State immunity and enforcement: why arbitral proceedings should be carefully considered

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

In L R Avionics Technologies Ltd v The Federal Republic of Nigeria & Anor [2016] EWHC 1761 (Comm), a recent judgment in the High Court in London, Mr Justice Males considered the application of sections 9 and 13 of the State Immunity Act 1978 which deal with immunity in relation to arbitration proceedings and for relief and enforcement against the state, respectively.

The case concerned the enforcement of an arbitral award, and also a Nigerian judgment recognising the arbitral award, for some $5m against real estate in the City of London belonging to the Federal Republic of Nigeria.

The court held that section 9 of the State Immunity Act applied to both an arbitral award and also to the Nigerian judgment in relation to that same arbitral award. The Nigerian judgment could only be enforced at the discretion of the court under the Administration of Justice Act 1920. The court held that it was appropriate to exercise that discretion as on the facts the Nigerian judgment was part of the process of enforcing the arbitration award.

Section 9 provides that:

1. where a state has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the state is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration; and
2. this section has effect subject to any contrary provision in the arbitration agreement and does not apply to any arbitration agreement between states.

Nigeria had leased the premises of its building to a company to which it had also outsourced the job of dealing with visa applications. Section 13 of the State Immunity Act provides that there may be no enforcement against a state’s real estate, subject to an exception in section 13(4). The issue considered by the court was whether the exception in section 13(4) of the State Immunity Act was relevant. This exception does not prevent the issue of legal process against real estate which is used, or intended for use, for commercial purposes.

13(4) sub-section (2)(b) does not prevent the issue of any process in respect of property which is for the time being in use or intended for use for commercial purposes; but, in a case not falling within section 10, this sub-section applies to property of a state party to the European Convention on State Immunity (the Convention) only if the process is for enforcing a judgment which is final within the meaning of section 18 (1)(b) and the state has made a declaration under Article 24 of the Convention.

The matter to be decided was whether or not the processing of visa applications by an outsourcing company on behalf of Nigeria amounted to commercial use. The judge held that it was not commercial use when looked at from the perspective of the state, rather than the outsourcing company, and that that was the correct perspective to take on it.

Conclusion

The case contains an interesting example of some of the many pitfalls of enforcement of judgments and arbitral awards against a state, and should be considered carefully when deciding whether or not to pursue a state through legal proceedings.