NML Capital Ltd v Republic of Argentina
| Jurisdiction | England & Wales |
| Judge | LORD PHILLIPS,LORD MANCE,LORD COLLINS,Lord Walker,LORD CLARKE |
| Judgment Date | 06 July 2011 |
| Neutral Citation | [2011] UKSC 31 |
| Court | Supreme Court |
| Date | 06 July 2011 |
[2011] UKSC 31
Lord Phillips, President
Lord Walker
Lord Mance
Lord Collins
Lord Clarke
Appellant
Jonathan Sumption QC
Peter Ratcliffe
Sandy Phipps
(Instructed by Dechert LLP)
Respondent
Mark Howard QC
Benjamin John
Ciaran Keller
(Instructed by Travers Smith LLP)
Introduction
The appellant ("NML") is a Cayman Island Company. It is an affiliate of a New York based hedge fund of a type sometimes described as a "vulture fund". Vulture funds feed on the debts of sovereign states that are in acute financial difficulty by purchasing sovereign debt at a discount to face value and then seeking to enforce it. This appeal relates to bonds issued by the Republic of Argentina in respect of which, together with all its other debt, Argentina declared a moratorium in December 2001. Between June 2001 and September 2003 affiliates of NML purchased, at a little over half their face value, bonds with a principal value of US$ 172,153,000 ("the bonds"). On 11 May 2006, NML, as beneficial owner, obtained summary judgment on the bonds for a total, including interest, of US$ 284,184,632.30, in a Federal Court in New York. NML brought a common law action on that judgment in this jurisdiction, and succeeded before Blair J in the Commercial Court. That judgment was reversed by the Court of Appeal, which held that Argentina is protected by state immunity. The question raised by this appeal is whether that finding was correct.
The bonds and the New York Judgment
The bonds were issued by Argentina in February and July 2000 pursuant to a Fiscal Agency Agreement between Argentina and Bankers Trust Company. The terms applicable to the bonds were contained in the Agreement and the bonds themselves, both of which were expressly governed by the law of New York. In November 2003, having declared events of default under the Fiscal Agency Agreement, relying on the moratorium and Argentina's subsequent failure to pay interest on the bonds, NML commenced proceedings against Argentina in the United States District Court, Southern District of New York, to recover principal and interest due under the bonds. Jurisdiction was founded on an express submission to New York jurisdiction in the Fiscal Agency Agreement. Argentina appeared and defended the proceedings. Judge Thomas P Griesa granted NML's motion for summary judgment. Argentina does not, in these proceedings, challenge that judgment.
The proceedings in this jurisdiction
In order to serve a foreign sovereign state it is necessary to obtain the permission of the court to serve the claim form out of the jurisdiction. On 14 March 2008 NML applied ex parte for this permission. The witness statement supporting this application, and the draft particulars of claim exhibited to it, alleged two reasons why Argentina was not entitled to state immunity. The first was that under clause 22 of the Fiscal Agency Agreement Argentina had waived, and agreed not to plead, any claim that it might have to state immunity. The second was that NML's claim was founded on the Fiscal Agency Agreement and the bonds, and consequently constituted "proceedings relating to a commercial transaction" for the purposes of the State Immunity Act 1978 ("the 1978 Act").
On 2 April 2008, David Steel J granted NML permission to serve Argentina out of the jurisdiction, and service was duly effected. On 5 September 2008 Argentina applied under CPR 11(1) to set the order for service aside on the ground that Argentina enjoyed state immunity from the jurisdiction of the English courts. At the hearing of this application before Blair J NML conceded that it could rely, at first instance, on neither of the grounds for alleging that Argentina did not enjoy immunity that had been advanced in support of the application to serve out. Instead NML sought to rely first on the provisions of section 31 of the Civil Jurisdiction and Judgments Act 1982 ("the 1982 Act") and secondly on alternative provisions as to waiver and jurisdiction in the bonds themselves. I shall follow the example of Aikens LJ in annexing in Appendix 1 the relevant provisions of section 31, in Appendix 2 Article 20 of the European Convention on State Immunity ("ECSI"), to which I shall refer in due course, and in Appendix 3 the relevant terms of the bonds.
