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New Principles of Sovereign Immunity from Enforcement in India: The Good, The Bad, And The Uncertain (Part II)
This post was written by Harshal Morwale, an India-qualified international arbitration lawyer working as an associate with a premier Indian law firm in New Delhi; LLM from the MIDS Geneva Program (2019-2020); alumnus of the Hague Academy of International Law.
Recently, the issue of foreign sovereign immunity became a hot topic in India due to the new judgment of the Delhi High Court (“DHC”) in the case of (KLA Const Tech v. Afghanistan Embassy). The previous part of the blog post analyzed the decision of the DHC. Further, the post focused on the relevance of the United Nations Convention on Jurisdictional Immunities of States and Their Property. The post also explored the interplay between state immunity and diplomatic immunity.
This part focuses on two further issues which emanate from the decision of the DHC. Firstly, the post deals with the impact of the consent to arbitrate on immunity from enforcement. Then, the post explores the issue of attachment of state’s property for satisfying the commercial arbitral award against a diplomatic mission.
Consent to Arbitrate: Waiver Of Immunity From Enforcement?
As highlighted in the last post, one of the main arguments of the KLA Const Technologies (“claimant”) was that the Embassy of the Islamic Republic of Afghanistan’s (“respondent”, “Embassy”) consent to arbitrate resulted in the waiver of the sovereign immunity. The DHC accepted the argument and ruled that a separate waiver of immunity is not necessary to enforce an arbitral award in India as long as there is consent to arbitrate. The DHC also stated that this position is in consonance with the growing International Law principle of restrictive immunity while referring to the landmark English case (Trendtex Trading Corp. v. Central Bank of Nigeria).
However, there’s more to the issue than what catches the eye. First of all, the Trendtex case was decided before the English Sovereign Immunity Act (“UKSIA”) came into effect. Therefore, the DHC could have examined the relevant provisions under UKSIA and the more recent cases to track the jurisprudential trend on sovereign immunity under English law. For example, Section 13(2) of the UKSIA recognizes the difference between jurisdictional immunity and immunity from enforcement and requires an express waiver of immunity from enforcement. Even the ICJ has noted the requirement of an express waiver of immunity from enforcement in the Jurisdictional Immunities case. (para 118).
Furthermore, there was an opportunity to undertake a more detailed cross-jurisdictional analysis on the issue. In fact, the issue of arbitral consent as a waiver of immunity from enforcement was dealt with by the Hong Kong Courts in FG Hemisphere v. Democratic Republic Of The Congo. Reyes J, sitting in the Court of First Instance, ruled that consent of the state to arbitrate does not in itself imply the waiver of immunity from enforcement. The ruling on the issue was confirmed by the majority decision of the Court of Final Appeal. The position has also been confirmed by scholars.
However, this position is not the settled one. The DHC’s decision is in line with the approaches adopted in France (Creighton v. Qatar), Switzerland (United Arab Republic v. Mrs. X) that no separate waiver of immunity from enforcement would be required in the existence of an arbitration agreement.
However, the decision made no reference to the reasoning of the cases from these jurisdictions. Regardless of the conclusion, the DHC’s decision could have benefited from this comparative analysis, and there would have been a clearer answer as to the possible judicial approaches to the issue in India.
Attachment of State’s Property for Satisfying an Award Against A Diplomatic Mission
In the current case, the DHC ordered the respondent to declare not only its assets and bank accounts in India but also all its commercial ventures, state-owned airlines, companies, and undertakings in India, as well as the commercial transactions entered into by the respondent and its state-owned entities with the Indian companies.
It is not entirely clear whether the Islamic Republic of Afghanistan’s (“Afghanistan”) properties and commercial debts owed by private Indian companies to the state-entities of Afghanistan would be amenable to the attachment for satisfying the award against the Embassy. To resolve the issue of attaching Afghanistan’s property to fulfill the liability of the Embassy, a critical question needs to be considered – while entering into the contract with the claimant, was the respondent (Embassy) acting in a commercial capacity or as an agent of the state of Afghanistan?
