Enforcing Foreign Judgments against States in England : getting it right …. and getting it wrong - Simon Rainey QC and Paul Henton

Mon, 02 September, 2019

Heiser and Others v Republic of Iran [2019] EWHC 2074 (QB)

After a seven year jurisdictional battle, on 31 July the Court handed down judgment dismissing claims for recognition and enforcement of a series of US Judgments against Iranian State Defendants totalling over US$512 million (exclusive of interest).  Along the way the Court determined important questions regarding the application of f s. 31 of the Civil Jurisdiction and Judgments Act 1982 (“CJJA”), which sets out the jurisdictional requirements applicable to claims for recognition and enforcement of foreign judgments against state defendants.

The twin requirements of s. 31(1) CJJA are that: (a) the overseas judgment would have been so recognised and enforced if it had not been given against a State, and (b) that the overseas Court would have had jurisdiction in the matter if it had applied rules corresponding to those applicable to such matters in the UK in accordance with s. 2-11 of the State Immunity Act 1978.  These requirements are cumulative.  The burden of proof is on the Claimants to show they are each satisfied.

s. 31(1)(a) - Presence

As regards (a), the Claimants needed to show that the US Judgments would have been enforceable even if not entered against a State, this being a matter governed by English rules of private international law.  As the Judgment explains at para 60, those rules require either that the defendant had a presence in the overseas jurisdiction when the proceedings were instituted; or else some form of submission to the overseas Court.

This was the first case to hear full argument at the inter partes stage on how the “presence” requirement is to be satisfied in the case of a State Defendant. The difficulty for the Claimants was that, as the Judge explained, State-to-State business is conducted through official channels such as diplomatic missions, consulates and the like, but “no such Iranian presence has been in the United States since the 1980s when the Government of Iran was officially expelled from United States’ territory” (see paragraph 70 at footnote 20).  The Claimants therefore sought to identify entities in the US through which it argued the Iranian State could be found to be “present”, or failing that sought to argue that the requirement of “presence” should be ignored altogether in the case of State Defendants. 

The Judge had no difficulty rejecting the latter argument, which would have required the Court to simply ignore the express requirement of s. 31(1)(a), by which the requirement of presence was imported- see the various factors at paragraph 70 of the Judgment.  As the Judge explained, in the previous case of Adams v Cape [1990] 1 Ch 433, the Court of Appeal explained how the rules on presence as developed in the context of individual defendants were to be adapted and applied in the context of corporate defendants: the test being whether the company had established and maintained at its own expense a fixed place of business in the place where the Judgments were issued, and carried out the company’s business there for more than a minimal period of time (this being a multi-factorial test on all the evidence).  These requirements therefore similarly had to be adapted and applied in the context of State defendants.

In adapting the multi-factorial test to State Defendants, the Court was influenced by the definition of a “State” in the UN Convention on Jurisdictional Immunities of States and their Properties, and by the guidance in s. 14(1) of the State Immunity Act 1978 (under which  references to States include agencies and instrumentalities of the State and representatives thereof acting in that capacity, as opposed to separate entities distinct from the executive organs of the Government of the States), as applied by the Privy Council in the case of La Générale des Carrieres et des Mines (Gecamines) v FG Hemisphere Associates LLC [2012] 2 CLC 709 at [29].  In particular, where a separate entity is formed for what on the face of it are commercial or non-sovereign purposes, with its own management and budget, the “strong presumption is that its separate corporate status should be respected, and that it and the State forming it should not have to bear each other’s liabilities”, and it will take “quite extreme circumstances to displace this presumption”.  See paragraph 83 quoting the relevant passages from Gecamines.

Ultimately, the Claimants’ attempts to show presence failed on the facts.  The Claimants had therefore identified two entities in the US through which they argued the Defendants were “present”; however they had failed to adduce any admissible evidence to rebut the strong presumption which arises from their separate corporate status.  See paragraph 84 of the Judgment explaining that the admissible evidence adduced came “nowhere near the required threshold”.  An attempt to introduce a last-minute argument to the effect that the Iranian government was “present” in the US via its diplomatic mission to the United Nations in New York was rejected as it had been raised far too late and raised any number of new evidential enquiries- see paragraph 89.

s. 31(1)(b) – State Immunity

As regards limb (b) of s. 31(1) CJJA, this provides that the US Judgments could not be recognised or enforced unless the US Court would have had jurisdiction over the State Defendants “if it had applied” rules “corresponding to”  those applied in this jurisdiction under the State Immunity Act 1972 (“SIA”).  The difficulty here for the Claimants was that the US Courts had taken jurisdiction in tort claims regardless of the place in which the relevant acts/omissions were allegedly committed.  By contrast, applying rules corresponding to s. 5 of the SIA the State would have been immune from suit in tort claims unless these involved acts/omissions committed within the jurisdiction.  The Claimants therefore advanced various creative arguments on the meaning of “corresponding to” under s. 31(1)(b), and the meaning of “act” under s. 5 SIA.

