In the important decision in NML Capital Ltd v Argentina  UKSC 31, 6 July 2011, the Supreme Court considered whether Argentina was immune from the English courts' jurisdiction to recognise and enforce a judgment obtained against it by NML in New York.
The Supreme Court overruled the Court of Appeal, holding that Argentina was not entitled to immunity in relation to proceedings for the recognition of the New York judgment. The judgment is good news for those contracting with foreign states who may find themselves having to enforce a foreign judgment against the state in England.
The claimant, NML Capital Ltd (NML) appealed against a Court of Appeal finding that the English courts had no jurisdiction to recognise and enforce a New York judgment against the defendant, the Republic of Argentina (Argentina).
The claim arose out of New York law governed sovereign bonds which had been issued by Argentina and bought, at a significant discount, by NML (a vulture fund) after the Argentinian financial collapse. NML had called an event of default on the bonds and obtained a New York judgment against Argentina for over USD 284 million. NML then sought to have the judgment recognised and enforced in England. By way of a brief reminder, the State Immunity Act 1978 (SIA) provides that a foreign state is immune from the jurisdiction of the English courts subject to certain exceptions contained in the SIA. One notable exception is that the foreign state will not be immune if it has submitted to the jurisdiction of the English courts and consented to enforcement. Meanwhile, s31 Civil Jurisdiction and Judgments Act 1982 (CJJA) provides that a judgment given in the courts of an overseas country against a state (other than the UK or the state to which the court belongs) should be recognised and enforced in the UK subject to certain conditions, in particular that:
"(a) it would be so recognised and enforced if it had not been given against a state; and
(b) that court would have had jurisdiction in the matter if it had applied rules corresponding to those applicable to such matters in the United Kingdom in accordance with ss2-11 of the [SIA]."
A key issue between the parties was whether, as NML contended, s31 introduced a new and comprehensive statutory framework for the recognition and enforcement in the UK of judgments of foreign courts against states, independent of the SIA; or whether, as Argentina contended, s31 remained subject to the provisions of the SIA.
The Court of Appeal had agreed with Argentina. It held that the English courts did not have jurisdiction over a foreign state to recognise and enforce a judgment of a foreign court within the terms of s31 CJJA unless it could be shown that, in respect of the state, one of the exceptions in ss2-11 SIA has first been fulfilled. The Court of Appeal also found that the proceedings to recognise and enforce the New York judgment were not "relating to a commercial transaction" (and thus this exception, in s3(1)(a) SIA, did not apply). Nor was the waiver wording in the bonds sufficient to constitute a submission by Argentina to the jurisdiction of the English courts (which meant that the exception in s2 SIA was also inapplicable). So, according to the Court of Appeal, Argentina was entitled to immunity.
Section 31 CJJA provides comprehensive regime
Overturning the decision of the Court of Appeal, the Supreme Court found that s31 CJJA provides a comprehensive alternative scheme for the recognition and enforcement of a foreign judgment against a state (other than the United Kingdom or the state in which the foreign proceedings were brought). The effect of s31 is that a foreign judgment will be capable of recognition and enforcement in England if:
- it would have been recognised and enforced had it not been against a state;
- the foreign court would have had jurisdiction if it had applied the UK rules on sovereign immunity set out in the SIA, the effect of which is that a state is not immune (inter alia) where it submits to the jurisdiction or where the proceedings relate to a commercial transaction; and
- under English law the state is not immune from the processes of execution. Section 31(4) CJJA gives to judgments against foreign states the benefit of (inter alia) the immunities from execution contained in ss13 and 14(3) and (4) SIA; their effect is that there can be no execution against sovereign property without the written consent of the foreign state unless the property is in use or intended for use for commercial purposes.
Split finding on meaning of s3(1)(a) SIA
The Supreme Court was split on the proper interpretation of s3(1)(a) SIA, although given the conclusion on s31 CJJA, this did not affect the final outcome of the appeal. The issue that divided the Court was whether the proceedings in England to recognise and enforce the New York judgment were "relating to a commercial transaction" within s3(1)(a) and thus fell within that exception to state immunity. Lords Phillips and Clarke found that the proceedings were "relating to a commercial transaction" within s3(1)(a) SIA because they related to a judgment (the New York judgment) which related to the bonds which did constitute a commercial transaction. Their Lordships viewed this approach as consistent with the restrictive doctrine of state immunity under international law (ie that states are immune from jurisdiction relating to their "public acts" (acta jure imperii) but are not immune from jurisdiction for their "private acts" (acta jure gestionis), including commercial activities). They further found that there is no need for a link between the underlying commercial transaction and the UK. On this ground alone they would have allowed the appeal.
Lords Mance, Collins and Walker disagreed, however, finding that it "stretched the language beyond the admissible to read "proceedings relating to ... a commercial transaction" as covering proceedings relating to a judgment which itself relates to a commercial transaction". Therefore they found that this exception in the SIA did not apply. They did however agree that there was no need for a link between a commercial transaction and the UK.
Argentina had waived immunity and submitted to the jurisdiction of the English court for the purposes of s2 SIA
All their Lordships agreed that Argentina had waived immunity and had submitted to the jurisdiction of the English courts in the following clause, which appeared in the bonds:
"...the related judgment shall be conclusive and binding upon [Argentina] and may be enforced in any specified court or in any other courts to the jurisdiction of which the republic is or may be subject (the "other courts") by a suit upon such judgment..."
It was common ground that the New York judgment was a "related judgment". Lord Phillips observed that a waiver of immunity does not necessarily confer jurisdiction. If, however, state immunity is the only bar to jurisdiction, an agreement to waive immunity is tantamount to a submission to the jurisdiction. In his view, Argentina had agreed that the New York judgment could be enforced by a suit upon the judgment in any court to the jurisdiction of which, absent immunity, Argentina would be subject. England is such a country, by reason of what, at the material time, was CPR 6.20(9) (which permitted service out of the jurisdiction of English proceedings for enforcement of a judgment). This was therefore a clear submission to the jurisdiction of the English courts.
Comment: Given the recent events in Greece and elsewhere, parties who have transacted with states will no doubt be analysing whether they will have enforceable claims against the state should it default on its obligations. A critical factor in that analysis will be a consideration of whether the state will be able to claim immunity from substantive proceedings or, as in this case, immunity in relation to the recognition and enforcement of any foreign judgment or award. This ruling is a positive one for non-state parties who may need to have a foreign judgment recognised and enforced against a state in England. It confirms that the English courts are able to hear proceedings to recognise a foreign judgment against a different foreign state subject only to the requirements of s31 CJJA being fulfilled. There is no additional separate hurdle that the English proceedings should themselves fall within an exception to ss2-11 SIA.
The decison is also helpful because the Supreme Court found that the waiver of immunity wording in the bonds in this case constituted a full submission to the jurisdiction of the English courts for the purposes of recognising the New York judgment, even though there was no specific mention of the English courts in the clause. The question of whether any particular clause is wide enough to amount to a submission to jurisdiction for the purposes of recognition will turn on the precise wording of the clause, construed under the relevant governing law. However, this decision should provide some reassurance to parties that the courts will not construe such clauses unduly narrowly.
The Supreme Court did not expressly address the separate question of whether Argentina was entitled to the "other procedural privileges" under s13 SIA such as immunity from execution against Argentina's property in the UK.
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