state immunity in the context of enforcement of investment … · 2020-06-29 · icsid ·...

State Immunity in the Context ofEnforcement of Investment ArbitrationAwards

Adrian Lai

ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2State Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Immunity from Suit and from Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Recognition of an Investment Award Being a Distinct and Separate Stage from Execution . . . 6Immunity from Suit at the Recognition Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Is Immunity Engaged at All? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12The “Commercial” Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Immunity from Execution at the Execution Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Immunity from Execution as Distinct from Immunity from Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . 22The “Waiver” Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24The “Earmarked Property” Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26The “Commercial Property” Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Abstract

In enforcing an investment arbitral award against the debtor State, state immunityis engaged in both the recognition stage and at the execution stage. While forumStates are more prepared to withhold immunity at the recognition stage, whetherby waiver or otherwise, state immunity from execution remains to be the thornyissue standing in the investor’s way to collect the award. The chapter considersthat immunity from execution being the “Achilles’ heel” of the investor-Statearbitration system is an over-statement, in particular when the 2017 ICSID’ssurvey suggested that States generally complied with awards made in favor ofinvestors. Waiver remains an important exception to both types of immunity and

A. Lai (*)Asian Academy of International Law, Hong Kong, Chinae-mail: [email protected]

© Springer Nature Singapore Pte Ltd. 2020J. Chaisse et al. (eds.), Handbook of International Investment Law and Policy,https://doi.org/10.1007/978-981-13-5744-2_21-1

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forum States generally accept contractual waiver. While “caveat emptor”may stillapply in cross-border investment involving a State, the risk can be reduced(though not eliminated) by an agreement with a properly drafted waiver clause.

Keywords

ICSID · Enforcement · Immunity

Introduction

An investor, having succeeded its claim in an investment arbitration against a State,from time to time faces obstacles in putting its hands on the debtor State’s assets dueto the plea of state immunity. In fact, state immunity, in particular immunity fromexecution, has been described as the “Achilles’ heel” of the investor-State arbitrationsystem.1

In this chapter, the author discusses what the stages that a creditor investor needsto go through in enforcing an investment arbitration award against a State are, andexplains by reference to treaties, statutes, and case law the different legal issuesinvolved in each stage. For the purpose of this chapter, the awards referred to hereinare awards resulted from arbitrations commenced by investors against States(excluding States’ agencies or instrumentalities)2 with respect to any legal disputearising directly out of an investment, whether such arbitrations are commencedpursuant to the ICSID Convention or otherwise.

State Immunity

State immunity derives from the trite principle of international law that all States areequal and one does not have authority over another (par in parem non habetimperium). Marshall CJ in The Schooner Exchange v. McFaddon3 explained:

This full and absolute territorial jurisdiction being alike the attribute of every sovereign, andbeing incapable of conferring extra-territorial power, would not seem to contemplate foreignsovereigns nor their sovereign rights as its objects. One sovereign being in no respectamenable to another, and being bound by obligations of the highest character not to degradethe dignity of his nation, by placing himself or its sovereign rights within the jurisdiction ofanother, can be supposed to enter a foreign territory only under an express licence, or in theconfidence that the immunities belonging to his independent sovereign station, though notexpressly stipulated, are reserved by implication, and will be extended to him.

1Schreuder CH (2009) The ICSID convention. A commentary, 2nd edn. p 11542Accordingly, discussion on the law treating an entity to be an agent or instrumentality of a State isbeyond the scope of this article.3[1812] 7 Cranch 16

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This perfect equality and absolute independence of sovereigns, and this common interestcompelling them to mutual intercourse, and an interchange of good offices with each other,have given rise to a class of cases in which every sovereign is understood to waive theexercise of a part of that complete exclusive territorial jurisdiction, which has been stated tobe the attribute of every nation.

Despite debate regarding the origin of State immunity in the past, the principleremains an important tenet of international legal order and it not only affordsprivilege to the defendant State in the forum State but also imposes a duty on theforum State to afford such privilege to the defendant State. In Jurisdictional Immu-nities of the State (Germany v. Italy: Greece intervening) (the “JurisdictionalImmunities Case”), the International Court of Justice (the “ICJ”) held:

. . . [The State practice] shows that, whether in claiming immunity for themselves oraccording it to others, States generally proceed on the basis that there is a right to immunityunder international law, together with a corresponding obligation on the part of other Statesto respect and give effect to that immunity.

The Court considers that the rule of State immunity occupies an important place ininternational law and international relations. It derives from the principle of sovereign equalityof States, which, as Article 2, paragraph 1, of the Charter of the United Nations makes clear, isone of the fundamental principles of the international legal order. This principle has to beviewed together with the principle that each State possesses sovereignty over its own territoryand that there flows from that sovereignty the jurisdiction of the State over events and personswithin that territory. Exceptions to the immunity of the State represent a departure from theprinciple of sovereign equality. Immunity may represent a departure from the principle ofterritorial sovereignty and the jurisdiction which flows from it.4

Traditionally, state immunity was said to be absolute in that without consent ofthat State (i.e., waiver), that State and its assets could never be made subject to legalproceedings of another State. Inroads have been made since the last century in that,at least insofar as immunity from suit is concerned, the “restrictive” approach is saidto have gained the floor to be the norm replacing the traditional “absolute” approach.

Instead of treating the “restrictive” approach as the antithesis to the “absolute”approach, the better view, the author considers, is that the general principle of stateimmunity remains but exceptions have been created thereto by many States, whetherby domestic legislation or case law. It is indeed the approach how the internationalcommunity approaches the matter. For instance, in the UN Convention on Jurisdic-tional Immunities of States and Their Property (“UNCSI”) adopted on 2 December2004,5 Article 5 provides:

A state enjoys immunity, in respect of itself and its property, from the jurisdiction of thecourts of another State subject to the provisions of the present Convention.

4Judgment, I.C.J. Reports 2012, at 99, paras 56–575Resolution of the UN General Assembly 59/38 (A/Res/59/38)

State Immunity in the Context of Enforcement of Investment Arbitration Awards 3

The said Article lays down the default position that a State is entitled to immunityunless it is otherwise provided in UNSCI. This approach is shared by many juris-dictions practicing “restrictive” approach. For instance, in the United Kingdom, s.1(1) of the State Immunity Act 1978 (“UKSIA”) provides that:

A State is immune from jurisdiction of the courts of the United Kingdom except as providedin the following provisions of this Part of this Act.

Also, in, §§1604 and 1609 of the US Foreign Sovereign Immunities Act(“USFSIA”) provides:

Subject to existing international agreements to which the United States is a party at the timeof enactment of this Act a foreign state shall be immune from the Jurisdiction of the courts ofthe United States and of the States except as provided in sections 1605 to 1607 of thischapter.

Subject to existing international agreements to which the United States is a party at the timeof enactment of this Act the property in the United States of a foreign state shall be immunefrom attachment arrest and execution except as provided in sections 1610 and 1611 of thischapter.

The default position (subject to exceptions created by law) is important: it is becauseeven the “restrictive” approach is practiced, the forum State has to identify anexception to the default position, whether statutory or otherwise, before it assumesjurisdiction over the defendant foreign State. Absent any applicable exception, theforum is obliged to afford immunity to the defendant State as a matter of interna-tional legal obligation.

Immunity from Suit and from Execution

Theoretically, immunity from suit is separate from immunity from execution in thesense that the former refers exclusively to immunity from the forum State exercisingadjudicative power to hear and decide a substantive claim against the defendant Stateand the latter the immunity from forum State’s measures of execution over theforeign State with respect to its property.

There have been instances where national courts did not draw such a distinctionand held that a defendant State would not be entitled to assert immunity fromexecution if it is found to have not been entitled to assert immunity from suit: “Lepouvoir d’ exécution est la consequence du pouvoir de jurisdiction” (“execution wasthe necessary consequence of jurisdiction”): e.g., Société Commerciale de Belgique

6(1952) 79 Clunet 244 (Belgium); 18 ILR 3 (1951) at 77Swiss Federal Tribunal, 6 June 1956; 23 ILR 195 (1960)

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v. L’État Hellenique (“SOCOBEL v. Greece”) (Belgium)6; and Kingdom of Greece v.Julius Bär & Co (Switzerland).7

That said, the general modern practice of States remains treating two types ofimmunities separate and this is the basis upon which UNCSI was drafted. In theReport of the International Law Commission (“ILC”) with respect to the adoption ofthe draft articles on jurisdictional immunities of States and their properties andcommentaries thereto, the following commentary was made to Article 18 (nowsplit into Articles 18 and 19):

(2) The practice of States has evidenced several theories in support of immunity fromexecution as separate from and not interconnected with immunity from jurisdiction. What-ever the theories, for the purposes of this article, the question of immunity from executiondoes not arise until after the question of jurisdictional immunity has been decided in thenegative and until there is a judgment in favour of the plaintiff. Immunity from executionmay be viewed, therefore, as the last bastion of State immunity. If it is admitted that nosovereign State can exercise its sovereign power over another equally sovereign State . . ., itfollows a fortiori that no measures of constraint by way of execution or coercion can beexercised by the authorities of one State against another State and its property. Such apossibility does not exist even in international litigation, whether by judicial settlement orarbitration.8

The distinction, the author considers, is important. Unlike immunity from suit towhich substantial inroads have been made by States’ practices, immunity fromexecution remains to be “the last bastion of State immunity”. The ICJ held in theJurisdictional Immunities Case:

. . . the Court observes that the immunity from enforcement enjoyed by States in regard totheir property situated on foreign territory goes further than the jurisdictional immunityenjoyed by those same States before foreign courts. Even if a judgment has been lawfullyrendered against a foreign State, in circumstances such that the latter could not claimimmunity from jurisdiction, it does not follow ipso facto that the State against whichjudgment has been given can be the subject of measures of constraint on the territory ofthe forum State or on that of a third State, with a view to enforcing the judgment in question.Similarly, any waiver by a State of its jurisdictional immunity before a foreign court does notin itself mean that that State has waived its immunity from enforcement as regards propertybelonging to it situated in foreign territory. The rules of customary international lawgoverning immunity from enforcement and those governing jurisdictional immunity (under-stood stricto sensu as the right of a State not to be the subject of judicial proceedings in thecourts of another State) are distinct, and must be applied separately.9

In the context of an investment award, the distinction is further illustrated by theICSID Convention in which Article 55 expressly preserves the defendant State’simmunity from execution (but silent on immunity from suit) afforded by the forumState in accordance with the law of the forum State.

