Three Part Series: UK Freezing Orders Against a Foreign State, Part Two

First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. Today's update is the second in a three-part series that examines whether English courts can issue a worldwide freezing order against a foreign state in support of efforts to enforce an arbitral award or foreign judgment.

Last month, we looked at the procedure in England to enforce arbitral awards and foreign judgments against foreign states (link). Today, we consider whether the rules on state immunity from execution bar the grant of a worldwide freezing order against a state. Our next update will then consider the principles that otherwise govern the grant of such orders.

Introduction

A freezing order is a form of injunction by which an English court can restrain a debtor from disposing of or dealing with their assets until such time as the award/judgment is paid/enforced. This can apply to assets both within England and Wales and abroad. A freezing order is a powerful tool to support an enforcement strategy. However, the creditor must overcome various hurdles to obtain such an order. In the context of an action against a foreign state, this includes the rules on state immunity.

State Immunity in Relation to the Execution Stage

As explained in our last update, by Section 1 of the State Immunity Act 1978 (SIA), the general rule is that states are immune from the jurisdiction of the English courts unless the action falls within the scope of one of several exceptions set out in the Act. Those exceptions concern both immunity from adjudication and immunity from execution. Today, our focus is on the latter.

SIA Sections 13(2)-(4) deal with the type of measures that may be taken against states for the execution of awards/judgments. These provisions can be divided in two:

• First, "relief shall not be given against a State by way of injunction or order for specific performance or for the recovery of land or other property" (Section 13(2)(a)), unless the state has consented to such relief being given (Section 13(3)).
• Second, "the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award …" (Section 13(2)(b)), unless the state has consented to such process being issued (Section 13(3)) or the enforcement process is "in respect of property which is for the time being in use or intended for use for commercial purposes" (Section 13(4)).

The Consent Exception

As noted above, the prohibition on injunctive relief is disapplied where the state has consented to such relief being given. However, by Section 13(3), a provision merely submitting to the jurisdiction of the English courts is not to be regarded as a consent for such purposes. The scope of a consent will depend on an interpretation of the specific clause. By way of example, in A Company Ltd v. Republic of X (1990),¹ there was a waiver to the effect: "The Ministry of Finance hereby waives whatever defence it may have of sovereign immunity for itself or its property …" (our emphasis). The High Court held that such waiver "amounted to the agreement and consent of the State that its property can be made the subject of a freezing injunction."

Other Exceptions to Injunction Immunity?

The question is whether injunctions can be granted against a state in the absence of such a consent. For many years, the courts applied Section 13 to prohibit injunctions, without much analysis. For example, in ETI v. Bolivia (2009),² the Court of Appeal held that Section 13 prohibited a freezing order in support of a then-ongoing arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (ICSID Convention). The question there was whether Section 13 was overridden by Section 9’s arbitration exception to immunity;³ the court held that it was not, thus following the distinction between immunity from adjudication and from execution.

The Supreme Court's Judgment in Benkharbouche: the SIA vs the ECHR

The winds began to change in 2017. This resulted from the Supreme Court's judgment in Benkharbouche v. Embassy of the Republic of Sudan (2017),⁴ which considered the interplay between the SIA and the European Convention on Human Rights (ECHR). The case concerned domestic workers who brought suit following termination of their employment by embassies in London, but the court set out various principles of wider relevance. In particular, it held that where English law creates an immunity which is not required by international law, this will result in a denial of access to the courts in violation of ECHR Article 6 (the right to a fair trial).

Thus, where an action is barred by state immunity, the claimant may be able to overcome that by establishing that the immunity goes further than required by international law, thereby violating Article 6. The claimant could use this to argue that the immunity should be interpreted narrowly so as to avoid putting the UK in breach of its Article 6 obligations.⁵

Applying Benkharbouche in the Injunction Context

These principles were applied in the injunction context in UK P&I Club v. Republica Bolivariana de Venezuela (2022).⁶ Insurers applied to the English courts for an anti-suit injunction to restrain Venezuela from pursuing foreign proceedings. The High Court agreed that Venezuela’s claim was subject to an arbitration clause, so the question arose as to whether an injunction could be granted against Venezuela. The insurers argued that Section 13 should be read narrowly so as to permit injunctions against a state in relation to its non-sovereign activity, invoking Benkharbouche. The court disagreed. In doing so, it found that "there is no clear and settled view in customary international law regarding orders for injunctions … against states," and that the UK's approach (per SIA Section 13) is not an outlier and thus did not infringe ECHR Article 6. The insurers' subsequent application for permission to appeal to the Supreme Court was denied.⁷

Nevertheless, several potential arguments might be raised to overcome this judgment.

For example:

