When does a contract waive a state’s immunity from enforcement?

The decision in General Dynamics (UK) Ltd v State of Libya [2024] EWHC 472 (Comm), turned on whether the sentence “Both parties agree that the decision of the arbitration panel shall be final, binding and wholly enforceable.”, did or did not operate to waive the State of Libya’s immunity from enforcement in accordance with the UK’s State Immunity Act 1978.

The contract was governed by Swiss Law, but the principles of contractual construction under Swiss law were not in dispute. Also not disputed was the fact that no particular form of words are required for a state to waive a part of its immunity.

The court held (at [22] to [24]):

“In my judgment the use of the word “wholly” emphasises an intention on the part of the parties that the word “enforceable” was not to be regarded as limited in effect, particularly given the inclusion of the words final and binding that precede it…  Using the word “wholly” is obviously inapposite if the intention was to confine the meaning of enforceable… . 

Finally, SoL submits that immunity from enforcement against its assets is a valuable right. I accept that is so, not least because it is not disputed. SoL submits that in consequence clear words will be required before a court will hold that a state has waived such a right. In my judgment that does not assist in the circumstances of this case. … I have come to the conclusion that the parties’ intention was to enable an award made pursuant to the parties’ arbitration agreement contained in the Contract to be enforceable in the same way as such an award could be enforced in any commercial agreement between non-state actors”.

On the facts of the case, the finding that Libya had waived its enforcement immunity allowed an interim charging order over a state-owned property in London to be made final.

The case serves as a reminder of the importance for the parties to a contract involving a state to carefully consider the precise wording of their dispute resolution provisions. Changes to one or two words in such a clause can lead to radically different outcomes.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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