8Report of the International Law Commission on the work of its forty-third session (Doc A/46/10)(1991) YBILC, vol II, part 2, at 569Id. at para 113


Recognition of an Investment Award Being a Distinct andSeparate Stage from Execution

While an investment award may by itself give rise to an obligation owed by thedebtor State to satisfy the award, a creditor investor is still required to go through thedomestic legal system of the forum State to enforce the award.

Article 54 of the ICSID Convention uses the terms “recognition,” “enforcement,”and “execution” to prescribe the procedures for collection of the awards while theNew York Convention the terms “recognition” and “enforcement.” These terms needto be clarified for they refer to distinct and separate stages.

It is considered that a creditor investor needs to go through two distinct stages,namely, the recognition stage and the execution stage, in enforcing an award. Recogni-tion refers to the formal confirmation by the forum State that the award in question isenforceable within the forum State. Upon completion of the recognition stage, the awardbecomes a binding and enforceable decision in the eyes of the forum State and can beexecuted against the award debtor (subject to any defences available to the said debtor).

In the context of an award made under the ICSID Rules, the recognition stage isstraightforward in that:

Each Contracting State shall recognize an award pursuant to [the ICSID Convention] asbinding and enforce the pecuniary obligation imposed by that award within its territories as ifit were a final judgment of a court in that State.10

Accordingly, when a creditor investor engages the jurisdiction of the court of theforum State to recognize an ICSID arbitral award, the contracting forum State isobliged to accede to the investor’s application, subject to the investor’s compliancewith its duty to furnish the forum State with a copy of the award certified by theICSID Secretary-General.11

In the context of a non-ICSID award, the New York Convention provides anavenue through which an award creditor may seek recognition of the award in a

10Article 54(1) of the ICSID Convention11Article 54(2) of the ICSID Convention. See Chaisse J (2015) The issue of treaty shopping ininternational law of foreign investment – structuring (and restructuring) of investments to gainaccess to investment agreements. Hastings Bus Law Rev 11(2):225–30612Some States pursuant to Article I(3) of the Convention make reservations confining the applica-tion to differences arising out of commercial legal relationship as defined by their respectivedomestic laws. For instance, China has expressly excluded awards made with respect to disputesbetween foreign investors and the host State from the application: see the “Circular of SupremePeople’s Court on Implementing Convention on the Recognition and Enforcement of ForeignArbitral Awards Entered by China”13Article IVof the New York Convention, however, does not prohibit the contracting forum State toimpose such a pre-condition as part of its own rules of procedures.14For instance, Swiss case law requires a “sufficient domestic connection”with Switzerland (knownas “Binnenbeziehung”) before an award can be enforced in Switzerland, and this has recently beenreaffirmed. In A Ltd v. Uzbekistan (Second Civil Law Court, 7 September 2018), the court, in

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contracting forum State. Article III of the New York Convention provides that acontracting forum State, upon the investor’s compliance with the requirements underArticle IV, is obliged to recognize an award (including an investment award unlessthe contracting forum State has excluded it from the scope of application)12 made inthe territory of another contracting State in accordance with its rules of procedures.That obligation, however, is subject to the grounds of refusal to recognize aConvention award exhaustively set out in Article Vof the Convention.

It is to be noted that neither the ICSID Convention nor the New York Conventionmakes the presence of the defendant State’s assets as a precondition for thecontracting forum State to recognize the award,13 though a territorial nexus maybe required by some States.14 It follows that the “recognition” stage, while in mostcases being the first step towards seizing the award debtor’s assets situated in theforum State to satisfy the award, remains a distinct and separate stage.

The “recognition” stage being accepted as a distinct and separate stage is crucial.It is because the recognition stage is the first step that an investor needs to embark onin collecting its award, and the Article 54(1) of the ICSID Convention and Article IIIof the New York Convention for that purpose, respectively, provide for summaryprocedures, leaving the problems (both legal and factual) concerning actual execu-tion to be dealt with at a later stage.

In Société Ouest Africaine des Bétons Industriels (SOABI) v. Senegal, the FrenchCour de cassation in reinstating the decision to recognize the ICSID award againstSenegal held:

[The ICSID Convention] has instituted in Articles 53 and 54 an autonomous and simplifiedregime for recognition and enforcement which excludes that provided for in Articles 1498and following of the New Code of Civil Procedure and, in particular, the remedies which areprovided therein.15

This view was echoed in Ioannis Kardassopoulos v. Georgia,16 in which the ad hocannulment committee held:

refusing to enforce a New York Convention award against Uzbekistan, held (1) that theBinnenbeziehung requirement went to the jurisdiction of the court to recognize and enforce anaward; (2) that the Binnenbeziehung requirement was compatible with New York Convention for itpermits contracting States to enforce awards “in accordance with the rules of procedure of theterritory where the award is relied upon”; (3) that the Binnenbeziehung requirement could besatisfied if (a) the legal relationship underlying the award was established in Switzerland or to befulfilled there; or (b) the award debtor undertook certain positive acts to establish that the awardcould be executed in Switzerland; and (c) mere presence of assets in Switzerland or the award beingmade in Switzerland would be insufficient.15113 ILR 440 (1999), at 44516ICSID Case No. ARB/05/18, Decision of the ad hoc Committee on the Stay of Enforcement of theAward (12 November 2010)17[2002] EWHC 2120 (Comm)


30. . . . The simplified and automatic enforcement system of Article 54(1) of the ICSIDConvention should not be conflated with the measures of execution that follow the ordergranted by the court or authority designated in accordance with Article 54(2) for enforce-ment of the award and which are referred to in Article 54(3) providing that ‘[e]xecution ofthe award shall be governed by the laws concerning the execution of judgments in force inthe State in whose territories such execution is sought’. . . .

Similarly, in the context of the New York Convention, in Norsk Hydro ASA v. StateProperty Fund of Ukraine,17 Gross J. held:

Ss. 100 and following of the [English] Arbitration Act 1996 . . . provide for the recognitionand enforcement of New York Convention Awards. There is an important policy interest,reflected in this country’s treaty obligations, in ensuring the effective and speedy enforce-ment of such international arbitration awards; the corollary, however, is that the task of theenforcing court should be as ‘mechanistic’ as possible. Save in connection with the thresholdrequirements for enforcement and the exhaustive grounds on which enforcement of a NewYork Convention award may be refused . . ., the enforcing court is neither entitled nor boundto go behind the award in question, explore the reasoning of the arbitration tribunal orsecond-guess its intentions. Additionally, the enforcing court seeks to ensure that an award iscarried out by making available its own domestic law sanctions. . . . Viewed in this light, as amatter of principle and instinct, an order providing for enforcement of an award must followthe award.

The “mechanistic” approach adopted by the United Kingdom at the recognitionstage is echoed by the French decision of Benevenuti & Bonfant v. Congo.18 In thatcase, the investor obtained an ICSID award in its favor. The court of first instance ofParis recognized the award but imposed a condition that “[n]o measure of execution,or even a conservatory measure, shall be taken pursuant to the said award, on anyassets located in France, without the prior authorization of this Court.” The investorappealed against the condition and contended that the first instance judge hadconfused two different stages, namely, that relating to the obtaining of an exequaturand that relating to actual execution. The Cour d’ appel allowed to the investor’sappeal and held:

The judge at first instance, acting on a request pursuant to Article 54 of [the ICSIDConvention] could not therefore, without exceeding his competence, become involved inthe second stage, that of execution, to which the question of immunity from execution offoreign State relates.

It is considered that the Cour d’ appel was correct in holding that the question ofimmunity from execution was not engaged at the recognition stage. Similar view wasexpressed by the Hong Kong Court of Final Appeal in FG Hemisphere AssociatesLLC v. D.R. Congo.19 In that case, D.R. Congo pleaded immunity from suit to resist

18Cour d’ appel, Paris, 26 June 1981, 65 ILR 88 (1984)19(2011) 14 HKCFAR 95, 147 ILR 376 (2011)

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the award creditor’s attempt to have the award recognized in the Hong Kong SAR. Inconsidering the question of waiver, the majority of the Court held:

379. . . .It is well-established at common law that a party seeking to enforce an arbitrationaward (or a judgment) against a foreign State on the basis of a waiver of state immunity mustestablish a waiver at two distinct stages. The impleaded State must have waived both itsjurisdictional immunity from suit in the forum State and the immunity of its property fromexecution by the forum State’s process.

. . .

382. An application for the grant of leave to enforce the award, often referred to as the‘recognition’ phase of enforcement, therefore involves discretionary adjudicative proceed-ings in which the impleaded State may claim state immunity.

383. It is furthermore clear, as stated above, that even where the recognition proceedings aresuccessful, when the applicant subsequently seeks to execute the award (now treated like ajudgment of the court), the impleaded State has a further right to object to execution againstthe targeted property on the ground of state immunity. The parties have jointly requested theCourt to focus only on the recognition proceedings, leaving aside questions of execution.

Neither the ICSID Convention nor the New York Convention prescribes theprocedures to be followed after the recognition stage. This is not surprising becauseafter the investment award has been recognized by the forum State, it remains for thecreditor investor to execute the award in accordance with the domestic rules of theforum State as if it were a judgment of the forum State. From that point of time thecreditor investor has moved to the execution stage.

Immunity from Suit at the Recognition Stage

As discussed above, the forum State is not to impose any measures of constraint onthe debtor State’s assets at this stage and accordingly the issue of immunity fromexecution does not arise. The only issue remains to be considered is whether thedebtor State is entitled to assert immunity from suit at the recognition stage.

Is Immunity Engaged at All?

One view is that state immunity is simply not engaged at all at this stage because therecognition stage (1) is the tail end (or the “final step”20) of the arbitration itself fromwhich the impleaded State has waived the immunity, and/or (2) is purely an

20Bernini G., Van den Berg AJ (1987) The enforcement of arbitral awards against a state: theproblem of immunity from execution. In: Lew JDM (ed) Contemporary problems in internationalarbitration. Springer, Dordrecht21[1896] 1 QB 368


administrative (or ministerial) act of the forum State not involving its adjudicativefunction.

Neither ground has been held sustainable, at least in common law jurisdictions.With respect to the first ground, the court in Ex parte Caucasian Trading Corp Ltd21

held:

It [was] argued that the application to enforce the award must be considered as a merecontinuation of the arbitration . . .. I do not think that contention can be sustained. Theapplication for leave to enforce the award is not a matter which takes place in the arbitration.It is no more a continuation of the arbitration than an action on the award would be.

