Republic of Argentina v NML Capital Ltd

This appeal from the order of Blair J dated 29 January 2009 concerns sovereign debt, sovereign immunity and an attempt by a hedge fund to bring an action in England to enforce a summary judgment obtained in the United States courts against the Republic of Argentina for the sum of US$284,184,632.30. It raises novel points of English procedural law concerning claims against sovereign states, on the correct construction of provisions in the Civil Jurisdiction and Judgments Act 1982 (the “ CJJA”) and on the relationship of those provisions with the State Immunity Act 1978 ( “the SIA”).

Argentina, like other sovereign states, has to raise money to finance government expenditure by selling bonds denominated in a foreign currency, often US dollars, on the international bond market. The repayment of the principal and interest on these bonds is an obligation of the issuing sovereign state. Such bonds are called “sovereign bonds”, as opposed to bonds denominated in the national currency, which are “government bonds”. Sovereign bonds are often referred to as “sovereign debt”.

In 1994, Argentina entered into a Fiscal Agency Agreement (“the FAA”) with Bankers Trust Co. By the FAA, Argentina could issue, through Bankers Trust as the fiscal agent, series of notes or other securities which would constitute obligations of the state of Argentina. Clause 22 of the FAA is headed “Consent to service: Jurisdiction”. The FAA also contained an exhibit setting out the terms of bonds to be issued pursuant to its terms. Amongst the standard terms of the bonds is a clause dealing with issues of jurisdiction and immunity with regard to claims on the bonds. This term is set out in Appendix 3 to this judgment. Its provisions give rise to one of the arguments concerning sovereign immunity in this case. By clause 23 the FAA is governed by New York law. The terms for the bonds also stipulated that they would be governed by and construed according to New York law.

Pursuant to the FAA two series of US dollar denominated bonds (amongst others) were issued by Argentina. One series comprised 12% global bonds maturing on 1 February 2020 and the other series comprised 10.25% global bonds maturing on 21 July 2030. I will refer to these collectively as “the bond series”. Those bonds contained the jurisdiction and immunity clause I have mentioned. They were subject to New York law.

By 2001 Argentina was in serious financial, social and political difficulties. There was a huge withdrawal of capital from Argentina, both internally and by foreign investors. On 24 December 2001 Argentina was compelled to declare a moratorium on interest and principal on all its debt, including its sovereign debt, which thus included the bonds. The result of the collapse in confidence in Argentina’s ability to pay on its sovereign debt was that the market value of the bonds fell considerably.

NML Capital Ltd (“NML”) is a Cayman Island company. It is an affiliate of Elliott Associates LP, a New York based hedge fund which trades in “distressed sovereign debt”. There are a number of hedge funds which buy up, at a steep discount to face value, sovereign debt of states that are in deep financial difficulties, then claim that there has been an “event of default” under the terms of the bonds and demand repayment of the full face value of the bonds bought. When the demands are not met, litigation ensues. If the hedge fund succeeds it will then attempt to enforce the judgment obtained against the sovereign state concerned. Such hedge funds are sometimes unflatteringly called “vulture funds”.

Between 6 June 2001 and 2 September 2003 affiliates of NML bought bonds in the two bond series at prices which were, in aggregate, 55.37% and 62.82% of the face value of the respective series. I will call the bonds thus purchased “the bonds”. In November 2003, NML asserted that Argentina was in default under the terms of the FAA because of its failure to pay interest on the bonds.

In 2005 Argentina, with assistance from the IMF and the World Bank, launched a huge debt restructuring plan. This consisted of an offer to existing bond holders to exchange their current holdings for new bonds to be issued by Argentina. This offer was accepted by 76.15% of the aggregate eligible debt. It was the largest sovereign debt restructuring exercise in history.

However, NML refused to take part in this restructuring offer. Instead it issued proceedings against Argentina in the United States District Court for the Southern District of New York, which handles nearly all of New York City’s financial litigation. NML claimed that Argentina had committed an “event of default” under the FAA and that, under the terms of the bonds, NML was entitled to accelerated payment of the principal amount of the bonds and outstanding interest. The principal value of the bonds claimed was US$172,153,000. Unpaid interest on the bonds and interest on the unpaid interest claimed amounted to US$112,031,632.30. The total claimed was therefore US$284,184,632.30.

On 11 May 2006, Judge Thomas P Griesa granted NML a motion for summary judgment against Argentina on NML’s claim under the bonds. On 18 December 2006, the judge entered judgment against Argentina and in favour of NML for US$284,184,632.30 plus continuing interest compounded annually. Proceedings to enforce that judgment have been started by NML in New York.

NML decided that it also wished to enforce the New York judgment in England. Because there is no treaty between the United States and Great Britain for the mutual recognition and enforcement of judgments, there is therefore no simple statutory method for the recognition and enforcement of a United States judgment in the English courts. A person who is a judgment creditor of a United States judgment who wishes to enforce it in England must bring an action on the foreign judgment in the English courts. (Footnote: ¹ ) If judgment is obtained, then it is the English judgment that can then be enforced in England.

Thus NML prepared a draft Claim Form claiming the amount of the US judgment in its favour and interest from 18 December 2006. It also prepared draft Particulars of Claim, which were signed by Leading Counsel, Mr Jonathan Nash QC, who has represented NML throughout these proceedings, including this appeal. The Particulars of Claim referred to the FAA, (called “the Agreement” in the pleading), the bonds, the New York action and the summary judgment. It calculated the interest due on the judgment debt from 18 December 2006. It stated that the District Court was a court of competent jurisdiction and that the judgment was final.

Then, under the heading “Waiver of Immunity”, paragraph 8 of the Particulars of Claim stated:

The prayer of the Particulars of Claim sought judgment for the principal amount and interest, either under section 35A of the Supreme Court Act 1981, or under the provisions of Title 28 of the United States Code section 1961.

NML next sought permission to issue the Claim Form and to serve it on Argentina out of the jurisdiction. The application was made, (as is normal) without notice to Argentina, on 14 March 2008. The application was supported by a witness statement by Alexandra Doucas, an assistant solicitor of Dechert LLP, solicitors for NML (“Dechert”). The witness statement set out the facts. It stated that NML believed that Argentina either had or may at some time in the future have assets in England. It stated, in paragraph 5, that NML’s claim was therefore for the enforcement of the New York judgment and “…pursuant to CPR 6.20(9), is a claim which can be served out of the jurisdiction, with the permission of the court”. (Footnote: ² ) Paragraph 6 of the witness statement repeated what had been set out in paragraph 8 of the Particulars of Claim concerning “Waiver of Immunity” by Argentina.

Paragraph 7 of the witness statement said that NML believed that it had a real prospect of succeeding in the claim. It also stated that if permission to serve the Claim Form out of the jurisdiction were to be granted then NML would request that it be served on Argentina by the Foreign and Commonwealth Office.

There was an exhibit to the witness statement. This included copies of the FAA, the terms of the bonds, the New York judgment and draft versions of the Claim Form and Particulars of Claim, together with translations into Spanish.

On 2 April 2008, David Steel J, having considered the application for permission to serve out of the jurisdiction on the papers in the usual way, made an order granting permission, pursuant to CPR Pt 6.20(9). The order stipulated that the Claim Form and Particulars of Claim could be served on Argentina out of the jurisdiction by requesting that service be effected by the Foreign and Commonwealth Office and stated that Argentina had two months from the date of service of the Particulars of Claim in which to file an Acknowledgement of Service. The orders were in compliance with section 12(1) and (2) of the SIA and Practice Direction B of CPR Pt 6, as the judge noted at [51(1)] of the judgment. (Footnote: ³ )

NML issued the Claim Form on 15 May 2008 and on 24 June 2008 the proceedings were sent by the British Embassy in Buenos Aires to Argentina’s Foreign Ministry. On 5 September 2008 Argentina issued an application, under CPR Pt. 11(1), challenging the jurisdiction of the English court and seeking to set aside David Steel J’s order. The basis of the challenge was stated in the Application Notice to be that Argentina was immune from the jurisdiction of the courts of the United Kingdom by virtue of section 1 of the SIA; alternatively, that the present claim was or should be non – justiciable by the English courts. The Application Notice also alleged that there had been material non – disclosure by NML at the time of the application without notice.

