Republic of Serbia v Imagesat International NV

This is a challenge under section 67 of the Arbitration Act 1996 (the “1996 Act”) 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 N.V. (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.

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]) provided for disputes to be referred to arbitration under the ICC Rules, with English law as the governing law and England as the default location for the arbitration. The State Union did not pay sums due under the contract and, in early February 2006, stated it was not bound by the contract. On 24 May 2006 ImageSat sent a Request for Arbitration to the ICC Court of Arbitration alleging breaches of the contract. This was three days after a referendum in Montenegro which favoured independence. On 3 June 2006 Montenegro declared itself an independent state. Thereafter there are two states, Serbia and Montenegro.

The central issue before me concerns whether the arbitrator had jurisdiction to decide whether Serbia is the “successor” or the “continuator” or “continuation” of the State Union. As well as questions of arbitral law, it involves questions of public international law, and the justiciability and arbitrability of those questions in this court. I have been assisted by the full and helpful skeleton arguments and the way the submissions in them were developed on behalf of Serbia by Mr Jacobs QC and Professor Sarooshi, and on behalf of ImageSat by Mr Owen QC and Professor Mendelson QC.

The list of issues states:-

Gross J ordered that the hearing was to take place on the basis of the statements of Mr Whittaker, a partner at Clyde & Co LLP, Serbia’s solicitors, in support of the application, and of Mr Goldberg a partner at SJ Berwin LLP, ImageSat’s solicitors, resisting it, and without oral evidence.

Before I turn to the procedural history and my conclusions on the issues, I set out the statutory provisions and introduce the concepts of “continuing” or “continuator” States and “successor”States. I also summarise the territorial and constitutional background, including the parties’ submissions as to the consequences of the changes and of the response to them by international organisations.

By section 67 of the 1996 Act:

By section 30:

The other material provisions of the 1996 Act are:

Professor Crawford describes the distinction between State continuity and State succession as “fundamental”: The Creation of States in International Law, 2^nd ed 2006, para. 16.1. As far as the concepts are concerned, there is no sharp difference between the position of the parties. It is stated on behalf of Serbia (skeleton argument, para. 3) that “a ‘continuator’ State is simply the continuation of a previous State, with the same or a different name; but no new international legal personality has come into existence. A successor State is a State which has replaced a predecessor State, which has ceased to exist. Continuation and succession are therefore mutually inconsistent concepts.”

ImageSat’s position is similar: see skeleton argument paras. 2 and 18-24. It is stated that the distinction is “a simple one” which can be summarised as follows. A continuing State continues as the same international legal person, “despite a change in name, in form of government, and/or a reduction (or increase) in its territory. A succession of states occurs when “territory passes from the sovereignty of one state to the sovereignty of a different state”. In such a case there is no continuation of legal personality. The new state replaces the predecessor state in the responsibility for the international relations of the territory. ImageSat’s skeleton argument states (para. 24) “there is no intermediate position as to the continuation of legal personality” and “a state is either the same or it is not”. It therefore appears to be common ground that the concepts of continuation and succession are mutually inconsistent.

Serbia and ImageSat’s substantial agreement as to the concepts does not, however, extend to the terminology and its use in this case. ImageSat’s position (skeleton argument para. 25-26) is that “the broad rubric ‘state succession’ is often used to cover, not only the body of rules as to what rights and obligations are taken over by successor States, but also the logically prior question of which States continue and which are successor States”. The terms “succession” or “successor” can, it submits, “be used in a broad sense to cover both the situation where one state replaces another and the situation where there is a continuation of legal personality”. It can also be used in “a narrower sense to deal with the situation of one state replacing another, and to distinguish it from a situation of continuity”.

Serbia argued (e.g. skeleton argument para 22) that the use of the words “successor” and “substitution” in the relevant communications in this case reflected “the agreed basis that Serbia had undertaken certain liabilities of the now non-existent State Union”. It also relied on references by both parties that the State Union had “ceased to exist” or “no longer exists”: e.g. in a letter dated 12 July 2006 from the Serbian Public Attorney to the ICC Secretariat and copied to SJ Berwin (set out at [40]), a letter from Serbia dated 5 April 2007, and ImageSat’s Statement of Claim, para. 2. A third strand of its submissions was based on the use of these words and references to the “dissolution” of the State Union in statements by international organisations such as the European Court of Human Rights, the Council of Europe, and the European Commission. Such statements were also said to support Serbia’s submission that the State Union had ceased to exist and that it was the State Union’s successor.

ImageSat referred to the use of these words and phrases by Serbia, in particular in the letter of 12 July 2006 sent soon after the constitutional changes when Serbia was asking for more time to respond. Mr Owen submitted that the words and phrases were factually correct, but were not an indication by Serbia that, because of the juridical consequences of the changes, it was not bound by the agreement and the arbitration clause in it, or statements about the juridical effects of those changes. ImageSat’s case (see skeleton argument, paragraph 194, citing Articles 2(1)(b)–(d) of the Vienna Convention on Succession of States in respect of Treaties 1978 (Footnote: ¹)) is that state succession does not necessarily entail extinction and (relying on Crawford’s discussion of the position of the Russian Federation as the continuation of the USSR, op cit. at 676-677), that political extinction is not the equivalent of juridical extinction.

In 1991 and 1992 four of the six constituent parts of the Socialist Federal Republic of Yugoslavia (“Yugoslavia”) declared independence. In April 1992 the Federal Republic of Yugoslavia (the “Federal Republic”), consisting of Serbia and Montenegro, proclaimed itself to be the continuation of Yugoslavia. Those parts of Yugoslavia which had seceded objected, and the claim was not accepted by the United Nations (the “UN”). The Federal Republic had to apply for membership of the UN. The UN admitted it in November 2000. In February 2003 it became the State Union of Serbia and Montenegro. It was accepted that the State Union was the continuation of the Federal Republic.

The Constitutional Charter of the State Union made provision in Article 60 for changes in the status of the member states and for breaking away from the State Union. Both Serbia and ImageSat relied on Article 60, although Mr Jacobs’ primary submission was that the question whether, pursuant to Article 60, Serbia is a “continuator” or a “successor” state is non-justiciable. He gave two reasons for this. First, it involves a decision being made solely by reference to public international law, but principles of public international law are only part of English law if they fulfil the requirements for the incorporation of customary international law into English law and here they do not because there is no settled test under customary international law for deciding the issue. Secondly, the public international law issue involved in the decision concerns the transactions of sovereign states, which are classically non-justiciable in English courts.

