12 April 2019

KWM’s UK Dispute Resolution Round-Up

Q1 2019: the English Courts attempt to create some certainty for businesses by robustly upholding orthodox common law principles, while Brexit chaos continues.  In other news, the SFO and the FBI face set-backs in the English Courts. 

Welcome to our round up of 10 key decisions and developments from the UK courts, regulators and legislature in Q1 2019 plus a bonus comment about the not-yet-Brexit and its implications for civil and judicial cooperation.

This article is correct as of 31 March 2019.

Speed Read:

1. Brexit is still stalled… News flash: the UK has not left the EU (yet).  EU law still applies, including on matters of civil and judicial co-operation (key being jurisdiction and judgments).  In a no deal exit, these schemes fall away making the recognition and enforcement of parties’ choice of courts and the resulting judgments as between the UK and the EU much more uncertain.  Our tip for contract drafters: if drafting a contract today and cross border recognition enforcement will be key, consider arbitration instead.

2. …but is not frustrating (to a long-term lease).  Following the UK’s notice of intention to withdraw from the EU, the European Medicines Agency (EMA) headquarters was relocated to Amsterdam by a 2018 EU regulation.  In Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), the EMA sought to plead that the 25-year lease on its London HQ was thereby frustrated.  The Court disagreed finding that its first basis of supervening illegality was not made out on the facts.  The second basis, frustration of a common purpose of the parties (to provide an HQ for the EMA for the duration) was also rejected; the parties had clearly contemplated the EMA’s departure during the 25-year term as the lease permitted assignment and underletting.  Our prediction: as with all frustration decisions, this is very fact specific.  We expect parties will continue to plead frustration as they attempt to leave onerous contracts in this time of uncertainty.

3. New disclosure pilot scheme launched in English commercial courts from 1 January 2019, designed to reduce the costs and burdens associated with disclosure.   Key features include early exchange of key documents with the pleadings, no presumption for any further disclosure and a menu of models for disclosure ranging from limited specific requests (akin to the Redfern schedule approach in international arbitration) to wide search-based.  Parties must convince the court that an order is appropriate in order to fairly resolve one or more of the “issues for disclosure”.  Our view: this is a welcome change but how truly radical it will be will depend on its use in practice and adoption of its spirit by parties and judges.

4. The SFO is under fire for alleged wrongdoing in ENRC investigation. The Kazakh mining group ENRC (of the landmark decision strengthening legal advice privilege in England – see our previous report) is suing the UK’s Serious Fraud Office for its legal costs of the 6-year SFO investigation into allegations of fraud and corruption.  ENRC alleges that the SFO colluded with the lawyer it had instructed to conduct its internal investigation so as to obtain confidential information.  Our view: the SFO is facing a number of challenges to its historic approach.  The review of the agency’s caseload by new SFO director, Lisa Osofsky, which has led to it dropping its investigations into aerospace firm Rolls-Royce and drugs manufacture GSK, will be looking to start a new regime undogged by such legacy issues.

5. Not for your eyes FBI. US subpoena is no good reason to allow an exception to the prohibition on collateral use of documents disclosed in English proceedings.  The English court refused permission for the claimants in ACL Netherlands BV & Ors v Michael Lynch & Anor [2019] EWHC 249 (Ch), 12 February 2019 to comply with a subpoena which would require them to provide documents and witness statements disclosed by the defendants in the English proceedings for use in separate US criminal proceedings. Documents disclosed in English proceedings may generally be used only for those proceedings. The fact of compulsion did not, of itself, establish a convincing reason for giving permission: the test was whether the use for which permission was sought justified any exception to, or erosion of, the public interest protected by the prohibition on collateral use of materials disclosed in civil proceedings.  It did not here.  Our view: never assume compulsion under foreign law will be sufficient to allow use of documents from English proceedings.

6. Good news for banks, bad news for claimants seeking to rely on implied wide misrepresentations about benchmarks.  But it all depends on the facts and the alleged representations. In Marme Inversiones 2007 SL v Natwest Markets PLC & Ors [2019] EWHC 366 (Comm), 25 February 2019, the Court did not rescind the interest rate swaps in question refusing to imply wide ranging representations concerning the EURIBOR benchmark.  On the facts, there were no clear words or conduct from which to imply such broad, complex representations, plus Marme did not rely on any implied representation (not even being aware of it). Our view: the risk remains for banks that they will be held to have made certain implied representations at English law when entering transactions referable to benchmark rates, which are subsequently discovered to have been subject to actual or attempted manipulation.  Those representations are not, however, all-encompassing and are likely to be narrowly circumscribed by the Court, closely following the PAG decision.  Claimants must plead tightly and be also prepared to meet all the usual hurdles of any misrepresentation claim – reliance, causation and loss. 