The aforesaid legal proposition, albeit pronounced over a century ago, continuesto hold: e.g., the majority decision of the Hong Kong Court of Appeal in the FGHemisphere case.22 In fact, when one considers Article 17 of the USCSI and Article12 of the European Convention on State Immunity 1972 (“ECSI”), one would agreethat the removal of immunity by such provisions only “[covers] the adjudicationstage of arbitration but stop short of enforcement of the arbitral award.”23 Indeed,Lady Fox QC’s review of the practices of various jurisdictions led her to thefollowing conclusion:

It can now be stated with reasonable certainty . . . that international law limits the scope ofjurisdictional immunities of a State Party to an international commercial arbitration in thefirst stage of adjudication and permits national courts to exercise a supervisory jurisdiction insupport of the arbitration agreement and the arbitral proceedings. As to the removal of Stateimmunity when the arbitral award is sought to be enforced in a national court, the differingrequirements which have to be met in national legislation indicate that there is no generallyaccepted rule sufficient to constitute a customary international rule permitting measures ofconstraint without express consent where only an exception to immunity for an arbitrationexception applies.24

With respect to the second ground, it was rejected in AIC Ltd. v. FederalGovernment of Nigeria25 (concerning registering a Nigeria judgment in the courtof the UK). Stanley Burnton J. held:

22[2010] 2 HKLRD 66, paras 176–177. The decision of the Hong Kong Court of Appeal wasreversed by the Hong Kong Court of Final Appeal: see (2011) 14 HKCFAR 95, 147 ILR 376 (2011)and (2011) 14 HKCFAR 395, 150 ILR 684 (2011) on different grounds (namely the Hong KongSAR could not as a matter of legal and constitutional principle adhere to a doctrine of stateimmunity different from that adopted by China).23Fox H. The law of state immunity, Revised and Updated 3rd edn, at 395; also ILC’s Report, at 55(supra, note 8)24Id., at 39725[2003] EWHC 1357, 129 ILR 571 (2007), at paras 19–21. The conclusion was approved first bythe Court of Appeal in Svenska Petroleum Exploration AB v. Lithuania (No 2) [2007] QB 886 (atpara 137) and later by the Supreme Court (by majority) in NML Capital Ltd v. Argentina [2011] 2AC 495, 147 ILR 575 (2011)

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The fact that an act does not involve the exercise of judgment by the court does not mean thatit is not the exercise of jurisdiction. The issue of a claim form may be said to be anadministrative act; it is nonetheless an exercise of jurisdiction. . . .

The provisions of section 9 of the 1920 Act are essentially procedural. The Act created aless costly and more efficient means of enforcing a judgment of a superior court of a part ofHer Majesty’s dominions outside the United Kingdom than a common law action on such ajudgment and the registration of a judgment have the same consequence: they bring intoexistence of a judgment of the High Court which may be the subject of process of executionin this country. The registration of a judgment under the 1920 Act on an application madewithout notice is at least as much an exercise of jurisdiction as the entering of a judgment indefault of, say, the filing of an acknowledgement of service by a defendant. The entry of sucha judgment might also be described as a non-adjudicative act.

In any event, however, it is clear that the registration of a judgment under the 1920 Act isan adjudicative act. Section 9 of that Act confers a discretion on the court to order a judgmentto be registered not a duty . . .

While the Master will normally order the registration of a judgment if the application forits registration . . . appears to be regular, he must nonetheless apply his judgment to theapplication and the written evidence in support in order to determine whether the require-ments of the Act have been satisfied, and that it is just and convenient for the foreignjudgment . . . to be enforced in this country. The fact that the application is made withoutnotice does not mean that the court does not adjudicate on it . . .

Although the AIC case was in the context of registering a foreign judgment, itsreasoning was adopted by the Hong Kong Court of Appeal in the FG Hemispherecase, in which the majority of the Court held:

I do not agree that the grant of leave [to enforce a foreign arbitral award] is, or is in the natureof a ministerial act. True it is that s.44 of the Arbitration Ordinance provides that enforce-ment of a [New York Convention] award shall not be refused except in the cases mentionedin the section – for example, where a party to the arbitration agreement was under someincapacity – but not only does the court necessarily exercise its jurisdiction when it grants orrefuse leave, but it also embarks upon an adjudicative function. The fact that the applicationfor leave is prescribed to be made ex parte is not to the point, for the applicant is not therebyrelieved of his obligation to disclose possible defences and it is open to the party againstwhom the award was made to seek to set aside leave, if granted. . . ..26

Similar view was expressed by the ICJ in the Jurisdictional Immunities Case:

The Court will then explain how it views the issue of jurisdictional immunity in relation to ajudgment which rules not on the merits of a claim brought against a foreign State, but on anapplication to have a judgment rendered by a foreign court against a third State declaredenforceable on the territory of the State of the court where that application is brought (arequest for exequatur). The difficulty arises from the fact that, in such cases, the court is notbeing asked to give judgment directly against a foreign State invoking jurisdictionalimmunity, but to enforce a decision already rendered by a court of another State, which isdeemed to have itself examined and applied the rules governing the jurisdictional immunityof the respondent State.

26Supra, note 22, at para 17427Supra, note 4, paras 126–128, see also paras 129–130


. . . The relevant question, from the Court’s point of view and for the purposes of thepresent case, is whether the Italian courts did themselves respect Germany’s immunity fromjurisdiction in allowing the application for exequatur. . ..

Where a court is seized, as in the present case, of an application for exequatur of a foreignjudgment against a third State, it is itself being called upon to exercise its jurisdiction inrespect of the third State in question. It is true that the purpose of exequatur proceedings isnot to decide on the merits of a dispute, but simply to render an existing judgmentenforceable on the territory of a State other than that of the court which ruled on the merits.It is thus not the role of the exequatur court to re-examine in all its aspects the substance ofthe case which has been decided. The fact nonetheless remains that, in granting or refusingexequatur, the court exercises a jurisdictional power which results in the foreign judgmentbeing given effects corresponding to those of a judgment rendered on the merits in therequested State. The proceedings brought before that court must therefore be regarded asbeing conducted against the third State which was the subject of the foreign judgment.27

The reasoning of AIC, FG Hemisphere and the Jurisdictional Immunities Casehas force in the context of recognizing a New York Convention award for the forumState, under the New York Convention, has a discretion to decline recognizing theaward if one or more of the “Article V” grounds is made out, and such processinvokes the adjudicative power of the forum State. However, this reasoning isweaker vis-à-vis recognition of an ICSID award for the forum Court, under Article54(1), has no discretion similar to that under the New York Convention not torecognize an ICSID award.28 In that confined context, it may be argued that stateimmunity from suit has no place at the recognition stage. However, the better view,the author considers, is that Article 54(1) should be read together with Article 53(1),pursuant to which the debtor State waives its immunity from suit and therebyallowing the forum State to recognize an ICSID award without attracting legalliability for not affording the defendant State immunity.

It is considered that the better view is to approach the recognition stage on thebasis that immunity from suit is engaged, subject to exceptions recognized by theforum State.

Waiver

Article 7(1) of UNCSI provides three ways for a defendant State to waive immunityfrom suit, namely, by international agreement, contractual waiver, and/or submis-sions to jurisdiction of the court of the forum State.

28Albeit such proceedings are still regarded as proceedings having been instituted against the debtorState by reason of that State being named as a party thereto: see Article 6(2) of the UNCSI29ILC Report, supra, note 8, at 27. Also: Delaume GR (1987) Sovereign immunity and transna-tional arbitration. In: Lew JDM (ed) Contemporary problems in international arbitration. Springer,Dordrecht, p 31630Article 26 of the Vienna Convention on the Law of Treaties 1969

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Waiver by International AgreementArticle 7(1)(a) of UNCSI allows a State to waive its immunity from suit in advanceby way of an international agreement.

Article 53(1) of the ICSID Convention imposes an obligation on the contractingdebtor State to comply with the terms of the award and Article 54(1) imposes anobligation on the contracting forum State to recognize the award. Both Articles,taken together, provide a forceful argument that a debtor State has waived itsimmunity from suit at the recognition stage, and such wavier could be relied uponby the court of the contracting forum State29: pacta sunt servanda.30 This argumentis reinforced by the resounding silence of Article 55 with respect to immunity fromsuit.

On the other hand, the above argument does not apply if the award concerned issought to be recognized in a non-ICSID State. It is because a non-ICSID State, notbeing privy to the ICSID Convention, is precluded from the benefit or advantage tobe derived from the debtor State’s obligation made under Article 53(1) –which is thebasis upon which waiver is said to have been made. Further, as discussed below, nowaiver can be implied from the debtor State being a party to the New YorkConvention, which only imposes an obligation on the contracting forum State torecognize a Convention award (subject to Article V thereof) but is silent with respectto legal duties owed by the defendant State (award debtor) to the investor (awardcreditor). The fact that the debtor State happened to be a contracting party to the NewYork Convention does not take the creditor investor’s case further for one cannotlogically infer an international legal duty to comply with the award from a treatyobligation to recognize an award in its own jurisdiction.

Contractual WaiverArticle 7(1)(b) of UNCSI provides that immunity from suit can be waived in advanceby contract and this method is said to be “[a]n easy and indisputable proof ofconsent.”31 Contractual waiver of immunity is widely accepted: e.g., s.2(2) ofUKSIA. In Bayerisher Rundfunk v. Schiavetti Magnani,32 the Italian Corte diCassazione held that by reason of the fact that the defendant (allegedly acting onbehalf of Germany) concluding the contract which declared that “they willingly andclearly accepted the jurisdiction of the Italian courts . . .,” the defendant was notentitled to invoke immunity. Also, in Atwood Turnkey Drilling Inc. v. PetroleoBrasileiro,33 the US Court of Appeal (5th Circuit) found that the state agent, byhaving concluded the contract which provided that it “expressly and irrevocablywaives any such right of immunity (including any immunity from the jurisdiction of

31ILC Report, supra, note 8, at 2732Italian Corte di Cassazione, 12 January 1987; 87 ILR 38 (1992)33875 F.2d 1174 (5th Cir. 1989). The relevant provision reads: “The Borrower . . . expressly andirrevocably waives any such right of immunity (including any immunity from the jurisdiction of anycourt or from any execution of attachment in aid of execution prior to judgment or otherwise) orclaim thereto which may now or hereafter exist, and agrees not to assert any such right or claim inany such action or proceeding, whether in the United States or otherwise.”


any court or from any execution of attachment in aid of execution prior to judgmentor otherwise) . . . agrees not to assert any such right or claim in any such action orproceeding” had waived the immunity.

