Svenska Petroleum Exploration AB v Lithuania & Anor

Where a state has agreed in writing to arbitration, section 9 of the State Immunity Act 1978 removes immunity from proceedings to enforce the resulting award as a judgment. This applies to domestic and foreign awards. Execution against state property remains subject to separate restrictions.

Failure to challenge an award does not itself establish written consent to arbitration. However, a binding jurisdictional award made pursuant to an actual arbitration agreement may establish that consent. Finality in the country of arbitration does not dispense with the separate question of recognition in England.

A general waiver of sovereign immunity must be construed in its contractual context. Such a waiver does not necessarily constitute submission to the English courts.

Svenska Petroleum Exploration AB, a Swedish investor, entered into a joint venture agreement with EPG, a Lithuanian state enterprise later known as AB Geonafta. Geonafta had legal personality separate from the Lithuanian Government. Although the Government was not identified as a party, it signed a rubric acknowledging that it was legally and contractually bound as if it were a signatory. The agreement contained an ICC arbitration clause referring to disputes between the founders and a general waiver of sovereign immunity.

Following disputes about oilfield development rights, an ICC tribunal sitting in Denmark made an interim award confirming jurisdiction over the Government. It subsequently awarded Svenska damages against the Government and Geonafta. The Government participated under protest and did not challenge either award in Denmark.

Svenska obtained permission to enforce the final award in England. The Government applied to set that order aside on grounds of state immunity. After a Deputy Judge dismissed Svenska’s separate application for summary disposal, Gloster J dismissed the Government’s immunity application. She relied on section 9 of the State Immunity Act 1978 and also found that the Government had agreed to arbitration.

The Government appealed. The principal questions concerned consent to arbitration, the binding effect and recognition of the interim award, and whether proceedings to enforce a foreign award fell within section 9.

1. The appeal was dismissed. The Government had agreed to arbitration, and Svenska’s application to enforce the final award fell within section 9(1) of the State Immunity Act 1978.

2. The agreement had to be construed using the applicable principles of Lithuanian law. Those principles sought the parties’ actual common intention through the contractual language, negotiations, subsequent conduct and other relevant evidence. Private, uncommunicated intentions were insufficient. The evidence established a common intention to refer disputes involving the Government to ICC arbitration. Effect was given to that intention by reading Article 35 as containing a submission to the procedure in Article 9, rather than expanding the meaning of the founders. The international authorities did not establish a universal requirement for an express assurance of consent.

3. The actual agreement to ICC arbitration conferred jurisdiction on the tribunal to determine its jurisdiction. Its interim award was therefore binding for what it decided, despite differences between the tribunal’s reasoning and the court’s reasoning. The award established that the Government was bound through the written agreement. Mere failure to challenge an award would not itself establish written consent where no arbitration agreement existed, assuming the award had not been recognised.

4. Finality in Denmark remained distinct from recognition in England. Section 103 of the Arbitration Act 1996 permitted the resisting party to invoke the statutory grounds against recognition despite failing to challenge the award at its seat. Here, recognition had already been decided and was unchallenged. The conclusion that the Government had also lost its Danish challenge rights through delay and its conduct was upheld.

5. Proceedings to enforce an award as a judgment related to the arbitration under section 9. Recognition and conversion into a judgment completed the process of making arbitration effective. Execution against state property was separately governed by section 13. Section 9 contained no territorial restriction excluding foreign awards. Its wording was clear; if ambiguity existed, the Parliamentary statements confirmed that construction.

6. The court additionally explained that an interlocutory decision can create an issue estoppel where it finally determines an issue. Refusal of summary disposal usually establishes only a real prospect of success. The earlier decision did not prevent Svenska advancing the distinct argument that Danish challenge rights had subsequently been lost. The appropriate procedure was to seek directions within the immunity application. The judge’s late admission of expert evidence was upheld: permission was required, but the Government’s delayed objection had restricted the available procedural options.

7. In observations unnecessary to the disposition, the general waiver did not constitute submission to the English courts under section 2. The joint venture was not a supply contract under section 3(3)(a), and its commercial character under section 3(3)(c) remained undecided. Proceedings concerning recognition related to their own subject matter, rather than the underlying transaction. AIC Ltd v The Federal Government of Nigeria [2003] EWHC 1357 (QB) was correctly decided. Retrospective non-arbitrability was not pursued as an independent appellate ground and was left unresolved.

• Court of Appeal (Civil Division): In [2006] EWCA Civ 1529 , dismissed the Government’s appeal and upheld the rejection of its claim to immunity from proceedings to enforce the final award.
• High Court, Commercial Court: On 4 November 2005, Gloster J dismissed the Government’s application to set aside permission to enforce the award. She found that section 9 of the State Immunity Act 1978 applied and independently concluded that the Government had agreed to arbitration. No citation is supplied.
• High Court, Commercial Court: On 11 January 2005, Mr Nigel Teare QC, sitting as a Deputy Judge, dismissed Svenska’s application for summary disposal of the immunity challenge. He recognised the interim award but rejected the particular argument that it necessarily determined jurisdiction conclusively. Permission to appeal was granted but not pursued.
• High Court, Commercial Court: On 7 April 2004, Morison J granted permission to enforce the final award, with a period allowing the Government to apply to set the order aside.
• ICC arbitration, Denmark: An interim award dated 21 December 2001 confirmed jurisdiction. A final award dated 30 October 2003 awarded Svenska US$12,579,000 against the Government and Geonafta.