A. Background to the FG Hemisphere Case

Ergoinvest was a company headquartered in Sarajevo. In the 1980s it constructed a hydro-electricity facility and high-tension power lines in Zaire. Ergoinvest not only undertook to build this infrastructure, but also extended credit to Zaire and its state-owned electricity company. In their contracts, all parties agreed to arbitration under the rules of the International Chamber of Commerce, the ICC. When Zaire and its electricity company both defaulted on their repayment obligations, arbitration there was.

Ergoinvest and the state-owned electricity company participated in two arbitrations under two credit agreements. The government of what was by then the Democratic Republic of the Congo (DRC) elected not to. That did not stop two tribunals awarding substantial damages and interest against the DRC and its electricity company jointly and severally. That was in 2003.

Neither the DRC nor its electricity company paid a penny to satisfy either award. In 2004 Ergoinvest sold the debts owed to it under the awards to FG Hemisphere Associates. That was a Delaware company whose only meaningful assets were these awards. It was established by a New York company of the kind that acquires distressed debts at a discount from the creditor and then tries to collect the full value from the debtor—including the continually accruing interest. Such firms are sometimes rather graphically referred to as “vulture funds”.

This one swooped on an announcement made by China Railways and three of its subsidiaries on the Hong Kong Stock Exchange that they were to pay the government of the DRC US$221 million. That amount was to constitute part of the entry fees for a mining project in the DRC. FG Hemisphere sought a number of orders from the Hong Kong High Court designed ultimately to allow it to enforce the arbitral awards against the DRC by diverting part of those mining entry fees before they left Hong Kong.

The judgment of the Hong Kong Court of Final Appeal was controversial in a number of respects. The two most controversial were:

1. 1. adoption of the doctrine of absolute state immunity (which permits immunity from suit for everything states do and own) rather than restrictive state immunity (under which immunity does not attach to states’ commercial activities or assets);Footnote ⁶ and

2. 2. referral under the Basic Law of the Hong Kong Special Administrative Region of the judgment of the Hong Kong Court of Final Appeal to the Standing Committee of the National People's Congress in Beijing for approval—approval that was forthcoming in the following terms: “The Hong Kong Special Administrative Region, as a local administrative region of the People's Republic of China that enjoys a high degree of autonomy and comes directly under the Central People's Government, must give effect to the rules or policies on state immunity as determined by the Central People's Government. The laws previously in force in Hong Kong relating to the rules on state immunity may continue to be applied after 1 July 1997 only if they comply with the above requirements.”Footnote ⁷

Less attention has been given to the approach of the majority judgment in the FG Hemisphere case to waiver of state immunity.

On that point, all parties in the case agreed that the court should address only the question of whether the DRC had waived its state immunity from the jurisdiction of the courts of Hong Kong.Footnote ⁸ The application was for leave to enforce the awards, but not yet for actual execution against the third-party funds of the debt due under those awards, which would have raised the additional question of immunity from execution.

There are two points to note about the approach of the majority to waiver of state immunity. They are (i) as between whom immunity may be waived, and (ii) when immunity may be waived. The majority held that:

1. 1. State immunity from the jurisdiction of a national court to recognize and enforce an arbitral award cannot be waived by a state by means of a contract with a private entity. The majority so held on the basis that state immunity is an inter-state matter and thus a state can waive its immunity only in a communication directly to a court of the state in which recognition or enforcement is sought. That means that under the common law of Hong Kong an express waiver of state immunity in a contract between a state and a non-state entity, even if directed explicitly to recognition and enforcement of any arbitral award rendered pursuant to that contract, is not the waiver that it purports to be.Footnote ⁹

2. 2. Waiver can occur only at the time of the court proceedings in which the court's jurisdiction to recognize or enforce an arbitral award is invoked—that is after the respondent state has already lost the arbitration.Footnote ¹⁰

B. The Authorities Relied on by the Hong Kong Court

The majority judgment in FG Hemisphere considered the source of these rules of the common law of Hong Kong to be a decision of the English Court of Appeal from 1894, Mighell v. Sultan of Johore. In that case, Lord Esher MR said of the Sultan's sovereign immunity that:

In a phrase adopted by the Hong Kong court 117 years later, Lopes LJ considered in Mighell v. Sultan of Johore that the only way sovereign immunity could be waived was “by a submission in the face of the Court”,Footnote ¹²in facie curiae. The Hong Kong Court was not dissuaded from relying on this judgment by the fact that it arose from very peculiar circumstances. A head of state lived incognito in London under an adopted persona, that of Albert Baker. Under that persona he was engaged to be married. He apparently changed his mind. He left England without marrying. He returned later as the real him, the Sultan of Johore, a sovereign. He was met by a suit brought by his betrothed for breach of their agreement to marry, in which these factual allegations were made, and in response to which he claimed immunity as a sovereign. The case had nothing to do with enforcement of an arbitral award against a state that had consented to arbitration.

It was, however, approved and applied by the House of Lords in 1924 in its judgment in Duff Development v. Kelantan (Duff),Footnote ¹³ declining to enforce an arbitral award against a stateFootnote ¹⁴ that had consented to arbitration. The Hong Kong Court in FG Hemisphere relied in turn on Viscount Finlay's observation in Duff that:

The Hong Kong Court was given no pause by the fact that this decision expressly concerned immunity from “execution”, rather than immunity from jurisdiction, and had been interpreted in precisely that way by the Supreme Court of Hong Kong in a judgment reported in 1947.Footnote ¹⁶ Professor Cohn thought it “regrettable” that the 1947 judgment of the Supreme Court of Hong Kong had “not been referred to in later writings on the topic in this country”, meaning England.Footnote ¹⁷ It is even more regrettable that it was not later followed in Hong Kong.