The contract between the claimant and the respondent was for the rehabilitation of the Afghanistan Embassy. The DHC found that the respondent was acting in a commercial capacity akin to a private individual. Additionally, there’s no indication through the facts elaborated in the judgment that the contract was ordered by, or was for the benefit of, or was being paid for by the state of Afghanistan. In line with these findings, it can be concluded that the contract would not be a sovereign act but a diplomatic yet purely commercial act, independent from the state of Afghanistan. Consequently, it is doubtful how the properties of state/state-entities of Afghanistan can be attached for fulfilling the award against the Embassy.
The attachment of the state’s property to fulfill the liability of the Embassy would break the privity of contract between the claimant and the respondent (Embassy). According to the privity of contract, a third party cannot be burdened with liability arising out of a contract between the two parties. Therefore, the liability of the Embassy cannot be imposed on the state/state-entities of Afghanistan because they would be strangers to the contract between the claimant and the respondent.
That said, there are a few well-known exceptions to the principle of privity of contract such as agency, third party beneficiary, and assignment. However, none of these exceptions apply to the case at hand. It is accepted that an embassy is the agent of a foreign state in a receiving state. However, in this case, the contract was entered into by the Embassy, in its commercial capacity, not on behalf of the state but in the exercise of its diplomatic yet commercial function. Afghanistan is also not a third-party beneficiary of the contract as the direct benefits of the contract for the rehabilitation of the Afghanistan Embassy are being reaped by the Embassy itself. Additionally, there is no indication from the facts of the case as to the assignment of a contract between the state of Afghanistan and the Embassy. Therefore, the privity of contract cannot be broken, and the liability of the Embassy will remain confined to its own commercial accounts and ventures.
In addition to the above, there also lacks guidance on the issues such as mixed accounts under Indian law. Regardless, the approach of the DHC remains to be seen when the claimant can identify attachable properties of the respondent. It also remains to be seen if the respondent appears before the DHC and mounts any sort of defence.
Conclusion
There remains room for growth for Indian jurisprudence in terms of dealing with issues such as immunity from the enforcement of arbitral awards. An excellent way to create a more conducive ecosystem for this would be to introduce stand-alone legislation on the topic as recommended by the Law Commission of India in its 176th report. Additionally, the issues such as the use of state’s properties to satisfy the commercial liability of diplomatic missions deserve attention not only under Indian law but also internationally.
(The views expressed by the author are personal and do not represent the views of the organizations he is affiliated with. The author is grateful to Dr. Silvana Çinari for her feedback on an earlier draft.)
Can a Foreign Company that is not registered in Nigeria maintain an action in Nigerian Courts?
This note briefly analyses the recent decision of the Nigerian Supreme Court in BCE Consulting Engineers v Nigerian National Petroleum Corporation[1]on the issue of a foreign company that is not registered in Nigeria having the capacity to sue in Nigeria.
Generally, Section 78 of the Companies and Allied Matters Act, 2020 requires that a foreign company must be registered in Nigeria before it can carry on business in Nigeria. This provision is a carryover of the former Section 54 of the Companies and Allied Matters Act, 1990, which contains a similar provision.
However, Section 84(b) of the Companies and Allied Matters Act 2020, makes express provisions for a foreign company to sue and be sued in its corporate name or that of its agent (despite the fact that it is not a registered or incorporated company in Nigeria for the purpose of carrying on business (under Section 78). The same provision was previously enacted in Section 60(b) of the Company and Allied Matters Act 1990. Section 60(b) of the Company and Allied Matters Act 1990 has been applied by Nigerian courts in some cases prior to the enactment of the Companies and Allied Matters Act, 2020.
In Companhia Brasileira De Infraestrututira (INFAZ) v Companhia Brasileira De Entrepostos E Commercio (COBEC) (Nig) Ltd,[2] the plaintiff-appellant was a company allegedly registered in accordance with Brazilian law. The plaintiff-appellant was also a shareholder with some Nigerian persons, which constituted the defendant-respondent company. There was a change in the name of the plaintiff-appellant to Companhia Brasileira De Infraestutura Fazendaria, which was allegedly in accordance with Brazilian law. The plaintiff-appellant prayed for the winding-up of the defendant-respondent company. The application was dismissed by the trial court and the appeal to the Court of Appeal was dismissed as well. One of the issues for consideration was whether the plaintiff-appellant was competent to sue and be sued in Nigeria.