A witness statement dated 5 September 2008 by Toby Philip Robinson, a partner in Travers Smith, solicitors for Argentina, was served in support of Argentina’s application. Paragraphs 60 to 66 of the witness statement deal with the pleas made in paragraph 8 of the Particulars of Claim. Mr Robinson submitted that, by clause 22 of the FAA, Argentina did not submit to the jurisdiction of the English courts in respect of the present proceedings. Nor did it waive or agree not to plead sovereign immunity in the present or any English proceedings.

Mr Robinson also submitted that the present English proceedings did not relate to any commercial transaction entered into by Argentina within the terms of section 3(3) of the SIA. (Footnote: ⁴ ) He submitted that the present proceedings “related to” the New York judgment, rather than the transaction which gave rise to the New York claim and judgment. Therefore, he submitted, the exception to state immunity in section 3 of the SIA was inapplicable.

On 22 September 2008, Dechert wrote to Travers Smith LLP, solicitors for Argentina. The letter stated that NML proposed to seek permission to amend paragraph 8 of the Particulars of Claim and asked for Argentina’s agreement to it. The proposed amended version of paragraph 8 was as follows:

Travers Smith stated that its client could not consent to the proposed amendment. Dechert responded by stating that it would therefore “make the necessary application in due course”.

Both NML and Argentina served expert reports on the principles of New York law on the interpretation of contracts, in order to assist the English court in its determination on the construction of the scope of clause 22 of the FAA and the terms of the bonds.

The application to set aside the order of David Steel J came on before Blair J on 13 January 2009. At the outset of the hearing, Mr Nash QC for NML accepted that the two bases for asserting that Argentina was not entitled to sovereign immunity that had been set out in the original paragraph 8 of the Particulars of Claim and in the witness statement of Alexandra Doucas were not sustainable. First, because the waiver of immunity in clause 22 of the FAA in terms only applied to proceedings in New York or Argentina; it does not cover proceedings in England. Secondly, because the “commercial transaction” exception in section 3(1) of the SIA did not apply because the claim was brought on the New York judgment, not the transactions on which the judgment was obtained. (Footnote: ⁵ ) Instead, Mr Nash submitted to the judge that Argentina was not entitled to claim sovereign immunity for two new reasons.

The first was that the effect of section 31 of the CJJA was to do away with sovereign immunity of states in cases where a party sought in the UK courts the recognition or enforcement of a judgment against a state given by a court of an overseas country, provided that the requirements of section 31(1)(a) and (b) were fulfilled. He submitted that those conditions were fulfilled in this case. The second reason advanced was that the terms of the bonds themselves (which were as set out in the Exhibit to the FAA) constituted a submission by Argentina to the English court’s jurisdiction for the purposes of the recognition and enforcement of the New York judgment, so that Argentina could not claim sovereign immunity in respect of the present proceedings.

NML did not pursue any application for permission to amend the Particulars of Claim. Nor did it issue any new application for permission to issue and serve out of the jurisdiction a fresh Claim Form and Particulars of Claim, which asserted that Argentina had no sovereign immunity in respect of the present proceedings on the two bases now advanced. That has remained the position since then.

I have set out the relevant provisions of the SIA and the CJJA in Appendix 1 to this judgment. I have also set out in Appendix 2, Article 20 of the European Convention on State Immunity and Additional Protocol to it, which were signed by the UK and the other members of the Council of Europe at Basle on 16 May 1972. (I will refer to this as the ECSI ). I will also set out the provisions of section 31(1) of the CJJA here because it is so central to the arguments in this case. It provides:

I have set out the provisions of CPR Pt 6.20(9) (in the 2008 version) relied on by NML in Appendix 1 of this judgment. They are also set out in footnote two above. There is no need to repeat them here.

The terms of the bonds that NML relies on for its alternative argument on why Argentina has submitted to the jurisdiction of the English court and so cannot claim sovereign immunity are set out in Appendix 3 to this judgment. Again, there is no need to repeat them here.

Blair J identified three issues for decision. Two of them concerned Argentina’s claim for sovereign immunity in respect of NML’s action for the recognition and enforcement of the New York judgment. The third concerned the procedural consequences of NML accepting as unsustainable the reasons it had initially given for Argentina not being able to claim sovereign immunity when it made its application to issue and serve proceedings out of the jurisdiction on Argentina. The judge dealt first with the substantive sovereign immunity issues and then he dealt with the procedural issue.

NML’s first argument before Blair J was that section 31 of the CJJA introduced a new and comprehensive statutory framework for the recognition and enforcement in the United Kingdom of judgments of foreign courts against states. NML argued that the effect of the section was that if (but only if) it was proved that (a) in the UK court the judgment would have been recognised and enforced against a non – state and also (b) that the foreign court would have had jurisdiction to hear and determine the action against the foreign state, if that court had applied rules corresponding to the United Kingdom rules relating to sovereign immunity, then that state could not assert immunity from jurisdiction for the purposes of the recognition and enforcement of that judgment in the United Kingdom.

Argentina argued that when a party attempted to sue a sovereign state in the United Kingdom for recognition and enforcement of a foreign judgment against the state, there remained the prior question of whether the state was immune from the jurisdiction of the English court by virtue of section 1 of the SIA; or whether the case fell within one of the exceptions to the rule of sovereign immunity, as set out in sections 2 – 11 of the SIA. Argentina argued that section 31 of the CJJA was only relevant to the substantive merits of a claim in UK courts for recognition and enforcement of a foreign judgment against a state; it was not relevant to the prior question of whether the English court had jurisdiction to hear the claim or application in the first place.

The judge accepted NML’s arguments. He held, at [28], that section 31 of the CJJA dealt comprehensively with the recognition and enforcement of the judgments of foreign courts against foreign states, “as to both jurisdictional immunity and enforcement”. Thus, provided the requirements of paragraphs (a) and (b) of section 31(1) were fulfilled, a judgment against a foreign state that had been obtained in a foreign court could be recognised and enforced in the English courts without further reference to sections 2 – 11 of the SIA. The judge referred to and approved a passage in Dicey, Morris & Collins, The Conflict of Laws. (Footnote: ⁶ ) That passage (albeit in the previous edition of the book) had also been referred to and approved (obiter) by Stanley Burnton J in AIC Ltd v Federal Government of Nigeria. (Footnote: ⁷ )

The second argument of NML was that, provided that the purpose of the proceedings in the English courts was solely to enforce a judgment obtained in a New York or Federal Court sitting in Manhattan (or the courts of Argentina) in an action with respect to the bonds, the relevant terms of the bonds contained an express submission to the jurisdiction of the English courts. NML argued that, on the correct construction of the terms of the bonds (in accordance with the New York law on construction of contracts), the wording amounted to a submission to the jurisdiction of the English courts within the terms of section 2(2) of the SIA.

