English Court enforces written waiver of immunity from execution in arbitration agreement

In General Dynamics United Kingdom Ltd v The State of Libya [2024] EWHC 472 (Comm), the English High Court (the Court) granted a final charging order over property owned by the State of Libya (Libya). The Court found that Libya waived immunity from enforcement against its assets under s. 13(3) of the State Immunity Act 1978 (SIA) by having provided written consent in the applicable arbitration agreement. This consent to enforcement was established by the specific language in the arbitration agreement that awards would be "final, binding and wholly enforceable" (emphasis added). This decision underscores the potential benefit to commercial parties of including broad language on enforcement of an award in arbitration clauses with states, to reduce the risk of enforcement being defeated by a state immunity defence. However, best practice remains to include a clear waiver of immunity from adjudicative and enforcement jurisdiction and consent to enforcement against state assets.

Background

The factual background to this case is covered in our earlier blog posts here and here. In short, a dispute arose between General Dynamics Ltd (General Dynamics) and Libya over a Swiss law governed contract for the supply of communication and information systems (the Contract). The dispute was resolved by way of an ICC arbitration seated in Geneva, with an award of approximately £16m plus interest and costs given in favour of General Dynamics. The Court granted permission to General Dynamics to enforce this award in England. General Dynamics was subsequently granted an interim charging order (ICO) against a property owned by Libya in London. Libya applied for an order to discharge the ICO on the basis that the property was immune from execution pursuant to s. 13(2)(b) of the SIA.

Decision

The Court noted that the SIA confers general immunity on the governmental acts of states, which is subject to certain exceptions set out in that Act. The SIA distinguishes adjudicative jurisdiction and enforcement jurisdiction, and the Court highlighted that submitting to a court's jurisdiction for adjudicative purposes does not automatically amount to submission to enforcement jurisdiction. The Court also noted that while section 9 of the SIA provides that a state which agrees to submit disputes to arbitration is not immune from court proceedings in relation to arbitration, the actual execution against state-owned property was a distinct and separate matter governed by section 13 of the SIA.

Section 13(2)(b) of the SIA provides that the property of a state may not be subject to any process enforcing a judgment or arbitral award, subject to s. 13(3) which allows enforcement where a state has provided written consent to such process, which consent may be contained in a prior agreement.

Libya's waiver by written consent

General Dynamics argued that Libya provided the written consent required under s. 13(3) through language in its arbitration agreement within the Contract (Clause 32) which stated "… (b)oth parties agree that the decision of the arbitration panel shall be final, binding and wholly enforceable" (emphasis added). In contrast, Libya argued that:

1. the words "and wholly enforceable" only applied to adjudicative immunity and meant "to the extent permitted by the law of the jurisdiction in which it is being enforced";
2. clear language is required to waive enforcement immunity, which was absent in this case; and
3. the lack of an explicit reference to s. 13 of the SIA in the Contract demonstrated that Libya had not waived such immunity.

The Court rejected the need for specific wording to waive enforcement jurisdiction, observing that "no special or particular words are required". Rather, the exercise was to construe the words used by the parties in accordance with Swiss law (the governing law of the Contract). Once that exercise had been completed it was a question of English law as to whether the parties' agreement took effect in England and Wales as a waiver of immunity under s. 13(3) of the SIA.

The Court considered applicable principles of Swiss law, including the wording and overall context. The Court found no evidence of the parties' subjective intentions, concluding it must objectively interpret the Contract on the basis of the principle of good faith, which "with hesitation" (given the concept of "good faith" is not usually employed by English lawyers construing a contract), it interpreted as a reference to what a "reasonable person with the knowledge of the parties (…) would in the circumstances conclude was intended by the language". Applying this principle, the Court concluded that a reasonable person in the circumstances would consider that it was the parties' intention to be able to enforce their respective obligations in the Contract, including obligations resulting from an arbitral award made pursuant to the parties' arbitration agreement.

The Court then turned to consider the effect of Clause 32. The Court highlighted that Libya's construction of Clause 32 to refer solely to adjudicative jurisdiction would render it meaningless in England, since adjudicative jurisdiction was already addressed by s. 9 of the SIA and that in any case, that was the effect of the words "final and binding". Accordingly, the phrase "wholly enforceable" must refer to something else. It also rejected the suggestion that a specific reference to the SIA was required, finding it highly improbable that a commercial contract would refer specifically to any national law concerning a waiver of state immunity. Rather, agreements regarding waiver of immunity would be expressed in general terms in order to enable enforcement in multiple jurisdictions.

Referring to the contractual context, the Court emphasised that:

1. the distinction between adjudicative and enforcement immunity that is generally drawn as a matter of public international law is likely to have informed the parties' agreement on the terms of this commercial contract;
2. in particular, the use of the word "wholly" emphasised the parties' intention not to limit in effect the word "enforceable" including in the way argued for by Libya; and
3. the parties therefore intended for an award to be enforceable in the same way as an award could be enforced between commercial entities in a commercial agreement.

Accordingly, the effect of the sentence "the parties agree that the decision of the arbitration panel shall be final, binding and wholly enforceable" was that Libya had waived its immunity from enforcement against its assets. The Court therefore granted a final charging order over the property owned by Libya.

Comment

This case provides an analysis of what may constitute "written consent" under s. 13(3) of the SIA by a state to waive immunity against execution of its assets. In this instance, the words that an award should be "wholly enforceable" were held to amount to such written consent. The judgment also observed that an arbitration agreement does not need to include any special or particular words to give effect to a state's waiver of enforcement immunity and specifically that express references to domestic legislation on state immunity are not required.

The Court's decision illustrates that it is important for parties to consider carefully the drafting not only of waiver of immunity clauses (including any limitations therein) but also arbitration agreements. From the state's perspective, the language used should be clear to avoid unintentional waivers of immunity.  Similarly, commercial entities should reflect on appropriate language to include in arbitration agreements to facilitate the enforcement of arbitral awards against states. In particular, it is notable that the arbitration rules of many prominent arbitral institutions provide that an award is "final" or "final and binding", but do not address enforceability at all or do not do so in the express terms included in the Contract.

We understand that Libya has been granted permission to appeal.

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

The authors would like to thank Annabelle Proepstl for their contribution to this blog post.