ("General Dynamics") and the State of Libya ("Libya") over a contract for the supply of communications systems. The dispute was resolved by way of ICC arbitration seated in Geneva, with an award of approximately £16 million plus interest and costs given in favour of General Dynamics (the "Award"). General Dynamics sought to enforce the Award in England and Wales under s101 Arbitration Act 1996 (the "1996 Act"). The High Court gave permission to enforce the Award (the "Enforcement Order"). The High Court also granted permission under the Civil Procedure Rules (the "CPR") to dispense with service of the arbitration claim form and the Enforcement Order citing exceptional circumstances in Libya. However, the Enforcement Order provided that notice was to be given to Libya by couriering the documents to three addresses, two in Tripoli and one in Paris.

Libya applied to the High Court to set aside the parts of the Enforcement Order that dispensed with service, maintaining that service of the claim form and the Enforcement Order must be effected through the FCDO in accordance with s12(1) of the SIA. Libya's arguments were upheld at first instance, prompting an appeal by General Dynamics to the Court of Appeal. The Court of Appeal overturned the first instance decision, finding that in the circumstances neither the arbitration claim form nor the Enforcement Order needed to be served in accordance with s12(1). Libya appealed to the Supreme Court.

What did the Court decide?

The Court was tasked with deciding the following issues:

• In proceedings to enforce an arbitral award against a foreign state pursuant to the 1996 Act, does s12(1) of the SIA require service of a document on the foreign state by transmission through the FCDO to the Ministry of Foreign Affairs of the defendant state? In particular, was the arbitration claim form or the Enforcement Order a "writ or other document required to be served for instituting proceedings" within the meaning of s12(1) of the SIA? ("Issue 1");
• In exceptional circumstances was the Court able, pursuant to CPR rules 6.16 and/or 6.28, to dispense with service of the enforcement order, notwithstanding that s12(1) applied? ("Issue 2");
• Must s12(1) be interpreted, whether pursuant to s3 of the Human Rights Act 1998 or the common law principle of legality, as allowing alternative directions as to service in exceptional circumstances, where a claimant's right of access to the court under Art. 6 of the European Convention on Human Rights (the "ECHR") would otherwise be infringed? ("Issue 3"). Issue 3 was not addressed in the lower courts.

Libya's appeal succeeded. The lead judgment was delivered by Lord Lloyd-Jones (with whom Lord Burrows agreed), and a concurring judgment was given by Lady Arden (together forming a majority). A dissenting judgment was issued by Lord Stephens (with whom Lord Briggs agreed). In summary:

• As to Issue 1, the majority of the Court found that a document is always required to institute proceedings against a State and that this document is "the arbitration claim form in a case where the court requires the claim form to be served but if it does not so require it is the order granting permission to enforce the award".
• As to Issue 2, the majority considered that, where it applies, s12(1) created a "mandatory and exclusive" regime for serving documents on a State and it was therefore not possible to dispense with service of the order granting permission to enforce the award under provisions of the CPR that provide for dispensing with service.
• Finally, as to Issue 3, the majority found that the "procedural privilege" conferred by s12(1) of service through diplomatic channels "pursues a legitimate objective by proportionate means and does not impair the essence of the right… of access to the court" and therefore did not need to be interpreted as allowing for alternative directions as to service.

Further detail of the Court's consideration of each of the three issues, and of the differing views of the majority and the minority, is given below.

Issue 1

It was argued on behalf of General Dynamics that s12(1) did not apply because the document which initiates the proceedings (the application for permission to enforce the arbitration award) is not required to be served and the document which is required to be served (the order giving permission to enforce the award) does not initiate the proceedings.

The majority considered that Issue 1 should not be approached from the perspective of English procedural law, and whether such a document was "required to be served" under s12(1) was not to be determined by the procedural rules in the CPR. The majority observed that while as a matter of English procedural law the issue of the arbitration claim form institutes proceedings, "from [the defendant state's] point of view the proceedings are only instituted against it once the order [for permission to enforce] is served".

The majority considered that focusing on whether a particular document was required to be served under the CPR was "inappropriate" for determining whether a document needed to be served for the purposes of s12(1). The majority noted that, on General Dynamics' proposed reading the content of the obligation to effect service in accordance with s12(1) is delegated to the Rules Committee and will vary over time as procedural rules are amended. There was nothing in the language of s12(1) which "indicates an intention to confer such a power on the Rules Committee". Instead, the majority favoured a "broader" reading of s12(1) that would be "wide enough to apply to all documents by which notice of proceedings in this jurisdiction is given to a defendant state, subject only to section 12(6)".

The majority considered a broader reading was more appropriate as service "itself involves the exercise of sovereignty and gives rise to particular sensibilities", and s12 was "intended to create a procedure whereby service may be effected on a state… in a manner which accords with the requirements of international law and comity". Among other considerations, the majority was concerned that any narrower interpretation of s12(1) would have the effect that a State would be given no notice in respect of some proceedings. In the particular case of enforcement of an arbitral award, this would mean that the State may be unaware of the enforcement proceedings and would therefore not have the opportunity to assert immunity from enforcement.