I set Article 60 out with paragraph numbers added for convenience and ease of reference:

Mr Jacobs submitted that, if contrary to his primary submission, the issue is justiciable, Article 60 shows that it was agreed between Serbia and Montenegro that Serbia became a successor state to the State Union. It was Montenegro which exercised its right to break away from the State Union after the referendum. Had it been Serbia which exercised its right under the first paragraph of Article 60 to break away, Montenegro would have been the successor state: see Article 60, paragraph 4. But in the light of what happened, Montenegro is, pursuant to paragraph 5 of Article 60, “the newly independent state” which did “not inherit the right to international personality” from the State Union, and Serbia is “the successor state”.

Mr Jacobs relied on what he submitted is the natural meaning of “successor” in the fourth and fifth paragraphs of Article 60, and of “succession” in the sixth paragraph, in the light of Articles 2(1)(b) and (d) and Article 34 of the 1978 Vienna Convention on Succession of States in respect of Treaties. (Footnote: ²) He also pointed to the fact that neither the terms nor the concepts of “continuity” and “continuator” are used in Article 60.

Mr Jacobs submitted that the terms of the fourth paragraph of Article 60 are of particular significance. That paragraph provides that international instruments pertaining to the Federal Republic (and thus the State Union) and in particular Security Council Resolution 1244 concerning Kosovo “would concern and apply in their entirety to Serbia as the successor”. If Serbia is the continuator of the State Union this provision would, he argued, have been unnecessary. Mr Jacobs accepted that there is factual continuity, for example, with respect to certain rights, obligations and memberships of organisations but argued that these do not change the legal characterisation of the position as one of succession. Finally, he relied on Article 60 as reflecting the agreement between Serbia and Montenegro as to what the position was, and the significance in international law of such agreement between the relevant states. This, he submitted was seen in the case of the end of the Soviet Union where the Commonwealth of Independent States accepted that Russia was the continuation of the Soviet Union. It is also seen from the break up of the Czech and Slovak Federal Republic (formerly Czechoslovakia) where the Czech Republic and Slovakia agreed that both were new states.

On behalf of ImageSat, Mr Owen and Professor Mendelson submitted that the reference in the fifth paragraph of Article 60 to “the successor state” cannot be read as a reference to “successor” in the narrow sense for two reasons. First, it states there will be one “successor state” and one “newly independent state”, but, on Serbia’s case, and giving the word “successor” the narrow sense, would mean that there would be two “newly independent” states. Secondly, the fifth paragraph contrasts the position of the part of the State Union that breaks away with the other part in providing that the part that breaks away “shall not inherit the right to legal personality” of the State Union. It is submitted that the natural inference is that the other state would so “inherit” the legal personality of the State Union and would thus be its continuation.

I have referred to the independence referendum in Montenegro on 21 May 2006 and the subsequent declaration of independence by the Montenegrin Parliament on 3 June. On 1 June, anticipating the declaration of independence, the Serbian Prime Minister announced that after the declaration, the Serbian Parliament would pass a resolution “declaring that Serbia … takes over the state and legal continuityof the State Union” (emphasis added). On 3 June the President of Serbia wrote to the Secretary General of the United Nations stating:

The letter also states that Serbia “remains responsible in full for all the rights and obligations” of the State Union under the UN Charter. I agree with the arbitrator (Partial Award, paragraph 184) that this letter “is strongly suggestive that the President of Serbia claims that his State is the continuator of the State Union”.

On 5 June the Serbian Parliament adopted a “Decision on obligations of state authorities of the Republic of Serbia in exercising competencies of the Republic of Serbia as successor of State Union Serbia and Montenegro”. This was published in Serbia’s Official Gazette, No. 48/2006. The first paragraph of this Decision states that government and other state authorities are obliged within 45 days to render necessary acts and undertake necessary measures with the view to “exercising identity within international law of the Republic of Serbia, as state successor of [the State Union]…”. The third and fourth paragraphs also refer to Serbia as “state successor” of the State Union. The first paragraph of the preamble to the decision refers to Serbia as succeeding to the “right to identity” of the State Union and the third paragraph states that Serbia “has become successor” of the State Union and “has succeeded to its identity within international law… in totality” (emphasis added). A statement by the Serbian Ministry of Foreign Affairs stated that the Decision was passed “in order to avoid any problems or conflict in the separation between Serbia as state successor and Montenegro, which proclaimed independence” and that Serbia “has become heir of the state union and has fully inherited its international legal subjectivity”. It was not disputed that this reference to “subjectivity” is to “identity” or “personality”.

On 16 June the Serbian Foreign Minister wrote to the Secretary General of the UN, referring to the President’s letter to the Secretary General, from which I have quoted at [22]. The Foreign Minister stated that Serbia continues to exercise its rights and honour its commitments deriving from international treaties concluded by Serbia and Montenegro and asks that it be considered a party to all international agreements in force instead of the State Union. The UN accepted Serbia’s position that it continued the State Union’s membership. Its list of Member States records Serbia as having been admitted on 1 November 2000, the date upon which the Federal Republic was admitted as a new member, after it abandoned its claim to be the continuation of Yugoslavia.

The position of other international organisations is not altogether consistent. Some, including the Council of Europe, the World Bank and the International Monetary Fund (“the IMF”), regard Serbia as the continuation of the State Union. The President of Serbia wrote to the Chairman of the Council of Europe’s Committee of Ministers in similar terms to his letter to the UN. A preparatory document by the Ministers’ Deputies for the meeting of the Committee that was to consider Serbia’s position referred to Serbia being a member of the Council “as a continuator of the membership of the State Union…”. The document also refers to Article 35 of the Vienna Convention on the Succession of States, which provides that, subject to specified exceptions:

It states that none of the exceptions apply. On 14 June 2006, the Committee of Ministers formally noted:

On 21 July 2006 the IMF stated that:

The description of Serbia’s position in the pronouncements of other organisations, including the Parliamentary Assembly of the Council of Europe, the European Commission, the European Court of Human Rights, the European Commission for Democracy Through Law (the “Venice Commission”) contain the language of “succession” and “dissolution” and use the words “successor” and “dissolution”. Serbia was required to re-sign and re-ratify the International Convention for the Settlement of Investment Disputes 1965.

The Parliamentary Assembly of the Council of Europe considered the issue and on 29 June 2006 adopted Resolution 1514. This states that “the State Union… was dissolved and Montenegro has become an independent and sovereign state with full international legal personality…” (paragraph 1). There are also references to “dissolution” in paragraphs 2 and 16 of the Resolution. Paragraph 10 states:

Serbia relied on this Resolution in support of its position that the State Union ceased to exist and that it is a successor state. ImageSat pointed to the contrast between the reference to Montenegro as having become an independent and sovereign state, but the absence of a similar reference to Serbia in support of its contention that the references to dissolution refer to the factual dissolution of the State Union and not its legal dissolution.