The final English decision on which the majority of the Hong Kong Court in FG Hemisphere relied in this connection was the judgment of Saville J in A Company Ltd v. Republic of X.Footnote ¹⁸ The Hong Kong Court said that “Saville J summarised the position thus”, and then quoted Saville J as follows: “on the authorities no mere inter partes agreement could bind the State to such a waiver, but only an undertaking or consent given to the Court itself at the time when the Court is asked to exercise jurisdiction over or in respect of the subject matter of the immunities.”Footnote ¹⁹ The “such a waiver” that Saville J was referring to was a waiver of diplomatic immunity under the Diplomatic Privileges Act 1964, implementing the 1961 Vienna Convention on Diplomatic Relations. It did not concern state immunity. By the time of Saville J's judgment, the State Immunity Act 1978 had been in force in the United Kingdom, and in Hong Kong, for thirteen years. Its Section 2(2) explicitly provided for contractual waiver of state immunity in advance of proceedings being commenced. Saville J's judgment is therefore not authority for the proposition that state immunity may be waived only by submission in the face of the court, and not by prior agreement.Footnote ²⁰ On state immunity, as opposed to diplomatic immunity, Saville J actually said:

That passage was not referred to by the majority of the Hong Kong Court as part of their reliance on Saville J's judgment. Even concerning the application of Saville J's decision to diplomatic immunity, rather than state immunity, Dr Mann considered that: “It is simply impossible to conclude that the framers of the Vienna Convention intended and were prepared to perpetuate this English rule which is unknown in any other country.”Footnote ²² He remarked that “the proposition that a waiver or submission had to be declared in the face of the court was a peculiar (and unjustifiable) rule of English law”.Footnote ²³ Dr Mann concluded that: “It is sad to notice a revival of an English aberration which was believed to have been buried.”Footnote ²⁴ Insofar as state immunity was concerned, it had indeed been buried in the United Kingdom and in Hong Kong by the State Immunity Act 1978.

C. An Interstate Immunity

The Hong Kong Court emphasized that “State immunity is concerned with relations between States”.Footnote ²⁵ It drew from that proposition the conclusion that:

This echoed the Statement of Viscount Cave in Duff that if “a Sovereign, having agreed to submit to jurisdiction, refuses to do so when the question arises, he may indeed be guilty of a breach of his agreement, but he does not thereby give actual jurisdiction to the court”.Footnote ²⁷ This historical statement must be viewed in the context of the rule that existed in England until 1982, but exists no more, that “a defendant outside the jurisdiction could not be served in an action on a foreign judgment even if there were assets within the jurisdiction to satisfy the judgment”.Footnote ²⁸

The Hong Kong Court did not take that important historical context into account, and its failure to do so is one reason why the approach of the Hong Kong Court in June 2011, and of the House of Lords in 1924, is inconsistent with a statement made by the United Kingdom Supreme Court in NML Capital v. Argentina in July 2011:

Obviously much may turn on the terms of a contract, but if in a contract a state waives state immunity, then in signing that contract a state does not promise to waive its immunity in the future. It does waive its immunity.

Accepting it to be true that “State immunity is concerned with relations between States”,Footnote ³⁰ it is not obvious why it would follow from that proposition that a state could not waive its immunity by agreement with a non-state entity. In such an agreement, the state waiving the immunity is the state possessing the immunity, so it is its to waive. It is surely no longer controversial in international law that non-state entities can hold and enforce rights conferred on them by states, including rights conferred by contract. It follows that the fact that the entity with which a state agrees a waiver is not also a state should not eviscerate the effectiveness of the waiver when that non-state entity asks the courts of another state to enforce an arbitral award against the state that waived its immunity.

The International Law Commission emphasized the importance of the “triangular relationship” between (i) the interests of the state against which the action is brought, (ii) the state in whose courts the action is brought, and (iii) the private claimant.Footnote ³¹ The approach of the Hong Kong Court effectively disregards the interests of the private claimant by finding that the contractual agreement between it and the respondent state has no meaningful effect. This is to put contractual waivers of state immunity in an extraordinary category of contracts that are valid, but the terms of which will be given no effect by a court later called upon to apply them. Lord Dunedin acknowledged as much in Duff: “True, it is, that the Sultan contracted to allow the jurisdiction to be exercised against him, but he did so out of court, and now he has changed his mind. He has broken his contract, but the court has no jurisdiction to enforce any performance of it.”Footnote ³² That position may have been comprehensible in a context where there was no procedural basis to exercise jurisdiction against a defendant that was not present in the jurisdiction. If applied in a modern context where that is not necessary,Footnote ³³ it overlooks that the contract contains a waiver of immunity from jurisdiction.

