STATE IMMUNITY PREVAILS: UK COURT OF APPEAL DENIES ANTI-SUIT INJUNCTION AGAINST VENEZUELA

In a significant ruling in the case of UK P&I Club & Anor v Republica Bolivariana de Venezuela [2023] EWCA Civ 1497, the UK Court of Appeal has upheld the principle of state immunity, denying an anti-suit injunction against Venezuela in a commercial dispute. This decision emphasises the UK's adherence to international comity and the delicate balance between upholding domestic policy (in this case, allowing states immunity against the grant of injunctions) and the rights enshrined in Article 6 of the European Convention on Human Rights (Article 6 and the ECHR) regarding access to justice. The judgment has significant implications for the scope of state immunity in commercial transactions and the strategy to be adopted by parties faced with states who breach arbitration agreements.

Background

On 30 March 2020, the Venezuelan navy patrol vessel Naiguatá sank after colliding with the cruise liner RCGS Resolute. The events leading to the collision and its location (territorial or international waters) are disputed.

Venezuela initiated claims in Curaçao and Venezuela (the Litigations) against the Resolute, its owners, managers, and insurers for damages totalling approximately €425 million.

The insurers (UK P&I Club NV and its parent company) (the Clubs), argued that Venezuela was bound by the London-seated arbitration agreement and English law clauses in the insurance contract. On 11 March 2021, on a without notice application, the Clubs were granted an interim anti-suit injunction against Venezuela by the High Court to stop the Litigations. The Clubs then commenced an arbitration against Venezuela, in response to which Venezuela raised jurisdictional objections. In November 2021, Venezuela filed an acknowledgment of service in the English proceedings, indicating that it contested jurisdiction, that it had a direct claim against the Clubs under Venezuelan law, and that the anti-suit injunction should be lifted. The parties agreed a stay of the arbitration while the question of the anti-suit injunction was resolved.

The High Court decision

On 5 August 2022 the High Court: (1) found that Venezuela's claims brought in the Litigations were subject to London-seated arbitration; (2) set aside the interim anti-suit injunction and (3) refused to grant a permanent anti-suit injunction restraining the Litigations. The High Court's reasoning was as follows:

• Section 13(2)(a) of the State Immunity Act 1978 (the SIA) provides that "relief shall not be given against a State by way of injunction".
• While Article 6(1) of the ECHR provides a right to a fair and public hearing, this is not an absolute right. A court may limit its effect.
• The limits imposed by s13(2)(a) lay “within the range of possible rules consistent with current international standards” and an infringement of Article 6(1) was therefore justified.
• The restrictive doctrine of state immunity as applied in the case of Benkharbouche v Secretary of State for Foreign and Commonwealth Affairs [2017[ UKSC 62 (Benkharbouche) related to bars on the adjudicative jurisdiction of the court but was not "determinative in the separate area of enforcement immunity" under section 13(2).
• S13(2)(a) pursued legitimate domestic objectives by proportionate means and did not impair the essence of the Article 6 right. Personal remedies like injunctions and specific performance were not appropriate against states, because processes for punishing contempt cannot be used. There were also important considerations of comity, procedural propriety and international law.

The High Court also held that if it was wrong in concluding that s13(2)(a) was not impacted by Article 6, it could not be "read down" under s3 of the Human Rights Act 1998 to remove the alleged incompatibility.

The Clubs were granted permission to appeal. They challenged the judgment on four grounds, addressed below.

The Court of Appeal's Decision

The Court of Appeal upheld the High Court’s decision to refuse to grant a permanent anti-suit injunction restraining Venezuela from pursuing the Litigations.

1. Was the judge wrong to conclude that an infringement of Article 6 could be justified if section 13(2)(a) fell “within the range of possible rules consistent with international practices”?