Unlike limb (a), limb (b) has been the subject of authoritative guidance from the Supreme Court in the case of NML Capital Ltd v Republic of Argentina [2011] 2 AC 495, which the Judge cited at paragraph 102 and proceeded to apply.  In that case, the Supreme Court held that the natural meaning of “corresponding to” is that: “mutatis mutandis the foreign State would not have been immune if the foreign proceedings had been brought in the United Kingdom”.  As the Judge explained, the Claimants’ submissions were contrary to that guidance, and would have imported so much “elasticity” into s. 31(1)(b) as to effectively disregard the hypothesis which that section requires to be applied- see paragraph 108.

The Claimants also advanced alternative arguments along the lines that s. 31(1)(b) should be read down under s. 3 of the Human Rights Act 1998 if it did not produce the result which they were contending for, on the basis that such result would be contrary to customary international law and incompatible Art. 6 ECHR (by analogy with the very different case of Benkharbouche v Embassy of Sudan, in which aspects of the SIA relating to State Immunity over employment law claims were held incompatible with Art. 6).  The Judge had no hesitation rejecting that argument.  Amongst other things, the compatibility of s. 5 SIA with Art.6 ECHR had already been established by the European Court on Human Rights in the case of Al Adsani v UK - see para 130.  Moreover, the Supreme Court in Benkharbouche itself had considered that s. 5 was not inconsistent with customary international law in cases involving sovereign acts, since it merely introduced a further restriction to the doctrine of State Immunity in respect of such acts in cases where these were tortious and took place within the relevant jurisdiction- see paragraph 129 of the Judgment.

The Judge also rejected imaginative arguments based on interpreting the word “act” within the jurisdiction for s. 5 SIA purposes as if it had read “damage” within the jurisdiction; as well as a late attempt by the Claimants to bring the case within s. 3 of the SIA.

The Service Issues

Since the proceedings fell to be dismissed on the basis of the State Immunity Issues and non-compliance with the requirements of s. 31 CJJA, the further set of issues before the Judge relating to service technically did not arise. Nevertheless, the Judge went on to decide the issues of whether the English proceedings and default judgment therein had been served within the mandatory requirements of s. 12 SIA.

In so doing, the Judge gave valuable guidance on the meanings of “transmission” by the English FCO and “receipt at the Ministry” of Foreign Affairs of the State Defendant overseas.  In particular, the Judge held that physical “receipt” connotes more than just the leaving of documents at the Ministry and requires a positive act of assuming possession on the part of the Defendant.  Thus, where the Defendants refuse to receive documents, they cannot be held to have “received” them (see paragraph 236).  The Judgment also corrects a line of ex parte decisions in which the Court had been prepared to grant orders permitting service by email.  The requirements of s. 12 are mandatory, so no such order could be granted by way of alternative service, and service by email cannot be said to be already inherently permitted by s. 12 (see paragraph 239). 

Simon Rainey QC and Paul Henton acted for the successful defendants, instructed by Mark Howarth and Liz Wild of Eversheds Sutherland. 

A copy of the judgment can be found here

        

Simon Rainey QC

Simon Rainey QC is one of the best-known and most highly regarded practitioners at the Commercial Bar with a high reputation for his intellect, advocacy skills and commercial pragmatism. He has a broad commercial advisory and advocacy practice spanning substantial international contractual disputes, energy and natural resources, trade and commodities, and shipping and maritime law in all its aspects, in arbitration and at all Court levels, including three recent leading cases in the Supreme Court (Bunge SA v Nidera SA [2015] UKSC 43: sale of goods damages; The Global Santosh [2016] UKSC 20: liability for delegated performance and Volcafe v CSAV [2018] UKSC 61; Hague Rules burden of proof). His practice regularly involves substantial high profile and high value commercial disputes, typically involving fraud aspects, and heavy interlocutory stages centred around pre-emptive strike applications such as worldwide freezing injunctions and anti-suit and other injunctive relief, a recent example of which is the hard-fought Gerald Metals v Timis litigation in England, Cayman and the BVI (2017-2018). Cases  usually with an international aspect and often involving complex issues relating to jurisdiction, conflicts of law and enforcement. Of particular note, he was involved in the Antonio Gramsci litigation concerning a massive alleged fraud by the management of Latvian state owned companies and, in particular, by a number of leading Latvian politicians. The cases have led to a number of hard fought jurisdiction hearings and a consideration of entirely new principles of ‘piercing the corporate veil’, developed by him and successfully advanced for the first time in this case.