However, the notion of contractual waiver is at odds with the traditional commonlaw view that waiver can only be made at the time the national court’s jurisdiction isinvoked and cannot be made in advance. It is because the issue of state immunitydoes not arise until the forum State is asked to exercise jurisdiction over the foreignState, and there is nothing for the foreign State to waive unless and until the forumState’s jurisdiction is invoked. Viscount Finlay in Duff Development Co Ltd v.Government of Kelantan held:

To the arbitration the Government of Kelantan had no objection; they attended the pro-ceedings throughout. It was only when it was proposed to take a step which involved theright to execution against the Government that there was any occasion to raise the objectionof sovereignty.34

The traditional common law position has been confirmed in a more recent case ofA Co Ltd. v. Republic of X, in which Saville J. held:

. . . 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 isasked to exercise jurisdiction over or in respect of the subject matter of the immunities. . ..35

The above proposition is also made by Dicey:

At common law, sovereign immunity could be waived by or on behalf of the foreign State,but waiver had to have taken place at the time the court was asked to exercise jurisdiction andcould not be constituted by, or inferred from, a prior contract to submit to the jurisdiction ofthe court or to arbitration. The [1978] Act, however, has made a far-reaching and beneficialchange. . ..36

Also, in the FG Hemisphere case, the Court of Final Appeal held that thearbitration agreement was “plainly insufficient” to be the basis “for finding that the[D.R. Congo] has waived its state immunity before the Hong Kong SAR courts,either in respect of recognition or execution of the arbitral awards”37:

We are, with respect, not persuaded that such a change would be wise or desirable. Whetheror not a particular State accepts a commercial exception, the rationale of state immunityremains the par in parem principle. Mutual recognition as co-equal sovereign States leadseach State to refrain from exercising jurisdiction over the foreign State concerned without

34[1924] AC 797 (HL), at 81935[1990] 2 Lloyd’s R 520, at 52436Dicey, Morris, Collins. The conflict of laws, 15th edn, vol I, at para 10-02837Supra, note 19, at para 39038Id. at para 392

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the latter’s consent. Questions of waiver only arise where the impleaded State does qualifyfor jurisdictional immunity in the forum State, or else there is nothing to waive. In suchcircumstances, the common law rule as to waiver is consonant with elementary good senseby requiring an unequivocal submission to the jurisdiction of the forum State at the timewhen the forum State’s jurisdiction is invoked against the impleaded State. Courts would beill-advised to attempt to deem an impleaded State to have submitted to their jurisdictionwhen it has not done so explicitly by its words or conduct and where its objection to suchjurisdiction is made clear in the recognition proceedings. Such a course is likely to bedamaging to the relations between the two States and may very well be ineffectual in anyevent.38

The above strict common law approach is not free from attack. In NML CapitalLtd. v. Argentina,39 Lord Collins of the UK Supreme Court observed:

As Dr FA Mann said, ‘the proposition that a waiver or submission had to be declared in theface of the court was a peculiar (and unjustifiable) rule of English law: (1991) 107 LQR 362,364. In a classic article (Cohn, Waiver of Immunity (1958) 34 BYIL 260) Dr E J Cohnshowed that from the 19th century civil law countries had accepted that sovereign immunitycould be waived by a contractual provision, and that the speeches in Duff Development onthe point were obiter (and did not constitute a majority) and that both Duff Development andKahan v Pakistan Federation had overlooked the fact that submission in the face of the courtwas not the only form of valid submission since the introduction in 1920 in RSC Ord 11, r2A (reversing the effect of British Wagon Co Ltd v Gray [1896] 1 QB 35) of a rule that theEnglish court would have jurisdiction to entertain an action where there was a contractualsubmission. In particular, in Duff Development Lord Sumner had overlooked the fact thatBritish Wagon Co v Gray was no longer good law.

The principle enunciated in Kahan v. Federation of Pakistan was reversed by section 2(2) of the 1978 Act, which provided that a State could submit to the jurisdiction ‘by a priorwritten agreement.’ This is consistent with international practice . . .

Lord Collins’ observation certainly has force and his view is said to be the“correct version of the common law rule.”40 Common law is not treated as fossilizedin its own time, and customary international law, which governs the law of stateimmunity including waiver, can and should shape the common law whenever it cando so consistently with domestic constitutional principles, statutes, and common lawrules.41 Contractual waiver, which itself is permitted under Article 7(1)(b) of

39[2011] 2 AC 495 (SC) at paras 125–126, 147 ILR 575 (2011). See also Pearl Petroleum Co Ltd v.Kurdistan Regional Government of Iraq (Dubai International Financial Centre Courts, 20 August2017, ARB 003/2017), at paras 29–3040FOX, supra, note 23, at 379–38041Keyu v. Secretary of State for Foreign and Commonwealth Affairs [2016] AC 1355 (SC), per LordMance at para 15042Bachand F (2009) Overcoming immunity-based objections to the recognition and enforcement inCanada of investor-state awards. J Int Arbitr 26(1):67; Delaume GR, id. at 315; Toope (1990) Mixedinternational arbitration: studies in arbitration between states and private persons. pp 146–15043Bachand, supra note 42, at 69. Fox, however, suggests otherwise: supra note 24.442003 FC 1517, at para 65


UNCSI, does not offend any constitutional principles and acceptance of it isconsonant with justice.

A contractual waiver has to be unequivocal. For instance, in both Atwood andNML Capital, the defendant States concerned have in their respective contractswaived state immunities in clear terms.

A frequently raised question is whether an agreement to arbitrate per se gives riseto a waiver of immunity in recognition proceedings. Many eminent scholars haveadvocated affirmatively,42 and Professor Bachand even intimates that this hasbecome a “general rule of international law.”43

Canada’s practice supports the above proposition. In TMR Energy Ltd. v. StateProperty Fund of Ukraine,44 the court, in obiter, took the view (also in the light ofUkraine’s concession) that an agreement to arbitrate constituted an implied waiver ofimmunity at the recognition proceedings:

Indeed, building on to the arbitrator’s reasons, by the mere fact that a state entity should haveentered into an arbitration agreement providing for arbitration in a country signatory to theUnited Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awardsof 1958, without reserving its right to jurisdictional immunity, it must be taken to haveknown and accepted that any resulting award could be subject to recognition and enforce-ment by judicial process, and thus, have waived jurisdictional immunity in relation to therecognition of the award. Counsel for the State of Ukraine at any rate conceded at the hearingthat if the State of Ukraine itself had executed the 1999 Constituent Contract with itsarbitration clause, it would indeed be taken to have waived jurisdictional immunity insubsequent recognition proceedings.

France takes a similar view. In Yugoslavia v. Société Européenne etd’Entreprises,45 (“Yugoslavia v. SEEE”) the court held:

By the very fact of becoming a party to an arbitration clause the Yugoslav State agreed towaive its immunity from jurisdiction with regard to arbitrators and their award up to andincluding the proceeding for granting an exequatur which was necessary for the award toacquire full force.

The above position was reaffirmed by the French Cour de cassation in SOABI v.Senegal (supra),46 which held “that a foreign State which has submitted to arbitraljurisdiction has thereby accepted that the award may be made the subject of anexequatur which does not itself constitute of act of execution . . .”

USA’ case law has been somewhat inconsistent. In Ipitrade International v.Nigeria,47 the court held that “. . . an agreement to arbitrate or to submit to thelaws of another country constitutes an implicit waiver . . . [which] cannot be revokedby a unilateral withdrawal.” However, Ipitrade was not adopted by the US Court of

45Decision of 6 July 1970, Trib. gr. inst. Paris, 65 ILR 46 (1984)46Supra, note 15, at 44547(US District Court for the District of Columbia) 465 F Supp 824 (1978), (1978) 17 ILM 139548181 F 3d 118 (DC Cir 1999)

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Appeal for the District of Columbia in in Creighton v. Qatar.48 There, the awardcreditor attempted to enforce an ICC award against Qatar (not a signatory to the NewYork Convention), which had agreed to arbitrate the dispute in France (a signatory tothe Convention). The court, having rejected a broad reading of “implied waiver”exception, distinguished Ipitrade and refused to find that Qatar had implied waivedits immunity:

Creighton seeks support in three cases in which the court found an implied waiver where aforeign government had agreed (like Qatar) to arbitrate in the territory of a state that hadsigned the New York Convention. See Seetransport . . .;M.B.L. Int’l Contractors v. Republicof Trinidad Tobago . . .; Ipitrade Int’l S.A. v. Federal Republic of Nigeria . . .. In each of thesecases, however, the defendant sovereign was (unlike Qatar) a signatory to the Convention. InSeetransport the Second Circuit reasoned, correctly we think, that ‘when a country becomesa signatory to the Convention, by the very provisions of the Convention, the signatory statemust have contemplated enforcement actions in other signatory states.’

Qatar not having signed the Convention, we do not think that its agreement to arbitrate ina signatory country, without more, demonstrates the requisite intent to waive its sovereignimmunity in the United States. As Creighton directs us to no other evidence of such an intent,we hold that §1605(a)(1) does not confer subject matter jurisdiction upon the district court.

It is to be recalled that the duty of the forum State to afford immunity to anotherState is a duty as a matter of international law. The duty of the debtor State to satisfythe award, which is a separate duty owed not to the forum State but the awardcreditor (or to the State of nationality of the creditor), without more cannot beinterpreted as an unequivocal act of the debtor State to absolve the forum Statefrom the international legal duty.49 On this, it is noted that the majority of the HongKong Court of Appeal in the FG Hemisphere case expressed the following:

In my judgment, the logic underlying the decision [of Creighton] is cogent and has been saidto be ‘consistent with Crawford’s view that international agreements cannot be interpreted aswaiving immunity of a State which is not a party to the international agreement “since itwould violate the pacta tertiis rule”, a rule reflected in art. 34 of the Vienna Convention:

‘A treaty does not create either obligations or rights for a third State without its consent.’

