Svenska Petroleum Exploration AB v Lithuania & Anor

A state’s contractual waiver of sovereign immunity does not, without more, constitute submission to the English courts under section 2 of the State Immunity Act 1978. Enforcement of an arbitral award relates to the award and arbitration, rather than the underlying commercial transaction, so section 3 does not apply.

Section 9, however, extends to recognition and enforcement of foreign arbitral awards. It requires no territorial connection between the arbitration and the United Kingdom. A final and conclusive jurisdictional award may also create an issue estoppel where the state has lost its right to challenge it under the law of the arbitral seat.

An ICC tribunal seated in Denmark held that Lithuania was bound by the arbitration clause in an oil-exploration joint venture agreement. Its final award ordered Lithuania and Geonafta jointly and severally to pay Svenska damages, interest and costs. Lithuania participated in the arbitration but challenged neither the jurisdictional award nor the final award in Denmark.

Svenska obtained permission to enforce the final award in England under section 101 of the Arbitration Act 1996. Lithuania applied to set aside the proceedings, asserting immunity under section 1 of the State Immunity Act 1978. The court considered whether Lithuania had submitted to the English jurisdiction, whether the enforcement proceedings related to a commercial transaction, whether the jurisdictional award created an issue estoppel, and whether section 9 removed immunity in proceedings enforcing a foreign award.

1. The State’s application was dismissed. Lithuania was not immune because section 9 of the State Immunity Act 1978 applied to the proceedings.

2. Article 35 of the joint venture agreement waived Lithuania’s own sovereign immunity. It could not, however, be construed as a submission to the English courts under section 2 independently of an agreement to arbitrate. The Act establishes immunity subject to its specified exceptions. It does not recognise a free-standing contractual waiver outside those exceptions. A Company Ltd v Republic of X [1990] 2 Lloyd’s Rep 520 was distinguishable because that agreement also contained an express submission to the English courts and arbitration in England.

3. The joint venture agreement was a commercial transaction entered into by Lithuania. The State assumed substantial contractual rights and obligations concerning the purchase and development of oil, access to assets, indemnities, cancellation and further exploration opportunities. Nevertheless, award-enforcement proceedings relate to the arbitration and award, rather than the underlying transaction. Section 3 therefore did not apply. The court followed AIC Ltd v Federal Government of Nigeria [2003] EWHC 1357 and adopted the narrow construction of “proceedings relating to” supported by Holland v Lampen-Wolfe [2000] 1 WLR 1573.

4. The jurisdictional award was final and conclusive for issue-estoppel purposes. On the balance of probabilities, a Danish court would hold that Lithuania had lost its right to challenge it after nearly four years, full participation on the merits and a deliberate decision not to challenge the final award. Lithuania was consequently estopped from denying that it was party to the arbitration agreement.

5. Section 9 covers proceedings to recognise and enforce domestic or foreign arbitral awards. Neither its language nor its legislative history supports excluding enforcement proceedings, foreign arbitrations, non-commercial disputes or arbitrations lacking a United Kingdom connection. Lithuania’s written agreement to arbitrate therefore removed its jurisdictional immunity.

6. Alternatively, applying Lithuanian law, the parties’ negotiations established a common intention that disputes involving Lithuania would be arbitrated. Lithuanian contractual interpretation required the court to ascertain that real common intention despite the literal restriction of Article 9 to “Founders”. Lithuania was therefore party to the arbitration agreement in any event.

• High Court (Commercial Court), 4 November 2005: Lithuania’s application challenging jurisdiction on state-immunity grounds was dismissed.
• High Court (Commercial Court), 10 January 2005: Svenska’s application for summary disposal was dismissed in Svenska Petroleum Exploration AB v Republic of Lithuania [2005] 1 Lloyd’s Rep 515. The decision did not finally determine the immunity issue.
• High Court, 24 August 2004: Geonafta’s challenge to recognition and enforcement of the final award was dismissed.
• High Court, 7 April 2004: Svenska obtained permission without notice to enforce the final award under section 101 of the Arbitration Act 1996.