Argentina argued that there was a clear distinction between a clause that waived sovereign immunity and one that constituted a state’s submission to the jurisdiction of a court. Whereas a state’s submission to a court’s jurisdiction necessarily involves a waiver of immunity, the converse was not necessarily true. Argentina relied on the statement of Gloster J to that effect in Svenska Petroleum Exploration AB v Government of the Republic of Lithuania [No 2], (Footnote: ⁸ ) which was approved in the Court of Appeal by Moore – Bick LJ. (Footnote: ⁹ )

Blair J held that the relevant term of the bonds “went beyond waiver”. (Footnote: ¹⁰ ) He held that the effect of the term was that Argentina:

Having decided that, by virtue of the terms of section 31 of the CJJA and by virtue of the terms of the bonds, Argentina could not claim sovereign immunity in the proceedings and so could not, in principle, set aside the order of David Steel J, Blair J turned to the procedural point. The judge posed the issue in these terms:

Argentina’s argument was founded on the imperative terms of section 1(2) of the SIA (Footnote: ¹² ) requiring the United Kingdom courts to give effect to the principle that a state is immune from the jurisdiction of its courts except as provided in that Act. Therefore, (Argentina submitted) NML was under a duty to state the basis on which it asserted that Argentina was not immune from the court’s jurisdiction when NML made its application for permission to issue and serve the proceedings on Argentina. Argentina pointed to note 6.21.24 of Civil Procedure 2008, (Footnote: ¹³ ) under the heading “Actions against Foreign States”. This stipulated that if an application was made by a party under Section III of Part 6 of the CPR, then the application must show distinctly “(a) why the prospective defendant is not absolutely immune from suit; (b) under which heading of rule 6.20 the action falls”. Argentina submitted that it was not permissible for NML to rely on an exception to immunity which was not set out and relied on in NML’s original application. It relied, by analogy, on the well – known principle that if a party has relied on one of the grounds for obtaining permission to serve out of the jurisdiction set out in the procedural rules of court (either the old RSC or the current CPR), it could not subsequently rely on a new and different ground when the first was proved erroneous. All it could do was to make a new application. Nor could it rely on a cause of action that was not included in the original application. (Footnote: ¹⁴ ) Argentina argued that a similar principle must apply in relation to state immunity, by analogy.

NML submitted that the requirement that the claimant must satisfy the court that there is at least an arguable case that the potential defendant state does not have immunity is not in the same category as the requirement that the claimant must identify its cause of action and the specific ground on which it seeks permission to serve proceedings out of the jurisdiction when it makes its application. It argued that the correct identification of the specific basis on which a state is not immune from the court’s jurisdiction is not a necessary prerequisite of obtaining permission to issue and serve the proceedings out of the jurisdiction. It is more like the other matters that the court has to consider, which go to the court’s discretion on whether to grant permission. Thus the precise basis for “non – immunity” can be recast and reconsidered by a court if the state challenges the jurisdiction of the English court, as in this case. The court has a discretion to consider another basis for “non – immunity” and, if it finds that it is apt, can permit the proceedings to continue on that basis if it regards it as just to do so.

The judge accepted that note 6.21.24 of Civil Procedure 2008 correctly stated what a party must do when it wished to implead a sovereign state in proceedings in the English courts and made an application to issue and serve proceedings on the state out of the jurisdiction. (Footnote: ¹⁵ ) He also accepted that, even in the absence of deliberate non-disclosure or a deliberate attempt to mislead the court (not this case), where there was a “mistaken legal analysis” as to the basis on which a foreign state is not absolutely immune from suit, then the court does have a discretion to set aside the order granting permission “..even where the mistake was an innocent one”.

However, he held that a court was not bound to set aside the order where, on a correct analysis, the state is not in fact immune from suit. Issues such as whether the state had suffered prejudice because of the mistake would be relevant to the exercise of the discretion. He rejected the analogy with the “gateway” or “cause of action” cases. (Footnote: ¹⁶ )

The judge concluded that NML had correctly relied on CPR Pt 6.20(9) . There was no defect in the cause of action pleaded. He had concluded that Argentina had no right to claim sovereign immunity for two reasons. First, because of the terms of section 31 of the CJJA; secondly, because Argentina had expressly submitted to the jurisdiction of the English court by virtue of the terms of the bonds. In those circumstances, he concluded:

The judge went on to deal with arguments raised by Argentina concerning non –disclosure. He ruled against Argentina’s arguments. They do not arise on this appeal. Lastly, the judge considered a non-justiciability argument advanced by Argentina. He ruled against it. (Footnote: ¹⁸ ) Argentina does not pursue that argument on appeal.

The arguments of the parties on appeal reflected those before the judge. On behalf of Argentina, Mr Trace QC submitted that this court should decide first the procedural or “gateway” issue. He submitted that the judge was wrong to have decided the substantive issues before the procedural one. If Argentina won on the procedural issue, then the present proceedings must be terminated. NML had not made a second application to issue and serve proceedings on Argentina on any basis other than those set out in the original witness statement and the draft Particulars of Claim.

However, both parties accepted that even if this court found in favour of Argentina on the procedural or “gateway” issue, it must also decide the substantive issues. NML and Argentina needed to know whether the judge was right to conclude that Argentina could not claim sovereign immunity in respect of the claim which NML wished to bring to enforce the New York judgment.

I think that it is logical to start with the procedural issue and I shall do so. I will then go on to consider the issues on the scope of section 31 of the CJJA and then the construction of the terms of the bonds. I will call these, respectively, the “gateway” issue; the “ CJJA issue” and the “bond terms” issue. However, before I examine these issues I will set out some propositions on the English law of state immunity and the procedural framework for bringing claims against states in the English courts. I think that these are largely uncontroversial.

The SIA replaced and codified the English common law on the immunity of sovereign states and their property in respect of proceedings in the courts of the United Kingdom. The SIA also gave effect in English law to aspects of the ECSI. That convention provides that a state should be immune from the jurisdiction of a contracting state’s courts subject to various exceptions. (Footnote: ¹⁹ )

Section 1(1) of the SIA sets out the general rule that a state is immune from the jurisdiction of the United Kingdom courts unless the circumstances in which the state is sued fall into one of the categories specified in provisions in Part 1 of the Act. Section 1(2) imposes a duty on all UK courts, in imperative terms, to “give effect to the immunity conferred by this section even though the State does not appear in the proceedings in question”. The effect of that statutory obligation must be that the English court is bound to refuse to entertain any proceedings against a state unless it is satisfied that the state concerned is not immune from suit in the proposed proceedings for one of the reasons set out in sections 2 – 11 of the SIA. Those provisions are headed “Exceptions from Immunity”. If the circumstances in which a foreign state is sued in a UK court fall within one of those exceptions, it cannot claim immunity from what Lord Diplock called the “adjudicative jurisdiction” of that court. (Footnote: ²⁰ )

The next group of provisions in Part I consists of sections 12 and 13, which appear under the heading “Procedure”. Section 12 sets out the procedure for the service of proceedings on a state at the suit of a claimant. The basic rule, (Footnote: ²¹ ) laid down in section 12(1), is that documents required to be served for instituting proceedings against a state have to be served by being transmitted through the Foreign and Commonwealth Office to the Ministry of Foreign Affairs of the state concerned. By section 12(2), the time for the state to enter an appearance in the relevant UK court starts to run two months after receipt of the documents in the Ministry of Foreign Affairs. Once a state has appeared in proceedings in a UK court, it cannot object that section 12(1) has not been complied with: see section 12(3).

Section 13 deals with foreign states’ immunity from what Lord Diplock called, in the Alcom case, the UK courts’ “enforcement jurisdiction”. (Footnote: ²² ) For present purposes the most important provision is in section 13(2)(b), which stipulates that, subject to section 13(3) and (4), “the property of a state shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale”. It is clear, in my view, that section 13(2)(b) is aimed at cases where a party has obtained a judgment against a state (whether in the UK or elsewhere) and seeks to enforce it against the “property” of a state within the jurisdiction of a UK court. The section is not concerned with a case where a party has obtained a judgment against a state in the courts of a foreign country and then attempts to have that judgment recognised or enforced in the UK courts by means of an application or action to make that judgment into a judgment of the UK court.