On 19 December 2006 the European Court of Human Rights, in Application No 23037/04 Matijasěvić v Serbia considered the position of Serbia. In the section of the judgment under the heading “The Succession of Serbia” it is stated:

Serbia places considerable weight on this case and subsequent decisions of the European Court of Human Rights which refer to it and use similar language; see, for example Tomić v Serbia (App. no. 25959/06), 26 June 2007 at [72] and [115]; Jevremović v Serbia (App. no. 3150/05), 17 July 2007 at [63] and [74]; Ilić v Serbia (App. no. 30132/04), 9 October 2007 at [49] and [66]. A number of factors, however, lead me to conclude that the references in Matijasěvić’s case to the State Union having “ceased to exist” and Serbia being its “successor” are not as supportive of Serbia’s position as they might at first seem. They in fact support the proposition that the language used is less precise and is consistent with a broader meaning than that attributed to it in the submissions made on behalf of Serbia.

First, paragraph 25 of the judgment in Matijasěvić’s case refers to the decision of the Committee of Ministers of the Council of Europe which, see [26]-[27], was that Serbia “continued” the membership of the State Union in the Council of Europe. Secondly, the reference in paragraph 24 of the judgment to Serbia as the “sole successor” of the State Union is on any view inaccurate. Even if Serbia is a new state, it is not the “sole” new state replacing the State Union.

Thirdly, the references in paragraphs 23, 36 and 37 of the judgment to the public bodies of the State Union, including the Court of Serbia and Montenegro, ceasing to exist on Montenegro’s declaration of independence shows that the court was concerned with Serbia’s defence that the applicant had not exhausted his local remedies and that there were domestic courts which might provide such remedies. The court was concerned with whether this defence was well-founded. Although the State Union’s original reservation to its ratification of the European Convention that Article 13 was not to apply in relation to the legal remedies within the jurisdiction of the Court of Serbia and Montenegro until that court “becomes operational” was withdrawn in July 2005, at that stage financing had not been fully secured. No decisions had been rendered either at that time or in January 2006: see paragraphs 19-21 of the judgment in Matijasěvić’s case. The court’s concern was with the existence and operation of certain institutions, in particular the Court of Serbia and Montenegro, rather than with the continuation of the State Union as an international legal person.

At that time proceedings brought against the State Union were before the International Court of Justice (“the ICJ”): Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide, (Bosnia and Herzegovina v Serbia and Montenegro). On 19 July 2006 the Registrar of the ICJ wrote asking what Serbia’s views were about the consequences for the case of the developments communicated to the UN Secretary General by the President of Serbia. Serbia’s Agent in the Hague replied on 26 July 2006 stating “several changes took place with respect to the person of the Respondent since this case was initiated”. The letter refers to the change in February 2003 from the Federal Republic of Yugoslavia to the State Union and describes that as “just a change of name”. It states the change as a result of the Montenegrin declaration of independence is of a somewhat different nature and that in Serbia’s view:

In the light of this, the ICJ decided that Serbia “remains” a Respondent in the case: Judgment dated 26 February 2007, at [77]. In Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide, (Croatia v Serbia) (Preliminary Objections). Serbia’s submissions to the ICJ in 2008 asserted and accepted its continuity with the State Union. In its judgment dated 18 November 2008, the ICJ noted:

ImageSat’s Request for Arbitration was sent to the State Union by the ICC on 8 June 2006. The letter containing ImageSat’s Request states, inter alia, (paragraph 2.3) that “the Respondent is a Sovereign State”. After setting out the background to the agreement, the agreement, and the breach alleged, it sets out Article 18 of the contract. The material parts of Article 18 provide:

In paragraph 7 of its Request for Arbitration, ImageSat proposed London (the default location under Article 18) as the place for the arbitration. It proposed a person to act as sole arbitrator, pursuant to the agreement, and invited “the Respondent” to revert on its choice within 30 days.

On 12 July 2006, the Public Attorney of Serbia wrote to the ICC about the Request for Arbitration. The letter was copied to SJ Berwin. It inter alia states:

Serbia also asked for an extension of time to file its Answer to the Request for Arbitration because of the “complexity and nature of the case and of the Respondent, and constitutional changes of the State Union …”. It stated that “the properly prepared Answer will contribute to the efficiency of the deliberation in further stages of the procedure”.

On 21 July 2006 the ICC Secretariat granted Serbia a preliminary extension of time. Time was subsequently extended to 28 August 2006. The ICC’s letter also stated that the “Respondent indicates that it shall be denominated as “THE REPUBLIC OF SERBIA”” and that, unless otherwise indicated within seven days, “the new heading of the case shall” reflect this denomination.

Serbia served its Answer to the Request for Arbitration (which it called a “Response”) on 5 September 2006. The Respondent is named as “The Republic of Serbia”. There is no reference to its status or relationship to the State Union, to it not being bound by the arbitration agreement, or to a jurisdictional objection. Paragraph 2 states that, bearing in mind the value of the dispute as well as its complexity, “it would be appropriate to nominate a three member tribunal” rather than, as ImageSat had suggested, a sole arbitrator. Paragraph 3 states:

Paragraph 4 states:

In paragraph 4 Serbia also states the parties were then negotiating and seeking an amicable solution, and requests that it be allowed to give detailed legal reasoning if the negotiations failed.

The parties and the arbitrator corresponded about draft Terms of Reference circulated by the arbitrator and amendments proposed to that draft. In the course of these exchanges Serbia sought (see the tracked version of the draft terms sent to the arbitrator with a letter dated 27 December 2006) and obtained an amendment to paragraph 14. This amendment added to the statement that the parties were not then “aware of any ground for challenging the jurisdiction of the tribunal” that they were also not aware of any ground for “objecting to the appointment of the Arbitral Tribunal”. Serbia also sought but did not obtain an amendment to paragraph 13 to reflect its position that whether or not the contract was “properly entered into” remained “an open legal question”: see the exchange between it and the arbitrator in letters dated 31 January and 1 February 2007. The arbitrator considered this could be dealt with in the section of the Terms of Reference dealing with the Respondent’s Answer. No amendment was proposed to the description of the Respondent in paragraph 2 of the arbitrator’s draft.

The Terms of Reference were signed on behalf of both of the parties and the arbitrator by 13 February 2007. Paragraph 2 describes the Respondent in the arbitration as:

Paragraph 32 (in the section headed “Respondent’s Answer”) states that:

There is no express reference, similar to that in the Serbian Public Attorney’s letter of 12 July 2006, to contesting the jurisdiction of the Tribunal. Paragraphs 13 to 15 deal with jurisdiction. Paragraph 13 sets out the arbitration clause (Article 18(A) of the contract: see [38]). Paragraphs 14 and 15 state:-

Paragraph 33 sets out the issues to be determined. It states that:

Paragraph 33 also states that “it may turn out to be unnecessary to address and resolve” four listed issues. The first of these is “is there a valid agreement between the parties”.