7. SAAMCO reaffirmed.  In Manchester Building Society v Grant Thornton LLP [2019] EWCA Civ 40, the Court of Appeal confirmed the distinction between the provision of advice (what investment decision to make) and the provision of information for the purpose of enabling someone else to decide upon a course of action.  An adviser assumes responsibility for all the foreseeable financial consequences of entering into the transaction; a provider of information assumes responsibility only for the foreseeable financial consequences of the advice and/or information being wrong, which requires a claimant to prove that the loss would not have been suffered if the negligent information had been correct.  Our view: orthodoxy restored to the scope of duty, a reminder that most professional negligence cases turn on causation. 

8. Known commissions of unknown amount are not secret. In Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83, the Court of Appeal found no breach of fiduciary duty for a broker’s failure to disclose the level of its commission under an introducing agreement.  The investors, who were sophisticated, paid the investment institution directly, not the broker, and so must have known that the broker received commissions.  There was no duty on the broker to reveal the amounts.  Our view: at least one thing remains certain in the UK, common sense, business-friendly decisions from the English Court.

9. You cannot serve an unknown and unidentifiable defendant. Following recent high-profile decisions allowing freezing orders to be issued against “persons unknown” in the case of international cyber-fraud (see link), in the motor accident case of Cameron v Liverpool Victoria Insurance Co Ltd [2019] UKSC 6, the Supreme Court emphasised that service of a claim must be validly effected (the normal position and which requires identification of the defendant) or properly dispensed with (exceptional).   Our view: service remains key; exceptions allowing service on unknown defendants are indeed exceptional.

10. Bad news for “can pay; won’t pay” judgment debtors.  In Michael Wilson & “Partners” Ltd v Emmott [2019] EWCA Civ 219 (26 February 2019), the Court of Appeal confirmed that while it is usual not to have an exception for payments in the ordinary course of business in a post-judgment freezing order, this remained a matter for the Court’s discretion. However, in this case and especially where the debtor’s behaviour indicated that he would not pay rather than he could not pay, no such exception was appropriate.  Our view: English Courts retain full discretion over the terms of freezing orders but will not assist a recalcitrant debtor.

11. States can insist on sovereign service standards.  Service through diplomatic channels is required for enforcement of an arbitral award against a sovereign state, ruled the High Court in General Dynamics UK Ltd v Libya [2019] EWHC 64 (Comm), as the mandatory procedure set out in section 12 State Immunity Act 1978 applies to every case where the English court was to exercise jurisdiction over a foreign state.  Our view: The English Court will afford sovereign states their sovereign rights as to service; no short cuts for claimants.

Longer Read: 

1. Brexit is still stalled; EU law therefore continues to apply but the future of civil and judicial cooperation remains uncertain. Once upon a time, the UK was going to leave the EU at 11pm GMT on 29 March 2019.  At the time of writing, the UK has not left, further extensions are being discussed and the exact nature and timing of any Brexit remains unclear.  

If the UK does leave without any form of withdrawal agreement (a “no deal” Brexit), then EU law will cease to apply including the comprehensive schemes of the Brussels Recast Regulation (Regulation (EU) 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast)) and the Lugano Convention (Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters L 339/3)  that harmonise jurisdictional rules and the recognition of jurisdiction agreements and court judgments across the EU, as well as Switzerland, Norway and Iceland.  To replace them, at least for the short term, the UK had prepared to accede unilaterally on 1 April 2019 to the Hague Convention on Choice of Court Agreements, which provides for a more limited system of recognition of exclusive jurisdiction agreements and court judgments. The period for accession has now been extended to 13 April 2019 on the basis that the Government’s withdrawal agreement was not approved by Parliament on 29 March 2019. The United Kingdom is to indicate a way forward before 12 April 2019, for consideration by the European Council.

If there is some form of withdrawal agreement, then there is likely to be a transition period for around two years during which existing EU law will remain in place, but there is no guarantee that an agreement will be reached by then.