• UK P&I Club is arguably incompatible with the Court of Appeal's earlier judgments in Trendtex Trading Corpn v. Central Bank of Nigeria (1977) and Hispano Americana Mercantil SA v. Central Bank of Nigeria (1979). Trendtex was decided prior to the SIA's enactment, and held that an injunction could be granted against a state so long as it was not immune from suit.⁸ Hispano was decided after the SIA’s enactment, and held that the SIA and its US equivalent (the Foreign Sovereign Immunities Act, or FSIA) had not altered the international law as stated in Trendtex.⁹ In 2020, the High Court observed that there was a "good arguable case" that Section 13 should be interpreted narrowly, having regard to Benkharbouche and the Central Bank of Nigeria¹⁰ By contrast, in the 2022 UK P&I Club judgment, the court found that "there is no clear and settled view in customary international law regarding orders for injunctions … against states." It might be said that this was not a finding open to the court given the existence of the earlier Court of Appeal judgments.
• In any event, UK P&I Club's effect may be limited to prohibiting anti-suit injunctions alone: while examining the scope of customary international law, various parts of the judgment highlight that such injunctions are generally eschewed by continental jurisdictions; however, that continental reticence is not mirrored across all forms of injunction.
• Another potential argument arises in the context of an application for a freezing order to support the enforcement of an award/judgment. To recall, Section 13(2) distinguishes between "(a) relief … by way of injunction …" and "(b) … any process for the enforcement of a judgment or arbitration award …"; and the "commercial purposes" exception in Section 13(4) applies to the latter. Accordingly, it might be argued that, on a proper interpretation of Section 13, injunctions to support the enforcement of an award/judgment fall within the words "any process for the enforcement of a judgment or arbitration award" and can therefore be made in respect of assets in use for commercial purposes. Indeed, since the courts can execute an award against such assets, it may be difficult to justify denying a freezing order over them.

Conclusion

In sum, the English courts can order a worldwide freezing order against a state that has waived execution immunity. Absent such consent, the creditor will have to overcome the UK P&I Club judgment; we have set out above some preliminary thoughts as to how that might be done.

Endnotes

¹ A Company Ltd v. Republic of X 1990 2 Lloyd’s Rep 520.

See also Sabah Shipyard (Pakistan) Ltd v. Islamic Republic of Pakistan & Anor 2002 EWCA Civ 1643, where there was a contractual waiver in the following terms: "Sovereign Immunity. 1 The Guarantor i.e. Pakistan hereby irrevocably and unconditionally agrees that the execution, delivery, and performance by it of this Guarantee constitute private and commercial acts. 2 The Guarantor hereby irrevocably and unconditionally agrees that: (i) should any proceedings be brought against the Guarantor or its assets, other than its military aircraft, naval vessels and other defense related assets or assets protected by the diplomatic and consular privileges under the 1978 State Immunity Act of the United Kingdom or the 1976 Sovereign Immunities Act of the United States or any analogous legislation (the 'Protected Assets') in any jurisdiction in connection with this Guarantee or any of the transactions contemplated by this Guarantee, no claim of immunity from such proceedings will be claimed by or on behalf of the Guarantor on behalf of itself or any of its assets (other than the Protected Assets); (ii) it waives any right of immunity which it or any of its assets (other than the Protected Assets) now has or may in the future have in any jurisdiction in connection with any such proceedings; and (iii) consents generally in respect of the enforcement of any judgment against it in any such proceedings in any jurisdiction to the giving of any relief or the issue of any process in connection with such proceedings (including without limitation, the making, enforcement or execution against or in respect of any of its assets whatsoever (other than the Protected Assets) regardless of its use or intended use).” The Court of Appeal agreed that such waiver extended to consenting to the grant of an interim (anti-suit) injunction against Pakistan (see 18-27).

A further example can be seen in Camdex International Ltd. v. Bank of Zambia (No 1) 1996 3 WLR 759 and (No 2) 1997 1 WLR 632. There, the waiver was in the following terms: "To the extent that the obligor i.e. the Bank of Zambia may in any jurisdiction in which any act or proceeding may at any time be taken for the enforcement of this agreement claim for itself or its assets immunity from suit, judgment, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to itself or its assets any such immunity (whether or not claimed), the obligor hereby irrevocably agrees not to claim and hereby irrevocably waives any such immunity to the full extent permitted by the laws of such jurisdiction. The obligor hereby irrevocably consents generally in respect of any such action or proceedings to the giving of any relief or issue of any process in connection with any such action or proceedings, including without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such action or proceedings.” The claimant obtained a freezing injunction against the Bank. The Court of Appeal observed that the Bank could not claim state immunity from such relief, given the above-quoted clause.

² ETI Euro Telecom International NV v. Republic of Bolivia and Another 2008 EWCA Civ 880, at 113.

³ SIA Section 9 provides: "(1) Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration. (2) This section has effect subject to any contrary provision in the arbitration agreement and does not apply to any arbitration agreement between States."

⁴ Benkharbouche v. Embassy of the Republic of Sudan (Secretary of State for Foreign and Commonwealth Affairs and others intervening) 2017 UKSC 62.

⁵ Indeed, per the Human Rights Act 1998, legislation must, so far as possible, be read and given effect in a way which is compatible with the ECHR rights (Section 3). Where interpretation cannot remove the incompatibility, the court may make a declaration of incompatibility (Section 4); doing so does not directly affect the continuing operation of that legislation, but may lead to it being amended.

⁶ UK P&I Club v. Republica Bolivariana de Venezuela 2022 EWHC 1655 (Comm).

⁷ See Supreme Court’s website, "Permission to Appeal - October 2022," at https://www.supremecourt.uk/news/permission-to-appeal-october-2022.html

⁸ Trendtex Trading Corpn v. Central Bank of Nigeria 1977 QB 529. In Lord Justice Shaw's words: "If the bank is to be regarded as part of that government yet not immune from suit … it is a reasonable corollary that those funds should be preserved within the jurisdiction so long as there is a possibility that the action may survive and succeed."

⁹ Hispano Americana Mercantile SA v. Central Bank of Nigeria 1979 2 Lloyd’s Rep 277.

¹⁰ London Steam-Ship Owners’ Mutual Insurance Association Ltd v. Kingdom of Spain 2020 EWHC 1582 (Comm), at 189-192.