Svenska Petroleum Exploration AB v Government of the Republic of Lithuania [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Gloster, DBE,MRS JUSTICE GLOSTER, DBE |
| Judgment Date | 04 November 2005 |
| Neutral Citation | [2005] EWHC 2437 (Comm) |
| Docket Number | Case No: 2004 Folio 272 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 04 November 2005 |
[2005] EWHC 2437 (Comm)
Mrs Justice Gloster, DBE
Case No: 2004 Folio 272
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
M Bools Esq (instructed by Messrs Norton Rose) for the Claimant
S Shackleton Esq & D Holloway Esq (instructed by Messrs Eversheds) for the Defendant
Hearing dates: 4 th-6 th July 2005; 11 th & 12 July 2005
Further submissions and materials received: 27 July; during August; and 26 th September 2005.
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
On 28 April 1993, the Claimant, Svenska Petroleum Exploration AB ('Svenska'), the First Defendant, the Government of the Republic of Lithuania ("Lithuania" or "the State"), and the Second Defendant, AB Geonafta ("Geonafta") (collectively "the Defendants"), signed a Joint Venture Agreement (the "JVA") in relation to the planned exploitation of various oil fields in Lithuania.
Svenska, as its name suggests, is a Swedish company employed in the business of oil exploration and extraction. Geonafta, previously known as Gargzdai State Petroleum Geology Enterprise and sometimes referred to in the relevant documents as "EPG", was formerly a Lithuanian State enterprise. It was privatised on 16 June 2000 and has since then been privately owned.
In June 2000, a dispute arose between the parties as to who was entitled to exploit certain specific oil fields. Svenska brought a claim against both Geonafta and the State before an ICC arbitral panel sitting in Denmark ("the Tribunal"). The State took the preliminary objection that it was not a party to the arbitration agreement contained in Article 9 of the JVA. On 16 and 17 October 2001 there was a two day hearing before the three-member Tribunal in Copenhagen at which all parties were fully represented in relation to the issues of jurisdiction and arbitrability. In a 69 page interim award ("the Interim Award"), issued on 21 December 2001, the Tribunal, (having considered all the various arguments which have been deployed before me on this hearing) unanimously held that the State was a party to the arbitration agreement. The State made no challenge to that finding in the Danish courts, although it was common ground that it was open to it to have done so. It is relevant to quote the following passage from the Interim Award at page 68:
"It is undisputed that no provisions of any Lithuanian law prevented GOVERNMENT from signing an arbitration agreement at the time when the JVC was signed in 1993. The issue of arbitrability only arises due to subsequent Lithuanian laws, i.e. article 29 of the underground law from 1995 and article 11 in the Law of Commercial Arbitration from 1996.
The JVC is a commercial contract regarding the exploration and exploitation of oil fields within Lithuania. The dispute between SVENSKA and GOVERNMENT is a dispute which relates to an alleged breach of contract by GOVERNMENT. Such a dispute is clearly arbitrable. The claims of SVENSKA, i.e. the relief sought from this Tribunal are divided into three different claims, a request for a declaratory award sentence, a request for damages and a request for a specific performance award ordering GOVERNMENT to abrogate an existing licence and to issue a new licence. The alleged non-arbitrability can in the opinion of the Arbitral Tribunal at most be applicable to that part of SVENSKA's claim, which relates to the revocation and issuance of licences. It follows that GOVERNMENT is obliged to answer to the remainder of the claims in any event.
Under these circumstances, the Arbitral Tribunal has not found it appropriate—at this stage of the case—to make a final decision whether the claim for revocation and issuance of licences is arbitrable, or whether the relief sought would be an appropriate relief in this matter.
Accordingly, the parties are invited to elaborate further on this issue in the course of the dealing with the merits of the case."
Following a substantial hearing, in which the State fully participated, the Tribunal issued a final Award on 30 October 2003 ("the Final Award"). By that Award (which ran to 280 pages), the Tribunal held that the State and Geonafta were jointly and severally liable to pay the Claimant the sum of US$12,579,000 by way of damages plus costs. That Award also determined the question of arbitrability, in relation to which the Tribunal (by a majority) held as follows:
"Arbitrability
"In his dissenting opinion, Mr Gytis Kaminskas has addressed the issue of arbitrability, and has concluded that the dispute related to the Principal Claim is not arbitrable under Lithuanian law by virtue of Article 29 of the Underground Law and Articles 2 and 11 of the Law on Commercial Arbitration of 1995.
