Svenska Petroleum Exploration AB v Lithuania & Anor

A state that has agreed in writing to arbitrate cannot claim immunity from UK proceedings relating to the arbitration. This includes an application under section 101(2) of the Arbitration Act 1996 for leave to enforce a foreign award as a judgment. Execution against state property remains governed separately by section 13 of the State Immunity Act 1978. An arbitration agreement may be established by interpreting the contract under its governing foreign law, including evidence of common intention, negotiations and subsequent conduct. A state is not bound merely because a state enterprise contracts with a private investor, but it may assume contractual and arbitration obligations through the terms and circumstances of its signature. A general waiver of immunity alone is too imprecise to submit the state to English jurisdiction under section 2(1).

Svenska sought in England to enforce a Danish ICC arbitration award against the Government of Lithuania and AB Geonafta. Morison J granted permission to enforce the award under section 101 of the Arbitration Act 1996. A deputy High Court judge dismissed Svenska’s summary application, although he recognised the first award on jurisdiction. Gloster J later dismissed the Government’s application to set aside enforcement on state-immunity grounds. She held that the first award had finally determined the Government’s agreement to arbitrate and that section 9 of the State Immunity Act 1978 applied. The appeal concerned the construction of the agreement, the effect of the first award, and whether sections 2, 3 or 9 removed immunity from the enforcement proceedings.

The Court of Appeal dismissed the appeal. The Government was not immune from Svenska’s proceedings to enforce the second award.

1. Construction of the agreement. Under Lithuanian law the court had to ascertain the parties’ real common intention in good faith from the language, negotiations, prior drafts, subsequent conduct, surrounding circumstances, usages and communications. The exercise remained essentially objective. A state may sign in an administrative capacity without assuming contractual obligations, but it may also become a party or assume limited obligations. The decisive question is the construction of the instrument and the circumstances, not labels such as party or signatory.
2. The rubric attached to the Government’s signature showed that it intended to be legally and contractually bound as if it were a signatory. Although Article 9 could not itself be construed as extending the word Founders to the Government, the evidence established a common intention that disputes involving the Government should be arbitrated. Under Lithuanian law the agreement was therefore properly read as containing, in Article 35, the Government’s submission to arbitration under Article 9.
3. First award. The arbitration clause was autonomous, and the ICC agreement gave the arbitrators jurisdiction to decide their own jurisdiction. Their first award was binding for what it decided, whether right or wrong. The Government had lost any right to challenge it in Denmark by unreasonable delay, and the Deputy Judge had recognised it in England. The award therefore finally determined the jurisdiction issue between the parties.
4. Section 9. Section 9(1) of the State Immunity Act 1978 applied. An application under section 101(2) of the Arbitration Act 1996 for leave to enforce a foreign award as a judgment is proceedings relating to the arbitration. It is part of the recognition process and the final stage of making the arbitration effective. Execution against state property is a separate matter under section 13.
5. For completeness, a general waiver of immunity under section 2(1) was too imprecise to amount to submission to the English courts when read in the context of the arbitration agreement. The court expressed no concluded view on whether the joint venture was a commercial transaction under section 3(3)(c). It held that the proceedings did not relate to the underlying transaction for section 3 purposes, following the approach in AIC Ltd v The Federal Government of Nigeria [2003] EWHC 1357 (QB).

1. Court of Appeal (Civil Division): dismissed the Government’s appeal and held that the enforcement proceedings fell within section 9(1) of the State Immunity Act 1978.
2. High Court, Queen’s Bench Division, Commercial Court: Gloster J dismissed the Government’s application to set aside permission to enforce the award. Earlier, a deputy judge dismissed Svenska’s summary application, while Morison J had granted permission to enforce the award.