The rationale for the decision, as well as my unease with the decisions to the contrary bythe Court of Cassation in Creighton . . . find their root in the principle underlying Duff andMighell, namely, that since equals do not have authority over each other, consent for theexercise of such authority must be unequivocal and communicated by one to the other, fromwhich it follows that, absent legislative permission to imply permission that is not directlycommunicated, a refusal to consent may well . . . constitute a breach of agreement betweenthe foreign State and the claimant but the agreement itself does not, without more, confer

49See also the observation of the Supreme Court of the Netherlands in N.N. v. The State of TheNetherlands (14 October 2016, ECLI:NL:HR:2016:2371, 15/01944) that the forum State’s respon-sibility lies primarily with its international law duty to afford immunity to the debtor State, not withthe satisfaction of the award.50At paras 170–171. See also the judgment of the Hong Kong Court of First Instance on this issueby Reyes J. [2009] 1 HKLRD 410, at para 116


jurisdiction upon the forum court. It is different if the foreign State is party to an internationalagreement to which the forum State is also a party, by the terms of which State partiesundertake to enforce awards: in such circumstances each State party that enters upon thatinternational agreement clearly says to each other State party: ‘We hereby expressly repre-sent to you, and to all other States that are party to this arrangement, that you may enforcesuch award as is made against us and as is covered by this international agreement.’ It cannotin my judgment be said that by entering upon an ICC arbitration agreement with a privateparty, a foreign State that is not a party to the New York Convention is going beyond themaking of a representation to the private party and is making a representation to eachConvention State that it consents to the enforcement against it in the Convention State ofsuch arbitral award as may be made. It seems to me that jurisdiction in the forum State can, insuch circumstances, only be conferred by legislation or by an express representation by theforeign State to the forum State.50

The proposition held by scholars that an arbitration clause gives rise to a waiver,at best, is lex ferdenda. Neither there is sufficient opinio juris nor sufficient statepractice to make it a customary international law, and this is evidenced by the waiverunder Article 17 of UNCSI “stop short of enforcement of the arbitral award.”51 Infact, on balance, the conclusions of Creighton and FG Hemisphere are moreconvincing and avoid stretching the arbitration clause to the breaking point.52

Instead of construing the arbitration agreement in the context of “waiver,” manyjurisdictions have by legislation created the “arbitration” exception, by which thedebtor State is not entitled to assert immunity by reason of its agreement to arbitrate.For instance, s.9(1) of UKSIA provides:

Where a State has agreed in writing to submit a dispute which has arisen, or may arise, toarbitration, the State is not immune as respects proceedings in the courts of the UnitedKingdom which relate to the arbitration.

And s.1605(a)(6) USFSIA provides:

A foreign state shall not be immune from the jurisdictions of the courts of the United Statesor of the States in any case – . . .

51Supra, note 2352Creighton and FG Hemisphere seem to be suggesting that the New York Convention is capable ofgiving rise to a waiver where there is a trio of (a) a contracting State in which the award is made, (b)the debtor State being a contracting State, and (c) the forum State also being a contracting State.However, this suggestion, with respect, conflates a contracting State’s international legal duty as theforum State to enforce an award with its civil legal duty as the award debtor to comply with theaward. The US Court of Appeal’s “contemplation” logic equally applies to a non-contracting State(like Qatar) which knowingly agreed to arbitrate in the territory of a contracting State. The betterview, the author considers, is that the New York Convention does not give rise to a waiver ofimmunity.53Section 17(2) of the Australian Foreign States Immunities Act 198554Section 11 of the Singapore State Immunity Act 197955Supra, note 23

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in which the action is brought, . . . to confirm an award made pursuant to such anagreement to arbitrate, if (A) the arbitration takes place or is intended to take place in theUnited States, (B) the agreement or award is or may be governed by a treaty or otherinternational agreement in force for the United States calling for the recognition andenforcement of arbitral awards, (C) the underlying claim, save for the agreement to arbitrate,could have been brought in a United States court under this section or section 1607, or (D)paragraph (1) of this subsection is otherwise applicable.

Similar statutory exceptions can be found in some other jurisdictions: e.g.Australia,53 and Singapore.54

This exception has to be distinguished from that created by Article 17 of UNCSI,the extent of which only “[covers] the adjudication stage of arbitration but stop shortof enforcement of the arbitral award.”55

In the context of investment arbitration, the arbitration clause contained in aninvestment treaty is considered to have satisfied the written arbitration agreementrequirement, albeit the treaty is concluded between States: e.g., PAO Tatneft v.Ukraine.56 It has also been held that the scope of the statutory exception to stateimmunity is wide enough to cover recognition proceedings: Svenska PetroleumExploration AB v. Lithuania (No 2).57

The “Commercial” Exception

Article 10(1) of UNCSI provides for the “commercial” exception pursuant to whicha State cannot invoke immunity from suit in a proceeding arising out of a commer-cial transaction, subject to exceptions created in Article 10(2).

Similar exceptions can be found in many national legislation. For instance,

UK: “A State is not immune as respects proceedings relating to . . . a commercialtransaction entered into by the State . . .”: s.3(1)(a) of UKSIA.

Canada: “A foreign state is not immune from the jurisdiction of a court in anyproceedings that relate to any commercial activity of the foreign state.”: s.5 of theCanada State Immunity Act (“CSIA”).

Australia: “A foreign State is not immune in a proceeding in so far as the proceedingconcerns a commercial transaction.”: s.11 of the Australian Foreign State Immu-nities Act (“AFSIA”).

56[2018] EWHC 1797 (Comm), at paras 25–2757[2007] QB 886, at para 11758S.5 of the Canadian State Immunity Act provides: “A foreign state is not immune from thejurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.”59Supra, note 44, para 6460(2007) ABQB 212, paras 130–13561[2010] 2 SCR 571, para 33


An important question to be considered is whether in considering the applicabilityof the “commercial” exception, the forum court should direct itself to the subjectmatter of the recognition proceedings (i.e., the award) or the source of the legalrelationship which has given rise to the award (i.e., the transaction giving rise to thedispute for arbitration).

Common law jurisdictions, while having similarly drafted statutory “commer-cial” exceptions, do not speak with one voice.

In Canada, the courts tend to proceed on the basis that it is the source of the legalrelationship, rather than the award itself, that should be considered in decidingwhether to withhold immunity under the “commercial” exception58: e.g., TMREnergy v. Ukraine (in obiter),59 Collavino Inc v. Yemen (Tihama DevelopmentAuthority),60 and Kuwait Airways Corp v. Iraq.61

In the Hong Kong SAR (where state immunity is governed by common law),despite arguments on this issue were laid before the Hong Kong Court of Appeal inthe FG Hemisphere case, the court decided to adopt the source of legal relationshipas the point of reference (if restrictive immunity were to be applied) by reason of D.R. Congo’s own concession.62

Australia has sided with Canada. The High Court of Australia in Firebird GlobalMaster Fund II Ltd. v. Nauru63 had the benefit of the Jurisdictional Immunities Caseand the NML Capital Ltd. Case and held that “the fact that such a proceeding mightalso be described as one which concerns the registration of a foreign judgment doesnot detract from the semasiological propriety of describing it as a proceeding whichconcerns a commercial transaction” and that by reference to the ICJ’s decision theCourt should consider the underlying transaction itself (i.e., “the case in which thatjudgment was given”).

UK has taken the opposite position. The courts have consistently construed thatthe statutory “commercial” exception64 did not include recognition proceedings: seeAIC Ltd v. Nigeria, Svenska Petroleum Exploration AB v. Lithuania (No 2), and NMLCapital case.65

One may think that UK prefers the narrow interpretation of the “commercial”exception because award recognition proceedings have already covered under the“arbitration” exception, while that “arbitration” exception does not exist at commonlaw or in CSIA. However, Lord Phillips, Lord Collins, and Lord Clark in NMLCapital rejected it being a ground of preferring a narrow interpretation of the

62Supra, note 22 (para 268)63[2015] HCA 4364S.3(1)(a) of the UKSIA provides: “A state is not immune as respects proceedings relating to (a) acommercial transaction entered into by the state . . .”65Supra, notes 25, 57, and 39 (by majority).66Supra, note 4, at para 130. It is unclear to which part of the UK Supreme Court’s judgment in NMLCapital Ltd. v. Argentina the ICJ referred when the majority of the court held that the statutory“commercial” exception did not apply.

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“commercial” exception. In fact, Australia, of which AFSIA has provided for the“arbitration” exception, also preferred the broad interpretation.

Despite the conflicting views of the common law jurisdictions, the ICJ prefers theposition adopted by Canada. In the Jurisdictional Immunities Case, the ICJ havingconcluded that the exequatur proceedings are proceedings instituted by the forumState against the defendant State explained:

It follows . . . that the court seised of an application for exequatur of a foreign judgmentrendered against a third State has to ask itself whether the respondent State enjoys immunityfrom jurisdiction— having regard to the nature of the case in which that judgment was given— before the courts of the State in which exequatur proceedings have been instituted. Inother words, it has to ask itself whether, in the event that it had itself been seised of the meritsof a dispute identical to that which was the subject of the foreign judgment, it would havebeen obliged under international law to accord immunity to the respondent State (see to thiseffect the judgment of the Supreme Court of Canada in Kuwait Airways Corp. v. Iraq . . .),and the judgment of the United Kingdom Supreme Court in NML Capital Limited v.Republic of Argentina . . ..66

In practical terms, the conflicting views may not matter much for a creditorinvestor certainly will rely on all possible exceptions allowed under the laws ofthe forum State to resist the debtor State’s plea of immunity from suit at therecognition stage.

Assuming the forum court has decided to look behind the award, the nextquestion is whether the underlying transaction falls within the “commercial” excep-tion. The “purpose” test initially adopted by States in the earliest cases has proved tobe over-inclusive in relation to economic activities of the State and attracted criti-cism.67 On the other hand, the “nature” test, originated back in 1920s in Switzerlandand followed by a few continental European States, started gaining floor and hasbecome the prevailing test: e.g., s.1603(d) of USFSIA. The UK adopts the “contex-tual” approach in which the court “must consider the whole context in which theclaim against the State is made”: I Congreso del Partiodo68; Holland v. Lampen-Wolfe.69 Article 2(2) of UNCSI, which seems to be a compromise reached, hasprovided for the “two-pronged” approach, namely, the “nature” test and the “pur-pose” test to be applied successively. Hence, if the transaction appears to becommercial under the “nature” test, it is open to the defendant State to contest thisfinding by reference to the purpose of the transaction if in its practice, that purpose isrelevant to determining the non-commercial character of the transaction.70

States adhering to the absolutist approach generally do not admit the “commer-cial” exception to state immunity. For instance, in the FGHemisphere case, the Hong

67FOX, supra, note 23, at 41068[1983] 1 AC 244; 64 ILR 307 (1983)69[2000] 1 WLR 1573, at 158070ILC Report (supra, note 8, at 20)71(2011) 14 HKCFAR 395


Kong Court of Final Appeal, in the light of China’s absolutist approach, dismissedthe award creditor’s application to have the recognized in Hong Kong.71 That said, itdoes not logically follow that an award creditor can never have the award recognizedagainst the debtor State in an “absolutist” jurisdiction. After all, even the “absolutist”jurisdictions allow immunity to be waived, and there are, as discussed above,respectable arguments in favor of treaty and/or contractual waiver in the context ofenforcing an investment award under the ICSID Convention or the New YorkConvention.