Lord Carson dissented in Duff, remarking on the “palpable injustice” involved in allowing a state to enforce an arbitral award if it wins the arbitration, but allowing it to prevent enforcement on grounds of state immunity if it does not.Footnote ³⁴ In the English Court of Appeal case of Kahan v. Pakistan, decided in 1951, Birkett LJ was “exercised about” following Duff, although that did not stop him from acerbically remarking that there “were times” when counsel arguing against it “seemed to me to be getting a little impassioned”.Footnote ³⁵ In the same case, Jenkins LJ said: “Regarding the matter as if it were free from authority, there is considerable attraction” to the argument that a state should be held to its contractual waiver:

In Kahan v. Pakistan, the Court of Appeal did not, however, consider that the point was free from authority, and expressed itself to be following Duff.Footnote ³⁷ Dr Mann was in turn exercised by the Court of Appeal's decision in Kahan v. Pakistan, labelling it “unfortunate and unjust”,Footnote ³⁸ and the doctrine that it embodied as “based on unacceptably narrow and dogmatic reasoning”.Footnote ³⁹ The UK State Immunity Act 1978 meant that by 2011 the interpretation of Duff adopted in Kahan v. Pakistan had not been the law in the United Kingdom for a long time, but the Hong Kong Court followed it anyway.

D. The UK State Immunity Act 1978

In the United Kingdom, common-law rules on state immunity were replaced in 1978 by the State Immunity Act. It explicitly allowed waiver “by a prior written agreement”.Footnote ⁴⁰ Lord Collins has observed that this “reversed” the “principle enunciated in Kahan v. Federation of Pakistan”.Footnote ⁴¹ Dame Rosalyn Higgins noted that this statutory provision “effectively overrules” the decision of the House of Lords in Duff.Footnote ⁴² Sir Ian Sinclair remarked that the common-law rule applied in Kahan v. Pakistan was “abolished for the future” by the 1978 Act.Footnote ⁴³ In Hong Kong, the UK State Immunity Act applied from 1979 until the handover in 1997. It did not, however, become part of the law of Hong Kong upon the handover.Footnote ⁴⁴

E. Evaluation of the Hong Kong Court's Approach

The majority of the Hong Kong Court exhumed a deceased rule of the common law of England, and found it to be the current common law of Hong Kong, where it had also been overridden by legislation for a period of seventeen years between 1979 and 1997. They did so on the basis of their view that:

By contrast, while Legal Adviser to the United Kingdom Foreign and Commonwealth Office, Sir Ian Sinclair rather politely described the common-law position on waiver as “over-strict”.Footnote ⁴⁶ Sir Humphrey Waldock thought that it seemed “most undesirable”.Footnote ⁴⁷ Professor Allen was less diplomatic and, when discussing Duff, referred to the “brutal cynicism”Footnote ⁴⁸ of the approach of the government of Kelantan, permitted by the courts.

The reasoning of the majority of the Hong Kong Court in the FG Hemisphere case allows a state to waive immunity in signing a contract with a private entity, and then when faced with proceedings arising from breach of that contract, successfully to invoke precisely the immunity that it had already waived.Footnote ⁴⁹

In the context of enforcement of arbitral awards against states, the question of the effectiveness of a contractual waiver of state immunity leads directly to a more fundamental question. When an arbitration involves a state, is the award just an advisory opinion issued by a panel of wise eldersFootnote ⁵⁰ that an unsuccessful state can choose not to comply with if it does not agree with it—or even if the government thinks the award is correct but just does not wish to pay? Or is an arbitral award a manifestation of the rule of law that creates binding and enforceable rights and obligations for the parties that consented to the process by which it was produced?

If a state does not wish to consent to arbitration, it need not do so. If it does not wish to waive its state immunity by agreement in advance of a dispute arising, it need not do so. But when in consenting to arbitration it waives its state immunity, that is an exercise of its sovereignty the terms of which it should not be permitted to revoke if it later does not like the result of the process to which it consented.

These propositions are contrary to the approach of the majority of the Hong Kong Court of Final Appeal in the FG Hemisphere case, which found that if in a contract with a private entity agreed before a dispute arises, a state:

1. 1. consents to arbitration,

2. 2. undertakes to comply with the arbitral award, and

3. 3. waives its state immunity,

that does not prevent a state that has an arbitral award rendered against it from successfully invoking the exact state immunity that it has already purported to waive when the successful party in the arbitration seeks the aid of a court to enforce the award. Among other possibilities, this allows a state:

1. 1. to sign a contract with a private entity under which the private entity builds important infrastructure in the state and under which the state promises to pay for it, and consents to arbitration and waives its state immunity in case it does not; and then

2. 2. to take the benefit of the infrastructure project, not pay for it, and when an arbitral award against it is presented to a national court for enforcement, or at least to a Hong Kong court, successfully invoke in the face of that court the very immunity that it purported to waive in the contract in which the private entity undertook to build the infrastructure.

This is the result that the majority in the FG Hemisphere case described as “consonant with elementary good sense”.Footnote ⁵¹ A better approach would be that if a state by contract waives its state immunity, a court later dealing with any attempt to renege on that bargain should hold the state to the waiver that it has already effected. As Mr Justice Bokhary PJ opined in his dissenting judgment in FG Hemisphere, “it is positively consonant with the dignity of a state that it should honour judgments and arbitral awards in respect of commercial transactions into which it has entered”.Footnote ⁵²

There is a reference in the judgment of the majority of the Hong Kong Court to the ends that the funds to be transferred from China Railways to the DRC were to be put, including railways, roads, hospitals, universities, airports, and, with a striking resemblance to an investment made in the 1980s by a company from Sarajevo which later sold two arbitral awards in its favour to a company called FG Hemisphere, two hydroelectric dams and two electricity distribution networks.

