Enforcing an arbitration award or a judgment against a sovereign state is not always easy. The case of Avionics Technologies Ltd v The Federal Republic of Nigeria and another addressed the novel issue of whether it is possible to enforce against property owned by a state but occupied by a company to which the state had outsourced various consular activities. The case also serves as a useful reminder of some key issues relating to enforcement against sovereign states.

Sovereign Immunity

The English Courts have no jurisdiction to adjudicate disputes against sovereign states unless the claims fall within one of the exceptions under the State Immunity Act 1978 (“SIA”). One such exception is if a state agrees in writing to allow a dispute to be resolved by arbitration, in which case it waives immunity in relation to proceedings relating to the arbitration (SIA s9 (1)).

Waiving immunity from proceedings does not, on its own, entail waiver of state immunity from execution. An arbitration award (or judgment) can only be enforced against the property of a state if either (a) the state has given written consent or (b) the property in question is in use or intended for use for commercial purposes (SIA s13).

The facts in the Avionics case

In the Avionics case there was an agreement between the Claimant and Nigeria which provided that any dispute would be resolved by arbitration. The Claimant obtained an arbitration award against Nigeria and subsequently a Nigerian judgment based on the award. It sought to enforce both the award and the judgment in England and to execute against a property in London owned by Nigeria. However, Nigeria had leased the property to an independent company, Online Integrated Solutions Limited (“OIS”). As part of a commercial arrangement with Nigeria, OIS conducted consular activities from the property, including processing visa and passport applications as Nigeria’s agent.

Accordingly the issues for the Court were (i) whether Nigeria had immunity from English enforcement of the arbitration award and the Nigerian judgment and (ii) whether the property was in use for commercial purposes and so not immune from execution.

Enforcement of arbitration awards and foreign judgments

The Court held that the Claimant could enforce both the arbitration award and the judgment.

The Court confirmed that proceedings for recognition or enforcement of an arbitration award are proceedings that “relate to” the arbitration and therefore fall within the exception from immunity contained within SIA s9(1).

The Nigerian judgment (in contrast to the arbitration award) could only be enforced at the discretion of the Court under the Administration of Justice Act 1920. But the Court held that it was appropriate to exercise that discretion as, in this case, the Nigerian judgment was part of the process of enforcing the arbitration award.

Commercial purposes

The Court held that the property did not benefit from specific statutory provisions giving protection to diplomatic/consular property and so the key question was whether it was being used for commercial purposes.

The Claimant relied on a number of factors to argue that the property was in use for commercial purposes. These included that the property was in use by OIS and not by the Nigerian High Commission; that it was leased to OIS for an annual rent of £150,000, and that OIS charged fees for its services.

The Court accepted that, from the point of view of OIS, the property was indeed in use for commercial purposes. However, the position was different if considered from Nigeria’s point of view and it was Nigeria’s purpose (not OIS’s) which mattered.

However, the Court held that the primary consideration when deciding whether the property was in use for commercial purposes was the nature and character of the activity actually being carried out. In this case the main activity carried out by OIS, on behalf of Nigeria, was the processing of visa and passport applications. That was a consular activity which, even if outsourced, could only be carried out on behalf of a state.

Accordingly, the property was not being used for a commercial purpose and was therefore immune from execution.

Conclusion

This case highlights some of the key issues to be aware of when contracting with sovereign states and in particular the difficulties of enforcing against state owned property, including determining whether a property is in use for commercial purposes. Even where proceedings could be brought against a state, great care is needed in assessing the assets that any judgment could be enforced against and where possible this needs to be addressed within the contract.