Summary

The States’ practice suggests that forum States are more and more inclined towithhold immunity from suit at the recognition stage vis-à-vis the debtor State,whether by way of statutes or waiver. In jurisdictions where the law on stateimmunity has been codified, the creditor investors generally can rely on one ormore statutory exceptions to resist the debtor State’s assertion of immunity. Absentsuch exceptions (including States practicing “absolute” immunity), waiver becomesthe only argument which a creditor investor relies on. From an investor’s perspec-tive, perhaps the best it can do to protect the position is to insert an unambiguouswaiver clause in the concession concluded with the host State.

Immunity from Execution at the Execution Stage

Immunity from Execution as Distinct from Immunity from Suit

As discussed above, States’ practice generally treats execution as a separate stage atwhich the debtor State may claim immunity, irrespective whether the Stateconcerned has claimed, or successfully claimed, immunity from suit at the recogni-tion stage. Part IV of the UNCSI specifically deals with state immunity fromexecution. The legal justification of treating the two types of immunities distinctand separate is succinctly encapsulated by the German Federal Constitutional Courtin Philippine Embassy Bank Account Case:

. . . It does not follow, simply because general customary international law embodies aminimum obligation in the case of trial proceedings, namely the granting of immunity inrespect of acts iure imperii; that it also demands only relative immunity in the case ofexecution, since preventive measures and measures of forced execution generally have amuch more direct or drastic impact on the exercise of sovereignty by the foreign State thando judicial judgments. It is therefore necessary to consider separately whether and to whatextent general rules of international law preclude forced execution.72

72German Federal Constitutional Court, 14 December 1977, 65 ILR 146 (1984), at 166

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Unsurprisingly, the above proposition is only a general one and States’ practicesare not necessarily consistent throughout the recent history: e.g., Belgian court inSOCOBEL v. Greece73 (“Le pouvoir d’ exécution est la consequence du pouvoir dejurisdiction”). Switzerland is a well-known instance of not drawing a distinctionbetween two immunities. In Kingdom of Greece v. Julius Bär & Co, the SwissFederal Court held:

. . . [the appellant] raises the question whether a distinction should not be drawn between theexercise of jurisdiction andmeasures of execution, and whether an absolute immunity shouldnot be accorded to foreign States in respect of measures of execution. This question must beanswered in the negative . . . As soon as one admits that in certain cases a foreign State maybe a party before Swiss court to an action designed to determine its rights and obligationsunder a legal relationship in which it had become concerned, one must admit also that thatforeign State may in Switzerland be subjected to measures intended to ensure the forcedexecution of a judgment against it. If that were not so, the judgment would lack its mostessential attribute, namely, that it will be executed even against the will of a party againstwhich it is rendered. It would become a mere legal opinion. Moreover, while its effect wouldbe less directly felt than those of measures of execution, such an opinion would also affectthe sovereignty of the foreign States. If, therefore, measures of execution against a foreignState were prohibited in order to safeguard its sovereignty, logically the exercise of juris-diction would likewise have to be prohibited. That would be contrary to current practice. . . .

. . . Article 5 of the Resolution adopted by the Institute of International Law on April 30,1954, prohibits the attachment of or measures of execution against the assets of foreignStates only if these assets are used in the exercise of a governmental activity which has norelation to any commercial transaction. There is thus no reason to modify the case law of theFederal Tribunal in so far as it treats immunity from jurisdiction and immunity fromexecution on a similar footing.74

While there is a tension between the two conflicting lines of jurisprudence, such aconflict is perhaps of less importance from a practical point of view for even theSwiss approach recognizes that assets of the foreign States designated for sovereignpurpose are immune from execution. The Swiss court in United Arab Republic v.Mrs X75 held:

When a State possesses funds in another State and allocates those funds for its diplomaticservice or for another mission incumbent upon it in its own capacity as a public power it mayoppose the subjection of such funds to attachment. In such circumstances the funds are inactual fact designed for the performance of acts of sovereignty. Like such acts, the funds areprotected by immunity from jurisdiction and consequently by immunity from enforcement.

Immunity from execution, of course, admits exceptions. The ICJ in the Jurisdic-tional Immunities Case observed:

73Supra, fn. 674Supra, note 7, at 198–19975Federal Tribunal of Switzerland, 10 February 1960, 65 ILR 385 (1984) at 391)


. . . it suffices for the Court to find that there is at least one condition that has to be satisfiedbefore any measure of constraint may be taken against property belonging to a foreign State:that the property in question must be in use for an activity not pursuing government non-commercial purposes [the “commercial property” exception], or that the State which ownsthe property has expressly consented to the taking of a measure of constraint [i.e. the“waiver” exception”], or that that State has allocated the property in question for thesatisfaction of a judicial claim [i.e. the “earmarked property” exception]. . .76

The “Waiver” Exception

Like immunity from suit, a debtor State may waive immunity from execution withrespect to its property located in the forum State. In fact, Articles 18(a) and 19(a) ofUNCSI can be broadly categorized as waivers, whether such waivers are made priorto, or after, commencement of execution proceedings before the forum State.

Waiver by International AgreementAlthough Articles 18(a)(i) and 19(a)(i) provide that a State may waive its immunityfrom execution by its express consent made by an international agreement, suchprovision cannot be invoked against a debtor State with respect to an ICSID awarddue to express exclusion of such implied waiver by Article 55 of the ICSIDConvention. For the reasons discussed in the context of immunity from suit, thisargument is even weaker in the context of the New York Convention.

Contractual WaiverArticles 18(a)(ii) and 19(a)(ii) of UNCSI permit contractual waiver.

A question frequently comes up is whether the debtor State’s agreement toarbitrate constitutes a waiver from execution.

In Canada, in Collavino Inc v. Yemen, the Court quite adamantly took the viewthat the State organ must have waived the immunity from execution by agreeing toarbitrate:

. . . I have no doubt that the TDA [i.e. the State organ] waived immunity for enforcementpurposes pursuant to s.12 of the State Immunity Act [concerning immunity from execution].It did so by agreeing to international commercial arbitration. Otherwise, the effect of anAward could be thwarted by successfully claiming state immunity in jurisdictions where theTDA has exigible assets.77

Similar view was expressed by the US Court of Appeal (5th Circuit) in WalkerInternational Holdings Ltd. v. Congo.78

76Supra, note 4, at para 11877Supra, note 60, para 13978(2004) 395 F 3d 229

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It is also interesting to note the change of stance of the French courts. InYugoslavia v. SEEE, the court of Paris held:

Waiver of jurisdictional immunity did not in any way imply waiver of immunity fromexecution. The order granting an exequatur for the award did not, however, constitute ameasure of execution but merely a preliminary measure prior to measures of execution. Thepronouncement of such a measure, affirming the validity of the award for all purposes,constituted merely the necessary sequel of the award and did not violate in any way theimmunity from execution enjoyed by the Yugoslav State.79

This orthodox stance, however, was reversed by the Cour de cassation inCreighton v. Qatar,80 in which the Court upheld the order to seize the State ofQatar’s assets in France as a result of the ICC awards and held:

In ordering the vacation of all these attachments, the Court of Appeal of Paris held that it hasnot been established by Creighton Ltd that the State of Qatar has renounced its immunityfrom execution and that the acceptance of an arbitration clause does not lead to a presump-tion of waiver of such immunity, which is distinct from jurisdictional immunity.

By ruling in this manner, even though an undertaking entered into by a State signing anarbitration clause, to comply with the award in accordance with the provision of Article 24 ofthe Arbitration Rules of the International Chamber of Commerce implies waiver by thatState of its immunity from execution, the Court of Appeal violated both the provisions ofinternational law governing State immunity and Article 24.

It is considered that an agreement to arbitrate, without more, cannot by itself bedeemed to be a waiver of immunity from execution, and this has been made loud andclear by Article 55 of the ICSID Convention: see also, e.g., In re Suarez,81 The“Cristina,”82 and the FG Hemisphere case (HKCFA).83 The decisions holdingotherwise have been said to be “[logically] difficult to follow”84 because “anundertaking to carry out [an award] is not the same thing as [the debtor State]surrendering an immunity.”85 Such decisions are also not adopted in the UK: seeOrascom Telecom Holding SAE v. Chad.86

Contrast can be made to another decision of the US Court of Appeal (5th Circuit)in Atwood Turnkey Drilling Inc. v. Petroleo Brasileiro,87 in which the court found

79See also Benevenuti & Bonfant v. Congo, supra, note 1880ch civ.1, 6 July 2000; 127 ILR 154 (2005)81[1917] 2 Ch 131, at 131–13982[1938] AC 485, at 490–49183Supra, note 19, at paras 378–37984The majority judgment of the Hong Kong Court of Appeal in FG Hemisphere Associates LLC v.D.R. Congo (supra, note 22 at paras 155–163)85FG Hemisphere Associates LLC v. D.R. Congo [2009] 1 HKLRD 410 (Hong Kong Court of FirstInstance), at paras 108–11386[2009] 1 All ER (Comm) 31587875 F.2d 1174 (5th Cir. 1989). The relevant provision reads: “The Borrower . . . expressly andirrevocably waives any such right of immunity (including any immunity from the jurisdiction of any


that the state agent had waived the immunity from execution by reason of thecontract it entered into with the plaintiff. The decision of Walker International(which heavily relied on Atwood) perhaps could be better explained by the factthat Congo had by agreement waived its immunity in “any procedure relating to anyarbitration decision . . .” and such the garnishee proceeding therein fell within thescope of such procedure.88 On such premises, the two US cases were not exceptionsbut instances falling within Articles 18(a)(ii) and 19(a)(ii) in that the relevant debtorStates not only expressed consent to arbitrate but also to waiver of immunity fromexecution.