Section 14 stipulates what emanations of the state are entitled to the immunities and privileges of a state. “Separate entities”, as defined, are only entitled to claim immunity when exercising sovereign authority and (broadly) the circumstances are such that the state itself would have been immune: section 14(2). But, even if a “separate entity” submits to the jurisdiction of a UK court in proceedings when it would otherwise have been entitled to immunity, the “procedural privileges” that are set out in section 13(1) – (4) will still apply to those proceedings. (Footnote: ²³ )

Part II of the SIA gave specific effect to Article 20 of the ECSI, so far as concerned judgments given in Contracting States against the UK . I have set out the full provisions of Article 20 in Appendix 2 to this judgment. It is enough to set out the first paragraph of that Article here. It provides:

The CJJA 1982 was passed primarily to give effect in English law to the Brussels and Lugano Conventions on the recognition and enforcement of judgments as between member states of what was then the EEC and EFTA. Part IV of that Act is headed “Miscellaneous Provisions”. S ection 31 appears under the heading: “Provisions relating to recognition and enforcement of judgments”. Section 31 deals with judgments given against states in the courts of an “overseas country”. Section 32 deals with cases where overseas judgments are given in proceedings brought in breach of an agreement for the settlement of disputes. Section 50 of the Act defines “overseas country” as “any country or territory outside the United Kingdom”. It was agreed by Mr Nash and Mr Trace that, (whatever else its scope may be), section 31 applies to all “overseas countries”. I agree with them and Blair J that the section is not restricted to judgments given in the courts of countries that are a party to the Brussels or Lugano Conventions, with great respect to the opposite view expressed in the commentary in Fox, The Law of State Immunity. (Footnote: ²⁴ ) Mr Nash and Mr Trace also agreed that there is no admissible Parliamentary material which could assist on the proper construction of section 31. (Footnote: ²⁵ )

The question of whether a foreign state could rely upon the SIA to claim immunity against proceedings in an English court in relation to the enforcement in England of a foreign judgment against that state arose in AIC Limited v The Federal Government of Nigeria. (Footnote: ²⁶ ) AIC Limited had obtained a judgment against the state of Nigeria in the Federal Nigerian courts. It wished to register that judgment as a judgment of the English court pursuant to section 9 of the Administration of Justice Act 1920, (Footnote: ²⁷ ) so that it could enforce it in the UK. AIC Limited proposed enforcing the judgment by means of a third party debt order on bank accounts that the Federal Government of Nigeria and the Central Bank of Nigeria held in London. Stanley Burnton J decided that the process of registering in the English court a foreign judgment against a state under section 9 of the Administration of Justice Act 1920 was an exercise of the “adjudicative” jurisdiction of the court within the scope of section 1 of the SIA. (Footnote: ²⁸ ) He also held that none of the exceptions to the general rule of state immunity (as set out in sections 2 – 11 of the SIA) applied to the judgment sought to be registered. (Footnote: ²⁹ )

Stanley Burnton J went on to hold that AIC Limited could not rely on section 31 of the CJJA so as to prevent the state of Nigeria from relying on immunity from the court’s jurisdiction, because section 31(1) of the CJJA expressly stipulates that it does not apply to judgments given by a court of an overseas country against the state to which that court belongs. (Footnote: ³⁰ ) He also made some more general comments on the scope of section 31.

There was broad agreement between the parties on the general applicable procedural law in this case. It was accepted that a claimant which sought to bring proceedings against a state in the English court had to establish a basis for the court’s jurisdiction to entertain the proceedings under what was, in 2008, CPR Part 6.20 . There has never been any specific Rule of Court or Civil Procedure Rule that permitted the issue and service out of the jurisdiction of all types of claims against foreign states. Moreover, section 12(1) of the SIA requires that any “writ or other document required to be served for instituting proceedings against a State” shall be transmitted through the Foreign and Commonwealth Office to the Ministry of Foreign Affairs of the state concerned. The section therefore requires service of proceedings on the state out of the jurisdiction. Service on an embassy in the UK is not sufficient. (Footnote: ³¹ ) It must follow, therefore, that when a claimant wishes to bring proceedings against a foreign state, it must show there is (at least) a good arguable case that the claim falls within one of the grounds of what was CPR Pt 6.20 and is now paragraph 3.1 of Practice Direction B to CPR Part 6. .

It was also accepted by both parties that, at the stage when a party seeks permission to issue and serve proceedings out of the jurisdiction on a sovereign state, a court has to be satisfied that there is (at least) a good arguable case that the state concerned is not absolutely immune from suit in respect of the proposed proceedings. (Footnote: ³² ) Therefore, in the absence of any obvious evidence that Argentina had agreed to submit to the jurisdiction of the English courts, NML was bound to put before the court the factual and legal basis on which it said that there was, at the least, a good arguable case that Argentina was not immune from suit in the English court in respect of the proposed action on the New York judgment. If the court did not have that information, then it would be bound, by section 1(2) of the SIA, to give effect to Argentina’s immunity as set out in section 1(1) of the SIA. In the absence of that information, the court could not sanction the transmission of the documents initiating the proceedings to the Foreign and Commonwealth Office for onward transmission to the Ministry of Foreign Affairs of the state concerned. It would therefore have to refuse permission to serve the proceedings on the state in accordance with section 12(1). (Footnote: ³³ ) So, in my view, Mr Nash was right to accept that the note at paragraph 6.21.24 in Civil Procedure 2008 ( volume 1 page 201) correctly stated that when a prospective claimant wishes to issue and serve proceedings on a state out of the jurisdiction, it must show distinctly why the prospective state defendant is not absolutely immune from suit. (Footnote: ³⁴ )

The judge pointed out, correctly, that there is no authority on this point in issue. (Footnote: ³⁵ ) So I have to tackle it from principle. As already noted, Mr Nash accepted that NML had to obtain permission to issue and serve the proceedings out of the jurisdiction on Argentina in accordance with section 12(1) of the SIA and in accordance with the provisions of CPR Pt 6.20. He accepted the correctness of note 6.21.24 in Civil Procedure 2008. Thus, whilst I am prepared to accept Mr Nash’s submission that it was unnecessary for NML to have pleaded paragraph 8 of the draft Particulars of Claim, which set out NML’s (erroneous) case on why Argentina could not claim immunity from suit in the proposed action on the New York judgment, that does not get NML very far. It was bound to stipulate somewhere in its application to the court the basis on which it asserted that there was a good arguable case that Argentina was not absolutely immune from suit in the English court in respect of the proposed action on the New York judgment. To my mind the decision to set out in the Particulars of Claim NML’s case on Argentina’s lack of immunity was perfectly sensible and cannot be criticised in itself.

What is the effect of NML’s application to the court for permission to NML to issue and serve proceedings on Argentina? In my view it constituted a request to the court to exercise its “adjudicative jurisdiction” against Argentina, on the basis of the representation of facts set out in the Particulars of Claim (including paragraph 8) and Ms Doucas’ witness statement. David Steel J exercised the jurisdiction on the basis of those representations by granting permission. However, if NML was wrong about the bases on which Argentina could be subject to the “adjudicative jurisdiction” of the English court, then the judge had no basis on which to exercise that jurisdiction at all, because the English court must give effect to the immunity conferred on a sovereign state by section 1 of the SIA if the claim does not fall within an exception to the general rule. In short, the court has no power to implead the foreign sovereign.

If that is so, then the order of Steel J was made upon an incorrect basis of the court having jurisdiction in respect of the proposed claim against Argentina. Logically, therefore, that order has to be set aside for want of jurisdiction, just as it must when a claimant has relied on an incorrect cause of action or an incorrect ground for permission to serve out of the jurisdiction. There can be no question of exercising a discretion to correct the error (in the absence of a new application on a different basis) because the lack of jurisdiction is fatal.

