Korea National Insurance Corp (KNIC) v Allianz Global Corporate & Speciality AG

Non-justiciability is not triggered merely because adjudication may embarrass a foreign state or potentially affect diplomatic relations. The court must examine the nature of the dispute and whether it concerns sovereign acts or a state-to-state issue lacking judicially manageable standards. In a commercial contract dispute, allegations that a foreign state or its entities participated in fraud affecting contractual rights remain justiciable. The court should be cautious before rejecting a state-owned party’s considered position that an issue is justiciable, although that position is not determinative. Where foreign-relations embarrassment is relied upon, an indication from the executive is important; its absence weighed against judicial restraint.

Korea National Insurance Corporation sought to enforce a judgment of the Pyongyang Court against its reinsurers. The reinsurers alleged that the underlying insurance claim and the North Korean judgment had been procured by fraud involving North Korean state entities and officials. They also relied on a public-policy defence based on the alleged lack of independence of the North Korean judiciary. Field J struck out parts of the defence as non-justiciable in [2008] EWHC 2829 (Comm) and refused an application to stay the trial. On an urgent application for permission to appeal, both parties accepted that the issues were justiciable. The central issue was whether possible embarrassment to diplomatic relations justified refusing to adjudicate the allegations.

Waller LJ delivered the leading judgment. Lord Justice Rix and Lord Justice Thomas agreed.

1. The application for permission to appeal the justiciability judgment was granted and the appeal was allowed. The judge had wrongly treated an obvious potential for embarrassment to foreign relations as sufficient to make the allegations non-justiciable.
2. The authorities, including Buttes Gas & Oil Co v Hammer [1982] AC 888 and Kuwait Airways Corporation v Iraqi Airways Company [2001] 3 WLR 1117, did not establish a general rule that allegations which might embarrass a foreign sovereign were non-justiciable. They concerned a particular class of sovereign acts and state-to-state issues. Relevant considerations included the existence of judicially manageable standards, whether the court would enter a judicial no-man’s-land, possible embarrassment in foreign relations where that possibility had been drawn to the executive’s attention, sensitive diplomacy, uncertain international law, and the distinction between sovereign and commercial conduct.
3. In a commercial context, allegations that a foreign state or its entities had procured a fraudulent claim or judgment affecting rights under a commercial contract were capable of judicial determination. A foreign state insured under an insurance contract could not be protected from a fraud allegation merely because adjudication might embarrass it. The same applied where a state-owned entity brought the claim and the state was alleged to have participated in the fraud.
4. The court should be cautious before rejecting the fully considered position on justiciability of a state-owned party, although that position was not determinative. The seriousness of allegations against a state leader could justify consideration of case-management limits on marginal allegations, but the parties’ agreement to have the allegations determined on their merits made interference inappropriate.
5. The question whether the trial should have been stayed was academic. The amendments restoring the allegations struck out as non-justiciable were to be agreed, or determined by Field J if agreement proved impossible. The costs of the applications were costs in the trial.

1. Court of Appeal (Civil Division) granted permission to appeal the justiciability judgment and allowed that appeal. The question concerning a stay was academic, and permission on that issue was unnecessary.
2. High Court, Commercial Court Field J struck out parts of the reinsurers’ defence as non-justiciable and refused to stay the continuing trial in [2008] EWHC 2829 (Comm).