Serbia v Imagesat [England, High Court, Queen's Bench Division (Commercial Court)]

JurisdictionEngland & Wales
Judgment Date16 November 2009
Date16 November 2009
CourtQueen's Bench Division (Commercial Court)

England, High Court, Queen's Bench Division (Commercial Court)

(Beatson J)

Republic of Serbia
and
ImageSat International NV1

Arbitration Jurisdiction International Chamber of Commerce arbitration Arbitration arising from contract between ImageSat International NV and State Union of Serbia and Montenegro Montenegro declaring independence Serbia and Montenegro two separate States Whether arbitrator having jurisdiction to decide whether Serbia successor or continuator or continuation of State Union of Serbia and Montenegro in international law Whether ImageSat estopped or precluded from contending Serbia continuator in law of State Union Whether Serbia contractually submitting to arbitrator's jurisdiction by its agreement in Terms of Reference Serbia challenging substantive jurisdiction of arbitrator Section 67 of Arbitration Act 1996 Whether Partial Award to be set aside

State succession State Union of Serbia and Montenegro Article 60 of Constitutional Charter of State Union Montenegro declaring independence Whether Serbia new successor State or continuation of State Union of Serbia and Montenegro Distinction between State continuity and State succession in international law Agreement binding on State Union of Serbia and Montenegro Whether binding on Serbia Whether parties giving arbitrator substantive jurisdiction to determine

Relationship of international law and municipal law Questions of public international law Questions whether Serbia successor or continuator of State Union of Serbia and Montenegro Whether justiciable and arbitrable in English court Section 67 of Arbitration Act 1996 The law of England

Summary: The facts:The claimant, the Republic of Serbia (Serbia) applied under Section 67 of the Arbitration Act 1996 (1996 Act)2 to challenge a Partial Award of 7 May 2008 by an arbitrator.3

The International Chamber of Commerce (ICC) arbitration was between Serbia and the defendant, ImageSat International NV (ImageSat) and arose from a contract between ImageSat and the State Union of Serbia and Montenegro (State Union) concluded on 4 June 2005. On 24 May 2006, following the failure of Serbia to pay sums due under the contract, ImageSat requested arbitration pursuant to Article 18 of the contract.4 Montenegro declared independence on 3 June 2006, after which there were two separate States, Serbia and Montenegro.5 Article 60 of the Constitutional Charter of the State Union6 provided for changes in the status of Member States and for secession from the State Union.

In the Partial Award, the arbitrator found that Serbia was the continuation of the State Union in international law and that, if the agreement had been binding on the State Union, it was binding on Serbia.7 Serbia contended that the arbitrator did not have jurisdiction to make this finding and sought to set aside the Partial Award.8 Serbia submitted that the arbitration had only proceeded on the basis that it was participating as a successor State; the arbitration clause in the contract did not, therefore, bind it.

Held:Serbia's application was dismissed. Serbia had conferred substantive jurisdiction on the arbitrator in the Terms of Reference; the continuator/successor point was arbitrable and justiciable.

(1) In an application under Section 67 of the 1996 Act, it was for the court to determine whether the arbitrator had jurisdiction and whether his decision was correct (para. 8).

(2) There was a fundamental distinction between State continuity and State succession in international law.9 A continuator State was the continuation of a previous State, with the same or different name but no new international legal personality. A successor State replaced the predecessor State, which had ceased to exist (paras. 1014).

(3) There were two sources and limits to an arbitrator's jurisdiction: the arbitration clause in the original agreement and the particular reference to

arbitration contained in the Terms of Reference.10 By Article 18 of the ICC Rules, the Terms of Reference were a mandatory part of the process, defining the tribunal's jurisdiction and parameters. The scope of an arbitrator's jurisdiction might also be affected by an estoppel by convention (paras. 6571)

(4) The letter of 12 July 200611 did not raise any objection to jurisdiction or treat Serbia as not being a party to the arbitration agreement; it merely contained a reservation as to jurisdiction. It did not state that Serbia was not bound by the arbitration agreement. References to successor and ceased to exist did not necessarily involve a new legal personality. The letter was not an expression of willingness to participate in the arbitration only on the basis that Serbia was a successor State having a new and separate personality from the State Union. Neither was it sufficient as the foundation of a common assumption to proceed on that basis only (paras. 7282).