The Court of Appeal considered whether an infringement of Article 6 of the ECHR could be justified on the basis that section 13(2)(a) of the SIA fell “within the range of possible rules consistent with international practices”. The Clubs relied on the Supreme Court case of Benkharbouche, contending that where the legitimate purpose relied on to justify the infringement of Article 6 is compliance with customary international law, then anything that goes beyond what is required by international law is necessarily disproportionate. However, Benkharbouche concerned an established rule of customary international law (that states are entitled to immunity only in respect of acts done in the exercise of sovereign authority). Here, however, the Court of Appeal held that there was no such established rule of customary international law. On the assumption that anti-suit injunctions were part of the enforcement jurisdiction of the English courts, and not part of the adjudicative jurisdiction (see issue 2), it would be surprising if legislation that prevented injunctions being granted against sovereign states were ineffective where such legislation was consistent with one of a range of international practices. Accordingly, the judge was right to hold that an interference with Article 6 could be justified.

2. Was the judge wrong to hold that anti-suit injunctions were part of the court's enforcement jurisdiction?

It was common ground between the parties that if anti-suit injunctions were part of the enforcement jurisdiction of the court, then they were not covered by the restrictive doctrine, which allows exceptions from immunity. In support of an argument that anti-suit injunctions concern the adjudicative jurisdiction of the court, the Clubs relied on several authorities showing that enforcement immunity in international law related only to the state's property and argued that an anti-suit injunction is an order "against the person" and does not concern its property. They also compared final injunctions to determinations of damages.

The Court of Appeal determined that the judge was right to hold that there was no rule of customary international law that classifies injunctions or anti-suit injunctions part of the court's adjudicative jurisdiction and no rule to the effect that states are not immune to injunctions. It commented that unlike an order for damages (which are not coercive until there is an enforcement process), injunctions are immediately coercive, and inextricably connected with enforcement and with the threat of criminal and financial sanctions.

3. Was infringement of Article 6 of the ECHR justifiable as a proportionate restriction by legitimate domestic policy?

The Clubs argued that there is no sound domestic policy reason for prohibiting anti-suit injunctions against states in relation to their commercial acts and that states should be subject to orders requiring adherence to contract terms just like any other private litigant, as “[r]eliance on comity here is superficial, outmoded and unprincipled”. The Court of Appeal held that the High Court had balanced the competing factors between the means employed and the aim to assess the proportionality of the restriction of Article 6 rights. Once it was understood that an injunction is a coercive remedy and part of the court's enforcement jurisdiction, the policy of making states immune to injunctions was justified by, amongst others: (i) international sensitivity and comity (ii) the policy of not wanting to threaten states with coercive action and the potential for criminal and financial sanctions and (iii) the ability to declare that those seeking an anti-suit injunction were contractually entitled to have their dispute determined elsewhere (in this case, by arbitration). In addition, granting an injunction as opposed to declaring the parties’ legal rights or even awarding damages for breach of contract "would not add materially to the Clubs’ ability to access the courts or justice". As such, the interference with Article 6 rights was justifiable and the UK's legitimate domestic policy did not impair the essence of the Clubs' Article 6 rights.

4. Could Section 13(2)(a) of the SIA be "read down" to remove the incompatibility?

In light of the above conclusions, this point did not arise. However, the Court of Appeal concluded obiter that section 13(2)(a) should not be read down in the way the Clubs had proposed, even if it was incompatible with Article 6.

Comment

This judgment has significant ramifications for parties who have commercial claims against states, clarifying that s13(2)(a) of the SIA will be enforced by the English courts, such that anti-suit injunctions (and injunctions generally) are not available against states unless one of the exceptions in s13(3) or s13(4) applies. While the Court of Appeal was clear that it did not condone Venezuela's violation of its contractual obligations to refer disputes to arbitration, it was not prepared to grant an injunction because of the UK's domestic policy.

As a result of this judgment, the Clubs may need to rely on declaratory relief and compensation for breach of the arbitration agreement in the arbitration, including to try to resist enforcement of any judgments obtained by Venezuela in the Litigations. This was recognised by the High Court.

This judgment will also have significant implications for the ongoing proceedings in London Steam-Ship Owners' Mutual Insurance Association Ltd v Spain [2023] EWHC 2473 (the Prestige), in which the Commercial Court deferred its final decision on whether an arbitral tribunal can grant an injunction against a state until this Court of Appeal judgment was handed down – see here.

For further information, please contact Hannah Ambrose, Partner, Vanessa Naish, Professional Support Consultant, Liz Kantor, Professional Support Lawyer or your usual Herbert Smith Freehills contact.