But Mr Nash argued that this conclusion does not follow. He accepted that a court will not allow a claimant to rely on a new cause of action or a new basis for permission to serve out of the jurisdiction at the inter partes stage but he said the reason for that is that, on its true analysis, the court assumes jurisdiction over claims, not persons. Therefore, once a claimant has elected to rely on a specific cause of action or basis for service out to obtain the ex parte order in respect of that particular claim, that basis of jurisdiction cannot be changed to resist a challenge to the jurisdiction by the proposed defendant at the inter partes hearing. To do so would be to change the basis on which the court was being invited to exercise its “exorbitant” jurisdiction in respect of the particular claim concerned; or to put it colloquially, it would be “moving the goal posts”.

However, Mr Nash submitted, the issue of whether a state is immune from the court’s jurisdiction is different; it is what he called a “substantive” question, which does not depend on the way that the claim is framed. If there has been an innocent error about the basis of “non – immunity” it is more in the nature of a “mechanistic” or procedural error, which the court has a discretion to correct, if it decides to exercise that discretion to do so.

I cannot accept Mr Nash’s analysis of the position. I agree with Mr Nash’s submission that immunity from suit attaches to a state or, if the various conditions set out in section 14 of the SIA , are fulfilled, to other emanations of a state. But the way that sections 3 – 11 of the SIA classify the circumstances in which a state will not have immunity from the “adjudicative jurisdiction” of the UK courts is to do so by reference to the activities that the state undertakes, as defined in sections 3 to 11. As Stanley Burnton J pointed out in the AIC case, (Footnote: ³⁶ ) there has to be a territorial connection with the United Kingdom in respect of all the activities identified in sections 3(1)(b), 4 – 8 and 11. (Footnote: ³⁷ ) Although by section 3(1)(a), a state is not immune with respect to proceedings relating to a commercial transaction entered into by a state wherever that might be, yet, as Stanley Burnton J pointed out in the AIC case, (Footnote: ³⁸ ) a claimant wishing to bring proceedings against a state in respect of a commercial transaction will have to establish a territorial basis for the English court’s jurisdiction under what was then CPR Pt 6.20 and is now paragraphs 3.1(6), (7) or (8) of Practice Direction B to CPR Pt 6.36. (Footnote: ³⁹ )

Therefore, the basis on which permission to issue and serve the proceedings on Argentina was given does indeed relate to a particular type of claim against the state. A double requirement had to be met before the English court could exercise its “adjudicative jurisdiction” against the state by granting permission to issue and serve the proceedings on the state. The first condition is that the claim arguably falls within one or more of the stated grounds of what was then CPR Pt 6.20. The second condition is that the claim is one in respect of which (arguably) there is no immunity from suit for the reason stated in the application to issue and serve out.

Thus, in my view, if NML incorrectly identified the basis on which it asserted that Argentina was subject to the “adjudicative jurisdiction” of the English court, then the basis for the exercise of the jurisdiction was incorrect. It is not a mere procedural error, because it goes to the very basis for invoking the jurisdiction against a sovereign state. It is, qualitatively speaking, in the same position as a failure to identify the correct cause of action or the correct ground for obtaining permission to serve out of the jurisdiction.

CPR Pt 3.10 (Footnote: ⁴⁰ ) does not assist NML. The failure properly to identify the specific basis on which Argentina does not have immunity from the “adjudicative jurisdiction” of the court means that there was no valid exercise of the jurisdiction by David Steel J at all. The failure and its consequences do not constitute a failure to comply with a rule or practice direction of the court. It is not capable of remedy because a court cannot create a jurisdiction where there was none before, unless NML made a new application which identified a properly arguable basis for the English court having jurisdiction. (Footnote: ⁴¹ )

I therefore cannot agree with the analysis and conclusion of Blair J on this issue.

On my analysis, no question of discretion arises. If it did, then in my view, in the circumstances of this case, where there was no fault on the part of Argentina, the court could only rectify the error of NML by acceding to a revised application by NML, (on a correct basis), to issue and serve the proceedings on Argentina in accordance with section 12 of the SIA. NML has studiously refused to make one. Even if it had, it would beg the question of whether there is a basis on which the court can have jurisdiction over Argentina in respect of NML’s action on the New York judgment. To answer those questions requires consideration of the “ CJJA issue” and the “bond terms issue”.

The issue of construction that divides the parties is whether, as NML contends, section 31 introduced a new and comprehensive statutory framework for the recognition and enforcement in the UK courts of judgments of foreign courts against states, independent of the SIA ; or whether, as Argentina contends, that section remains subject to the provisions of the SIA as regards the circumstances in which the UK courts can exercise jurisdiction over states when a claimant wishes to implead them in those courts. There is no case law that deals directly with this point other than the AIC decision of Stanley Burnton J. But in that case the judgment was of a court of the defendant state and so outside the scope of section 31(1), as the judge acknowledged. The decision of Tugendhat J in Grovit v De Nederlandsche Bank NV, (Footnote: ⁴² ) that the provisions of Council Regulation 44/2001/EC on jurisdiction in civil and commercial matters are subject to the international law of state immunity, is, in my view, of no direct assistance.

Mr Nash relied strongly on the statement in Dicey, Morris & Collins, The Conflict of Laws, (Footnote: ⁴³ ) which the judge said (Footnote: ⁴⁴ ) was a correct summary of the law. Dicey declares:

I accept that the first part of this passage implies that if it is established that the foreign court would have had jurisdiction against the state concerned (Footnote: ⁴⁵ ) in the matter if it had applied rules “corresponding to those” set out in sections 2 – 11 of the SIA, then there is no need for the judgment creditor also to satisfy the UK court that the circumstances in which the state is sued on the foreign judgment fall within one of the exceptions to the general rule of immunity within sections 2 – 11 of the SIA before the UK court will exercise jurisdiction to recognise and enforce a foreign judgment against a state. (Footnote: ⁴⁶ ) In short, the first part of that quoted statement in Dicey treats section 31 as a jurisdictional provision which creates a further exception to the general state immunity rule set out in section 1(1) of the SIA. I also accept that in the AIC case (Footnote: ⁴⁷ ) Stanley Burnton J referred (obiter) to that statement of Dicey without criticism. The question is whether Dicey’s interpretation is correct.

Section 31 of the CJJA was passed against the background of the SIA. The draftsman of the CJJA would have been conscious of the drafting technique used in that Act, in particular for sections 1 – 13 . That is, that the SIA states a general rule that a state is immune from the “adjudicative” and “enforcement” jurisdictions of the UK courts, but then creates certain exceptions, as defined in that Act. It is also clear that the SIA has no general provision concerning the recognition and enforcement of foreign judgments against states. However, it does have a specific provision in Part II concerning the recognition of judgments against the United Kingdom given in the courts of another state party to the ECSI , thus partially reflecting Article 20 of that Convention.

Section 31 of the CJJA does not state that it is amending or repealing any part of the SIA. Moreover, no repeal of any provision of the SIA is listed in Schedule 14 of the CJJA, which deals generally with repeals. Section 31 of the CJJA was not ostensibly passed to give new domestic effect to any international convention on the recognition and enforcement of judgments against states. (Footnote: ⁴⁸ ) It does not give any further effect to the ECSI beyond that already given by Part II of the SIA.

It is necessary to analyse further the effect of section 31(1)(a) and (b) against that background. These provisions set out the conditions which must be met before a UK court will recognise and enforce a judgment given by a court in an overseas country against a state other than the UK or the state to which the court belongs. “If and only if” those conditions are fulfilled, then it is mandatory for the UK court to recognise and enforce that judgment; hence the words “shall be recognised and enforced” in section 31(1) .