He has extensive experience of international arbitration, regularly appearing as advocate under all of the main international arbitral rules (LCIA; SIAC, UNCITRAL; ICC, Swiss Rules etc) and also sitting as arbitrator. Current examples of his work as counsel are in arbitration before the Permanent Court of Arbitration in a US 13billion gas supply dispute; under Nigerian Law and seat in relation to an offshore oilfield redetermination dispute between oil majors, under UNCITRAL Rules in a mining supply take or pay dispute involving one of the world’s leading mine conglomerates; an ICC arbitration concerning a new mine development in Russia and an ICC Dubai seat arbitration involving specialist offshore vessels and in associated s67 and s68 LCIA challenges in the A v B [2017] EWHC 3417 (Comm) litigation in the Commercial Court.

He is highly ranked by Chambers and Partners and Legal 500 as a first division international arbitration and energy specialist and as a leading commercial litigation practitioner. He features in the Legal 500 ‘International Arbitration Powerlist’.  He was nominated for both “International Arbitration Silk of the Year and Shipping Silk of the Year 2019” by Legal 500 and for “Shipping & Commodities Silk of the Year 2018” by Chambers & Partners. He was awarded “Shipping & Commodities Silk of the Year” 2017 by both Chambers & Partners and Legal 500.

He sits as a deputy High Court Judge in the Commercial Court and is Honorary Professor of Law, Business and Economics, University of Swansea.

“A fantastically intelligent and tactically astute barrister who is immensely erudite”; “A pleasure to work with. Fantastically intelligent and tactically astute.” ...”Personable and intellectually brilliant. He has the ability to sift through numerous documents and turn arguments into razor-sharp points that get straight to the core issues”; .”Meticulous and very thoughtful”;  “Simon is just brilliant at conveying the meaning of agreements and making complex things simple and persuasive.”... “He’s a very fluent advocate and a very good cross-examiner.”   (Chambers UK 2019)

“Incredibly user friendly; a great advocate”; “Absolutely charming and probably the best cross-examiner I’ve ever seen”;  “A class act who’s proved himself to be a stellar performer; he’s fighting at the top of his game”; “One of the best commodities barristers – diligent and responsive, he is an excellent example of the modern QC.”; A senior QC with gravitas and an ability to provide crystal clear advice that gets to the bottom line”; ‘He is a gift to the Bar – he can always think a few steps ahead and understands both the legal and commercial perspectives.”;  ‘A first-choice QC for the very complicated cases” (Legal 500 2019)

> view Simon's full profile

simon.rainey@quadrantchambers.com

Paul Henton

Paul has a broad commercial practice with an emphasis on shipping and commodities, international trade, energy, banking, aviation, and insurance.  Within these fields his work covers the full range of disputes from charterparties to international sales to shipbuilding and FPSO construction/conversion disputes to banking/trade finance to insurance and reinsurance towers to State Immunity disputes to multi-million dollar international arbitrations and much more.

For several years he has been recommended as a leading practitioner in the leading independent guides to the market.  He holds recommendations in Chambers UK, Chambers Global, Who’s Who Legal, Legal 500 UK, Legal 500 Asia Pacific, where he is recommended in a number of fields. The most recent (2019) described him as follows: "An excellent member of the team. He gets to grips with the technical issues quickly and is level-headed under pressure. His written work is excellent." (Chambers UK/ Global); “"Very responsive, articulate and clear, he thinks commercially rather than in a legal vacuum"(Legal 500 Asia Pacific); “Bright and commercial, he is very responsive and goes out of his way to help” (Legal 500 UK)

Paul appears led and unled, or as part of a team where he leads more junior barristers. He has appeared at all levels of the Court system, including the Court of Appeal and the Privy Council. His first instance Court work is primarily in the Commercial and Admiralty divisions; but he also appears in the Chancery Division, Companies Court and Mercantile Courts.  He also acts in related interlocutory matters such as jurisdictional challenges, freezing orders and anti-suit injunctions and in appeals from/challenges to arbitration awards.  Paul’s practice has a strong international flavour and in recent years his work has taken him to Shanghai, Singapore, Dubai, Bahrain, Trondheim, Piraeus, Geneva, Jersey, and (ahem) Liverpool.

> view Paul's full profile

paul.henton@quadrantchambers.com