Our practical tip: If drafting agreements today, and cross border recognition and enforcement will be key, consider arbitration, as the widespread recognition of arbitration agreements and awards is governed by international treaty (the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958 – the “New York Convention”) which is entirely unaffected by Brexit and the law of the UK and most EU member states is and will remain supportive of arbitration.

2. Brexit is not frustrating.  Following the UK’s notice of intention to withdraw from the EU, the European Medicines Agency (EMA) headquarters was relocated to Amsterdam by a 2018 EU regulation.  In Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), the EMA pleaded that the 25-year lease for its London HQ was thereby frustrated.  

Under English law, the common law doctrine of frustration operates to end a contract and so releases both parties from any obligations as to future performance.  It may be invoked when a serious event occurs that: (i) is unexpected (so that any contractual force majeure provisions do not cover it); (ii) is beyond the control of the parties to a contract; and (iii) makes performance of the contract in the changed circumstances fundamentally different from performance under the contract that the parties originally entered into. The doctrine is generally applied very narrowly by the courts. 

On the facts here, in a much-awaited judgment of 20 February 2019, the English court did not find frustration under either head asserted by the EMA: (i) by reason of supervening illegality and (ii) frustration of a common purpose of the parties. 

There was no supervening illegality as a matter of the relevant law, which was English law (as the governing law of the lease and the law of the place of performance).  In any event, any “frustration” appeared to be self-induced.  Brexit did not render impossible the EMA’s continued occupation of the premises. Even though the 2018 Regulation legally obliged EMA to move to Amsterdam, the 2018 Regulation had not been actuated by any legal necessity.   Finally, the EMA’s legal capacity had not changed; it was legally able to deal with immoveable property outside the EU.

Secondly, the notion that the parties’ common purpose in entering the lease was to provide an HQ for the EMA for its duration, which purpose could not now be achieved - was also rejected.  While the UK’s departure from the EU was not foreseeable at the time of the lease; the parties had clearly contemplated the EMA’s departure during the 25-year term as the lease permitted assignment and underletting.  

Our prediction: as with all frustration decisions, this is very fact specific.  We expect parties will continue to plead frustration as they attempt to leave onerous contracts in this time of uncertainty.  On the right set of facts, Brexit and its consequences may amount to frustration of a contract.

3. New disclosure pilot scheme launched in English commercial courts from 1 January 2019, designed to reduce the costs and burdens associated with disclosure.   

The disclosure process is one of the most expensive and time-consuming stages of English litigation, with the usual order of “standard disclosure” requiring parties to disclose documents on which they rely and to make a reasonable search for documents which adversely affect their or another party's case, support another party's case, or which they are required to disclose by a relevant practice direction.  The cost and burden is ever increasing as technology allows more communications to be sent, and stored, than ever before.

Conversely, disclosure is recognised as an attractive key feature of the English system, with the ability to obtain an order for a party to disclose documents that are adverse to its claim . The new disclosure pilot scheme, under Practice Direction 51U, started on 1 January 2019 in the Business and Property Courts, and is aimed precisely at retaining disclosure but reducing the costs and burdens associated with it.  

Under the pilot scheme, the parties will typically  give a first tranche of limited disclosure (“Initial Disclosure”) by electronic list with their statements of case (in traditional English proceedings, disclosure is normally given after the pleadings stage, before witness statements are prepared).  Initial Disclosure must include (i) key documents on which a party has relied (expressly or otherwise) in support of the claims or defences advanced in its statement of case (including the documents referred to in that statement of case); and (ii) key documents that are necessary to enable the other parties to understand the claim or defence they have to meet. 

Additional disclosure (“Extended Disclosure”) can be requested by the parties: it is not automatically ordered and, even if ordered, the current “standard disclosure” will by no means be the default.  It will be given by the parties only later in the proceedings, as it is the case with disclosure at present, on the basis of five different models (Models A-E).  The models vary from “limited” to “wide search-based”; the closest to the current standard disclosure is Model D, “search-based disclosure”.  The court will only make an order if it is appropriate to do so in order to fairly resolve one or more of the Issues for Disclosure.

Known adverse documents must be disclosed in any event, even if they fall outside the parties’ requests, unless they are privileged.  “Adverse” documents are those that contradict or materially damage the disclosing party’s contention or version of events on an issue in dispute, or support the contention or version of events of an opposing party on an issue in dispute.