Section 31(1)(a) sets the requirement that the judgment “would be recognised and enforced it had not been given against a state”. That means that the basic rules for recognition and enforcement of foreign judgments against non – state entities must be fulfilled, viz. that the court giving the judgment was one of competent jurisdiction; that the judgment was final (even if subject to appeal) and it was a judgment on the merits of the case and is not otherwise impeachable. (Footnote: ⁴⁹ ) That paragraph does not contain a jurisdictional rule as such; the requirement goes to the merits of a claim for recognition or enforcement.

Section 31(1)(b) sets the requirement that the foreign court “would have had jurisdiction in the matter if it had applied rules corresponding to those applicable to such matters in the United Kingdom in accordance with sections 2 to 11 of the [ SIA]”. The correct construction of that provision is a little problematic because of the words “rules corresponding to those applicable to such matters in the UK in accordance with…”. The words “such matters” must refer to the underlying dispute between the claimant and the state concerned. But that leaves the question of what is meant by “rules corresponding to those applicable…in accordance with sections 2 to 11”. Those words could mean that the UK court has to be satisfied that the foreign court had applied rules to the effect that the state concerned had submitted to the jurisdiction of the UK courts (within the terms of section 2 SIA), or fulfilled one or other of the conditions set out in the succeeding sections of the SIA, which all refer to the United Kingdom. With the one exception of section 3(1)(a), all those sections require a territorial connection with the UK, as I have already noted. But it would be odd to require the foreign court to apply rules that relate directly to the UK courts, particularly a rule concerned with submission to the jurisdiction of the UK courts.

Therefore, those words in section 31(1)(b) must mean that the foreign court’s “rules corresponding to those applicable to such matters in the United Kingdom” are its own equivalent to sections 2 – 11, thus providing for submission to the jurisdiction of that court and an equivalent connection with the state in which that court is found, analogous to the provisions in sections 2 – 11. That construction gives proper effect to the words “…rules corresponding to those applicable to such matters in the [UK]…”.

If this construction of section 31(1)(a) and (b) is correct, then I think that must have an effect on the nature of section 31 as a whole: ie. whether it is a jurisdictional provision or one setting requirements on the merits of a claim for recognition and enforcement. In my view this construction of section 31(1)(a) and (b) tends towards the conclusion that section 31(1) is dealing with the merits of claims for the recognition and enforcement of judgments against states. First, section 31(1) does not stipulate that a state cannot claim immunity from the jurisdiction of the UK courts when a claimant seeks in those courts the recognition and enforcement of a foreign judgment that it has obtained against a state when the conditions in section 31(1)(a) and (b) have been fulfilled . The use of the words “if and only if” before paragraphs (a) and (b) does not appear to me to give any force to a contrary conclusion. Those words simply emphasise the mandatory nature of the two requirements which must be fulfilled before the overseas court’s judgment will be recognised and enforced. Secondly, if section 31(1) were to have the effect of adding a new specific exception to the general rule by which foreign states have immunity from the jurisdiction of the UK courts, then section 1(1) of the SIA would surely have had to be amended to encompass section 31 of the CJJA. (Footnote: ⁵⁰ ) Given the express references to the SIA that are actually made in section 31(4) of the CJJA, (with which I will deal more fully below), I am not prepared to hold that Parliament intended any “implied” amendment or modification of section 1(1) of the SIA. That Act enshrined in statute a fundamental change to the United Kingdom’s law on sovereign immunity. It was of considerable constitutional significance. It seems to me inherently unlikely that there would have been an implied amendment to the SIA only four years after it had been passed. Although Mr Nash did not specifically argue that there had been any implied amendment of the SIA, it seems to me that his argument would have necessitated that conclusion.

Both sides relied on section 31(4) of the CJJA in support of their construction of the effect of section 31(1). That provision is a little difficult to follow because of the various cross – references that it makes to provisions of the SIA as well as the cross – referencing to sections 12 and 13 within section 14 of the SIA itself. Section 31(4) of the CJJA states that sections 12, 14(3) and 14(4) of the SIA shall apply to proceedings for the recognition or enforcement in the UK “of a judgment given by a court of an overseas country (whether or not that judgment is within subsection (1) of this section), as they apply to other proceedings”. That wording, in particular the words in parenthesis, means that the provisions of section 31(4) are not confined to judgments given in a court of an overseas country “against a state other than the UK or the state to which the overseas court belongs”; which is the phraseology of section 31(1) . Indeed, it seems that section 31(4) is not even confined to judgments given by a court of an overseas country against a state. The reason for the width of that provision must, I think, be to encompass cases where there has been a judgment by the courts of a foreign state against a body other than a foreign state (or an emanation of that state) and there is an attempt to enforce that judgment in a UK court against the property of a foreign state or an emanation of that state.

The broad effect of section 31(4) is, therefore, that it identifies three aspects of the regime that apply to proceedings against states (and emanations of a state) in a UK court and then applies them to all proceedings for the recognition and enforcement in the UK courts of a judgment given in a court of an overseas country. First, all the procedural requirements set out in section 12 of the SIA must be followed in such proceedings. Secondly, the “procedural privileges” granted to a state by section 13 of the SIA, (Footnote: ⁵¹ ) which apply despite the fact that the state cannot claim immunity from the “adjudicative jurisdiction” of the UK court concerned, will apply equally to proceedings for the recognition and enforcement in the UK court of a judgment given in a court of an overseas country. Thirdly, the procedural privileges granted to certain “separate entities” and the property of a state’s central bank or other monetary authority by virtue of sections 14(3) and (4) of the SIA, will apply equally to proceedings for the recognition and enforcement in the UK court of a judgment given in an overseas country. This is summarised in the second part of the passage in Dicey that I have quoted in paragraph 71 above.

If this analysis of the effect of section 31(4) is correct, then as respects “States”, that sub-section does not help to solve the question of whether section 31(1) adds a new exception to the general rule of state immunity. When applied to “States” all section 31(4) does is to maintain the procedural requirements and the procedural privileges that apply if there is an action against a state (or a “separate entity”) in UK courts for the recognition or enforcement of a judgment given by a court of an overseas country. It does not deal with the prior question of when the UK court will have jurisdiction to determine proceedings for the recognition or enforcement of a judgment given against a state in the court of an overseas country.

However, the position with regard to “separate entities” is more complicated. As already noted, section 14(3) of the SIA only comes into play when a separate entity has submitted to the jurisdiction of a UK court in respect of proceedings where it was otherwise entitled to immunity because it satisfied the two conditions set out in section 14(2) . One of those conditions is that if the separate entity were a state, then it would have been immune from the jurisdiction. The tests for whether it would have been immune must be those set out in sections 1 to 11 of the SIA .

When section 31(4) of the CJJA and section 14(3) of the SIA are applied to “separate entities”, the sections appear to contemplate two things. First, that there are proceedings in a UK court for the recognition and enforcement of a judgment given by a court in an overseas country, which will probably be against a separate entity (but not necessarily so given the wording of section 31(4) ) and the “separate entity” has submitted to the jurisdiction of the UK court concerned. Secondly, that the “separate entity” would otherwise have been entitled to claim immunity in the UK court proceedings: (see section 14(2)(b) of the SIA ). In other words, but for the submission to the jurisdiction, the circumstances in respect of the recognition and enforcement proceedings against the separate entity would not have come within sections 3 – 11 of the SIA .

However, if the effect of section 31(1) of the CJJA were to accord UK courts jurisdiction in proceedings for the recognition and enforcement of overseas judgments against separate entities tout court, then the application of sections 14(3) and so section 14(2) of the SIA to such proceedings would make no sense. A reference to other rules (in section 14(2) of the SIA ) on when a “separate entity” was immune from the UK courts’ jurisdiction would be superfluous, because section 31(1) would solve all jurisdictional issues where a separate entity was involved in proceedings in a UK court for the recognition and enforcement of an overseas judgment.