ImageSat served its Statement of Claim on 30 March 2007. Paragraph 2 states that, following the referendum in Montenegro, the State Union “ceased to exist” and Serbia “took over certain rights, obligations and liabilities of the former State Union”. Paragraph 4 states that references to Serbia are either to “the former State Union” or to “the Respondent as successor to the former State Union”. There are also references to Serbia as “the successor” and “the successor State” of the State Union in paragraphs 6 and 8 of ImageSat’s Reply.

In a letter dated 5 April 2007, Serbia raised the sufficiency of the Statement of Claim, in particular in relation to the way in which the contract bound Serbia which was not a party to the contract. The letter referred to the fact that documents in ImageSat’s request “were created under a completely different political entity which no longer exists”. A heading in a letter dated 18 April 2007 from S.J. Berwin to Clyde & Co refers to “Alleged difficulties caused by the ceding of Montenegro from Serbia”. On 19 April 2007 the arbitrator stated the question of Serbia’s liability, “given the political/sovereign changes which had occurred since the making of the contract”, was a matter which could properly be raised in Serbia’s Statement of Defence. (He in fact used the word “Reply”.)

On 25 May 2007 Serbia served its Statement of Defence. It stated it was not an original party to the contract and had not subsequently become liable, and denied that the arbitrator had jurisdiction over it in respect of ImageSat’s claim: see paragraphs 1-3. It also denied that, as successor to the State Union, it succeeded to the State Union’s private law obligations: see paragraph 15. Without prejudice to such denial, it also put forward a number of defences, albeit reserving its rights of state immunity in respect of any Award.

ImageSat stated (in a letter dated 20 June 2007) that, in view of Serbia’s submission to arbitration in place of the State Union, it was not open to it to argue that, if the agreement was binding on the State Union, it “is not the successor to the State Union’s obligations under the Agreement”. In a letter dated 27 June, ImageSat asked the arbitrator to determine whether it was open to Serbia to take this point and to determine the question as a preliminary issue, and in another letter dated 3 July it stated:

On 6 July 2007 there were two developments. The first was that ImageSat served its Reply. Paragraph 6 states that Serbia has admitted and agreed that it is the successor of the State Union to any liabilities incurred by the State Union under the Agreement. Paragraph 8.7 states that if “Article 60 does not have the effect of rendering Serbia the successor to the State Union of any liabilities under the Agreement, the effect of the dissolution of the State Union is that” Serbia and Montenegro are joint and several successors to such liabilities.

The second development was that, in the light of the exchanges between the parties, the arbitrator directed that the issues concerning succession and the proper parties to the arbitration should be determined as a preliminary issue. He described this as “the question of whether [Serbia] succeeded to the rights and obligations of the State Union”. Submissions on state succession were served by Serbia on 31 August, and by ImageSat on 28 September.

In its submissions, ImageSat argued that the matter of succession to private law obligations did not arise because the case was one of continuity. There had been no termination of the legal personality of the State Union and thus no question of succession arose. Alternatively, it argued that Serbia is the successor in international law to the obligations of the State Union including the contractual obligations in the agreement with ImageSat.

In a letter dated 1 November 2007, Clyde & Co described ImageSat’s pleading that Serbia is a continuation of the State Union as a “significant change of its legal position”, reserved all Serbia’s rights, and asked for an extension of time to enable them to take instructions. This was granted and Serbia served a rejoinder on 19 November. Both parties also submitted skeleton arguments before the hearing in March 2008.

In his Partial Award the arbitrator found that Serbia is the continuation of the State Union in international law and therefore that, if the agreement had been binding on the State Union, it was binding on Serbia. The Award was stated to be without prejudice to Serbia’s right to contend that the agreement had not been validly entered into on behalf of the State Union.

The arbitrator (paragraph 137) accepted that, until ImageSat’s submission of 28 September, “the arbitration proceeded on the basis that the State Union had ceased to exist and that [Serbia] was participating in the arbitration as a successor state”. He, however, considered (paragraphs 139 -140) this did not mean ImageSat was precluded from contending that Serbia is in fact liable as a continuator state rather than as a successor state. This was because, although the issue was raised late in the day, it was done in ImageSat’s first submission on the preliminary issue and Serbia had the opportunity, of which it availed itself, to reply to the argument. He regarded the issue of jurisdiction as “a moot one” (paragraph 124) because he had jurisdiction to determine his own jurisdiction. He stated (paragraph 125) that because of the decision he came to on the substantive issue of whether Serbia was bound by the agreement he did not need “to consider the true meaning and impact of paragraph 14 of the Terms of Reference”.

The arbitrator stated that the description in his letter of 6 July 2007 of the preliminary issue as “the question of whether [Serbia] succeeded to the rights and obligations of the State Union” had used that terminology because it was the terminology employed by the parties until then. The terminology was not intended to confine the parties to a narrower question than that stated in his letter of 19 April: whether Serbia was liable on the agreement “given the political/sovereign changes which have occurred since the making of the contract”.

On 16 July it was agreed to stay these proceedings pending the arbitrator’s determination of the remaining issues in the case. A final arbitration hearing was held in November 2008 and the Final Award was issued on 28 February 2009. The arbitrator decided the agreement had been validly entered into on behalf of the State Union and ordered Serbia to pay to ImageSat damages of some €35 million plus interest.

I turn to the issues. Since the answer to the question proposed by Issue 1 depends on the answers to Issues 2-5, I start with Issue 2 and part of Issue 3.

The principal submissions on this issue concerned the effect of (i) the letter of 12 July 2006, (ii) Serbia’s Answer to the Request for Arbitration, and, in particular, (iii) the Terms of Reference. As well as their inherent significance, the first two documents are important parts of the background to the Terms of Reference.

There are two sources and limits to an arbitrator’s jurisdiction: the arbitration clause contained in the original agreement, and the particular reference to arbitration: Black Clawson v Papierwerke [1981] 2 Lloyd’s Rep 446, at 454-456 per Mustill J. The reference may either reflect the arbitration clause, or be wider or narrower: see Westland Helicopters v Al-Hejailan [2004] 2 Lloyd’s Rep 523, 532 per Colman J. To determine its scope, the reference has to be construed: The Amazonia [1990] 1 Lloyd’s Rep 236, at 248. Here the reference is contained in the Terms of Reference. By Article 18 of the ICC Rules the Terms of Reference are a mandatory part of the process and define the jurisdiction of the tribunal and its parameters.

The scope of an arbitrator’s jurisdiction may also be affected by an estoppel by convention: see The Amazonia at 243, 247-8, 251, where parties to a charterparty had proceeded on the mistaken basis that an arbitration clause was valid. In the present case, it is submitted on behalf of Serbia that, as stated by the arbitrator, until 28 September 2007 the arbitration proceeded on the basis that the State Union had ceased to exist and that Serbia was participating in it as a successor state.