The more limited disclosure models based on specific requests or narrow issues will be familiar to international arbitration practitioners, although the new scheme, with its focus on early exchange of documents and duty as regards known adverse documents will still be broader than most civil law jurisdictions (the PRC for example having no equivalent discovery process). It does, however, follow the trend in other common law jurisdictions to simplify disclosure, such as in New South Wales (Australia), where the most common form of disclosure is by agreed classes.  “General discovery” (akin to the English standard disclosure) is no longer the default position and will not be ordered as a matter of course by the court.

Our view: this is a welcome change (and England is not alone is seeking to streamline document processes within litigation) but how truly radical it will be will depend on its use in practice and adoption of its spirit by parties and judges.

4. The SFO is under fire for alleged wrongdoing in ENRC investigation. By claim form issued on 25 March 2019, Kazakh mining group ENRC (of the landmark decision strengthening legal advice privilege in England – see our previous report) is suing the UK’s Serious Fraud Office for GBP 70 million in respect of its legal costs of the 6-year SFO investigation into allegations of fraud and corruption in relation to its Kazakh and African activities.  ENRC alleges that the SFO colluded with the lawyer it had instructed to consult its internal investigation so as to obtain confidential information. 

ENRC has also brought a claim of misfeasance in public office against the SFO, stating that the agency failed to “act in accordance with its powers” and didn’t act independently and in good faith in its dealings with the company. The claim also alleges that the SFO failed to preserve evidence and didn’t respect ENRC’s “fundamental right” to legal professional privilege, which protects correspondence between lawyers and their clients.  

The SFO’s charging decision as regards one of ENRC’s founders and one of its key business partners is expected imminently.  

Our view: The SFO is facing a number of challenges to its historic approach. The review of the agency’s caseload by new SFO director, Lisa Osofsky, will be looking to start a new regime undogged by such legacy issues..

5. US subpoena is no good reason to allow an exception to the prohibition on collateral use of documents disclosed in English proceedings.  On 12 February 2019, the English court refused permission for the claimants in ACL Netherlands BV & Ors v Michael Lynch & Anor [2019] EWHC 249 (Ch) to comply with a subpoena which would require them to provide documents and witness statements disclosed by the defendants in the English civil proceedings to the United States Federal Bureau of Investigation for the purpose of a separate US criminal investigation with 

The general position under the English civil procedure rules at CPR r31.22 and r32.12 is that a party may only use a document or witness statement for the purpose of the proceedings in which it is disclosed - the prohibition on collateral use. 

The Court applied the test laid down by Crest Home Plc v Marks [1987] AC 829:  first, noting any compulsion, have the applicants shown sufficient “cogent and persuasive reasons” for permitting the collateral use sought and second, would permissions result in injustice.  In essence, does the case for collateral use outweigh the public interests protected by its prohibition. The fact of compulsion did not, of itself, establish a convincing reason for giving permission. The judge analysed the terms of the subpoena closely, considering its scope (which was very wide), addressees (which included several parties not just the claimants here) and purpose (which was somewhat unclear one defendant having been charged and one convicted already). On the facts, he did not consider the first limb of the test was met, and so refused the application.  

Our view: never assume compulsion under foreign law will be sufficient to allow use of documents from English proceedings.  Each case turns on its own facts and an applicant must show their case meets the high hurdle to be an exception to the prohibition on collateral use.

6. Good news for banks; bad news for claimants seeking to rely on implied misrepresentations about benchmarks.  But it all depends on the facts and the nature of the representations alleged. 

In its 25 February 2019 judgment in Marme Inversiones 2007 SL v NatWest Markets PLC & Ors [2019] EWHC 366 (Comm), the High Court refused to rescind certain interest rate swaps between a company and a group of five banks.  The swaps hedged interest payments under Marme’s syndicated loan, taken out for a large property transaction, which was set by reference to EURIBOR.  Marme alleged that the swap banks made various and extensive implied misrepresentations about the integrity of the EURIBOR benchmark.   An ex-employee of NatWest had since been convicted of conspiracy to defraud in relation to manipulation/attempted manipulation of that benchmark.

