General Dynamics United Kingdom Ltd v State of Libya [2021] UKSC 22
July 2021On 25 June 2021, the UK’s Supreme Court published its decision in General Dynamics United Kingdom Ltd v State of Libya [2021] UKSC 22. Antony Smith and James Hughes consider the impact that this judgment could have on contractors / consultants doing business in countries with a history of civil and political unrest in our latest Global Vantage article.
General Dynamics United Kingdom Ltd v State of Libya [2021] UKSC 22
On 25 June 2021, the UKSC delivered its judgment in General Dynamics United Kingdom Ltd v State of Libya [2021] UKSC 22. The decision shows how difficult it can be to enforce an arbitration award against a sovereign state and is a timely reminder of the risks of doing business in countries that have a history of civil and political unrest.
Background
A dispute arose between General Dynamics, the Respondent, and the State of Libya, the Appellant, regarding a contract for the supply of a communications system (the ‘Dispute’).
In 2013, General Dynamics commenced arbitration proceedings against Libya in relation to the Dispute in the International Chamber of Commerce (‘ICC’). In January 2016, the ICC found in favour of General Dynamics, making an award of c. £16.1m plus interest and costs (the ‘Award’). Libya has to-date made no payment in satisfaction of the Award.
In June 2018, General Dynamics issued an arbitration claim form and made an application without notice to enforce the Award in England and Wales, pursuant to sections 101(2) and (3) of the Arbitration Act 1996 (the ‘AA 1996’). General Dynamics also sought permission to dispense with service of the arbitration claim form, any order made by the court and any other associated documents, pursuant to CPR rules 6.16 and 6.28 (the ‘Service Dispensation’).
CPR Rule 6.16 allows the court to dispense with service of a claim form in exceptional circumstances. CPR rule 6.28 provides that “[t]he court may dispense with service of any document which is to be served in the proceedings.” Both provisions are subject to CPR rule 6.1(a), which states that CPR Part 6 applies to the service of documents “except where…another Part, any other enactment or a practice direction makes different provision”. (see paragraph 78 of the judgment).
In July 2018, Teare J made an order (the ‘Enforcement Order’) in which: (i) Permission to enforce the Award was granted; (ii) Judgment was entered against Libya; and (iii) The Service Dispensation was granted due to ‘exceptional circumstances’ in Libya (including “a real risk of full-scale civil war”). However, Teare J directed that the arbitration claim form, any order of the court and any other associated documents be couriered to an address in Paris and two addresses in Tripoli.
In September 2018, Libya applied to vary the Enforcement Order by setting aside the Service Dispensation and Teare J’s directions as to couriered service. Libya submitted that service must be provided to in accordance with the State Immunity Act 1978 (‘SIA’), which, in section 12(1), states that “Any writ or other document required to be served for instituting proceedings against a State shall be served by being transmitted through the Foreign Commonwealth and Development Office [‘FCDO’] to the Ministry of Foreign Affairs of the State…”
Libya was successful at first instance. Males LJ found that the “writ or other document required to be served for instituting proceedings” in cases such as this was the arbitration claim form (where the court required it to be served) or the order granting permission to enforce the award (where the court did not require the claim form to be served). In both cases, the relevant document(s) had to be served in accordance with section 12 SIA and, as this was a mandatory requirement, it could not be fettered by the court’s powers under CPR rules 6.16 and / or 6.28.
In July 2019, on General Dynamics’ appeal, the Court of Appeal found that section 12(1) SIA did not apply to the relevant documents in this case and therefore that the Service Dispensation should not be set aside. In February 2020, Libya was granted permission to appeal to the UKSC.
The UKSC’s Decision
By way of 3:2 majority, Libya’s appeal was allowed.
The UKSC was primarily concerned with three issues (see paragraph 10 of the judgment), as set-out below:
- In proceedings to enforce an arbitral award pursuant to the AA 1996, does section 12(1) SIA require service on the foreign state through the FCDO? In particular, is the arbitration claim form or the Enforcement Order a “writ or other document required to be served for instituting proceedings” under section 12(1) SIA?
The majority concluded that the procedure for service described in section 12 SIA had to be followed in all cases where documents instituting proceedings were commenced against a defendant State. A ‘wide’ interpretation of the words “other document required to be served for instituting proceedings against a State”, such that would include documents required to enforce an arbitral award in the manner requested in this case. Where section 12(1) SIA applied, it was the “mandatory” and “exclusive” procedure for service, subject only to section 12(6) SIA, which allows for service in a manner agreed by the defendant State.
In contrast, the minority considered that section 12(1) SIA should be interpreted more narrowly, with determinations as to documents “required to be served for instituting proceedings” requiring reference to procedural rules. If those rules did not require service of the relevant documents, then section 12(1) SIA would not apply. In this regard, the minority found that as the arbitration claim form which instituted the proceedings had not been required to be served, and the Enforcement Order was not a document that instituted proceedings, both documents fell outside the scope of section 12(1) SIA and service via the FCDO was not required.