The Court of Appeal held that by virtue of Section 60(b) of the Companies and Allied Matters Act 1990, a foreign company not registered in Nigeria can sue and be sued in Nigerian courts provided that said foreign company was duly incorporated according to the laws of a foreign state recognised in Nigeria. But, if there is a change in the name of that foreign company, evidence of compliance with the law of the land where it was incorporated must be given. In the instant case, the Court of Appeal held that there was no material evidence placed before the court to establish the change of name of the plaintiff-appellant company, and the resolution for change of name in Brazil that was provided before the court was deemed insufficient.[3]
In Edicomsa International Inc and Associates v CITEC International Estates Ltd,[4] the plaintiff-appellant was a foreign company incorporated in the United States of America. However, it was not registered in Nigeria. The plaintiff-appellant was engaged by the defendant-respondent to provide some services. Subsequently, there was a disagreement between the parties on payments due to the plaintiff-appellant, which led to the action before the court. The defendant-respondent, inter alia, challenged the jurisdiction of the trial court on the basis that the plaintiff-appellant was not registered in Nigeria. The trial court upheld the submission of the defendant-respondent. The plaintiff-appellant appealed to the Court of Appeal, which unanimously allowed the appeal. The majority of the Court of Appeal rightly applied Section 60(b) of the Companies and Allied Matters Act 1990 to the effect that the plaintiff-appellant, though not registered in Nigeria, could sue in Nigeria.[5]
In the recent case of BCE Consulting Engineers v Nigerian National Petroleum Corporation[6] the Nigerian Supreme Court did not consider Section 60(b) of the Companies and Allied Matters Act 1990 (now Section 84(b) of the Companies and Allied Matters Act 2020), though its final decision was correct. In that case, the claimant/1st appellant claimed that it entered into a consultancy service agreement with the defendant/respondent which the latter unlawfully terminated. The plaintiff/1st appellant therefore filed an action via originating summons in the Federal High Court, Lagos State Judicial Division, seeking declaratory reliefs to that effect. It further claimed the total value of outstanding claims on invoices submitted by it, special and general damages. One of the issues canvassed at the Supreme Court was whether the Court of Appeal was right when it held that the contract entered into by the claimant-1st appellant a foreign company without incorporation in Nigeria was illegal and unenforceable? The Supreme Court Justices unanimously agreed with Peter-Odilli JSC who held as follows in her leading judgment:
“I agree with learned counsel for the appellants that section 54 of the Companies and Allied Matters Act [Cap C20 LFN 2004][7] does not apply to the facts of this case because the situation before the court in this case is one of a firm registered in Nigeria and entering into contract with the respondent but subsequently to the execution of the contract incorporating itself outside Nigeria as a limited liability company”.[8]
It is submitted that the Supreme Court should also have had regard to Article 60(b) of the Companies and Allied Matters Act 1990 (now Section 84(b) of the Companies and Allied Matters Act, 2020) in holding that assuming the claimant-1st appellant was a foreign company that was not registered in Nigeria, it was capable of maintaining an action in Nigeria. This would have put to rest any question as to the capacity of a foreign company that is not registered in Nigeria to sue or be sued in Nigeria. It would also have made the Supreme Court’s decision exhaustive in this regard.
[1] (2021) All FWLR (Pt. 1083) 359.
[2](2004) 13 NWLR 376.
[3]Companhia Brasileira De Infraestrututira v Cobec (Nig) Ltd (2004) 13 NWLR 376, 391, 395 (Aderemi JCA, as he then was) (overturned on the point of proof of change of the name of the foreign company, but the decision that the foreign company could sue and be sued was affirmed by the Nigerian Supreme Court in INFAZ v COBEC (Nig) Ltd (2018) 12 NWLR 127). See also Watanmal (Singapore) Pte Ltd v. Liz Olofin and Company Plc (1997) LPELR-6224(CA) 13 (Musdapher JCA as he then was); NU Metro Retail (Nig) Ltd v. Tradex S.R.L & Anotherr (2017) LPELR-42329(CA) 41-2 (Garba JCA as he then was).