We do not agree with Mr Kaminska's position, and we believe that this issue was already decided upon in our Interim Award, dated 21 December 2001, in which Award the unanimous finding of the Arbitral Tribunal was stated as follows … [Here the Tribunal set out the passage that I have already quoted above].
…
The Claimant has after the Interim Award withdrawn its claim for a specific performance award ordering First Respondent to abrogate an existing license and issue a new license. Claimant's requested remedy is now limited to a claim for damages. This claim is in the view of the majority clearly arbitrable under Lithuanian law. The parties have not previously nor after the Interim Award argued that the claim for damages is not arbitrable or that the Arbitral Tribunal otherwise lacks jurisdiction with respect to this claim.
Article 29 of the Underground Law and Article 11 of the Law on Commercial Arbitration governs the administrative legal relations, which disputes are decided by the Administrative Court of Lithuania. These provisions are not applicable to disputes originating from a commercial contract, where relief sought is a claim for damages.
The claim for damages is a claim for breach of contract and does not depend on or relate to the validity of any administrative or Governmental act, including the grant or revocation of any rights in relation to the underground either to the Claimant, the Second Respondent or the JV-Company."
The State made no challenge to that Final Award in the Danish courts. On the contrary, by resolution dated 11 February 2004 it resolved that:
"1 … It is not expedient to apply to a court for annulment of the award of the Arbitration Tribunal of the International Chamber of Commerce in the case considered in Copenhagen on 30 October 2003.
2. … to commission the state enterprise State Property Fund to notify [Svenska] or its representatives of the position of the [State] or its representatives of the position of the [State] on the award referred to in Clause 1."
Neither Geonafta nor the State has honoured the Final Award.
On 2 April 2004, Svenska issued an arbitration claim form seeking permission to enforce the Final Award in England pursuant to section 101 of the Arbitration Act 1996. On 7 April 2004 Morison J gave Svenska permission to enforce the Final Award in England. Since the application had, in the usual way, been made without notice, the Defendants were given a period of time in which to apply to set aside the order. Geonafta's challenge to the recognition and enforcement of the Final Award was dismissed by Cooke J. on 24 August 2004. The State acknowledged service of the claim form on 31 August 2004, indicating in that acknowledgement that it intended to contest the Court's jurisdiction. On the same day, the State issued an Application Notice pursuant to Part 11 of the CPR disputing the jurisdiction of the English Court, and applied for an order that the claim form, the order of Morison J and the service of the enforcement proceedings on it be set aside on the grounds that, as an independent sovereign state, the State is immune from the jurisdiction of the English court, by virtue of section 1 of the State Immunity Act 1978 ("the Act"). This provides:
"A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act."
Summary of the parties' contentions
Shortly stated, the State's argument is that none of the various exceptions contained in Part I of the Act apply. In particular, the State contends that it has not submitted to the jurisdiction of the English Court (section 2); that the proceedings do not relate to a commercial agreement (section 3); and that the State has not agreed in writing to submit a dispute which has arisen to arbitration (section 9).
On the other hand, Svenska contends that:
i) the State has expressly waived any entitlement to rely on State Immunity and has agreed to submit to the Court's jurisdiction; accordingly it falls within the exception contained in section 2 of the Act;
ii) it was party to a commercial transaction and the present proceedings relate to that transaction; accordingly it falls within the exception contained in section 3 of the Act;
iii) it was a party to the arbitration agreement contained in Article 9 of the JVA, alternatively is estopped from denying that fact by virtue of the Interim Award; accordingly it falls within the exception contained in section 9 of the Act.
Factual Background
It is necessary to set out the factual background to the JVA and the arbitration proceedings in some greater detail than the brief summary which I have already given.
In 1989, Swedish and Lithuanian parties commenced discussions concerning the exploitation of...
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