Before turning to the circumstances of this case, I summarise the requirements of estoppel by convention. These are conveniently stated in Spencer Bower’s Estoppel by Representation, 4^th ed. VIII.2.1:

It is also stated in Spencer Bower (VIII.3.1) that “the assumption of the relevant fact or proposition as to the parties’ rights must be expressly or impliedly communicated between them”, in a way which, in Kerr LJ’s words in The August Leonhardt [1985] 2 Lloyd’s Rep 28, at 34-35, “crosses the line” between them either by statement or conduct. Kerr LJ also stated that “there must be some mutually manifest conduct by the parties which is based on a common but mistaken assumption”.

Kerr LJ’s approach has been followed in many cases, including The Indian Grace (No. 2) [1998] A.C. 878. In the Court of Appeal in The Indian Grace (No. 2) Staughton LJ stated (at 891) that some mutually manifest conduct was “the very least that can be required to constitute convention, which in this context must mean agreement or something very close to it”. He also said that what is required “…need not be express and may be inferred from conduct, or even from silence”. In the House of Lords, after considering The August Leonhardt, Lord Steyn stated (at 913) that “a concluded agreement is not a requirement for an estoppel by convention” but did not qualify what Kerr LJ had said about “mutually manifest conduct”.

Estoppel by convention differs from other estoppels in that there is no requirement of an unequivocal bilateral representation. However, the clarity and certainty necessary for a conventional understanding or agreement (albeit falling short of contract) is required: see Baird Textile Holdings Ltd. v. Marks & Spencer Plc [2001] EWCA Civ 274, per Mance LJ at [91] – [92]. In Troop v Gibson [1986] 1 EGLR 1, in a passage cited by Mance LJ in the Baird Textile Holdings case at [84]), Ralph Gibson LJ stated:

Serbia’s case is that it was clear in its letter of 12 July 2006, sent to the ICC Secretariat and copied to SJ Berwin, that it was not accepting the tribunal had jurisdiction. One of the matters which that letter states were not waived is a “plea contesting the jurisdiction”. It is common ground that this letter was sent before Serbia had taken the first step to contest the merits of the case. Mr Jacobs also relied on what was said in the letter about the basis on which Serbia was writing. The letter states that the State Union had “ceased to exist” and that “certain obligations and liabilities” of the State Union were being “undertaken” by Serbia. The obligations and liabilities were thus not stated to be “retained”, but were, he submitted, stated to be “undertaken” by a new entity.

Mr Jacobs relied on this letter as providing the context against which the Terms of Reference are to be construed. He also relied on it as the foundation of a common accepted state of fact or law for the purpose of estoppel by convention, and as fulfilling the “manifest statement crossing the line” requirement for such an estoppel stated by Kerr LJ in The August Leonhardt [1985] 2 Lloyds Rep 28 at 34-5. He submitted the latter requirement was fulfilled because the letter of 12 July was copied to SJ Berwin, ImageSat’s solicitors.He also relied on: (a) ImageSat’s failure to take issue or any point about the Respondent being “denominated” as the Republic of Serbia either as a result of receiving the copy of the letter, or in response to the ICC Secretariat’s letter of 21 July 2006 which gave it the opportunity to object; and (b) on the references in the pleadings and correspondence between the parties until September 2007. These include the references to the State Union having “ceased to exist” and to Serbia taking over “certain obligations and liabilities of the State Union” (Statement of Claim, paragraph 2), to Serbia being the “successor” to or of the State Union (Statement of Claim, paragraph 4); Reply paragraphs 6 and 8), and to the “dissolution” of the State Union (Reply, paragraph 8.7). A letter dated 5 April 2007 from Clyde & Co to the arbitrator, and copied to SJ Berwin states that the documents referred to in the Request for Arbitration “were created under a completely different political entity, which no longer exists”.

Mr Owen did not submit that the request in the letter of 12 July 2006 from Serbia’s Public Attorney to the ICC for more time to produce its Answer was a waiver of its right to claim it was not a proper party to the arbitration. He was right not to do so. However, notwithstanding the force of Mr Jacobs’ submissions based on the particular words used, in particular “successor” and “ceased to exist”, the position before the Terms of Reference were settled was less clear than he suggested. The letter of 12 July did not raise any objection to jurisdiction. It merely contained a reservation as to jurisdiction. All it states is that its contents should not be construed as a waiver of any rights, including a plea contesting jurisdiction, Serbia “may have”.

Secondly, after the references to the outcome of the referendum and that the State Union “ceased to exist”, the letter did not state that Serbia was not bound by the arbitration agreement. Serbia accepted that it would “act as the Respondent in this phase of the procedure”. It did not subsequently state that “this phase” ended. Its position now is that its agreement to act as the Respondent is only on the basis that it is a successor state to the State Union.Paragraph 6 of the letter of 12 July states that it has undertaken “certain … obligations and liabilities of the State Union”, and “therefore” it “will act as the Respondent”. I accept Mr Owen’s submission that this is inconsistent with Serbia stating that because of its status in international law it has no obligations under the contract and the arbitration clause. The implication of the structure of paragraph 6 and in particular the use of the word “therefore” is that Serbia is stating that, because it has undertaken “certain … obligations and liabilities of the State Union”, it is going to arbitrate.

Thirdly, although the primary meaning of “successor” indicates a different legal or juridical entity, in international law the word can relate to the factual position as well as the juridical position and does not necessarily mean that there has been a break of legal personality. For example, Stern (1996) 262 Recueil des Cours, 48-49 states that the terms “successor” and “continuator”:

Moreover, the use of the term “successor” state does not necessarily involve the extinction of the predecessor and a new legal personality. The terms of Articles 2(1)(b)–(d) of the Vienna Convention on Succession of States in respect of Treaties (1978) show that a “successor” state may become responsible for part of the territory of the predecessor State, without the predecessor being extinguished as occurred when Russia sold Alaska to the United States. The case of the Soviet Union and the Russian Federation to which I have referred ([14]), also illustrates that political extinction is not equivalent to juridical extinction and must be distinguished from it. While the Soviet Union had become extinct politically, the Russian Federation continued its legal personality: see Crawford, The Creation of States in International Law, 676-7. A reference to “ceasing to exist” thus does not necessarily mean a break of legal personality.

I have referred to the communications between Serbia and the United Nations, the International Court of Justice, and other international organisations at about the same time the Public Attorney of Serbia was corresponding with the ICC Secretariat about ImageSat’s Request for Arbitration: see [22] – [36]. These communications by Serbia reflect the position that being a “successor” state does not necessarily involve a new legal personality. For example, the Serbian Prime Minister stated that the Serbian Parliament would pass a resolution “declaring that Serbia … takes over the state and legal continuity of the State Union” (see [22]), and the Parliamentary Decision (see [24]) states that Serbia has “succeeded to its identity within international law… in totality” and “fully inherited its international legal subjectivity” (i.e. legal personality). In its response to the Registrar of the ICJ (see [36]), Serbia also took the position that “there is continuity between” the State Union and Serbia, albeit that this was said to be “on the ground of Article 60 of the Constitutional Charter”. But the letter also stated that the State Union has been replaced by two distinct states.