I conclude, therefore, that section 31(4) does not assist Mr Nash’s argument. On the contrary, the reference in it to section 14(3) and so 14(2) of the SIA tends to support Mr Trace’s argument that section 31(1) is not a jurisdictional provision which creates another exception to the general immunity rule set out in section 1 of the SIA.

Mr Nash submitted that the key to understanding the effect of section 31(1) was the recognition that it resolved two competing international obligations put upon the United Kingdom. The first is the obligation (in international law) to grant other sovereign states an immunity from suit, subject to specified exceptions. The second is the international obligation (as a matter of comity or bilateral or multilateral agreement) to recognise and enforce the judgments of foreign friendly states, even against other states. He submitted that the tension between the two was reconciled by the provision, in section 31(1), that foreign judgments against states would be recognised and enforced provided that the foreign court would have had jurisdiction over the state concerned if that court had applied rules corresponding to the English rules for exceptions to the general rule of state immunity.

That is an attractive argument, but I have concluded that I cannot accept it. First, the issue of whether the UK courts have jurisdiction over foreign states is a threshold question. It is not a question of substantive rights of action. So, as I have already pointed out, if section 31(1) did introduce another exception to the general threshold rule of immunity from suit in UK courts, then the SIA would surely have been amended to say so. The notions of “recognition” and “enforcement” of foreign judgments must embrace cases where the only way of doing that is by bringing an action on the foreign judgment in the UK courts. To my mind it would be odd if section 31(1) created an exception to immunity in respect of such an action against a state without expressly saying so.

Secondly, I am unimpressed with the argument that there is no need for either the CJJA or the SIA to state that there is an express further exception to the general rule of immunity because of the safeguards in section 31(1)(b) of the CJJA. This is itself for two reasons. In the first place, as I have already said, that provision does not require the foreign court to apply directly sections 2 – 11 of the SIA , but requires that the UK court is satisfied that the foreign court would have had jurisdiction if it had applied analogous rules which correspond to those sections. In the second place, in my view those safeguards do not concern the issue of the jurisdiction of UK courts over states; they go to the merits of whether the UK courts would grant recognition or enforcement of the foreign judgment. In other words, section 31(1)(b) sets out specific statutory requirements relating to the jurisdiction of the foreign court, which must be fulfilled before the UK court will consider the merits of the recognition or enforcement of a judgment of a court of an overseas country against a foreign state. If section 31(1) were a jurisdictional provision, then I would not expect it to stipulate that the UK court “shall” recognise and enforce the foreign court’s judgment if the conditions in (a) and (b) are fulfilled. It would be more likely to give the UK courts the power to recognise and enforce such judgments.

Thirdly, I think it significant that the provisions of Article 20 of the ECSI had already been given domestic effect in the UK by Part II of the SIA. The Article’s provisions for the recognition and enforcement of judgments against Contracting States are very limited, as I have already noted. A Contracting State is only obliged to give effect to a judgment given against that state in the courts of another Contracting State and only if the conditions set out in Article 20(1)(a) and (b) have been fulfilled. Moreover, there are further safeguards, which are reproduced in section 19 of the SIA.

The consequence of NML’s argument would be that section 31(1) is of much wider effect than either Article 20 of the ECSI or Part II of the SIA. The effect would be that the UK courts must recognise and enforce judgments against any state (other than the UK) by the courts of any state, provided that the conditions in section 31(1)(a) and (b) have been fulfilled, whether or not there is any underlying agreement between the two states relating to mutual recognition and enforcement of such judgments. Given the limited incorporation of the ECSI into UK law, I am not prepared to accept that the CJJA could have been intended to have such a far reaching effect. It would mean that a UK court would be obliged to recognise and enforce a judgment given against another state in a foreign court even though that state had not submitted to the jurisdiction of the UK courts nor had that state agreed in any treaty or convention to be subject to any other exception to immunity in respect of the recognition and enforcement of judgments against it. Moreover, it would be a unilateral stipulation by the UK without any international agreement beyond the limited effect of the ECSI.

Fourthly, (and conversely), a construction of section 31(1) which requires that one of the exceptions set out in sections 2 – 11 of the SIA has to be satisfied before the UK courts will have jurisdiction to recognise or enforce a foreign judgment against a foreign state is more consistent with the limited nature of those exceptions. As I have already noted (and as was noted by Stanley Burnton J in the AIC case), each of the exceptions set out in sections 2 – 11 requires the claimant to demonstrate that the activities of the state giving rise to the proceedings in the UK courts have some connection with the UK (Footnote: ⁵² ) or else the state concerned has submitted to the jurisdiction of the UK courts. The effect of NML’s submission would be that there need be no such link.

For all these reasons, I have come to the conclusion that the judge erred in holding that section 31 of the CJJA deals comprehensively with the recognition and enforcement of the judgments of foreign courts against foreign states as to both jurisdictional immunity and enforcement. The consequence of my conclusion is that the UK courts will not have jurisdiction over a foreign state to recognise and enforce a judgment of a foreign court within the terms of section 31 unless it can be shown that, in respect of the state, one of the exceptions in sections 2 – 11 has been fulfilled. In practice this is likely to mean that the foreign state must have submitted to the jurisdiction of the UK courts in accordance with section 2 of the SIA.

I do not regard this conclusion as being inconsistent with the comments of Mr Lawrence Collins in Collins, The Civil Jurisdiction and Judgments Act 1982 (Footnote: ⁵³ ) that section 31 was designed “to render foreign judgments against foreign states more easily enforceable in the United Kingdom”. The recognition and enforcement of such judgments is still easier, because once jurisdiction is founded and the requirements on the merits set out in section 31(1)(a) and (b) are fulfilled, the UK court has a mandatory duty to recognise and enforce the foreign judgment against the foreign state.

It was accepted before us that if one or other of the exceptions to immunity set out in sections 2 – 11 of the SIA has to be satisfied before the English court can have jurisdiction in this case, then the only possible route here is if Argentina has submitted to the jurisdiction within the meaning of section 2 of the SIA . It is also agreed that Argentina could only have submitted to the jurisdiction by virtue of the terms of the bonds. So that is the final issue that must be examined.

The relevant terms of the bonds are set out in Appendix 3. The steps in NML’s argument are these: (i) Argentina irrevocably submitted to the jurisdiction of the “New York state or federal court sitting in the Borough of Manhattan”, which courts are (with the courts of Argentina) called “the specified courts”, in respect of any action against it in respect to the bonds. (ii) NML has obtained against Argentina a final, non – appealable judgment (called a “related judgment”) in proceedings (called “related proceedings”) in such a “specified court”, viz. the US District Court for the Southern District of New York. (iii) By the last sentence of the first paragraph of the clause in the bond terms, Argentina has agreed that such a “related judgment” shall be “….conclusive and binding on [Argentina] and may be enforced in any specified court or any other courts to the jurisdiction of which [Argentina] is or may be subject (the “other courts”) by a suit upon such judgment”. (iv) The proceedings in the English court (an “other court”), have been brought with the sole purpose of enabling NML to enforce the “related judgment” obtained in the New York court. (v) Argentina “is or may be subject to” the jurisdiction of the English court for the purpose of a “suit upon” the “related judgment” obtained in the New York court. (vi) As an aid to the conclusion that Argentina has submitted to the jurisdiction of the English court (as an “other court”) for the purpose of a suit upon the New York judgment, NML can rely upon the waiver of sovereign immunity provision set out in the second paragraph of the clause.

The relevant wording of the second paragraph applicable to the current situation is:

Argentina’s riposte is that the term in the bonds constitutes only a “waiver of immunity” in relation to any proceedings in an “other court” for the purpose of enforcing a “related judgment”. They do not amount to a positive submission to the jurisdiction within the meaning of section 2(1) of the SIA.