If there are good reasons for state immunity to exist at all, then the fact that states are responsible for these public goods might be among them, but ignoring contractual waivers of state immunity does not serve these ends. If a company is only prepared to invest in infrastructure projects in a state on the condition that the state waives its state immunity, and courts feel themselves free to establish a rule that fails to give effect to such contractual waivers, then one might wonder about increased reticence to make investments in the very states that most need investment. In dissent, Mr Justice Mortimer NPJ said that Ergoinvest would not have granted credit to Zaire under the relevant contracts absent the enforceable ICC arbitration clauses they contained.Footnote ⁵³ As it stands now, credit was granted without having been repaid.

Mr Justice Mortimer NPJ referred to the “increasing consensus that the rule that a waiver can only be made before the court, whether in the suit proceedings or the enforcement proceedings in spite of earlier agreements to submit is unjust to those with whom sovereign States make commercial contracts.”Footnote ⁵⁴ As long ago as 1951, and presumably with absolute, rather than restrictive immunity in mind, Sir Hersch Lauterpacht thought that state immunity was “productive of inconvenience, injustice and resentment which may be more inimical to friendly international intercourse than assumption of jurisdiction”.Footnote ⁵⁵ He considered that:

He called state immunity “a principle that places the sovereign State above the law”.Footnote ⁵⁷ Lest there be any doubt about his opinion, he also called it “an archaic and cumbersome doctrine of controversial validity and usefulness”.Footnote ⁵⁸

Notwithstanding Sir Hersch's critique, state immunity has managed to survive. As codified in the 2004 United Nations Convention on the Jurisdictional Immunities of States and their Property,Footnote ⁵⁹ in most places this is subject to the significant exception that state immunity does not attach to the commercial activities and assets of states and their emanations. Just as this exception tempers the unfairness to private entities that might otherwise be caused by state immunity, so too does respect for contractual waivers of immunity.

The ineffectiveness of anticipatory contractual waivers in Hong Kong is all the more significant because the residual position there is now absolute immunity. If a state's commercial activities and assets were not protected by state immunity anyway, as is the position under the 2004 UN Convention on State Immunity and in many states, then waiver would not be necessary for enforcement in connection with a state's commercial activities and against a state's commercial assets. In a jurisdiction that persists with, or, more accurately, has reintroduced, absolute immunity, adopting restrictive rules on waiver has a multiplier effect, since if waiver cannot be established, then the residual position will be that states and their emanations will be immune from jurisdiction and their assets will be immune from execution for commercial activities and assets just as for sovereign ones.

Contrary to the current position in Hong Kong, and the historical position of the common law more generally, the prevailing position in civil-law systems has long been that waiver of state immunity can occur in a contract in advance of proceedings and that such a contract is binding and will be given effect by an enforcement court—so prevailing that in 1958 Professor Cohn, after reviewing the authorities,Footnote ⁶⁰ felt able to say of state immunity from jurisdiction that with the exception of one decision of the Japanese Supreme Court from the 1920s:

Since then, Japanese law too has come to accept that state immunity may be waived by contract between a foreign state and a non-state party in advance of actual enforcement proceedings.Footnote ⁶² Indeed, the more common position in modern state practice in common-law as well as civil-law jurisdictions is that waiver of state immunity may occur by contract between a private party and a state in advance of a dispute arising,Footnote ⁶³ and the 2004 UN Convention on State Immunity reflects that position.Footnote ⁶⁴

A. Terminology: Confirmation or Recognition or Enforcement or Execution?

There are at least four pertinent words, and it is not always obvious which is being used to refer to what. Nor is it always obvious whether the author, including when the author is a legislature or judge, appreciates the distinction between them, and the fact that the term being used may have different connotations in different jurisdictions. Since, as Lord Steyn remarked: “Categorisation is an indispensable tool in the search for rationality and coherence in law”,Footnote ⁸⁹ these four terms are analyzed further in this section before turning to a discussion of the extent to which in various jurisdictions consent to arbitration constitutes a waiver of state immunity. This is because the next question is: Immunity from what? Those terms are:

1. 1. confirmation;

2. 2. recognition;

3. 3. enforcement; and

4. 4. execution.

There have been attempts to explain them,Footnote ⁹⁰ but those attempts have not been entirely consistent with each other.

“Confirmation” is the term used in Section 13 of the Federal Arbitration Act of the United States of America. If an application is made to a US court to “confirm” an arbitral award, the “judgment shall be docketed as if it was rendered in an action” and: “The judgment so entered shall have the same force and effect … as … a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered.”Footnote ⁹¹ The term was then used in the final text of the 2004 UN Convention on State Immunity, with the ambiguous result discussed above. If the objective intention in the Convention was to use the word “confirmation” in the same way that it is used in US legislation, then that would militate towards the result that an agreement to arbitrate, without more, includes an agreement to waive state immunity from jurisdiction in an application to recognize the award as having the same binding effect as a court judgment, whether in the seat of the arbitration or in another jurisdiction.Footnote ⁹²

