The European Union & Anor v The Syrian Arab Republic

A court may proceed in a defendant State’s absence where reasonable steps have given it sufficient notice, there is no realistic prospect that an adjournment would secure participation, and the absence appears deliberate. Retrospective validation of alternative service requires good reason. Sovereign immunity does not apply where the State submitted to the English jurisdiction or the proceedings concern commercial transactions, including loans, guarantees or indemnities. A sanctions-based defence requires the debtor to establish that lawful performance was unavailable, including through any available licence or derogation. Summary judgment is appropriate where no realistically arguable defence remains.

The European Union and the European Investment Bank claimed substantial sums from Syria under five development loan agreements. The EU claimed by subrogation after paying the EIB under guarantees of Syria’s repayment obligations. Syria had notice of the proceedings and applications but did not participate at the hearing.

The court considered applications to validate alternative service, permit summary judgment before filing an acknowledgement of service or defence, and grant the EU summary judgment. The issues included proceeding in Syria’s absence, sovereign immunity, subrogation, alleged non-disbursement, and the effect of sanctions on Syria’s payment obligations.

1. Absence. Applying R v Hayward Jones and Purvis and Certain Underwriters at Lloyd’s v Syrian Arab Republic, the court found that reasonable steps had brought the proceedings and hearing to Syria’s attention. Syria had an opportunity to attend, and an adjournment was unlikely to secure participation. It was therefore just and appropriate to proceed in its absence.
2. Service and procedure. There was good reason under CPR 6.27, read with CPR 6.15, retrospectively to validate service by email and courier. Permission was granted under CPR 24.4 to seek summary judgment before filing an acknowledgement of service or defence because Syria had proper notice and no procedural injustice would result.
3. Sovereign immunity. Syria was not immune. Article 10.02 of the Loan Agreements submitted it to the English jurisdiction. Independently, the proceedings concerned commercial transactions within s.3(1)(a) of the State Immunity Act 1978, including loans and guarantees within s.3(3)(b).
4. Merits. The validity of the Loan Agreements and the EU’s subrogated entitlement were established by estoppel and, in any event, by the evidence. Belgian law governed the subrogation rights, which arose upon payment under the Guarantees.
5. Sanctions. Following Banco San Juan Internacional Inc v Petroleos De Venezuela SA and the Ralli Bros doctrine, a debtor relying on foreign illegality must establish that lawful performance was unavailable. Where a licence or derogation could enable performance, the debtor must make reasonable efforts to obtain it or prove that it would have been refused. Syria had neither raised nor evidenced such a case concerning Art.20 of Council Regulation (EU) 36/2012.
6. Disposition. No defence had any real prospect of success and there was no other reason for trial. The applications were granted and judgment entered for the claimants. Costs were summarily assessed subject to reduction of solicitors’ rates to guideline rates.