On 23 January 2015, in consideration of the State Immunity Act 1978 ("SIA") the Commercial Court (Hamblen J) set aside two without notice orders allowing service of an arbitration claim form on the defendant.
The claimants and the defendant were parties to ongoing LCIA arbitration proceedings in London, pursuant to a contractual arbitration clause. The tribunal had ordered the defendants to pay US$100 million to the claimants within 30 days of the date of the order, otherwise the order would be peremptory. As the defendants did not pay, the tribunal permitted the claimants to apply for enforcement of the order under s. 42 of the Arbitration Act 1996 ("the 1996 Act"). The claimants's solicitors (Freshfields) wrote to the defendant's solicitors (WilmerHale) asking for confirmation that they were authorised to accept service on behalf of the defendant. WilmerHale responded saying Freshfields' request was premature. In anticipation of permission being granted by the tribunal the claimants issued an application notice for an order for permission to serve the arbitration claim form on WilmerHale. That application was granted. This first order was sent to WilmerHale following the tribunal's grant of permission the same day. It was accompanied by the arbitration claim form requesting the court to order the defendant to comply with the tribunal's peremptory order and an affidavit from Freshfields in support of that application. On the same day the claimants issued their without notice application for the second order.
There followed correspondence between WilmerHale and Freshfields in which the applicability of the SIA and the failure to disclose this to the court was raised and debated. (It was agreed that the defendant was a constituent territory of a federal state for the purposes of s. 14(5) SIA). WilmerHale sent copies of that correspondence to the court but it does not appear to have been placed before Flaux J before he made the order. Freshfields did not forward that correspondence to the court until after the order was made, although on that same day it had written to the Commercial Court Listing Office contending that s. 12 SIA did not apply. The defendant subsequently issued the present application and filed an acknowledgment of service, indicating its intention to dispute the court's jurisdiction pursuant to CPR r. 11(2).
The issues before the court were as follows:
- Whether s. 12(1) SIA did not apply because the claimants were not "instituting proceedings". Hamblen J held that the claimants had made an arbitration claim in the form of "an application to the court under the 1996 Act" in accordance with section 42 of the 1996 Act and thereby "started" their claim in accordance with the requirements of CPR 62.2 and 62.3. The purpose of the arbitration claim was to persuade the court to make an order in accordance with s. 42 of the 1996 Act, requiring the defendant to comply with the tribunal's order. The arbitration claim form envisaged that the claimants would be instituting proceedings. Whilst those proceedings were, under the 1996 Act, "in relation to arbitral proceedings", they were nevertheless separate proceedings.
- Whether the defendant had agreed to alternative service (on WilmerHale) for the purposes of s. 12(6) SIA. The authorisation from WilmerHale was clearly stated to apply to "this arbitration". Court proceedings were not arbitration proceedings. The fact that those court proceedings may be in relation to and in support of the arbitration proceedings did not remove that clear distinction. WilmerHale (in response to a specific request) had declined to confirm that they were authorised to accept service by the method contemplated by the claimants. In conclusion, there was no or no operative agreement as to the manner of service under s. 12(6) SIA.
- Whether the defendant had waived its right to rely on s. 12 SIA by acknowledging service. Under CPR r. 11.2 a defendant who wished to dispute the court's jurisdiction was required to file an acknowledgment of service. To challenge jurisdiction on the grounds of invalid service in reliance on s. 12(1) SIA the defendant had to acknowledge service. The claimants were effectively arguing that by invoking its rights under s. 12(1) SIA by the means required under the court's rules the defendant lost those rights. "That would be an absurd and unjust result which is most unlikely to have been intended by Parliament. That is made all the more clear by the fact that it was not a result which followed at the time that the SIA was enacted... The obviously sensible construction of s.12(3) given the changes in civil procedure since 1978 is to hold that a State "appears" in proceedings when it files an acknowledgment of service and does not issue an application to dispute the Court's jurisdiction within the requisite period". On the basis of NML Capital Ltd v Argentina  2 AC 495 (Lord Clarke at 142-144) the SIA "should be given an updated meaning to allow for procedural changes since it was enacted. In the present case that means construing "appears" in s.12(3) in the manner set out above". Dickinson on State Immunity (Oxford University Press, 2004) suggested that filing an acknowledgment of service even to dispute jurisdiction would constitute an "appearance" and would preclude a state from reliance on s. 12(1). "However, in that passage there is no analysis or consideration of any of the contrary arguments set out above and I respectfully disagree... In my judgment the Claimant's "Catch 22" construction of s. 12(3) cannot be correct. It should be construed in the manner set out above. That is consistent with the statutory purpose of s.12, namely, confer an important procedural right on state entities, which can be foregone either: (i) by doing the functional equivalent of entering an unconditional appearance under the old rules of procedure, or (ii) by an agreement to an alternative method of service. It is also in accordance with the fundamental feature of the scheme of CPR Part 11, namely, that a "defendant who files an acknowledgment of service does not, by doing so, lose any right that he may have to dispute the court's jurisdiction": CPR 11(3)".
- Whether the orders should be set aside for failure to make full and frank disclosure. It was not necessary to decide this issue, but Hamblen J held that he would have set the orders aside to mark the court's disapproval of the "serious non-disclosure" made by the claimants.