For these reasons, despite the references to “successor” and “ceased to exist”, I do not consider the letter of 12 July 2006 is either an expression of willingness to submit to arbitration although not a party to the arbitration agreement, only on the basis that ImageSat definitively accepts that Serbia is a successor state in the sense of having a new and separate personality from the State Union, or suffices as the foundation of a common assumption to proceed on that basis and only on that basis. The letter of 12 July was sent before any relevant communication by ImageSat about Serbia’s status. So indeed was Serbia’s Answer to the Request for Arbitration, on which see [43] and [44]. The ICC’s letter to the parties and the reference to “denomination” in it is consistent with a change of name. ImageSat was not obliged to respond either to the ICC or to Serbia. In the light of this, ImageSat’s failure to object to the denomination of the Respondent as Serbia is not enough to show acquiescence to the assumption upon which Serbia submits it agreed to participate in the arbitration.

It was not necessary for the “continuator/successor” point to have been articulated by the parties or by one of them in order to establish the common understanding or assumption required for an estoppel by convention. But it is necessary to identify that common assumption or understanding with clarity, and it is necessary (see the discussion of Baird Textile Holdings Ltd. v. Marks & Spencer Plc and Troop v Gibson at [71]) for the statements or conduct of the parties to be sufficiently clear for the inference to be drawn that both parties shared that common assumption or understanding. That there is a common assumption or understanding on one matter does not necessarily suffice. The understanding must be on the material matter. So, in The Indian Grace No. 2 [1998] A.C. 878, at 914 Lord Steyn stated that it was not enough that the parties had mutually manifested an awareness that proceedings in both India and England were contemplated:-

In the present case the necessary understanding would be that Serbia is not a party to the arbitration agreement but was willing to arbitrate on the basis that it was a successor state and only on that basis. The assumption that Serbia was a successor state does not sufficiently clearly show a common assumption or understanding thatit was not party to the arbitration agreement and was willing to arbitrate only on that basis.

Moreover, to the extent that the use of the terms relied upon by Serbia can be regarded as evidence that, with other evidence, could found such a common assumption, the position has to be assessed in the light of the terms of Serbia’s Answer to the Request for Arbitration and what ImageSat could reasonably infer from it.

Article 5 of the ICC Rules provides for an Answer to a Request for Arbitration. Serbia’s Answer, dated 5 September 2006, is its first step in the arbitration and the next component in the background to the Terms of Reference. It is temporally the most proximate formal document to the Terms of Reference. I have referred to Serbia’s request in its letter of 12 July for more time to produce a properly prepared Answer in view of inter alia the constitutional changes. That letter did not suggest that there was insufficient information given by ImageSat to enable Serbia to decide whether it had a jurisdictional objection.

Serbia’s Answer (see [43] and [44]) does not address or refer to its international law status, capacity, or the basis of its participation in the arbitration. It does not state that the constitutional changes impact on its participation in the arbitration in any way, or that it is not bound by the arbitration clause, and it contains no suggestion that jurisdiction is disputed. It opposed the Request for Arbitration and the relief on the basis that “there are no sufficient legal grounds for the justification of the claim”. Paragraph 4 suggests that no legal reasoning for Serbia’s position is given in the Answer because the parties were then negotiating and seeking to settle the dispute. Paragraph 3, however, states that Serbia does not oppose the facts as stated in given sections of the Request for Arbitration. These facts include that “the Respondent is a sovereign state” and “the Arbitration Agreement”. The Answer is thus consistent with Serbia accepting that the obligations that it has undertaken include an obligation to arbitrate.

Mr Owen relied on the failure to make a jurisdictional objection in the Answer, the first formal response to the Request for Arbitration, both in relation to Issue 3, the failure to take an objection to substantive jurisdiction in time, and as important background to ImageSat’s submissions on estoppel and the effect of the Terms of Reference.

Article 5 of the ICC Rules, unlike some arbitration rules (see e.g. UNCITRAL Rules Article 21(3) and LCIA Rules, Article 23(2)) does not explicitly require a Respondent to raise any objection it may have to the jurisdiction of the arbitrators in the Answer. There is no ICC rule precluding a Respondent from raising a jurisdictional objection for the first time later in the proceedings. If, however, a Respondent fails to do so, it may subsequently (see sections 31 and 73(1) of the 1996 Act) be too late to raise it, and there is a greater risk that it will be found that there has been an ad hoc submission to jurisdiction, or that the jurisdictional objection has been waived. Bühler and Webster’s Handbook of ICC Arbitration (2005) states (at para 5-4) that if the Respondent is of the opinion that it is not a party to the arbitration agreement “it should raise the issue in its Answer”, and (at para 5-18) that if the Respondent is objecting to jurisdiction, “the Answer should contain an objection to jurisdiction” and “one would expect the Answer to concentrate on the circumstances relating to the position on jurisdiction”.

I deal with the effect of sections 31 and 73 of the 1996 Act and their application in the circumstances of this case under Issue 3. The Answer is, however, also significant in the present context as part of the background to the Terms of Reference and in relation to the assumptions upon which the parties were proceeding. It is relevant that, in the Answer, Serbia took no point on jurisdiction, did not suggest that it is not a proper party to the arbitration, and stated that it does not oppose “the Arbitration Agreement”.

With this background, I turn to the Terms of Reference. I have referred to the exchanges of correspondence between the arbitrator and the parties about the proposed Terms of Reference after Serbia’s Answer to ImageSat’s Request for Arbitration, and to Serbia’s concern to be able to argue in the arbitration that the contract had not been properly authorised and entered into: see [46].

Terms of Reference in an ICC arbitration have traditionally served as a signed form of submission which delimits the precise scope of the Tribunal’s mandate “in order to help ensure that the Award ultimately rendered is neither ultra nor infra petita”: see Derains & Schwartz, A Guide to the ICC Rules of Arbitration, (2nd ed., 2005), pp. 247, 249; Craig, Park & Paulsson, ICC Arbitration (3^rd ed., 2000), p. 274. Paragraph 14 of the Terms of Reference in this case (see [49]) is in very broad terms. It appears on its face to be an unqualified agreement on jurisdiction. Its provision that the Arbitral Tribunal “shall have jurisdiction to deal with the disputes in the present arbitration” and the acknowledgement by Serbia that it was not “at present aware of any ground for challenging the jurisdiction of the Tribunal”, were included notwithstanding the constitutional changes referred to in the letter of 12 July. Paragraphs 15 and 33 also contain indications of an intention to make a comprehensive agreement as to jurisdiction. Paragraph 15 states that, to the extent that there might otherwise be separate disputes between the parties arising out of the agreement, the parties “agree … that such disputes are consolidated as one arbitration before this single Arbitral Tribunal”. Paragraph 33 refers to “future submissions”.

