Commercial Contracts and International Organisations
A Court of Appeal in the Netherlands has confirmed the functional immunity of NATO entities even if a private contractor has no “reasonable alternative means” to resolve its contractual dispute.
On 10 December 2019, in the case of Supreme Headquarters Allied Powers Europe et al v Supreme Site Service GmbH et al, the Dutch Court of Appeal of ‘s-Hertogenbosch dismissed contractual claims brought by a private entity, Supreme Site Service GmbH et al (“Supreme”), against two NATO entities – Supreme Headquarters Allied Powers Europe (“SHAPE”) and Allied Joint Force Command Headquarters Brunssum (“JFCB”). The Court of Appeal ruled that SHAPE and JFCB were entitled to absolute functional immunity as they were performing official functions as international organisations, even if the private company had no “reasonable alternative means” of dispute resolution available in keeping with Article 6 of the European Convention on Human Rights (“ECHR”).
The decision defends the immunities of international organisations. It also confirms the importance for private parties of: (i) establishing effective contractual mechanisms for alternative dispute resolution in agreements with entities that might have sovereign or international organisational immunity; and (ii) invoking those alternative dispute resolution mechanisms in the event of a dispute.
Supreme supplied fuel to SHAPE for use in NATO operations in Afghanistan, conducted in the aftermath of the September 11 terrorist attacks. Supreme did so pursuant to Basic Ordering Agreements with two NATO entities – SHAPE and JFCB – which have their headquarters in Belgium and the Netherlands, respectively. These supply agreements were governed by Dutch law but contained no arbitration clause or any choice of judicial forum. Instead, the agreements allowed Supreme to submit claims to a Release of Funds Working Group to settle residual claims for underpayment from an escrow account. Notably, at least one other NATO supplier had obtained an ICC arbitration clause in similar agreements.
Supreme was paid for some fuel by individual States participating in the Afghan operations but was also paid for other fuel under a joint NATO budget. Supreme and the NATO entities soon entered into what appears to be a standard pricing dispute concerning the supplied fuel, although the overarching dispute also involved allegations of contractual fraud by Supreme-affiliated entities.
In 2015, Supreme and JFCB held eventually insufficient discussions on the alleged underpayment to Supreme. Since these discussions did not resolve the entire dispute, Supreme initiated proceedings against SHAPE and JFCB before the Dutch courts. Supreme apparently did not refer the dispute to the Working Group mechanism provided in its supply agreements.
At the first instance, the District Court of Limburg ruled that the Supreme and JFCB had not provided a “reasonable alternative means” of dispute resolution to Supreme, as per the European Court of Human Right’s decision in Waite and Kennedy v. Germany. Therefore, their immunities could be breached since Supreme’s claim of an impermissible violation of the right to a fair trial (Article 6 of the ECHR) was justified.
The Court of Appeal overturned the lower court’s decision on two grounds.
First, SHAPE and JFCB’s immunities could not be breached even if there were no “reasonable alternative means” of dispute resolution available to Supreme. According to the Court, the right of access to justice in Article 6 of the ECHR is not absolute and domestic courts (such as itself) exercise considerable discretion in interpreting this standard. In the absence of an alternative remedy, the recognition of immunity does not ipso facto violate the right of access to justice. Ultimately, the Court concluded that SHAPE and JFCB had full functional immunity since they were fulfilling their official activities by purchasing fuel for military activities. In the opinion of its three judges, “[t]he fact that Supreme had…a commercial contract does not change the context of the supplies”.
Second, in any event, the Court stated that Supreme had access to alternative remedies: it could have recourse to the Working Group. It might perhaps also bring suit against individual States that were part of the NATO mission to recover its outstanding payments. It had taken neither of those steps.
Supreme is expected to appeal the decision to the Dutch Supreme Court. The decision already granted the parties leave to do so. The Dutch Supreme Court is a court of cassation. It will determine whether the Court of Appeal interpreted and applied the law correctly. It will not re-examine the facts.