[4](2006) 4 NWLR 114.
[5]Edicomsa International Inc and Associates v CITEC International Estates Ltd (2006) 4 NWLR 114, 125-26 (Rhodes-Vivour JCA, as he then was), 130 (Omage JCA). See also B.C.N.N. Ltd. v. Backbone Tech. Net. Inc. (2015) 14 NWLR (Pt. 1480) 511. Cf. AG Butler (Nig) (Ltd) v The Sanko Steamship Co. Ltd (2020) LPELR -51141 (CA). Cf. Hung & Ors v. EC Investment Co. (Nig) Ltd (2016) LPELR -42125 (CA) (Tur JCA dissenting).
[6] (2021) All FWLR (Pt. 1083) 359
[7] “Subject to sections 56 to 59 of this Act, every foreign company which before or after the commencement of this Act was incorporated outside Nigeria, and having the intention of carrying on business in Nigeria, shall take all steps necessary to obtain incorporation as a separate entity in Nigeria for that purpose, but until so incorporated, the foreign company shall not carry on business in Nigeria or exercise any of the powers of a registered company and shall not have a place of business or an address for service of documents or processes in Nigeria for any purpose other than receipt of notices and other documents, as matters preliminary to incorporation under this Act.” This provision is now contained in Section 78 of the the Companies and Allied Matters Act, 2020.
[8] ibid, 396.
New Principles of Sovereign Immunity from Enforcement in India: The Good, The Bad, And The Uncertain (Part I)
This post was written by Harshal Morwale, an India-qualified international arbitration lawyer working as an associate with a premier Indian law firm in New Delhi; LLM from the MIDS Geneva Program (2019-2020); alumnus of the Hague Academy of International Law.
Sovereign immunity from enforcement would undoubtedly be a topic of interest to all the commercial parties contracting with state or state entities. After all, an award is only worth something when you can enforce it. The topic received considerable attention in India recently, when the Delhi High Court (“DHC”) ruled on the question of immunity from enforcement in case of commercial transactions (KLA Const Tech v. Afghanistan Embassy). This ruling is noteworthy because India does not have a consolidated sovereign immunity law, and this ruling is one of the first attempts to examine immunity from enforcement.
This post is part I of the two-part blog post. This part examines the decision of the DHC and identifies issues emanating from it. The post also delves into the principles of international law of state immunity and deals with the relevance of diplomatic immunity in the current context. The second part (forthcoming) will explore the issue of consent to the arbitration being construed as a waiver of immunity from enforcement and deal with the problem of whether the state’s property can be attached to satisfy the commercial arbitral award against a diplomatic mission.
DHC: No Sovereign Immunity From Enforcement In Case Of Commercial Transactions
In the case of KLA Const Tech v. Afghanistan Embassy, KLA Const Technologies (“claimant”) and the Embassy of the Islamic Republic of Afghanistan in India (“respondent”) entered into a contract containing an arbitration clause for rehabilitation of the Afghanistan Embassy. During the course of the execution of works, a dispute arose between the parties. The claimant initiated the arbitration. An ex parte award was passed in favor of the claimant by the Sole Arbitrator. Since the respondent did not challenge the award, the claimant seeks its enforcement in India in line with Section 36(1) of the Arbitration & Conciliation Act 1996, whereby enforcement cannot be sought until the deadline to challenge the award has passed. In the enforcement proceedings, the DHC inter alia focused on immunity from enforcement of the arbitral award arising out of a commercial transaction.
The claimant argued that the respondent is not entitled to state immunity because, in its opinion, entering into an arbitration agreement constitutes “waiver of Sovereign Immunity.” Further, relying on Articles 10 and 19 of the United Nations Convention on Jurisdictional Immunities of States and Their Property (“UNCJIS”), the claimant argued that the states cannot claim immunity in case of commercial transactions and the UNCJIS expressly restricts a Foreign State from invoking sovereign immunity against post-judgment measures, such as attachment against the property of the State in case of international commercial arbitration.
After analyzing the claimant’s arguments and relevant case laws, the DHC reached the following decision:
- In a contract arising out of a commercial transaction, a foreign state cannot seek sovereign immunity to stall the enforcement of an arbitral award rendered against it.
