ENGLISH COMMERCIAL COURT DETERMINES THAT A STATE-OWNED AIRLINE IS NOT ENTITLED TO BE SERVED IN ACCORDANCE WITH THE STATE IMMUNITY ACT

In AELF MSN 242, LLC (a Puerto Rico limited liability company) v De Surinaamse Luchtvaart Maatschappij N.V. D.B.A. Surinam Airways [2022] EWHC 544 (Comm), the English Commercial Court (the "Court") considered whether the national flag carrier of Suriname ("SLM") was entitled to be served with proceedings in accordance with s12(1) of the State Immunity Act 1978 (the "SIA"). The SIA confers certain general immunities and privileges on foreign States and prescribes a mandatory process for the service of documents instituting proceedings "against a State". SLM argued that even though it was not an executive organ of the State (but instead a State-owned "separate entity", as described in s14 SIA), it should be served in accordance with the SIA. However, the Court held that separate entities are not entitled to be served with proceedings in the manner that States are required to be served under s12(1) SIA.

What are the practical implications of this case?

S12(1) SIA prescribes a mandatory process for the service of documents instituting proceedings "against a State". S12(1) 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."

The decision confirms that s12(1) SIA's plain meaning precludes its application to separate entities, which, as in this case, may include State-owned companies. This means that those seeking to institute English court proceedings against separate entities need not – and should not – rely on transmission through the Foreign Commonwealth & Development Office ("FCDO") to effect the service of claim forms. Similarly, State-owned entities which are distinct from a State's executive organs should not expect to be served in accordance with this provision.

What was the background?

The case arose after the claimant, an aircraft leasing company, brought proceedings against SLM, for sums allegedly due under a settlement agreement containing an exclusive English jurisdiction clause. As outlined on our Litigation Notes blog, the Court had already held that the defendant had waived its right to object to the Court's jurisdiction in a December 2021 judgment.

SLM sought permission to appeal, arguing that the waiver could not prevent its reliance on s12(1) SIA to resist jurisdiction, in circumstances in which it alleged the claim related to acts done in exercise of Suriname's sovereign authority. In exercise of its case management powers, the Court considered whether the defendant was in principle entitled to rely on s12(1) SIA, before it made any decision on whether to grant permission to appeal.

What did the Court decide?

The Court held that SLM, as a separate entity, was not entitled to rely on s12(1) SIA. The distinction between States and separate entities is drawn in s14(1) SIA:

• S14(1) SIA sets out that for the purposes of the general immunities and privileges conferred on foreign States by the SIA, references to a "State" include references to heads of State acting in their public capacity, State governments, and government departments.
• S14(1) SIA expressly prescribes that references to a State do not include references to a separate entity. Separate entities are only afforded jurisdictional immunity in more limited circumstances, as per s14(2) SIA.

SLM argued that s12(1) SIA could be interpreted as applying to documents instituting proceedings against a separate entity where the proceedings concerned the entity's exercise of a State's sovereign authority. SLM contended the phrase "against a State" in s12(1) SIA could be interpreted flexibly, on account of factors including the lack of an exhaustive definition of "State" in s14(1) SIA and the functional, rather than status-based, conception of a State enshrined in the SIA.

The Court rejected SLM's argument, holding that a "straightforward exercise in statutory interpretation" showed that s12(1) SIA applied "to proceedings against a State, but not against a separate entity". The language of s14(1) SIA is clear that references to a State do not include references to a separate entity. Furthermore, no provision is made in the SIA for the extension of the right to service in accordance with s12(1) SIA to separate entities. The right is a "privilege" of States, not an immunity accorded to separate entities in certain circumstances under s14(2) SIA. It was therefore irrelevant whether entry into the settlement agreement with the claimant was an exercise of sovereign authority.

In any case, the Court also remarked that SLM's entry into the settlement agreement was not an exercise of sovereign authority, regardless of whether Suriname benefitted from it, or mandated entry into it, given its commercial nature. The Court additionally found that even if its interpretation of s12(1) SIA was incorrect and s12 did apply to a separate entity, SLM's conduct would have constituted an agreement to an alternative method of service in accordance with s12(6) SIA, such that the claimant's service on SLM was nonetheless effective.

Comment

A number of cases in the last few years have demonstrated the difficulties that can arise in serving proceedings on a State in accordance with s12 SIA (see, for example, the ongoing proceedings in the case of General Dynamics v Libya, discussed in our blog post here). Accordingly, this decision represents a positive outcome for commercial parties that regularly transact with commercial entities connected with States. Notwithstanding the Court's decision, commercial parties transacting with entities outside of the jurisdiction (including, but not limited to, "separate entities" and States) should endeavour to include a service of process clause to facilitate effective and efficient service of proceedings.

For more information, please contact Andrew Cannon and Hannah Ambrose, or your usual Herbert Smith Freehills contact.

The authors would like to thank Jefferi Hamzah Sendut for his assistance in preparing this blog post.