- In exceptional circumstances, can the court dispense with service of the enforcement order pursuant to CPR rules 6.16 and / or 6.28, notwithstanding that section 12(1) SIA applies?
No. When determining whether a document is such that it is “required to be served” under section 12(1) SIA, the majority ruled that the court did not need to refer to the CPR. The CPR rules could not give the court a discretion to dispense with the statutory requirement for service in accordance with section 12(1) SIA. In any event, the wording of CPR rule 6.1(a) is such that the courts cannot use the discretion provided by CPR rules 6.16 and / or 6.28 to “oust” the requirements of section 12(1) SIA (see paragraph 81 of the judgment).
The minority disagreed, holding that discretion could be exercised to dispense with service. If discretion was exercised in this manner, then the document was no longer “required to be served” so would not fall within section 12(1) SIA.
- Must section 12(1) SIA be construed, pursuant to section 3 of the Human Rights Act 1998 or the common law principle of legality, as implicitly allowing alternative directions as to service in exceptional circumstances, where a claimant’s right of access to the court under article 6 of the European Convention on Human Rights (“ECHR”) would otherwise be infringed?
General Dynamics submitted that Libya’s construction of section 12(1) SIA could prevent a claimant from pursuing its claim, infringing ECHR Article 6 and the claimant’s right of access to the court (see paragraph 82 of the judgment).
The majority was unconvinced. It noted that whilst a State was not obliged under international law to allow other States the ‘privilege’ of service of documents initiating proceedings through the FCDO, “this privilege pursues a legitimate objective by proportionate means”. The majority noted that service through diplomatic channels is required under the European Convention on State Immunity, a Council of Europe treaty. Whilst ‘exceptional circumstances’ had rendered the s12(1) SIA procedure ineffective in this case, that was not seen as a sufficient ground to undermine the legislation.
However, the minority suggested that, if required, in exceptional circumstances “where a claimant’s right of access to the court would otherwise be infringed”, it would interpret s12(1) SIA as allowing the court to direct service by means other than transmission through the FCDO to the Ministry of Foreign Affairs (see paragraph 243 of the judgment).
Analysis
Since the death of Muammar Gaddafi in 2011, Libya has found itself relatively isolated on the international stage. Whilst the early years of the Gaddafi regime were themselves marred by links to terrorism overseas, Libya hasn’t always found itself cast adrift. At the turn of the Century, it seemed that Libya was ready to renounce its troubled past and embrace Western investment. As then reported by the BBC, by April 2004 “[d]ozens of British companies” were on the ground in Libya, vying to secure deals with the Gaddafi regime. Perhaps unsurprisingly given the country’s wealth of natural resources, oil and gas were seen as the main areas of opportunity, but construction and tourism also attracted attention. With negotiations regarding Libya’s accession to the WTO also getting underway in 2004, businesses could be forgiven for having believed that the instability of the past had been put to bed. Yet, any hopes of relative peace were quickly dashed by the Libyan Revolution of 2011, and, almost a decade later, the situation on the ground remains fractious.
The dramatic turn of events in Libya over the past two decades is a cautionary tale for contractors / consultants that are considering doing business with countries that have a reputation for civil and political unrest – history has a nasty habit of repeating itself. Whilst the potential to capitalise on an emerging market can be enticing, as this case proves, if the situation on the ground turns for the worse, businesses could find themselves out of pocket and faced with the prospect of trying to conduct recovery proceedings in circumstances where following statutory procedure is fraught with danger or even impossible. In this regard, the UKSC’s decision makes for worrying reading for those with active interests in countries such as Afghanistan, where the announcement of a withdrawal of US troops has been accompanied by a resurgence in terrorist activity in the region. Recent data from the UK’s Department of International Trade shows that total trade in goods and services between the UK and Afghanistan in the four quarters to the end of Q4 2020 was over £140 million. Yet, a Taliban-controlled Afghanistan could mean restrictions on foreign presence and investment in the country, which would almost certainly lead to problems for those with on-going contracts in the region. As such, we suspect that this isn’t the last we hear of UK companies facing difficulties in trying to recover amounts due under contracts agreed with States plagued by instability.
Going forward, we expect that commercial entities engaged in similar types of transaction to that which was the subject of this case may now try to negotiate a mutually acceptable method of service, in accordance with section 12(6) of the SIA. However, there is no guarantee that any such negotiations will prove successful (nor that agreed procedures will be followed). This means that some businesses could find themselves in the unenviable position of having to weigh up the prospect of accepting the risk associated with section 12(1) SIA or losing the contract.
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