As to whether a waiver can be validly made prior to the proceedings commencedbefore the forum State, UNCSI allows such a possibility while the traditionalcommon law (which is subject to criticism) takes a different view – see the discus-sion above.

The “Earmarked Property” Exception

UNCSI provides that property earmarked or allocated for the satisfaction of a claimwhich is the object of that proceedings are liable to be subject to the forum State’smeasures of constraint: Articles 18(b) and 19(b). In Creighton v. Qatar,89 the FrenchCour d’ appel held:

Goods destined by a State for the satisfaction of the claim in question or reserved by it to thisend may be seized, instead of all other goods of the foreign State situated in the forum Stateor intended to be used for commercial purposes, without it being necessary to establish thatsuch goods were destined for the entity against which the proceedings had been brought.90

A distinction has to be drawn between property allocated or earmarked to satisfythe claim which is the object of the proceeding on one hand and property earmarkedto meet commercial liabilities owed to creditors in general. It is considered thatproperty falling within the latter category are not property referred to in Articles 18(b) and 19(b) of UNCSI for such property are not earmarked or allocated to satisfy aspecific claim. The property concerned should be more appropriately analyzed underthe “commercial” exception.

88The relevant provision reads: “[t]he Congo hereby irrevocably renounces to claim any immunityduring any procedure relating to any arbitration decision handed down by an Arbitration Court. . ..”The court held that the garnishee proceeding “relates to the ‘arbitration decision’ since Walker seeksto garnish funds owed to [Congo] to collect on the ICC’s judgment.”89Cour d’ appel, Paris, 12 December 2001 [2003] Revue de l’arbitrage 41790Reinisch A (2006) European Court practice concerning state immunity from enforcement mea-sures. Eur J Int Law 17(4):803, at 820–821 (English translation of the excerpt of the judgmentextracted from footnote 115 thereof)

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The “Commercial Property” Exception

The “commercial property” exception is a result of the distinction between acta iureimperii and acta iure gestionis adopted by States practicing “restrictive” immunity.Traditionally, a dichotomy is maintained in that a State’s property is divided intoproperty serving governmental purpose and those serving commercial purpose: e.g.,the Brussels Convention 1926.91 The dichotomy was not controversial in draftingthe UNCSI and the ILC finally adopted the formulation of “other than governmentalnon-commercial purposes.”92 UKSIA allows execution against the debtor State’sproperty “for the time being in use or intended for use for commercial purposes.”93

USFSIA allows execution against the debtor State’s property in the US used for acommercial activity.94

In determining whether a particular property is a “commercial property,” thecurrent States’ practice and academic opinions favor the “purpose test.” It is becauseeven under the restrictive approach, the defendant State’s ability to carry out itsgovernmental functions remains protected. Accordingly, in the context of immunityfrom execution, the focus is not on how such property came about but whether thedeprivation the defendant State of such property would prejudice its current or futurecarrying out of its governmental function.

The aforesaid proposition was reinforced by the ICJ in the Jurisdictional Immu-nities Case, in which the ICJ found that Italy had violated its international lawobligation owed to Germany by allowing a legal charge to be registered on VillaVigoni and held:

It is clear in the present case that the property which was the subject of the measure ofconstraint at issue is being used for governmental purposes that are entirely non-commercial,and hence for purposes falling within Germany’s sovereign functions. Villa Vigoni is in factthe seat of a cultural centre intended to promote cultural exchanges between Germany andItaly. This cultural centre is organized and administered on the basis of an agreementbetween the two Governments concluded in the form of an exchange of notes dated 21April 1986. Before the Court, Italy described the activities in question as a ‘centre ofexcellence for the Italian-German co-operation in the fields of research, culture and educa-tion’, and recognized that Italy was directly involved in ‘its peculiar bi-national . . . manag-ing structure’. . . ..95

91International Convention for the Unification of Certain Rules Concerning the Immunity of State-Owned Ships 192692ILC Report (supra, note 8), at 5193S.13(4) of UKSIA. The term “commercial purposes” is defined as, amongst others, any transac-tion or activity into which a State enters or in which it engages otherwise than in the exercise ofsovereign authority”.94The term “commercial activity” is defined by reference to the nature of the course of conduct orparticular transaction or act, rather than by its purpose: s.1603(d) of USFSIA95Supra, note 4, at para 119. See also the judgment of Tribunal de grande instance de Paris inHulley Enterprises Ltd. v. Russian Federation (28 April 2016), in which the court held that thechurch and cultural center built by Russia were immune from execution.


A natural follower of the “purpose” test is that a property’s character does notdepend on how it came about (i.e., the origin) but on the present or future use towhich the State has chosen to put it: AIC Ltd. v. Nigeria (UK),96 SerVaas Inc v.Radfidain Bank (UK),97 Connecticut Bank of Commerce v. Congo (USA),98 and FGHemisphere (the Hong Kong SAR).99 It is therefore not to say, that “the fact that anact iure gestionis is at stake makes that also all objects of the foreign State should belabelled as intended for commercial purposes.”100 The ILC also commented that theproperty is classified as “commercial property” if it is in use or intended for use bythe defendant State for such purpose “at the time the proceeding for attachment orexecution is instituted.”101

The States’ practice have generally placed the burden of proof on the creditor toshow that a particular asset is a “commercial property” liable for execution.102 ManyStates have in their legislation provided for a mechanism through which the defen-dant State can issue a statement or certificate with respect to the use of the propertyconcerned.103 While it has been suggested that general international law does notprohibit the forum State from asking the defendant State to substantiate the factclaimed in the statement or certificate, forum States,104 however, generally defer tostatements or certificates issued by the defendant States, or at least accept as primafacie evidence, unless the creditor can prove to the contrary: e.g., Alcom Ltd v.Colombia (UK),105 SerVaas Inc v. Radfidain Bank (UK), and Iran v. Eurodif(France).106

This incidence of burden of proof has been subject to fierce criticism. Awardcreditors complain about the difficulty, if not impossibility, in discharging the burdenand argue that “in practical terms . . . it will be tantamount to a return to the absolutenature of immunity from execution.”107 The Belgian court, however, in Iraq v. VinciConstructions justified this incidence of burden of proof:

96Supra, note 2597[2014] 1 AC 595 (SC)98(2002) 309 F 3d 240 (US Court of Appeal, 5th Circuit)99Supra, note 22, paras 179 and 277100van Woudenberg N (2012) State immunity and cultural objects on loan. Martinus Nijhoff,Leiden, p 56 citing Spiegel J (2001) Vreemde staten voor de Nederlandse rechter [Foreign Statesin Dutch courts], Amsterdam, at 105–106101ILC Report (supra, note 8, at 58)102Ss.32(3)(b) and 41 of the Australia Foreign State Immunities Act 1985 (“AFSIA”)103E.g., s.13(5) of UKSIA, s.41 of the AFSIA. Also Article 16(6) of UNCSI104See Philippine Embassy Bank Account Case (supra, note 72, at 189)105[1984] AC 580 (HL); 74 ILR 170 (1987)106Cour de cassation, 14 March 1984; 77 ILR 513 (1980) at 515. See also the case law of thecontinental Europe referred to in the article of REINISCH A. (supra, note 89, at 829–833)107Submissions of Advocate General Gulphe in Iran v. Eurodif (Id., at 520)

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. . . To require the State in question to justify the use of its bank account for all its diplomaticactivities or activities affecting the proper functioning of its mission would constituteunacceptable interference with that State and an infringement of its sovereignty. . . .

To require proof of the allocation of funds to be the responsibility of the State againstwhich the attachment is sought would be contrary to the very principle of immunity that, bydefinition, establishes a presumption in favour of the State that enjoys immunity. Theimposition of a duty on a State to prove systematically and at any moment that it is indeedentitled to rely on its immunity would in practice exclude reliance on its immunity.108

On the other hand, the approach taken by Switzerland is more preferential tocreditors. In United Arab Republic v. Mrs X,109 the court not only placed the burdenon Egypt to prove that the attached property was designated for sovereign purposebut also tested (and consequently rejected) Egypt’s assertion against other evidence.Also, Australia reverses the burden of proof on the defendant State with respect toproperty which is apparently vacant or apparently not in use, though it admits thedefendant State’s certificate of use as prima facie evidence: ss.32(3)(b) and 41 ofAFSIA.

Another complicity in applying the “purpose” test is mixed funds. The require-ment that the property must be “specifically” in use or intended use for commercialpurpose under Articles 18(1)(c) and 19(1)(c) suggests that mixed funds should beimmune from execution.110 This accords with the State practices: Alcom v. Colombia(UK), Benamar v. Embassy of the Democratic and Popular Republic of Algeria(Italy),111 Philippine Embassy Bank Account Case,112 and Liberian Eastern TimberCorp v. Liberia (USA).113 On the other hand, there are instances where nationalcourts allow segregation of funds and afford immunity only to the funds segregatedfor governmental purpose: Republic of “A” Embassy Bank Account Case114 (Austria– placing the burden on the creditor); and Libya v. Actimon115 (Switzerland – placingthe burden on the defendant State).

Article 21(1) of UNCSI provides a list of categories of property of a State whichshall fall outside the scope of “commercial property,” of which includes propertywhich is used or intended for use for the purposes of the State’s diplomatic functions.