(5) Serbia's Answer to the Request for Arbitration12 contained no suggestion that jurisdiction was disputed. There was no reference to Serbia's international law status, capacity or basis of participation in the arbitration. The Answer was consistent with Serbia accepting that its obligations included an obligation to arbitrate. While Article 5 of the ICC Rules did not expressly require that any objection to the arbitrator's jurisdiction be raised in the Answer, delay risked a finding of submission or waiver (paras. 837).

(6) The Terms of Reference in an ICC arbitration traditionally served as a signed form of submission, delimiting the scope of the tribunal's mandate to ensure an award was neither ultra or infra petita. Paragraph 1413 was in very broad terms; on its face it appeared an unqualified agreement on jurisdiction. The Terms contained no suggestion that Serbia disputed being bound by the arbitration agreement; neither did they qualify the specific agreement on jurisdiction contained in paragraphs 13 to 15. Serbia's challenge to the Partial Award was precluded by its submission to jurisdiction in the Terms of Reference, which gave the arbitrator substantive jurisdiction to deal inter alia with the continuator/successor point. ImageSat was not estopped from contending that Serbia was the continuator in the law of the State Union (paras. 88106).

(7) Under the 1996 Act the Court was given the power to decide whether the award, as a provisional determination pursuant to Section 30, should stand. Had it been necessary to determine in the absence of a contractual

submission, the question as to whether, absent the arbitration context, the continuator/successor issue was non-justiciable under English law was not straightforward. The issue was not strictly one of recognition of the State which was a matter within the Crown's prerogative relating to the conduct of foreign affairs. Although Serbia and the UN, the ICJ and the Council of Europe's Committee of Ministers appeared to regard it as the continuator of the State Union, there were no clear standards of international law enabling a domestic court to conclude the existence of a customary international law principle rendering the question justiciable (paras. 11135)

(8) The term the successor state in Article 60 of the Constitutional Charter of the State Union could not be read as a reference to successor in the narrow sense notwithstanding the terms of the fourth paragraph of Article 60. There was the contrast in the fifth paragraph between one successor state and one newly independent state and that paragraph provided that the part of the State Union that broke away shall not inherit the right to legal personality of the State Union. The position taken by Serbia vis--vis the UN and other international organizations, in particular the International Court of Justice, and that taken by most of those institutions to Serbia was consistent with Serbia being a continuator State and continuing the legal personality of the State Union (paras. 1367).

(9) Had a decision been necessary, it appeared from the international law materials that there was no extensive and uniform State practice or opinio juris as to the liability of a successor State for its predecessor's private contractual liabilities to a private person or entity. The 1983 Vienna Convention on Succession of States in respect of State Property, Archives and Debts was not in force and restricted its regime to the predecessor State's obligations to another State, international organization or subject of international law. Even if there was an acquired rights doctrine, ImageSat's merely preparatory steps did not constitute contractual performance (para. 139).

The following is the text of the judgment of the Court:

Introduction

1. This is a challenge under s. 67 of the Arbitration Act 1996 to a partial award dated 7 May 2008 by an arbitrator in an ICC arbitration between the claimant, the Republic of Serbia (hereafter Serbia) and the defendant ImageSat International NV (hereafter ImageSat). The arbitration arose from a contract between ImageSat and the State Union of Serbia and Montenegro (the State Union). The partial award dealt with a preliminary issue as to the proper parties to the arbitration. The issue in this application is whether the arbitrator, Professor Michael Pryles, had jurisdiction to find, as he did, that Serbia is the continuation or continuator of the State Union and is a proper party. He subsequently issued a final award in favour of ImageSat. Serbia launched these proceedings on 2 June 2008. It seeks an order declaring that the arbitrator did not have substantive jurisdiction and setting aside the partial award.

2. Under the agreement, concluded on 4 June 2005, the State Union agreed to purchase a satellite ground control station and to acquire exclusive rights relating to two of ImageSat's satellites. Article 18 (set out at [38], below) provided for disputes to be referred to arbitration under the ICC Rules, with English law as the governing law and England as the default...

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