Argentina contended that it was not open to NML to invoke alternative grounds for contending that immunity did not apply when these had not been relied on in the original ex parte application. NML's proper course was to make a fresh application for permission to serve Argentina out of the jurisdiction.
Blair J rejected this procedural objection and found in favour of NML on both the new substantive points [2009] EWHC 110 (Comm); [2009] QB 579. The Court of Appeal reversed Blair J on all three issues [2010] EWCA Civ 41; [2011] 1 QB 8. Aikens LJ gave the only reasoned judgment, with which Mummery and Elias LJJ agreed.
The issues
The following issues are raised by this appeal:
The resolution of the first two issues turns on statutory interpretation. This must be carried out in the context of simultaneous developments in the law of sovereign immunity and of the recognition of foreign judgments.
State immunity
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(1) Whether the present proceedings for the recognition and enforcement of the New York court's judgment are 'proceedings relating to a commercial transaction' within the meaning of section 3 of the State Immunity Act 1978. (As I shall explain, this issue was not open to NML in the courts below).
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(2) Whether Argentina is prevented from claiming state immunity in respect of the present proceedings by Section 31 of the Civil Jurisdiction and Judgments Act 1982.
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(3) Whether the bonds contain a submission to the jurisdiction of the English court in respect of these proceedings within the meaning of section 2 of the State Immunity Act 1978.
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(4) Whether NML was entitled to raise at the inter partes hearing the two new points not previously relied on in the ex parte application for permission to serve Argentina out of the jurisdiction.
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(5) Whether, having regard to the answers to the above questions, Argentina is entitled to claim state immunity in respect of these proceedings.
At the beginning of the 20 th century state immunity was a doctrine of customary international law, applied in England as part of the common law. Under this doctrine a state enjoyed absolute immunity from suit in the court of another state. The property of the state was also immune from execution. Because a state could not be sued, there was no procedural provision in this jurisdiction for service of process on a foreign state. The Court of Appeal had, however, occasion to consider the law of state immunity when proceedings in rem were served on a mail packet owned by Belgium which had been involved in a collision in the case of The Parlement Belge (1880) LR 5 PD 197. The Court held that the vessel, being the property of a foreign sovereign state, was immune from legal process. Giving the judgment of the court Brett LJ explained the reason for this immunity, at pp 207-208 and 220:
"From all these authorities it seems to us, although other reasons have sometimes been suggested, that the real principle on which the exemption of every sovereign from the jurisdiction of every court has been deduced is that the exercise of such jurisdiction would be incompatible with his regal dignity – that is to say, with his absolute independence of every superior authority. By a similar examination of authorities we come to the conclusion, although other grounds have sometimes been suggested, that the immunity of an ambassador from the jurisdiction of the courts of the country to which he is accredited is based upon his being the representative of the independent sovereign or state which sends him, and which sends him upon the faith of his being admitted to be clothed with the same independence of and superiority to all adverse jurisdiction as the sovereign authority whom he represents would be.
It has been held that an ambassador cannot be personally sued, although he has traded; and in both cases because such a suit would be inconsistent with the independence and equality of the state which he represents. If the remedy sought by an action in rem against public property is, as we think it is, an indirect mode of exercising the authority of the court against the owner of the property, then the attempt to exercise such an authority is an attempt inconsistent with the independence and equality of the state which is represented by such an owner. The property cannot upon the hypothesis be denied to be public property; the case is within the terms of the rule; it is within the spirit of the rule; therefore, we are of opinion that the mere fact of the ship being used subordinately and partially for trading purposes does not take away the general immunity."
In Mighell v Sultan of Johore [1894] 1 QB 149 leave to effect substituted service on the Sultan of Johore in an action in personam was set aside on the ground that he enjoyed sovereign immunity. To an argument that he had waived this immunity, the court held that the only way that a sovereign could waive immunity was by submitting to jurisdiction in the face of the court as, for example, by appearance to a writ. If the sovereign ignored the issue of the writ, the court was under a duty of its own motion to recognise his immunity from suit.
In Compania Naviera Vascongado v Steamship "Cristina" [1938] AC 485 the House of Lords confirmed that a state-owned ship that was used for public purposes could not be made the subject of proceedings in rem. Lord Atkin started his judgment with the following definition of state immunity, at p 490:
"The foundation for the...
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