- No separate consent for enforcement is necessary, and consent to arbitrate is sufficient to wave the immunity. The DHC opined that this ruling is in “consonance with the growing International Law principle of restrictive immunity.”
The DHC ordered the respondent to declare inter alia all its assets, bank accounts in India, etc., by a stipulated date. Since the respondent did not appear and did not make any declaration by that date, the DHC has granted time to the claimant to trace the attachable properties of the respondent.
The decision has been well received in the Indian legal community and has been lauded as a pro-arbitration decision as it promotes prompt enforcement of arbitral awards in India, regardless of the identity of the award-debtor. The decision is also one of the first attempts to define immunity from ‘enforcement’ in India. The existing law of sovereign immunity in India is limited to section 86 of the Indian Civil Procedure Code, which requires the permission of the Central Government in order to subject the sovereign state to civil proceedings in India. Therefore, the DHC’s decision is critical in the development of sovereign immunity jurisprudence in India.
Difference Between Jurisdictional Immunity And Enforcement Immunity Under The UNCJIS
It is worth noting that the DHC did not explicitly address the claimant’s argument regarding the UNCJIS. Regardless, it is submitted that the claimant’s argument relying on articles 10 and 19 of the UNCJIS is flimsy. This is particularly because the UNCJIS recognizes two different immunities – jurisdiction immunity and enforcement immunity. Article 10 of the UNCJIS, which provides for waiver of immunity in case of commercial transactions, is limited to immunity from jurisdiction and not from enforcement. Further, Article 20 of the UNCJIS clearly states that the state’s consent to be subjected to jurisdiction shall not imply consent to enforcement. As argued by the late Professor James Crawford, “waiver of immunity from jurisdiction does not per se entail waiver of immunity from execution.”
Notwithstanding the above, even the DHC itself refrained from appreciating the distinction between immunity from jurisdiction and immunity from enforcement. The distinction is critical not only under international law but also under domestic statutes like the English Sovereign Immunity Act (“UKSIA”). It is submitted that Indian jurisprudence, which lacks guidance on this issue, could have benefitted from a more intricate analysis featuring the rationale of different immunities, the standard of waivers, as well as the relevance of Article 20 of UNCJIS.
Curious Framing Of The Question By The DHC
In the current case, the DHC framed the question of sovereign immunity from enforcement as follows: Whether a Foreign State can claim Sovereign Immunity against enforcement of arbitral award arising out of a commercial transaction? On the face of it, the DHC decided a broad point that the award is enforceable as long as the underlying transaction is commercial. The real struggle for the claimants would be to determine and define which property would be immune from enforcement and which wouldn’t.
The framing of the issue is interesting because the sovereign state immunity from enforcement has generally been perceived as a material issue rather than a personal issue. In other words, the question of state immunity from enforcement has been framed as ‘what subject matter can be attached’ and not ‘whether a particular debtor can claim it in a sovereign capacity’. In one of the case laws analyzed by the DHC (Birch Shipping Corp. v. The Embassy of the United Republic of Tanzania), the defendant had argued that under the terms of the US Foreign Sovereign Immunities Act, its “property” was “immune from the attachment.” Further, in the operative part of the judgment, the US District Court stated, “the property at issue here is not immune from attachment.” Unlike the DHC’s approach, the question of immunity from enforcement in the Birch Shipping case was argued and ruled upon as a material issue rather than a personal one.
While the decision of the DHC could have a far-reaching impact, there is a degree of uncertainty around the decision. The DHC ruled that as long as the transaction subject to arbitration is commercial, the award is enforceable. There remains uncertainty on whether this ruling means that all properties of the sovereign state can be attached when the transaction is commercial. Would this also mean diplomatic property could be attached? The DHC still has the opportunity to clarify this as the specific properties of the respondent for the attachment are yet to be determined, and the claimant has been granted time to identify the attachable properties.
Diplomatic Immunity or Sovereign Immunity: Which One Would Apply?