“Recognition” is a word widely used to describe the step by which a court grants to an arbitral award the force of a national court judgment, known as an exequatur in France and systems equivalent to the French.Footnote ⁹³ In connection with recognition of foreign court judgments in England—and the same logic applies to arbitral awards—Professor Briggs has explained that recognition “means treating the claim which was adjudicated as having been determined once and for all”.Footnote ⁹⁴ He notes that it “does not matter whether it was determined in favour of the claimant or the defendant”.Footnote ⁹⁵ In either case the “matter is then res judicata, and the losing party will be estopped from contradicting it in subsequent proceedings in an English court”.Footnote ⁹⁶ The New York Convention is, in full, the New York Convention on the Recognition and Enforcement of Arbitral Awards. It thus draws a distinction between recognition and enforcement. Typically, there should be no difference of substance between a process referred to as “confirmation” of an arbitral award by a national court and a process referred to as “recognition” of an arbitral award by a national court. Both come within the term “recognition” as used in the New York Convention. Under either name, a successful respondent will have done enough to defeat any claim brought in the jurisdiction concerned that is inconsistent with the arbitral award, and a successful claimant will have taken a necessary but not sufficient step towards turning an award into cash.Footnote ⁹⁷

“Execution” occurs when the debt arising under an arbitral award, by then already given the force of a national court judgment, is executed against the assets of the debtor, for example through a compulsory conveyance, attachment, garnishment, or sale. It comes within the term “enforcement” as used in the New York Convention.

“Enforcement” is sometimes used:

1. 1. to refer to the process by which a court grants an arbitral award the force of a national court judgment, more precisely called confirmation or recognition,

2. 2. to refer to actual execution of a debt against specific assets of the debtor, more precisely called execution,

3. 3. to refer to various intermediate steps between the two existing in some jurisdictions, or

4. 4. as an omnibus word to describe in general terms the process of turning an award rendered by an arbitral tribunal into a transfer of cash to the successful party, encompassing each of the individual steps of recognition and execution involved in doing so, however they may differ from one jurisdiction to another.

The FG Hemisphere case concerned an application for “leave to enforce” two arbitral awards “in the same manner as judgments” of a Hong Kong court.Footnote ⁹⁸ The parties agreed that this concerned recognition, not execution, and the court proceeded on that basis.Footnote ⁹⁹ Since “enforcement” is sometimes used in the context of jurisdiction to recognize an award as binding, and sometimes used in the context of execution, it can be a troublesome word if too much precision is expected of it. It would be best consigned to a general word covering the entire process within a domestic judicial system designed to satisfy the debt due under an arbitral award, from first presentation of an arbitral award to a court, until the forcible transfer of assets to satisfy the debt due under the judgment recognizing the binding force of the arbitral award. It is in this very general sense that it is used in this paper.

For each term, to which precise aspect of local procedure it attaches may vary according to the jurisdiction in which the relevant step is taken. Whichever of these four terms is used, the main distinction that needs to be drawn is between (i) immunity from jurisdiction over a state to recognize an arbitral award against it as binding, as though it were a judgment of the recognizing court, and (ii) immunity from execution of the judgment debt against that state's assets. Immunity from jurisdiction concerns whether a court can be prevented from deciding something involving a state, including concerning the binding force of an arbitral award. Immunity from execution concerns whether an organ of a state, whether a court or some other organ of the judicial or executive branch, can be prevented in execution of a debt owed under a judgment from taking something that belongs to another state.

Confirmation and recognition will always relate to immunity from jurisdiction. Execution will, of course, always relate to immunity from execution. Enforcement might relate to either, or both, depending on how the word is being used.

B. Hong Kong

For the minority of the Hong Kong Court in the FG Hemisphere case, it was possible for a state to waive its absolute state immunity by contract in advance of a dispute. A further question therefore arose for the minority: had the DRC waived its state immunity from the jurisdiction of foreign courts?

FG Hemisphere argued that a waiver of state immunity was to be found not just in the fact that the state had consented to arbitration, but that it had agreed to the ICC Arbitration Rules of 1998, which in Rule 28(6) stated that:

The majority thought that this was “plainly insufficient”Footnote ¹⁰⁰ to constitute waiver of state immunity from jurisdiction, not because of its terms, but because of (i) who agreed it, namely a state and a private party, rather than two states, and (ii) when it was agreed, that is prior to the forum state being asked to exercise jurisdiction over the state the waiver of whose immunity was in question.

In dissent, Mr Justice Mortimer NPJ thought that: “Justice requires that in submitting to the [ICC] rules a State is also submitting to the enforcement procedure.”Footnote ¹⁰¹ Mr Justice Bokhary PJ, with whom Mr Justice Mortimer NPJ agreed, viewed “a State's submission to arbitration in a commercial dispute as a waiver of any immunity from an enforcement leave application that it might have had in Hong Kong”.Footnote ¹⁰² Mr Justice Bokhary PJ agreedFootnote ¹⁰³ with the statement in Fouchard, Gaillard and Goldman that it “would be absurd to conclude that a State could agree to submit disputes to arbitration despite its immunity from jurisdiction, but that it could subsequently prevent the award from becoming enforceable by simply relying on that immunity”.Footnote ¹⁰⁴

C. France

Neither the views of those distinguished French authors, nor the final text of the 2004 UN Convention on State Immunity, accord entirely with the comment made by France on the text that ultimately developed into Article 17 of that Convention, dealing with arbitration agreements. In its comments in 1988 on the International Law Commission's draft articles, France said that it “believes, subject to the final opinion of the French courts, that an arbitration clause cannot be regarded in itself as constituting a waiver of immunity from jurisdiction in all circumstances and that account should also be taken of the nature of the contracts”.Footnote ¹⁰⁵