The majority considered that in the case of proceedings to enforce an arbitration award under s101 of the 1996 Act, a document is required for instituting proceedings against a State. That document is the arbitration claim form in a case where the court requires the claim form to be served, but if it does not so require it is the order granting permission to enforce the award. In either case the document is a “document required to be served for instituting proceedings against a State” and must be served in accordance with section 12(1) of the SIA.

The majority considered the 1972 European Convention on State Immunity ("ECSI") as an aid to interpretation, given that one reason for the enactment of the SIA was to permit the UK to become a party to the ECSI. However, it concluded that the provisions of the ECSI cast little light on the correct reading of s12 of the SIA because, under the ECSI, enforcement against the assets of a defendant State is generally prohibited, and the SIA deliberately diverges from the ECSI in this regard, in particular in relation to the enforcement of arbitration awards against a State.

Finally, the Court also considered and rejected Libya's contention, based on Article 22 of the United Nations Convention on Jurisdictional Immunities of States and Their Property ("UNCSI"), that service on a State through diplomatic channels represented customary international law. It found that while particular provisions of the Convention may represent customary international law, this was not the case for Article 22. Nevertheless, the majority found that considerations of international law and comity strongly supported a reading of section 12(1) which makes its procedure available and mandatory, subject to section 12(6), in all cases where documents instituting proceedings are to be served on a foreign State.

Issue 2

The CPR include provisions permitting the court to dispense with service. CPR rule 6.16 provides that the court may dispense with service of a claim form in exceptional circumstances. CPR rule 6.28 provides that the court may dispense with the service of “any document which is to be served in the proceedings”.

In finding that s12(1) was intended to be the mandatory and exclusive procedure where it applies, (subject to the exception contained in s12(6) which provides for service in any other manner as agreed by the relevant State), the majority concluded that it was not possible to use the powers in the CPR to dispense with service of the Enforcement Order.

The majority observed that CPR rule 6.1(a) made it clear that the provisions for dispensing with service did not apply where "any other enactment or practice direction makes different provision" and therefore "[did] not purport to oust the requirements of section 12(1)". The Court considered that "it cannot be correct that the CPR can give the court the discretion to dispense with a statutory requirement". In her concurring judgment, Lady Arden emphasised that in her view, the inclusion of subsection 12(6) was a factor that "reinforces the conclusion that section 12 is a mandatory and exclusive set of provisions".

Issue 3

The Court addressed Issue 3 in response to General Dynamics' submission that the effect of the construction advanced by Libya was that a claimant may be prevented by the service requirements set out in section 12(1) SIA from pursuing its claim and therefore from accessing the adjudicative and enforcement jurisdiction of the court. This, it submitted, constituted an infringement of Article 6 of the ECHR and of a claimant’s constitutional right of access to the court. In those circumstances, it submitted that the court should read and give effect to section 12(1) in a way compatible with Convention rights, pursuant to section 3(1) of the Human Rights Act 1998, or should decline to read general words as overriding fundamental rights in accordance with the principle of legality at common law.

The majority placed weight on service through diplomatic channels being a "well-established procedure for service of States" and although it is not "universal", service through diplomatic channels is "required by a large number of states" and is the required method of service under the UNCSI, and under the ECSI.  Disposing with the suggestion that restricting service to diplomatic channels would violate Article 6 of the ECHR, the majority further reasoned that, since the ECSI was a Council of Europe Treaty, "compliance with that provision can hardly be considered a violation of Article 6 ECHR". For the same reasons, the common law principle of legality had no application.

The majority also highlighted the advantages of s12(1). It provided benefits for claimants and defendants "in circumstances where difficulties are likely to be encountered when effecting service" and "provides a means of service which is in conformity with the requirements of both international law and comity". The majority considered that exceptional circumstances did not "diminish the value of the rule". In her concurring judgment, Lady Arden considered that it would "go against the grain" of the provision to interpret s12(1) as permitting substitute service or service on the Foreign Minister through the Libyan embassy in London.

Minority judgment

In a detailed judgment explaining their difference in reasoning from the majority, the minority notably took a different view on the nature of service, comity, and the relevance of the procedural rules.

The minority considered that "the purpose of section 12(1) is to facilitate service, but it is entirely neutral in that a failure to serve through diplomatic channels cannot confer state immunity. Rather, such immunity as there may be is not taken away by service on the State. However, until there has been service, issues as to whether the State enjoys immunity or limited immunity cannot even be adjudicated upon". The minority thus considered it to be "a complete subversion" of the purpose of s12(1) to treat its requirement for diplomatic service as enabling a State which may not be immune "to obtain immunity de facto by being obstructive about service, or by putting diplomatic pressure on the United Kingdom’s FCDO not to serve or to delay the service of the proceedings", and that was "the central aspect of the true purposive construction of section 12(1)".