108Belgian Court of Appeal, Brussel (9th Chamber), 4 October 2002, 127 ILR 101 (2005) at 105–106109Supra, note 74110ILC Report (supra, note 8, at 59)111Corte di Cassazione, plenary session, 4 May 1989, in which the Italian Supreme Court held thatthe main approach to the issue of immunity from execution as to the bank accounts of the defendantState or its diplomatic mission is that the sums in question were destined for public purposes andthat an enquiry by a court as to the precise destination of these funds by diplomatic mission wouldamount to an interference in the activities of that mission: RUBINO-SAMMARTANO M., Inter-national Arbitration Law and Practice, 3rd ed. (2014), at 1415112Supra, note 72, at 188113659 F Supp 606 (DDC 1987, 16 April 1987)114Austrian Supreme Court, 3 April 1986; 77 ILR 489 (1980) at 494115Swiss Federal Tribunal, 24 April 1985; 82 ILR 30 (1990), at 35


It reinforces Article 3(1)(a) that UNCSI is without prejudice to the privileges andimmunities enjoyed by a State under international law in relation to the exercise of itsdiplomatic function, and such protection is also afforded by the Vienna Conventionof Diplomatic Relations 1961 and Vienna Convention on Consular Relations 1963etc. It is said that a general waiver or a waiver in respect of all property of thedefendant State is insufficient to waive immunity with respect to the propertyreferred to in Article 21(1),116 and that was also the position of France in RussianFederation v. NOGA117 as later codified in Sapin II Law.118

Property of central bank of the State, like assets of diplomatic missions, aregenerally deemed not to be “commercial assets” and are immune from execution:e.g., Article 19(1) of UNCSI, s.14(4) of UKSIA, Article 1 of China’s Law onImmunity of the Property of Foreign Banks from Compulsory Judicial Measures,119

etc. On the other hand, in Switzerland, the Federal Court refused to take this blanketapproach and held it was incumbent on the defendant State to prove the funds heldby the Central Bank of Lybia were designated for governmental purpose.120

Finally, it is worth discussing whether assets of state-owned entities (“SOE”) areliable to be seized to satisfy arbitral awards made against the State. Under the“commercial property” exception of Article 19(1)(c) of UNCSI, the propertyintended to be subject to post-judgment measures must “[have] a connection withthe entity against which the proceeding was directed.”121 An issue arises therefrom iswhether an investor State can seize the assets of an SOE to satisfy the award renderedagainst the debtor State, and the focal point is whether the corporate veil of an SOEcan be lifted so that an investor creditor can lay hands on the SOE’s assets to satisfythe award against the debtor State.

UNCSI leaves this matter to be decided by the forum States – in the UnitedNations Judicial Yearbook 2004, at 254, it is stated “Article 19 does not prejudge thequestion of ‘piercing the corporate veil relating to a situation where a State entity hasdeliberately misrepresented its financial position or subsequently reduced its assetsto avoid satisfying a claim, or other related issues.”

116ILC Report on draft Article 19(2) (which has now become Article 21(2) of UNCSI), supra, note8, at 59117Paris Cour d’ appel, 10 August 2000118Article L.111-1-3 of the French Civil Enforcement Procedure Code requires a waiver ofimmunity to be express and specific if it is to apply to diplomatic assets. See also Commisimpexv. Congo (French Cour d’cassation, 10 January 2018, overturning its own decision of 13 May 2015,in which it held that customary international law required nothing more than an express waiver.)119This Law was added to Annex III of the Hong Kong SAR Basic Law, and accordingly is to bebrought into force in the Hong Kong SAR through executive promulgation or local legislation.120The Actimon Case, supra note 114121Similar requirement can be found in domestic law: e.g., the French SAPIN II Article L.111-1-1(3).

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Generally speaking, a State cannot be deemed to own the assets of an SOE simplybecause it owns or controls it: doctrine of separate legal entity.122 In La Générale desCarrières et des Mines (Gecamines) v. FG Hemisphere Associates LLC,123 LordMance held:

What then is the correct approach to distinguishing between an organ of the state and aseparate legal entity? And is this distinction relevant not only to questions of immunity, butalso to questions of substantive liability and enforcement? . . . In the board’s opinion, it isnow appropriate in both contexts to have regard to the formulation of the more nuancedprinciples governing immunity in current international and national law. These . . . expressthe need for full and appropriate recognition of the existence of separate juridical entitiesestablished by states, particularly for trading purposes. They do this, even where suchentities exercise certain sovereign authority jure imperii, providing them in return (as alreadynoted) with a special functional immunity if and so far, as they do exercise such sovereignauthority. A similar recognition of their existence and separateness would be expected forpurposes of liability and enforcement.

Separate juridical status is not however conclusive. An entity’s constitution, control andfunctions remain relevant . . . But constitutional and factual control and the exercise ofsovereign functions do not without more convert a separate entity into an organ of the State.Especially where a separate juridical entity is formed by the State for what are on the face ofit commercial and industrial purposes, with its own management and budget, the strongpresumption is that its separate corporate status should be respected, and that it and the Stateforming it should not have to bear each other’s liabilities. It will in the Board’s view takequite extreme circumstances to displace this presumption. The presumption will be displacedif in fact the entity has, despite its juridical personality, no effective separate existence. Butfor the two to be assimilated generally, an examination of the relevant constitutionalarrangements, as applied in practice, as well as of the State’s control exercised over theentity and of the entity’s activities and functions would have to justify the conclusion that theaffairs of the entity and the State were so closely intertwined and confused that the entitycould not properly be regarded for any significant purpose as distinct from the State and viceversa. The assets which are . . . protected by State immunity should be the same as thoseagainst which the State’s liabilities can be enforced . . .

There may also be particular circumstances in which the state has so interfered with orbehaved towards a state-owned entity that it would be appropriate to look through or past theentity to the state, lifting the veil of incorporation. But any remedy should in that event betailored to meet the particular circumstances and need. That is the position under domesticlaw . . . It must equally be so in the board’s view under international law. Merely because astate’s conduct makes it appropriate to lift the corporate veil to enable a third party or creditorof a state-owned corporation to look to the state does not automatically entitle a creditor of

122See First National City Bank v. Banco Para el Comercio Exterior de Cuba 462 US 611 (1983).However, a statutory exception is created under s.1605(g) of USFSIA, pursuant to which assets ofSOE can be seized to satisfy judgment entered against a foreign State under s.1605A thereof withrespect to terrorist acts.123[2013] 1 All ER 409 (PC), at 422f-423f, applied in Estate of Michael Heiser v. Iran [2019]EWHC 2074. Compare Kensington International Ltd. v. Congo [2006] 2 BCLC 296 (UK QBD), inwhich the forum State found that the corporate veil was purely a sham and a facade, pierced thecorporate veil and held that the property of the SOE were those of the defendant State. That said,Lord Neuberger in VTB Capital Inc v. Nutritek International Corp [2013] 2 AC 337 (SC) (at para127) doubted the correctness of Kensington.


the state to look to the state-owned corporation. Lifting the veil may mean that a corporationis treated as part of the state for some purposes, but not others.

China shares a similar view and has repeatedly stated that SOEs enjoyingindependent capacity to sue or to be sued and independent right to own propertyare not part of the State.124 For instance, in the statement of the Chinese Ministry ofForeign Affairs made on 28 October 2003, it was stated:

With regard to the relationship between a State and State enterprise, the Chinese Delegationmaintained that in principle a State enterprise or any other entity set up by a State should notenjoy State immunities, so long as the State enterprise or the other entity has independent actand the capacity to sue or be sued and has the capacity to acquire, possess or own or disposeproperty, including the property they operate and manage authorized by the State. At thesame time, the Chinese Government maintained that it was necessary to differentiate clearlya State and a State enterprise or any other entity set up by a State and that a State enterprise orany other entity set up by a State should independently bear civil liabilities and a State, inprinciple, should not bear joint and several liabilities for commercial acts and liabilities ofdebts of a state enterprise or any other entity.

With regard to state immunities from compulsory measures, the Chinese Government wasof the opinion that once the Court enforces compulsory measures on the property of adefendant state, it must strictly satisfy the following requirements: (1) The property is in theterritory of the country where the Court is located; (2) It is specifically used for the purpose thatmay be intended for uses other than the non-commercial uses of the government. (3) It isrelated to the demand of the object of proceeding or the institutions or departments of the sued.Among them, the third requirement is particularly important. The debt of a state can only becleared off with the property which is demanded by the object of the proceeding and used bythe institution of the sued for the purpose other than non-commercial purpose, and cannot becleared off with the property of a state enterprises or any other entity. If the property forcompulsory measure to be compulsorily enforced is not strictly defined, there will exist thepossibility of misuse of compulsory measure by the court against the state property of thedefendant state or the property of a state enterprise or entity not related to the litigation.125

Conclusion

While the international law has provided for certain exceptions to immunity fromexecution, States’ practice shows that forum States tend to apply those exceptionsnarrowly and has swayed towards the direction of upholding immunity: e.g., therecent legislation of Belgium and France which has made judicial authorization a

124See also the letter of the Hong Kong andMacao Affairs Office of the State Council of China issuedwith respect to TNB Fuel Services Sdn Bhd v. China National Coal Group Corp [2017] 3 HKC 588125It is worth adding a caveat that although China’s statement seems to be adopting a position closer tothe “restrictive” state immunity approach, China, which has not yet ratified UNCSI, still practicesabsolute immunity: see the English translation of the letter of the Office of the Commission of theMinistry of Foreign Affairs of the People’s Republic of China dated 21 May 2009, referred to in thedecision of the Hong Kong Court of Final Appeal in the FGHemisphere case (supra, note 19), at para46. The original version can be found at the same case but reported in (2011) 14 HKCFAR 266.

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requirement before measures of constraint can be imposed.126 Even waiver is apossible way to tackle the assertion of immunity, an investor still bears an onerousburden to prove the purpose of the property and encounters difficulty in cases withcomplications, such as mixed funds and assets not directly owned by States.

In enforcing an investment arbitral award against the debtor State, state immunityis engaged in both the recognition stage (immunity from suit) and at the executionstage (immunity from execution). While forum States are more prepared to withholdimmunity at the recognition stage, whether by waiver or otherwise, state immunityfrom execution remains to be the thorny issue standing in the investor’s way tocollect the award. That said, the author considers that immunity from executionbeing the “Achilles’ heel” of the investor-State arbitration system is an over-state-ment, in particular when the 2017 ICSID’s survey suggested that States generallycomplied with awards made in favor of investors.127

In fact, waiver remains an important exception to both types of immunity andforum States generally accept contractual waiver. While “caveat emptor” may stillapply in cross-border investment involving a State,128 the risk can be reduced(though not eliminated) by an agreement with a properly drafted waiver clause.

126E.g., Belgium (Article 142quinquies of the Belgian Judicial Code); France (Sapin II Law addingArticles L.111-1-1 to 111-1-3 to the Code of Civil Enforcement Proceedings), both requiringjudicial authorization to be granted before measures of constraint can be made over the debtorState’s property, and such judicial authorization will be granted only if the creditor can show either(i) express waiver of the State, (ii) the property concerned has been earmarked to satisfy the claim;or (iii) the property concerned are used or are intended for use for other than non-governmentalpurposes. Insofar as France is concerned, it is further provided that assets intended to be used indiplomatic functions, military property and property forming part of the cultural heritage etc. areimmune from execution.127See ICSID’s Survey for ICSID Member States on Compliance with ICSID Awards128Dautaj Y. Sovereign immunity from execution – caveat emptor. http://arbitrationblog.kluwerarbitration.com/2018/06/04/sovereign-immunity-execution-caveat-emptor/


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