The French Cour de cassation subsequently took a different view, holding in Creighton v. Qatar in 2000 that agreement to arbitration in the form of agreement to the ICC Arbitration Rules constituted not only a waiver of immunity from jurisdiction, but also a waiver of immunity from execution.Footnote ¹⁰⁶ One month later the Cour d'appel de Paris held in the Russian Federation v. Noga case that a contract in which a state renounced “all rights of immunity relative to the application of any arbitral award against it in relation to the present contract” did not constitute a waiver of diplomatic immunity and that the debt owed under the arbitral award could not be executed against the bank accounts of the Russian embassy in France.Footnote ¹⁰⁷ State immunity had been waived, but not diplomatic immunity.

In a case involving interim measures in pursuit of eventual enforcement of a foreign court judgment, rather than an arbitral award, the Cour de cassation has more recently applied a much more restrictive test to waiver of immunity of execution than that which it applied in Creighton. In NML v. Argentina it held in a trio of simultaneous judgments that:

The suggestion in these Delphic judgments that for a waiver of immunity from execution to be effective in the context of prejudgment measures of constraint it is necessary for a state to specify the assets or category of assets against which execution may occur is without foundation in the terms of the 2004 UN Convention on State Immunity, and in particular its Article 18 on prejudgment measures of constraint, and without support in the Cour de cassation's earlier judgment in Creighton v. Qatar. Article 18(b) of the Convention does refer in the context of prejudgment measures of constraint to a situation where a “State has allocated or earmarked property for the satisfaction of the claim which is the object of that proceeding”. This exception to immunity is explicitly an alternative to the forms of waiver listed in Article 18(a), which include consent by a state to prejudgment measures of constraint “by an arbitration agreement or in a written contract”. Article 18(a) certainly does not require that any such agreement specify the assets or category of assets to which the waiver applies.

Perhaps the Cour de cassation really meant to say that under Article 18(a) a waiver can only apply to prejudgment measures of constraint if it specifically says so, and that if it does not, then the only other way for a waiver to apply to “saisies conservatoires” is, in accordance with Article 18(b), for specific assets to be identified by the respondent state for satisfaction of the claim against it, and for the prejudgment measures of constraint to apply only to those assets. That is not, however, what the judgments say. They cite the Convention as authority for the much more far-reaching proposition that “whilst States can waive, by written contract, their immunity from execution against assets or categories of assets used or destined to be used for public purposes, they can only do so in an express and specific manner, mentioning the assets or the category of assets over which the waiver is granted”.Footnote ¹⁰⁹ Article 18(a) of the 2004 UN Convention on State Immunity does not require that a waiver of state immunity from execution expressed to apply to prejudgment measures of constraint must also identify the specific assets or category of assets to which it applies.

In the context of post-judgment measures of constraint, Article 19(b) also allows for execution against property “allocated or earmarked” by the respondent state “for the satisfaction of the claim which is the object of that proceeding”. As with the equivalent provision in Article 18(b), Article 19(b) is in the alternative to paragraph (a) of the same Article. Article 19(a), like Article 18(a), provides for waiver of immunity from execution by way of an arbitration agreement or other contract without any particular assets or category of assets being identified.

In between the Cour de cassation's decision in Creighton v. Qatar, in 2000, and its decisions in NML v. Argentina, in 2013, France signed and deposited its instrument of approval of the 2004 UN Convention on State Immunity. This may have made the Court more willing to refer to international rules on state immunity but it did not, unfortunately, lead to their correct application. Although the recent French judgments in NML v. Argentina create a very restrictive regime in France for saisies conservatoires, the position with respect to enforcement of final awards remains the very expansive one articulated in Creighton v. Qatar: agreement to arbitration in the form of the ICC Arbitration Rules constitutes waiver of state immunity from jurisdiction and of state immunity from execution.

D. United Kingdom

The position in the United Kingdom is that consent to arbitration constitutes waiver of state immunity from jurisdiction, but not from execution. Understanding the extent to which an arbitration clause waives state immunity in the UK requires a close examination of the interpretation of the UK State Immunity Act 1978 adopted by the Court of Appeal of England and Wales in Svenska Petroleum v. Government of the Republic of Lithuania (Svenska Petroleum). A private Swedish party and the government of Lithuania consented to ICC arbitration in Denmark to resolve disputes arising under a contract between them governed by Lithuanian law. The English courts interpreted Section 9(1) of the UK State Immunity Act such that Lithuania was deemed to have waived immunity from proceedings in the UK for leave to enforce a resulting award, but not to have waived immunity from execution against its assets.