The court found that there were no clear words or conduct identified from which the alleged broad representations could be implied.   Broad, uncertain and complex representations needed active and specific conduct before a court would be prepared to imply them.  The Court noted that it might have found a narrower representation, namely one along the lines of the one identified by the Court of Appeal in the Property Alliance Group Ltd (PAG) v Royal Bank of Scotland plc (RBS) [2018] EWCA Civ 355, that the bank was not itself manipulating the benchmark in question or did not intend to do so.  However, no such claim was pleaded.

In any event, the Court found there had been no reliance by Marme:  It had not been aware of the alleged representations at the time they were allegedly made (its representative had given no"conscious contemporaneous thought" to the representation now alleged to have been made); and (ii) even if it had been, there was no evidence it would have acted differently had the alleged representations not been made. Finally, Marme’s rescission claim was barred because it had previously affirmed the swaps and had not sought to rescind an associated loan.  

The banks were entitled to the declarations sought: that they had lawfully terminated the swaps and were due termination sums.

Our view: the risk remains for banks that they will be held to have made certain implied representations at English law when entering transactions referable to benchmark rates, which are subsequently discovered to have been subject to actual or attempted manipulation.  However, those representations are likely to be narrowly circumscribed by the Court, closely following the PAG decision.  Claimants must plead tightly and be prepared to meet all the usual hurdles of any misrepresentation claim – reliance, causation and loss.  Subsequent regulatory findings of wrongdoing in relation to various benchmarks are not a “get out of jail free” card for parties subject to what are now onerous terms or to the impact of the GFC. 

7. SAAMCO reaffirmed in auditor’s negligence case.  In Manchester Building Society v Grant Thornton LLP [2019] EWCA Civ 40, the Court of Appeal confirmed the distinction set down in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 between a duty to provide advice (what investment decision to make) and a duty to provide information for the purpose of enabling someone else to decide upon a course of action.  

An adviser assumes responsibility for all the foreseeable financial consequences of entering into the transaction: the adviser’s ”duty is to consider all relevant matters and not only specific matters in the decision ” and he was responsible for guiding the whole decision-making process.

A provider of information assumes responsibility only for the foreseeable financial consequences of the advice and/or information being wrong. A claimant has to prove that the loss would not have been suffered if the information had been correct.

On the facts here, the auditor had negligently advised the claimant building society that it could apply hedge accounting to reduce the effect in its accounts of the volatility of the mark to market (MTM) value of swaps. In reliance on that advice, the building society entered fixed rate mortgages hedged against long term swaps under which it paid a fixed rate and received a variable rate. As a result of the financial crisis and a fall in interest rates, the MTM value of the swaps became negative.  The auditor’s error came to light, and the building society could no longer apply hedge accounting. It therefore closed out the swaps, but in order to do so, it had to pay the MTM losses on the swaps, and transaction fees for breaking the swaps early. 

The judge at first instance had found that the auditor was not liable for the losses suffered by the building society,  The Court of Appeal concluded that the judge at first instance should have found this was an information case but that the building society was, in the circumstances, unable to prove that the losses would not have been suffered if the auditor’s advice had been correct.

Our view: orthodoxy restored to the scope of duty, a reminder that most professional negligence cases turn on causation.

8. Known commissions of unknown amount are not secret. In Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83, the claimant broker sought damages for breach of an introducing agreement, after the defendant approached certain investors directly.  At first instance, the judge found that although there had been a breach by the defendant, the broker was in breach of its fiduciary duty to its clients by failing to inform them how the commission they paid was split between the broker and the institution. As the recipient of “secret commissions”, the broker was denied any more than nominal damages on public policy grounds, since the court ought not to assist the broker in profiting from its own breach of fiduciary duty.
The Court of Appeal overturned the first instance decision.  It found no breach of fiduciary duty for a broker’s failure to disclose the level of its commission under an introducing agreement.  The investors, who were sophisticated, paid the investment institution directly not the broker and so must have known that the broker received commissions.  Known commissions could hardly be secret.  There was no duty on the broker to reveal the amounts.
Our view: at least one thing remains certain in the UK, common sense, business-friendly decisions from the English Court.

9. Service is the basis for jurisdiction, and you cannot serve an unknown and unidentifiable defendant. Following recent high-profile decisions allowing freezing orders to be issued against “persons unknown” in the case of international cyber-fraud (see link), in the motor accident case of Cameron v Liverpool Victoria Insurance Co Ltd [2019] UKSC 6, the Supreme Court emphasised that service of a claim must be validly effected (the normal position and which requires identification of the defendant) or properly dispensed with (exceptional). 