Before the judge it was agreed that under New York law, (the governing law of the bonds), an express contractual term which purports to waive sovereign immunity will be narrowly construed in favour of the sovereign. (Footnote: ⁵⁴ ) It is also agreed that the clause in the bonds constitutes a “prior written agreement” within section 2(2) of the SIA. The question, therefore, is whether, by the terms of that prior written agreement, Argentina has done more than waive immunity and has actually “submitted to the jurisdiction of the courts of the United Kingdom” for the purposes of the present proceedings.

In Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No 2), (Footnote: ⁵⁵ ) Gloster J stated that a clause which amounts to a waiver of immunity of a state will not necessarily constitute a submission to the jurisdiction of a court for the purposes of section 2(1) of the SIA. Whether it does so is a question of construction. In the Court of Appeal, Moore – Bick LJ, giving the judgment of the court, agreed with that reasoning. (Footnote: ⁵⁶ ) It is always a question of construction of the relevant agreement.

The judge considered that the wording of the clause in the bonds went “considerably beyond a waiver of immunity”. (Footnote: ⁵⁷ ) He based that conclusion on the fact that, by the bond terms, Argentina agreed that a “related judgment” such as the one obtained in the New York court (a “specified court”), would be conclusive and binding against Argentina and could be enforced in any courts to the jurisdiction “of which Argentina is or may be subject by a suit upon such judgment”.

In my view, that conclusion does not take the matter anywhere. It does not deal with the question posed in the first paragraph of the clause, ie. whether Argentina either “is or may be” the subject of any suit upon such a judgment. The precise wording is critically important. In my view the words “…is or may be the subject by a suit upon such judgment…” constitute, in the present context, neither a waiver of immunity nor a submission to the jurisdiction of in the English court. They simply confirm that if that “other court” has or may have jurisdiction, then the “related judgment” may be enforced in it. Of course, if NML were right on its section 31 argument, then the English court would have jurisdiction, but that would render this provision superfluous. But on my construction of section 31, Argentina is not subject to the English court unless it submits to the jurisdiction or some other exception in sections 3 – 11 of the SIA apply. But these words in the first paragraph do not amount to a submission to the jurisdiction on their own.

Nor does the second paragraph of the clause support NML’s construction. I think that there are two reasons for this. First, by this paragraph, Argentina agrees to waive immunity “…to the fullest extent permitted by the laws of such jurisdiction”, in an “other court” in which “..any suit, action or proceeding may be brought solely for the purpose of enforcing or executing any related judgment”. But the present proceedings are not just concerned with enforcing or executing the New York judgment. Before NML can enforce or execute on the New York judgment in England, it has to bring an action on the judgment in the English court to obtain recognition of that judgment. (Footnote: ⁵⁸ ) That is part of the section 31 process in this case. That is an exercise of the “adjudicative jurisdiction” which the English court would have to exercise, even if the ultimate object is enforcement against property within the jurisdiction of the English court. As a matter of construction of the second paragraph of the bond clause it could, at most, only be a submission to the jurisdiction in respect of the “enforcement jurisdiction” of the English court (as an “other court”), not a submission in respect of the “adjudicative jurisdiction”.

Secondly, even if it were possible to construe the words in the second paragraph of the clause “…solely for the purpose of enforcing or executing any related judgment…” as including the current proceedings in the English court, the wording amounts to no more than a waiver of immunity, not a submission to jurisdiction within the terms of section 2 of the SIA. The judge (who has great experience in these matters) noted (Footnote: ⁵⁹ ) that in sovereign bond issues the clauses dealing with jurisdiction, governing law and waiver of immunity will receive the greatest attention from the lawyers for the parties involved. The final terms will reflect the balance of the negotiations. But that makes it all the more important to construe the terms of the clause with as much precision as the parties will have given them, in accordance with the canons of construction of the governing law. The wording in the second paragraph of the clause is very careful not to say that Argentina submits to the jurisdiction of any court in which the fiscal agent or a holder of securities in the bonds brings proceedings to enforce or execute a “related judgment” that has been obtained in a “specified court”. The reference to an agreement irrevocably “not to claim” immunity and to waive such immunity is in stark contrast to the first paragraph of the clause where Argentina expressly submits to the jurisdiction of the “specified courts” in respect of “related proceedings”. The decision not to go so far as that in the second paragraph must have been a deliberate one; the result of hard bargaining between the parties. Under New York law the wording relating to waiver of immunity has to be construed strictly.

Therefore, I must disagree with the conclusion of the judge on the construction of the clause in the bonds. It does not amount to a positive submission to the jurisdiction of the English courts within the terms of section 2(1) of the SIA.

For the reasons which I have given, I reach the following conclusions. First, at an inter partes hearing and in the absence of any new application for permission to issue and serve proceedings on Argentina setting out new grounds alleging why Argentina is not immune from the jurisdiction of the English courts, NML is not entitled to argue the two new bases for jurisdiction that it has proposed. The English court has no discretion to permit NML to do so.

Secondly, section 31 of the CJJA does not constitute a jurisdictional provision which, effectively, creates another exception to the general rule that a foreign state is immune from the jurisdiction of the courts of the UK when proceedings are brought in the UK courts for the recognition and enforcement of a judgment against a foreign state in a court of an overseas country, subject to the fulfilment of certain statutory conditions. Before a UK court can exercise jurisdiction over a foreign sovereign state in any proceedings for the recognition and enforcement of a foreign judgment against that state, the court must be satisfied that there is a good arguable case that the proceedings fall within one of the exceptions to immunity set out in sections 2 – 11 of the SIA.

Thirdly, the terms of the bonds in this case do not constitute a submission to the jurisdiction of the English courts within the terms of section 2(1) of the SIA.

Accordingly, I would allow this appeal and set aside the order of David Steel J. As Mr Nash has not suggested that there is any other basis on which the English court could have jurisdiction in respect of the present claim beyond those he argued, I would also make an order for a declaration. This would be to the effect that the English court does not have jurisdiction to entertain proceedings against Argentina for the recognition and enforcement of the judgment obtained by NML in the United States District Court for the Southern District of New York on 18 December 2006 for the sum of US$ 284,184,632.30.

I agree.

I also agree.

A Contracting State shall give effect to a judgment given against it by a court of another Contracting State:

if, in accordance with the provisions of Articles 1 to 13, the State could not claim immunity from jurisdiction; and

if the judgment cannot or can no longer be set aside if obtained by default, or if it is not or is no longer subject to appeal or any other form of ordinary review or to annulment.

Nevertheless, a Contracting State is not obliged to give effect to such a judgment in any case:

where it would be manifestly contrary to public policy in that State to do so, or where, in the circumstances, either party had no adequate opportunity fairly to present his case;

where proceedings between the same parties, based on the same facts and having the same purpose:

are pending before a court of that State and were the first to be instituted;

are pending before a court of another Contracting State, were the first to be instituted and may result in a judgment to which the State party to the proceedings must give effect under the terms of this Convention;

where the result of the judgment is inconsistent with the result of another judgment given between the same parties:

by a court of the Contracting State, if the proceedings before that court were the first to be instituted or if the other judgment has been given before the judgment satisfied the conditions specified in paragraph 1.b; or

by a court of another Contracting State where the other judgment is the first to satisfy the requirements laid down in the present Convention;

where the provisions of Article 16 have not been observed and the State has not entered an appearance or has not appealed against a judgment by default.

In addition, in the cases provided for in Article 10, a Contracting State is not obliged to give effect to the judgment:

if the courts of the State of the forum would not have been entitled to assume jurisdiction had they applied, mutatis mutandis, the rules of jurisdiction (other than those mentioned in the annex to the present Convention) which operate in the State against which judgment is given; or

if the court, by applying a law other than that which would have been applied in accordance with the rules of private international law of that State, has reached a result different from that which would have been reached by applying the law determined by those rules.