Section 9(1) of the State Immunity Act provides that:

Distinguished commentators had doubted whether this provision applied to proceedings related to enforcement of an arbitral award (rather than just the supervision of the arbitral process by the courts of its seat),Footnote ¹¹¹ or to arbitrations seated somewhere other than the UK.Footnote ¹¹² The High Court considered their writings,Footnote ¹¹³ but both it and the Court of Appeal decided otherwise on both points, including by reference to relevant passages from Hansard.Footnote ¹¹⁴ The Supreme Court of the UK has since confirmed that an effect of Section 9 was “to lift State immunity in respect of the enforcement of arbitration awards against States, including foreign arbitration awards”.Footnote ¹¹⁵

In Svenska Petroleum, the Court of Appeal found as follows:

The Court of Appeal held that if a state consents to arbitration, it follows that it has waived state immunity from proceedings before any court in the UK for recognition of that award or for leave to enforce it.Footnote ¹¹⁷ The Court of Appeal considered that an application for leave to enforce an award as a judgment under Section 101(2) of the Arbitration Act 1996 is “one aspect of its recognition and as such is the final stage in rendering the arbitral process effective”.Footnote ¹¹⁸ The Court indicated, however, that: “Enforcement by execution on property belonging to the State is another matter, as sect. 13 makes clear.”Footnote ¹¹⁹

Section 13(2)(b) of the State Immunity Act provides that “the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award”. Section 13(4) provides that this “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”. Section 13(3) provides that even in the case of non-commercial property, process may be issued against that property:

Dr Mann once observed that an “application for enforcement serves no useful purpose except as a first step towards execution”.Footnote ¹²¹ True though that may be, the result of the statutory provisions and case-law discussed above is that the prevailing position in the UK is that in agreeing to arbitration anywhere, a state waives its immunity from the jurisdiction of any court in the UK to recognize the award and to grant leave to enforce it, but that when it comes to execution of the debt imposed by the award against a state's assets, immunity against that result is not waived just by having consented to arbitration. Rather, a specific waiver of immunity from execution is required in accordance with Section 13(3) of the State Immunity Act.Footnote ¹²²

After Svenska Petroleum, in the 2008 judgment of Orascom Telecom Holding SAE v. Republic of Chad,Footnote ¹²³ Mr Justice Burton considered in the High Court of England and Wales whether by agreeing to the ICC Arbitration Rules a state waived its immunity from execution, noting that this question had not previously been considered by any court in that jurisdiction.Footnote ¹²⁴ He reviewed the French decision in Creighton, discussed above, and the US decision in Walker International Holdings Ltd v. The Republic of Congo, discussed below, which, like Creighton, decided that agreement to the ICC Arbitration Rules constituted waiver of state immunity from execution.Footnote ¹²⁵ Mr Justice Burton indicated that he was “reluctant” to conclude that the position adopted in these judgments should be “imported into” England and Wales, noting the significance of the 1978 Act in the UK.Footnote ¹²⁶ Since he had already decided the case against Chad on the basis that the bank account against which execution was sought was used for commercial purposes and therefore did not attract state immunity, he did not need to, and did not, ultimately decide whether agreement to the ICC Arbitration Rules constituted a waiver of state immunity from execution in the UK.Footnote ¹²⁷

E. Australia

The Australian Foreign States Immunities Act is similar in effect to the UK State Immunity Act, as interpreted in Svenska Petroleum, but with more clarity in the statutory terms. It states in Section 17 that where a foreign state is party to an arbitration agreement “then, subject to any inconsistent provision in the agreement, the foreign State is not immune in a proceeding concerning the recognition as binding for any purpose, or for the enforcement, of an award made pursuant to the arbitration, wherever the award was made”.Footnote ¹²⁸ Section 17 deals with recognition and enforcement as matters of jurisdiction. Sections 30 to 33 then deal separately with execution of the debt arising under an arbitral award against the non-commercial property of a state. Any waiver of immunity from execution must specifically provide for that result.Footnote ¹²⁹

F. United States of America

Similarly, the American Law Institute's Third Restatement of the Foreign Relations Law of the United States provides that “a State may waive its immunity from attachment of its property or from execution against its property, but a waiver of immunity from suit does not imply a waiver of immunity from attachment of property, and a waiver of immunity from attachment of property does not imply a waiver of immunity from suit”.Footnote ¹³⁰

Prior to the Third Restatement, the US District Court for the District of Columbia had held in 1980 that: “While an agreement to entry of judgment reinforces any waiver, an agreement to arbitrate, standing alone, is sufficient to implicitly waive immunity.”Footnote ¹³¹ The immunity in question in that case was immunity from execution, not just immunity from jurisdiction.

After the Third Restatement, the US Court of Appeals, Fifth Circuit, held in the case of Walker International Holdings Ltd v. The Republic of Congo that Rule 28(6) of the ICC Arbitration Rules, quoted above in connection with the judgment of the French Cour de cassation in Creighton v. Qatar, constituted a waiver of state immunity against execution.Footnote ¹³² The production-sharing contract at issue in that case contained an explicit waiver of immunity from execution.Footnote ¹³³ The ICC Arbitration Rules were referred to by way of “addition”.Footnote ¹³⁴ Nonetheless, the decision is explicit that agreeing to the ICC Arbitration Rules “precluded the ROC from asserting a sovereign immunity defense” in connection with the execution against the state's assets of the debt imposed by the award.Footnote ¹³⁵ This places it in the same category as the French judgment in Creighton v. Qatar. Neither of those judgments, however, is authority for the proposition that waiver of immunity from jurisdiction implies waiver of immunity from execution. They are both authority for the proposition that agreement to the ICC Arbitration Rules constitutes implied waiver of immunity from execution.

