UK State Immunity Arbitration and International Commercial Arbitration: Navigating Enforceability

Hulley Enterprises Limited and ors v Russian Federation

SerVaas Incorporated v Rafidain Bank

Understanding the Landscape of State Immunity

UK state immunity arbitration and international commercial arbitration hinge on enforceability. Parties do not invest time, resources, and reputational capital for a pyrrhic victory; they seek an award that translates into cash or compliance. In England and Wales, this journey traverses two well-defined, yet often misunderstood, junctions: jurisdiction (can the court hear you notwithstanding state immunity?) and execution (can you access the state’s assets?). The answers reside in black letter law, but the outcomes are ultimately driven by disciplined pleading, forensic evidence, and strategic timing. This article elucidates how contemporary English practice aligns time-honoured doctrine with modern commercial realities—and what sophisticated parties must do to remain ahead of the curve.

Jurisdiction: The Starting Point

At the jurisdictional stage, the State Immunity Act 1978 serves as both the starting gun and the safety fence. The general rule is immunity; the exceptions are precise and exhaustively enumerated. The decisive exception for arbitration is section 9: a state that has agreed in writing to submit a dispute to arbitration is not immune from English proceedings “which relate to the arbitration.” This is not merely a policy flourish—it is a statutory gateway. The practical lesson is straightforward: your evidence on consent must be unimpeachable.

The Importance of Evidence

It is imperative to put the arbitration agreement, the institutional rules, and the seat beyond cavil at the drafting stage. Should a challenge arise, one must marshal a tight record demonstrating that the state’s consent is not merely asserted but proven on the balance of probabilities. In a world of parallel fora, courts increasingly regard determinations made at the seat of the arbitration with respect. If a competent foreign court has decisively concluded that a state did agree to arbitrate, do not squander that outcome—plead it as an estoppel and leverage finality to your advantage.

Execution: The Crucial Challenge

Winning on jurisdiction is merely half the battle. The more challenging aspect—where claim value is created or destroyed—is execution. The English courts draw a clear distinction between a state’s sovereign uses of property and its commercial uses. The question is not where the asset originated, but what it is utilized for “for the time being.” This temporal focus is unforgiving. Judgment creditors who persist in arguing origin stories—even compelling ones—tend to lose ground.

Building an Evidential Picture

Instead, one must construct an evidential picture that demonstrates present or intended commercial deployment: earmarking, bank mandates, board minutes, budget lines, and usage patterns. Conversely, one should be prepared to neutralize diplomatic certifications with precision: they create a rebuttable presumption, not a talismanic shield. However, rebuttal demands concrete facts, not mere rhetoric.

Asset Discovery: A Methodical Approach

Asset discovery against states rewards patience and structure. Begin broadly to locate bank accounts, receivables, cargoes, and trading flows, but narrow quickly to assets with an execution theory that can be substantiated. If the funds are channeled through sovereign reconstruction accounts or are statutorily allocated to public-law purposes, one is swimming against a strong current. In contrast, if the property is demonstrably linked to jure gestionis activity—such as leasing, trading, hedging, or joint ventures—there is a pathway forward.

Triangulating Evidence

The mantra is: triangulate source documents, operational behaviour, and counterparty admissions. English judges are commercially minded; demonstrate a business purpose, and you will be heard.

Funding and Security: A Strategic Consideration

Sophisticated counterparties should also rigorously evaluate funding and security at the term-sheet stage. Enforcement is fundamentally about finance. If one anticipates pursuing a state, it is essential to align the arbitral claim with a credible enforcement budget, a staged deployment of capital, and recourse to contingent “step-in” security over proceeds. Third-party funding is no longer an exotic concept; what is truly unusual is arriving in court with a funding architecture that is transparent, conflict-proof, and aligned with outcome timing. This is crucial because English courts, while rightly indifferent to how one compensates their legal representatives, are vigilant regarding the abuse of process and the public-policy sensitivities surrounding execution against sovereigns. It is essential to bring clean hands and clean documentation.

The Role of Interim Relief

In parallel, counsel should not overlook the potential for interim relief. Post-award freezing orders and information orders can influence behaviour, expedite settlement, and prevent asset flight. However, these measures are not automatic; they depend on full and frank disclosure and a carefully measured proportionality case. If one seeks a freezing order against a state-related entity, it is vital to be precise about control, function, and separateness; do not assume alter-ego merely because the hierarchy appears unitary on an organogram. The court will scrutinize whether one is, in substance, targeting the state’s foreign exchange reserves through an indirect approach. If this is the case, one will likely fail. If it is not, it is imperative to demonstrate to the court exactly why.

The Importance of Comity

None of this is to deny the centripetal pull of comity. English judges do not relish protracted disputes across multiple jurisdictions; they value finality and international coherence. This is advantageous for award creditors who litigate with discipline. If the seat court has resolved a jurisdictional issue; if the supervising court has addressed fraud allegations; if the arbitral tribunal has issued a reasoned award under a respected set of rules—bring that package to the Strand and request that effect be given to it. Conversely, states would do well to recognize that immunity is a shield designed to protect sovereign functions, not a weapon to undermine lawful agreements. The restrictive theory of immunity under English law is conservative in nature but entirely modern in application: it safeguards the essential elements of sovereignty while permitting ordinary commerce to be governed by ordinary law.

Looking Ahead: Future Directions

Looking ahead, the direction of travel is unmistakable. The English courts will persist in demanding orthodox proof of consent, respect for the supervisory courts of the seat, and a granular, use-focused analysis at the execution stage. For practitioners, the winning formula is to integrate dispute design into the deal: draft arbitration clauses that anticipate state-entity structures; identify viable execution pockets early; negotiate disclosure-friendly covenants; and document commercial uses of state-linked assets while the relationship remains amicable. Litigation is the least opportune time to commence building your evidential record.

Conclusion: The Bottom Line

The bottom line is unglamorous yet decisive: enforceability is engineered, not improvised. Parties who treat arbitration as a self-executing instrument are indulging in a comforting fiction. Those who combine strong merits with a jurisdictional-and-execution strategy designed from the outset will discover that English courts—traditional in craft, yet modern in outlook—remain among the most reliable partners in transforming an award on paper into tangible value in the world.

---wix---