State immunity and international arbitration

James Rogers, a partner in our London office, discusses state immunity in the context of international arbitration and the importance of seeking jurisdiction-specific advice.

Norton Rose Fulbright has developed a state immunity portal to keep our clients up-to-date with the latest developments. Our interactive portal covers a range of jurisdictions and is designed to provide essential information needed by financial institutions lending to, or by corporates transacting with, sovereign entities. Find out more about our online State immunity guide.

Transcript

State Immunity is a doctrine of international law that prevents courts and arbitral tribunals from exercising jurisdiction over states and state-owned assets. It’s important particularly in the arbitration context because it prevents courts and arbitral tribunals from exercising their jurisdiction throughout the process; right from the commencement of proceedings through ultimately the enforcement of awards and execution against state-owned assets.

In many countries, including England and Wales, an agreement to arbitrate is interpreted as a waiver of state immunity as to prosecution. A state can’t avoid arbitration by claiming state immunity where it has previously agreed to arbitration. However, express waivers are required in relation to enforcement of the award and, ultimately, execution against state assets. If the state hasn’t given express waivers it can use state immunity to avoid enforcement and execution.

Any business sector that regularly interacts with state-owned entities and in relation to state assets is susceptible to issues of sovereign immunity. Particularly, for example, the extractive industries - the oil and gas sector and the mining sector, where commercial parties are regularly contracting with states in relation to state-owned assets such as mining and extractive rights.

The first time to consider it is before you enter into your contract. It is important to ensure that first your arbitration agreement is drafted correctly but also you should make sure waivers as to enforcement and execution are expressly set out. State immunity issues may arise also during the course of your transaction or your dealings with the parties and you may need to give thought to the issues during the life of the project. Certainly after or at the end of an arbitration you will need to consider state immunity issues where you are choosing the jurisdiction in which you wish to enforce your award.

State immunity issues are very jurisdiction-specific so it is important to take jurisdiction-specific advice.

Norton Rose Fulbright has produced a multi-jurisdictional state immunity guide which is recommended reading for anyone who may be transacting with state parties.