In respect of the three issues on appeal, the minority concluded as follows:

Issue 1: That in legislating, Parliament must have intended the applicability of s12(1) to depend on what was required by the court rules at the relevant time, and contemplated that those rules would be subject to change. Section 12 must be given a purposive and "always speaking" interpretation. As a consequence, "whether proceedings have been instituted (and by what document) and whether service is required are issues which are inherently procedural and can only be determined by reference to the procedural rules" at the relevant time.

To apply these principles it was necessary to consider as at 1978 the state of: (a) customary international law and the principles of international comity as to the restrictive doctrine of state immunity; (b) customary international law and the principles of international comity as to service of proceedings on foreign states; and (c) domestic law including domestic procedural law.

As to (a), the minority considered that "requiring a foreign state to answer a claim does not involve any challenge to sovereignty nor does it present a threat to the dignity of the state". For States to enjoy the freedom of the marketplace, those with whom they wished to trade should not be deterred by the fact that they are States. Further, "international comity requires that foreign states should abide by the rules of the marketplace and an interpretation [of s12(1)] which facilitates both foreign states and those with whom they wish to do business should be preferred on the basis that it conforms with comity". It was also an aspect of international comity relating to the restrictive doctrine of state immunity that States honour their commercial legal obligations: "Mutual respect and dignity between equals demand nothing less".

As to (b), the minority considered case law from many different jurisdictions and found there to be no procedural rule of customary international law: (i) requiring diplomatic service as the only method of service of proceedings on foreign states; (ii) prohibiting without notice proceedings to register a judgment or award; or (iii) prohibiting dispensing with service of proceedings on a foreign state if service is impossible or unduly difficult. It also considered Article 16 of the ECSI and the UNCSI. Article 16 of the ECSI was intended to assist the claimant and the State to provide a sensible means of service via the diplomatic service where such means are not impossible or unduly difficult, and not to bolster immunity. The UNCSI did not codify a rule of customary international law nor has it led to a general accepted practice as law, given that there have been so few accessions.

As to (c) and domestic law, Parliament was aware that by introducing the criterion into s12(1) that the document was “required to be served”, this would (i) incorporate domestic procedural law; (ii) which was subject to change; and (iii) the criterion would exclude without notice applications.

The minority then considered the exceptions in the SIA. It concluded that "the issue of state immunity in this case will arise in relation to the execution process turning on whether the process relates to “property which is for the time being in use or intended for use for commercial purposes”" under s.13(4), and that "[n]o question of state immunity arises in relation to the application under section 101 of the 1996 Act". As to the ECSI, the minority also drew a distinction between s12 and Article 16, concluding that Parliament "deliberately departed" from the wording of Article 16 by adding the criterion that the document is one which is “required to be served”, meaning required to be served in accordance with the relevant domestic procedural rules for the time being in force in the particular part of the United Kingdom in question or in the particular territory to which the SIA 1978 extends. In this regard, the minority found that the SIA was drafted to accommodate "evolving and different procedural rules in those parts of the United Kingdom to which it extended as enacted and in the various jurisdictions to which it was anticipated it would extend", with the "essential test" being as to whether a document is “required to be served” under the applicable domestic procedural law.

As to the specific interpretation of s12(1), the minority found that, although s12(1) states that the proceedings “shall” be served by being transmitted through the FCDO, it says nothing about what would happen if they are not and therefore the intended consequences should be considered. The intention was to facilitate service, and it was not to provide another ground of immunity if service by those means was not effected. Further, the review of the authorities by the minority also did not reveal any principled reason for concluding that the first issue should be decided in favour of Libya.

The minority therefore concluded that the appeal should be dismissed and the decision of the Court of Appeal upheld.

Issues 2 and 3: In light of this conclusion it was not strictly necessary for the minority to reach a view on Issues 2 and 3. However, as these had been fully argued, it expressed its view obiter. The minority indicated that it would have found in favour of General Dynamics on both points. On Issue 2, allowing for the court to (i) dispense with service or (ii) make alternative directions as to service, in exceptional circumstances, would appropriately give effect to the legislation which requires the operation of s12 by reference to domestic procedural law including the procedural changes which have occurred since the SIA was initially framed. On Issue 3, in particular with regard to Article 6 of the ECHR, the minority regarded the question as "an anterior one", in the sense that there could be no adjudication as to immunity unless there was access to a court. Accordingly, the minority would have interpreted s12(1) as allowing in exceptional circumstances directions as to service not involving transmission by the FCDO to the Ministry of Foreign Affairs of the State, where a claimant’s right of access to the court would otherwise be infringed.

The judgment is comprehensively discussed in this article first published by LexisNexis.

For more information, please contact Andrew Cannon, Partner, Hannah Ambrose, Senior Associate, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

The authors would like to thank Luke Hard for his assistance in preparing this blog post.