Mr Jacobs submitted that, despite the width of the language of paragraph 14, in the light of the position of the parties and their common understanding at the time the reference was agreed, in this case the Terms of Reference were premised on the basis that the State Union had ceased to exist and that Serbia was participating in the arbitration as a successor state. The effect was to confine the jurisdiction of the arbitrator. He also submitted that, as the arbitrator recognised (Partial Award, paragraph 137), both parties were proceeding on that mutually understood basis at that time, and did so until 28 September 2007. The reference to “the parties” in paragraph 14 is a reference to the parties as identified in paragraph 2. Paragraph 2 states the Respondent is “the Republic of Serbia as successor to certain rights, obligations and liabilities of the former State Union …”. Mr Jacobs submitted that the words, “successor”, “of the former state”, and “certain liabilities” are not consistent with continuity, and the words “none of the parties is at present aware of any ground for challenging the jurisdiction of the tribunal” in paragraph 14 are premised on the basis that Serbia was a party as described in paragraph 2; that is as a successor state. Accordingly, they cannot be interpreted as a submission to jurisdiction on any other basis.

Mr Jacobs also submitted that paragraph 14 must be understood in the context of the entire document, in particular paragraphs 32 and 33. The reference in paragraph 32 (in the section on the “Respondent’s Answer”) to “all [Serbia’s] rights and defences” is said to include the right to argue that, because there was no binding arbitration clause, the arbitrator lacked substantive jurisdiction. The words “substitution in place” are said to reinforce what is stated in paragraph 2. The reference in paragraph 33, the paragraph dealing with “Issues to be determined”, to both “objections” and “defences” is said to preserve Serbia’s right to raise an “objection” to the arbitrator’s substantive jurisdiction, on the basis that there was no valid agreement between the parties.

Mr Jacobs submitted that for these reasons, there was no agreement in the Terms of Reference that the arbitrator was, to the exclusion of the court, to determine whether he has substantive jurisdiction, and no agreement to enlarge his jurisdiction over and above the jurisdiction derived from section 30 of the 1996 Act and the kompetenz-kompetenz principle.

What approach should be used when considering whether there has been an ad hoc submission to jurisdiction enlarging the scope of jurisdiction beyond that under section 30 of the 1996 Act? In LG Caltex Gas Co Ltd v China National Petroleum Corp. [2001] EWCA Civ 788, [2001] 1 WLR 1892, upon which Mr Jacobs relied, Aikens J had stated that the parties must have squarely identified the issue and the court cannot readily infer this: see [45] and [66] of the judgment of Lord Phillips of Worth Matravers MR. But that case was concerned with correspondence, which is likely to be more informal, and with the implications to be drawn from that correspondence and from conduct. It was not concerned with the construction of Terms of Reference, in this case a document which went through a number of drafts, before being signed by both parties and the arbitrator. Mr Jacobs submitted the principle is the same, particularly where the matter which it is said has been the subject of an ad hoc submission is contradictory to the way the parties were proceeding at the time the Terms of Reference were agreed.

I consider that the approach in the Caltex Gas case is of limited assistance in the present context. First, it was concerned with inferences from correspondence and conduct. Secondly, in the Caltex Gas case the respondent contended it had concluded an ad hoc agreement in relation to one issue only, whether it was a party to the contracts. In such circumstances it is understandably difficult to infer the competence given to an arbitral tribunal went beyond that given by section 30 of the 1996 Act. As was recognised in the Caltex Gas case (see [2001] EWCA Civ 788, at [59]) the parties could have made a special agreement to enlarge the arbitrator’s jurisdiction but did not. Here, however, the parties did make what appears on its face to be a comprehensive agreement.

The logic of Serbia’s case that it only agreed the tribunal was to have jurisdiction on the basis that it was a successor state would be that the arbitration clause in the contract did not bind it. But there is nothing in paragraph 2 of the Terms of Reference to suggest that Serbia disputed that it was bound by the arbitration agreement or to qualify the specific agreement on jurisdiction contained in paragraphs 13-15. Moreover, paragraph 14 does not expressly define or limit the tribunal’s jurisdiction in any sense relevant to the words used about the parties in paragraph 2. I do not consider that the references to “successor” and “the former State Union” in paragraph 2 of the Terms of Reference bear the weight that Mr Jacobs placed on them. In the light of the previous exchanges and documents, in particular Serbia’s Answer, these references do not enable one to conclude that Serbia is taking the point that it is not bound by the arbitration clause.

There are also a number of difficulties with Mr Jacobs’ suggestion that paragraph 14 is no more than an acknowledgement of the arbitrator’s power to investigate and rule on his own jurisdiction provisionally pursuant to section 30, a kompetenz-kompetenz jurisdiction. In his Reply Mr Jacobs acknowledged that Mr Owen’s submissions had force with respect to the matters under Issue 5(2); the consequential questions that arise if Serbia is a successor to the State Union. On this approach, the substantive jurisdiction conferred by paragraph 14 would be restricted to those consequences. In relation to whether Serbia’s status in international law is a “continuator” or a “successor” state, Mr Jacobs’ acknowledgement would, if applied, mean that paragraph 14 only confers a provisional kompetenz-kompetenz jurisdiction. This would not, however, avoid the difficulties with Serbia’s position on this matter.

The first difficulty is the unqualified terms of paragraph 14, to which I have referred. There is no reference to a jurisdictional objection to the arbitration agreement in paragraph 14 or elsewhere in the Terms of Reference let alone an identification of what that jurisdictional objection is. Paragraph 14 accepts that the arbitrator was properly appointed under the dispute resolution procedures in Article 18 of the contract. Article 18 is set out in paragraph 13 and it is referred to in several other paragraphs, including 34, 37 and 40. This difficulty is not addressed by limiting substantive jurisdiction to questions consequential on Serbia’s position as a successor to the State Union, because the words used make no distinction between these issues, and the question whether Serbia is in fact a “successor” or a “continuator” state and the juridical distinction between them which Serbia submits is not covered by the ad hoc submission.

Secondly, the word “jurisdiction” in paragraph 14 cannot be construed as relating exclusively to what Mr Owen described as the mechanics of the establishment of the tribunal in view of the separate and explicit reference to the appointment of the arbitrator. That reference was added to the Terms of Reference at the request of Serbia; see [46] above.

