BY: UDOH VICTORIA IMOH, ACArb.
ASSOCIATE AT THE NIGERIAN INSTITUTE OF CHARTERED ARBITRATORS
INTRODUCTION
International commercial transactions often involve states and state agencies in contractual dealings with individuals and multinational corporations and owing to the reluctance of states to subject disputes arising from their transactions to the courts of another state, arbitration is often the forum of choice for resolution of disputes arising from such international commercial transactions involving state parties and their agencies.
The ultimate goal of arbitration proceedings is the rendering of an enforceable award for settlement of the disputes between the parties. However, in the event of an unfavorable award against a state or state agency in international arbitration, one veritable hurdle usually encountered by the successful party in enforcing the award is the plea of sovereign immunity by the state entity. Since the very essence of arbitration is the rendering of an enforceable award, this plea of sovereign immunity serves to frustrate and defeat the essence of entering into an international arbitration with a state entity.
WHAT IS SOVEREIGN IMMUNITY?
Sovereign immunity, is a legal doctrine whereby a sovereign or state cannot commit a legal wrong and is immune to civil suit or criminal prosecution, strictly speaking in modern texts in its own courts. Sovereign immunity is a judicial doctrine that prevents the government or its political subdivisions, departments, and agencies from being sued without its consent. The doctrine stems from the ancient English principle that the monarch can do no wrong.
Sovereign immunity is a jurisdictional doctrine that prohibits the national courts of one state from exercising jurisdiction over other states. Premised upon the sovereign equality of states, sovereign immunity in its most expansive form holds that no state may exercise authority over another.
WHEN SOVEREIGN IMMUNITY PLEA CAN BE RAISED
The raising of immunity plea is one which is even recognized by the provision of Article 55 of the ICSID Convention. Article 55 of the Convention surrenders measures of execution to domestic rules of immunity. This means that whereas the court may order for recognition and enforcement, the applicant must seek and obtain prior authorization from the appropriate authority before the order of execution can be granted.
This is illustrated in Bervenuti & Bonfant SRL (BB) v. The Government of the People’s Republic of the Congo. In this case, an applicant for the enforcement of an ICSID award was granted an exequatur by the Tribunal de Grande Instance of Paris subject to the condition that it would obtain prior authorization from the court for any measure of execution or safeguarding measures in order to ensure the immunity of sovereign or public assets. B & B objected to the reservation, but by order dated January 13, 1981, the president of the tribunal refused to amend or delete that part of his earlier order that had been challenged.
The Court of Appeal allowed the appeal and amended the order of the court of first instance. The Court of Appeal held that,
Article 54 laid down a simplified procedure for obtaining an exequatur for awards rendered within the framework of the convention.
Article 55 provides that nothing in Article 54 was to be construed as limiting the immunity from execution enjoyed by foreign states. An order granting executor from an arbitral award did not however constitute a measure of execution but simply a preliminary measure prior to measure of execution.
The judge at the first instance had therefore exceeded his competence under Article 54 by becoming involved in examining the question of immunity from execution of a foreign state, which was only relevant at the second stage during actual execution of the award.
The foregoing buttresses the point that the issue of sovereign immunity is not part of the issues to be canvassed at the time of enforcement proceedings as it is a matter to be addressed during the actual execution process when the applicant appears in the Court Registry for the issuance of execution warrants, for example writ of fifa.
In Nigeria, it will be wrong for the court to consent to execution being levied on the government without asking for the consent of the Attorney General. Such consent from the Attorney General whether of the State or of the Federation of Nigeria should not be unreasonably refused by adducing the issue of immunity. It should not be used as an engine of fraud against the successful private party in the arbitration proceedings. However, it will be wrong as stated above for the court to refuse recognition or enforcement of an ICSID award or international award generally because of the issue of sovereign immunity.
SIDELINING THE EFFECT OF SOVEREIGN IMMUNITY
Today, the restrictive doctrine of immunity is not applied generally among contracting states, it gives participants the opportunity of undertaking forum shopping as to where they want their awards to be recognized, enforced, and executed.
Furthermore, the parties to the arbitration agreement have the opportunity at the time of consenting to submit a dispute to arbitration to provide expressly that the contracting state involved waived her right to the plea of sovereign immunity so as not to defeat the execution of the award when made. A typical example is found in an agreement relating to joint venture for the exploitation of diamond deposits in Sierra Leone, according to which the state and DOMINCO expressly waived the right to avail themselves of any privilege of immunity of jurisdiction in respect of any award or judgment made pursuant to the same.
RECOMMENDATION
It is advised that private persons going into arbitration agreement with a state party should insist on waiver of immunity by both Parties. However, it has been argued that the parties to the agreement cannot by the very terms of their agreements or contract vary, amend or repeal the domestic or national legislation on sovereign immunity. The argument went further to state that such agreements which are contrary to national legislation are not only unlawful but also illegal as they are made in total violation of the national law.
This argument with respect is not sustainable for obvious reasons. The state that made the law, if after being aware of the existence of such law, enters into an understanding to waive the same, shall be bound by the terms of the agreement. It will be fraudulent on the part of the state to invoke its national law to defeat the express provisions of an international agreement with a private person. Equity will not allow the state to benefit from its own default.
CONCLUSION
National courts should as a matter of fact give or resort to wide interpretation of the sovereign immunity clauses so as to save convention. This is because, as it is a known fact that this defense of sovereignty immunity from execution under the ICSID Convention is a potential weakness in the ICSID enforcement machinery, the situation will be hopeless where national courts interpret such immunity clauses in their narrow scope to defeat award execution at random. The court should only uphold such a plea when undermining it will have a dangerous effect and when it is just, taking into cognizance the circumstances of each particular case. It should not be used as an engine of fraud against the private party who must have entered into the contract with a state party inadvertently of the existence of such immunity clauses.
REFERENCES:
Alexis Bane, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1522244#
https://legal-dictionary.thefreedictionary.com/Sovereign+Immunity
DHISADEE CHAMLONGRASDR, FOREIGN STATE IMMUNITY AND ARBITRATION 69-70 (2007) (asserting that when states conduct commercial acts, the rationales for sovereign immunity no longer apply).
Gus Van Harten & Martin Loughlin, Investment Treaty Arbitration as a Species of Global Administrative Law, 17 EUR. J. INT’L L. 121, 128 (2006); 28 U.S.C. § 1605(a)(6)(B) (2006).
ICSID Case no. ARB/77/2
Dominco Agreement of 1970 cited in George R Delaume, “ICSID Arbitration and the Courts”, The American Journal of International Law, Vol. 77, 198,785