While state immunity and diplomatic immunity both provide protection against proceedings and enforcements in the foreign court or forum, the subjects of both immunities are different. While sovereign immunity aims to protect the sovereign states and their instrumentalities, diplomatic immunity specifically covers the diplomatic missions of the foreign states. The law and state practice on sovereign immunity are not uniform. On the other hand, the law of diplomatic immunity has been codified by the Vienna Convention on Diplomatic Relations (“VCDR”). Unlike the UNCJIS, the VCDR is in force and has been adopted by over 190 states, including India and Afghanistan.
Since the party to the contract, the arbitration, and the enforcement proceedings in the current case is an embassy, which is independently protected by the diplomatic immunity, the decision of the DHC could have featured analysis on the diplomatic immunity in addition to the state immunity. Like the UNCJIS, the VCDR recognizes the distinction between jurisdictional and enforcement immunities. Under Article 32(4) of the VCDR, the waiver from jurisdictional immunity does not imply consent to enforcement, for which a separate waiver shall be necessary.
Additionally, the DHC had an opportunity to objectively determine whether the act was sovereign or diplomatic. In Re P (Diplomatic Immunity: Jurisdiction), the English Court undertook an objective characterization of the entity’s actions to determine whether they were sovereign or diplomatic. The characterization is critical because it determines the kind of immunity the respondent is subject to.
In the current case, the contract for works entered into by the embassy appears to be an act undertaken in a diplomatic capacity. Hence, arguably, the primary analysis of the DHC should have revolved around diplomatic immunity. It is not to argue that the conclusion of the DHC would have been different if the focus was on diplomatic immunity. However, the analysis of diplomatic immunity, either independently or together with the sovereign immunity, would have substantially bolstered the significance of the decision considering that the interplay between sovereign and diplomatic immunities under Indian law deserves more clarity.
One might argue that perhaps the DHC did not deal with diplomatic immunity because it was raised neither by the claimant nor by the non-participating respondent. This raises the question – whether the courts must raise the issue of immunity proprio motu? The position of law on this is not entirely clear. While section 1(2) of the UKSIA prescribes a duty of the Court to raise the question of immunity proprio motu, the ICJ specifically rejected this approach in the Case Concerning Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v. France) (para 196). Both of these approaches, however, relate to sovereign immunity, and there lacks clarity on the issue in the context of diplomatic immunity.
Conclusion
As noted above, despite being one of the first Indian decisions to deal with state immunity from an international law perspective, the decision leaves several questions open, such as the determination of attachable properties and the relevance of diplomatic immunity in the current context. It remains to be seen what approach the DHC takes to resolve some of these issues in the upcoming hearings.
The next part of the post explores the issue of consent to the arbitration being construed as a waiver of immunity from enforcement. The next part also deals with the problem – whether the state’s property can be attached to satisfy the commercial arbitral award against a diplomatic mission.
News
HCCH Internship Applications Now Open
Applications are now open for three- to six-month legal internships at the Permanent Bureau’s headquarters in The Hague, for the period from July to December 2024!
Interns work with our legal teams in the areas of International Family and Child Protection Law, Transnational Litigation and Legal Cooperation, and International Commercial, Digital and Financial Law. Duties may include carrying out research on particular points of private international law and/or comparative law, taking part in the preparation of HCCH meetings and contributing to the promotion of the HCCH and its work.
Applications should be submitted by Friday, 29 March 2024. For more information, please visit the Internships Section of the HCCH website.
This post is published by the Permanent Bureau of the Hague Conference of Private International Law (HCCH).
Choice of Law in the American Courts in 2023
The thirty-seventh annual survey on choice of law in the American courts is now available on SSRN. The survey covers significant cases decided in 2023 on choice of law, party autonomy, extraterritoriality, international human rights, foreign sovereign immunity, adjudicative jurisdiction, and the recognition and enforcement of foreign judgments. So, on this leap day, we thought we would leap into the new month by looking back at the old year.
The Japanese Yearbook of International Law (Vol. 66, 2023)
The latest volume (Vol. 66, 2023) of the Japanese Yearbook of International Law (formerly Annual Yearbook of Private International Law) – published by the International Law Association of Japan – has recently been released. It contains the following articles, case notes, and English translations of some court decisions relating to or relevant to private international law.