Solely on immunity from jurisdiction, as opposed to execution, in 1988 the Foreign Sovereign Immunities Act was amended by the US Congress to provide that:

In three different cases, US courts have observed that the New York Convention “is exactly the sort of treaty Congress intended to include in the arbitration exception” contained in this statutory provision.Footnote ¹³⁷ In those three cases, Cargill International v. M/T Pavel Dybenko,Footnote ¹³⁸ the US decision in Creighton v. Qatar,Footnote ¹³⁹ and S & R Davis International v. The Republic of Yemen,Footnote ¹⁴⁰ three different US federal courts all held that agreement by a state to arbitration in a state other than the US did not itself constitute a contractual waiver of state immunity from jurisdiction in the US.Footnote ¹⁴¹ Dr Mann observed that it is “usually assumed” that when there is a question about immunity from enforcement of an arbitral award, “the answer is supplied by the general law relating to immunity rather than any specific rules relating to international arbitration”.Footnote ¹⁴² Proving the exception to that proposition, those same US courts did find, however, that since the award was presented for enforcement in the US pursuant to the New York Convention, this statutory “arbitration exception” to immunity applied and subject matter jurisdiction was thus established.Footnote ¹⁴³ Establishing personal jurisdiction is then an additional hurdle.Footnote ¹⁴⁴

G. Canada

Unlike its counterparts in the United Kingdom, Australia, and the United States, Canada's State Immunity ActFootnote ¹⁴⁵ does not contain a provision specifically dealing with the relationship between consent to arbitration and waiver of state immunity. It does say that waiver of state immunity to jurisdiction can be by way of submission to the jurisdiction of the court by “written agreement” made “before or after the proceedings commence”, but it conditions that on the submission to jurisdiction being made “explicitly”.Footnote ¹⁴⁶ Notwithstanding this rather strict statutory language and the absence of an explicit “arbitration exception”, the Federal Court of Canada has held that “the mere fact” of agreeing to arbitration seated in a state party to the New York Convention is sufficient to waive state immunity to jurisdiction in Canada:

Curiously, the Canadian statute provides that, unlike waiver of immunity from jurisdiction, which can only be waived “explicitly”, immunity from execution can be waived “explicitly or by implication”.Footnote ¹⁴⁸ Perhaps it was on that basis that one provincial court has in obiter dicta gone further than the Federal Court and said that consent to arbitration constitutes waiver of immunity from execution.Footnote ¹⁴⁹ In the light of the separate treatment of immunity from jurisdiction and immunity from execution in the Canadian statute, it is perhaps not safe, however, to rely on this one dictum of a lower court as an authoritative statement of the law in Canada.

H. Germany

The German Federal Supreme Court recently decided a case concerning whether Thailand could rely on state immunity in seeking to resist recognition and enforcement of an arbitral award against it. The Court held that:

This was because:

Thus, in Germany, a waiver of immunity from execution also constitutes an implicit waiver of immunity from jurisdiction for the purposes of recognition and enforcement prior to actual execution.Footnote ¹⁵²

The opposite is not true. The German Federal Supreme Court observed in the same case that waiver of jurisdictional immunity does not imply a waiver of state immunity of execution.Footnote ¹⁵³ It is settled law in Germany that “the conclusion of an arbitration agreement does not entail a waiver of immunity in execution proceedings”.Footnote ¹⁵⁴ The Cologne Court of Appeal considered that it “is accepted in particular that signing an arbitration agreement may imply a waiver of immunity”.Footnote ¹⁵⁵ It added that this “does not automatically extend to the proceedings for the enforcement of an arbitral award nor to the ensuing execution”.Footnote ¹⁵⁶ The Cologne Court of Appeal recorded that “it is clearly undisputed in German jurisprudence and literature that submission to an arbitration agreement concerns at the most the recognition and enforcement proceedings …”.Footnote ¹⁵⁷

The highest courts in Germany have not yet taken a position on whether consent to arbitration alone constitutes waiver of state immunity from jurisdiction for the purposes of recognition and enforcement of an arbitral award. The approach of the Cologne Court of Appeal, however, gives good reason to think that it does.

Both the German Federal Supreme CourtFootnote ¹⁵⁸ and the Cologne Court of AppealFootnote ¹⁵⁹ have held that immunity from execution is not waived just because the state concerned had agreed that any arbitral awards against it would be recognized and enforced in accordance with the New York Convention. The Federal Supreme Court has pointed out that the New York Convention provides that, where specified conditions are met, arbitral awards must be enforced, but that it does not constitute a waiver of immunity from execution.Footnote ¹⁶⁰

I. The ICSID Convention

In the case of arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of other States of 1965, known as the ICSID Convention, an agreement to arbitrate will not constitute a waiver of state immunity from execution, unless that is the result of the rules on waiver of state immunity applicable in the enforcement forum. Article 54 of the ICSID Convention provides that: “Execution of the award shall be governed by the law concerning the execution of judgments in force in the State in whose territories such execution is sought.” Article 55 states that: “Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.” This provision has prevented execution against property of states in the Southern District of New York in LETCO v. Liberia,Footnote ¹⁶¹ in the Cour d'appel de Paris in SOABI v. Senegal,Footnote ¹⁶² and was relevant in the High Court of England and Wales in AIG Capital Partners v. Kazakhstan.Footnote ¹⁶³ This specific preservation of immunity from execution does not change the fact, and indeed confirms, that in consenting to ICSID arbitration, states will properly be regarded as having waived their immunity from jurisdiction.Footnote ¹⁶⁴