This case concerned an appeal to the Supreme Court by an insurer against a decision that the respondent motorist could bring proceedings, following injury in a hit and run collision, against “the person unknown” who had been the driver of the car at fault.  To recover against the insurer of the vehicle, the claimant had to establish the primary liability of the unknown driver.

The Supreme Court identified two kinds of unnameable defendants: (i) defendants who were identifiable but their names unknown, for example squatters who were identifiable by their location, and (ii) those who were anonymous and could not be identified, such as hit and run drivers whose locations are unknown. 

An identifiable but anonymous defendant (the first category) could be served with a claim form because it was possible to locate or communicate with the defendant and identify them as the person described in the claim form. However, one could not identify an unknown person to serve them simply by referring to something they did in the past (as the claimant sought to do here).

It was a fundamental principle that a person could not be made subject to the court’s jurisdiction without having such notice of the proceedings as would enable them to be heard.   The exceptional circumstances in which service could be dispensed with (for example where the defendant was aware of the proceedings but had evaded service)  or the situation as regards the persons unknown freezing order (in which the court considered that injunctive relief was particularly appropriate against persons unknown where they are unknown because of their activities as hackers) did not apply here. 

The Supreme Court was inevitably influenced by the fact that the claimant was not left without remedy as they could make a claim to the Motor Insurance Bureau under the Untraced Drivers Agreement.

Our view: service remains key; exceptions allowing service on unknown defendants are indeed exceptional.

10. Bad news for “can pay; won’t pay” award and judgment debtors.  In Michael Wilson & “Partners” Ltd v Emmott [2019] EWCA Civ 219 (26 February 2019), the successful party in an arbitration sought to enforce two awards in England. Having had them successfully recognised and judgment granted in their terms, it obtained a post-judgment freezing order over the debtor’s assets.  In the drafting of the order, the “Angel Bell” exception (the “exception”) was removed, which allows the debtor to make payments “in the ordinary course of business”. 

The judge at first instance decided to remove the exception from the freezing order so that the claimant could not deal with or dispose of its assets in the ordinary course of its business. However, the claimants argued the exception should be left in the order and the Court of Appeal confirmed that, while it is usual to remove this exception in a post-judgment freezing order, there is no presumption in this regard and it remained a matter for the Court’s discretion, each case turning on its own facts.  The Angel Bell exception may sometimes be appropriate in a post judgment freezer, for example where a judgment is not presently enforceable, or where the ordinary course of dealing in question would not have the effect of dissipating assets.  However, on the facts here, and especially where the debtor’s behaviour indicated that he would not pay rather than he could not pay, no such exception was appropriate.

Our view: English Courts retain full discretion over the terms of freezing orders, whether pre or post judgment, but will not use their discretion to assist a recalcitrant debtor.

11. States can insist on sovereign service standards. In General Dynamics UK Ltd v Libya [2019] EWHC 64 (Comm), the High Court found that enforcement of an arbitral award against sovereign states always requires formal service of an initiating document through diplomatic channels.

Permission was granted to General Dynamics to enforce an arbitration award against Libya under section 101 Arbitration Act 1996 but ordered that service of the permission order could be dispensed with. Libya argued that the permission order had to be served because it was the document which instituted proceedings for the purposes of section 12 State Immunity Act 1978. General Dynamics argued (i) that the proceedings were instituted by the issue of the arbitration claim form, and the court had not ordered it to be served; and (ii) that section 12 did not apply and that in any event, the court had an unfettered power to dispense with service under CPR 6.28. 

The court concluded that service of court proceedings in accordance with section 12 was essential in every case where the English court was to exercise jurisdiction over a foreign state. The procedure set out in section 12 was mandatory and contemplated that there would always be some document that had to be served and that service of that document had to be through the Foreign and Commonwealth Office. One of the purposes of service was to ensure that the jurisdiction of the court was invoked against the state in question.  Bypassing section 12 by dispensing with service meant an important safeguard for the conduct of international relations would be lost. As there was no order to serve the arbitration claim form, the permission order had to be regarded as the instituting document. Finally, the court did not have the power to dispense with service. To do so would be contrary to the clear and mandatory terms of section 12 and rules of court could not override primary legislation.

Our view: The English Court will afford sovereign states their sovereign rights as to service; no short cuts for claimants.


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