Thirdly, Mr Jacobs submitted that all that was being acknowledged in the Terms of Reference was the competence of the tribunal to rule provisionally on its own jurisdiction. But as Mr Owen observed, if this was correct, in the light of section 30 of the 1996 Act, there would have been no need for paragraph 14. Had Serbia wanted to acknowledge only a provisional kompetenz-kompetenz jurisdiction this could have been clearly stated. Nearly everything is said to flow from the reference to “the parties” in paragraph 14 and the terms of paragraph 2. However, as I have noted, paragraph 14 contains no limit to the tribunal’s jurisdiction in any sense relevant to the words used about the parties in paragraph 2.

I also accept Mr Owen’s submission that paragraphs 30-32 of the Terms of Reference do not raise any jurisdictional objection or qualify the agreement in paragraphs 13-15. The reiteration of the position that there were “no sufficient legal grounds for the justification of the claim” in paragraph 30 is not a jurisdictional objection. Paragraph 32 does not raise an objection to jurisdiction but states that Serbia’s participation is to be without prejudice to all its “rights and defences”, including the right to maintain the agreement was not binding on it. The “rights and defences” were those it would have in relation to an arbitration to which it had agreed jurisdiction. For example, Serbia would be able to argue, as it did, that the contract had not been properly entered into and had not been properly authorised. Paragraph 32 reserves Serbia’s right to maintain “the agreement” is not binding upon it (as it sought to ensure when settling the Terms of Reference, see [46]), but that paragraph does not reserve any right to maintain that the provisions as to jurisdiction in paragraphs 13-15 of the Terms of Reference were not binding or were to be qualified.

Similarly, paragraph 33 does not suggest that there is a jurisdiction issue as to whether there was an arbitration agreement between the parties and does not qualify the provisions as to jurisdiction in paragraphs 13-15. I also accept Mr Owen’s submission that paragraph 33 enables the parties to raise objections and defences within the arbitration as to which jurisdiction had been agreed in paragraph 14. To construe it as reserving a right to raise an objection to substantive jurisdiction would be inconsistent with what is specifically agreed in the jurisdiction section of the Terms of Reference; that is paragraphs 13 to 15. My conclusion is that acceding to the submission that paragraphs 32 and 33 include an entitlement to argue that the arbitrator lacked substantive jurisdiction would effectively deprive paragraph 14 of its content.

As to estoppel, I have stated (see [72] – [82]) that I do not consider that the starting point for an estoppel by convention has been established. The dealings between the parties before they entered into the Terms of Reference do not suffice to establish mutually manifest conduct based on a common assumption that, because of Serbia’s status in international law, it was not a party to the contract and the arbitration agreement and was only “participating in the arbitration as a successor state” (Serbia’s skeleton argument, paragraph 33) of the State Union.

Had I found that there was a common assumption or understanding as to the basis of Serbia’s participation in the arbitration and that it did so only on the basis that it was a successor state with a different legal personality to the State Union, I would have been inclined to find it to be unconscionable to allow ImageSat to resile from that understanding.

Mr Owen submitted that Mr Whittaker’s evidence that, if ImageSat had disputed the proposition that Serbia had agreed to participate on the basis that the State Union had ceased to exist, “matters would then have taken a different course” does not suffice to show reliance on the convention. He argued that Serbia made its own unilateral decision to participate in the arbitration and did not suffer detriment from continuing to do so because, had it not participated, ImageSat could have proceeded to obtain a Default Award against it. But, assuming there had been a common understanding as to the basis of that participation, Serbia has now lost the right to apply to the court under section 72 of the 1996 Act.

Mr Owen also submitted that Serbia did not cease its participation in the arbitration after ImageSat had taken the “continuator” point and did not at that stage apply to the court to deal with the matter. Although Mr Whitaker’s evidence is not specific, Serbia did submit to the arbitrator (see for example paragraph 2 of its Rejoinder on the Preliminary Issues) that ImageSat ought not to be allowed to depart from the basis on which the arbitration had been conducted by both sides. But, again, assuming there had been a common understanding as to the basis of Serbia’s participation, and the importance (on this assumption) of that basis, it would not have been just to allow ImageSat to resile from that understanding. Similarly, had I found a common assumption or understanding, it would have been part of the background against which the Terms of Reference would have been construed. If, despite that background, the Terms of Reference constituted an ad hoc submission to substantive jurisdiction which precluded this application under section 67, that also constitutes a reason for not allowing ImageSat to take the point now.

For these reasons I have concluded that Serbia’s challenge is precluded by its submission to jurisdiction in the Terms of Reference in terms which gave the arbitrator substantive jurisdiction to deal inter alia with the “continuator/successor” point and that ImageSat was not barred from taking the point by an estoppel. Unless that point was non-arbitrable and non-justicable that suffices to dispose of this application. However, since full submissions were made on Issue 3, I shall briefly indicate what my conclusion on that issue would have been before turning to arbitrabilty and justicability.

ImageSat’s case is that Serbia did not raise a jurisdiction objection in due time. Mr Owen relied on the letter of 12 July and Serbia’s Answer to the Request for Arbitration. I have dealt with the submission about the letter of 12 July 2006 and concluded that it did not raise any objection to jurisdiction or treat Serbia as not a party to the arbitration agreement but merely contained a reservation as to jurisdiction under Issue 2: see [74] – [75]. I have also dealt with the submissions about Serbia’s formal Answer to the Request for Arbitration, pursuant to Article 5 of the ICC Rules. That contains no suggestion that jurisdiction was disputed: see [84]-[85]. Mr Owen argued that Serbia’s subsequent objection did not comply with the requirement in section 31 of the 1996 Act to raise a jurisdictional objection not later than the time a party “takes the first step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal’s jurisdiction”.

Mr Owen submitted that the relevant “matter” for the purpose of section 31 of the 1996 Act was whether Serbia was a party to the agreement, or the pursuit of Serbia as an alleged party to the agreement. The constitutional changes had occurred by the time Serbia wrote on 12 July asking for an extension of time and referring to its status. Accordingly, he argued, Serbia was required by section 31 of the 1996 Act to raise any objection to jurisdiction on the ground that it was not a party to the Agreement in its Answer to the Request.

This may be right in principle. However, at the arbitration, although the issue of delay was in issue in general terms, ImageSat did not rely on section 31 as a ground for contending that the jurisdictional objection Serbia had raised in its Defence was too late. ImageSat did not argue before the arbitrator that Serbia was out of time and could not raise the jurisdictional objection because it had not done so in its Answer. There are obiter statements by Flaux J in Gulf Import & Export Co v Bunge SA [2008] 1 Lloyd’s Rep. 316, at [47] indicating that, if no objection was taken to the jurisdictional point being argued before the arbitral tribunal, and the tribunal has dealt with it, it is too late to say in response to an application under section 67 that the jurisdictional point cannot be raised. Mr Owen submitted this could not be so. He argued that since section 31 is mandatory, the only basis for stating that the jurisdictional objection can be relied upon, is if the arbitrator considered that the delay was justified (see section 31(3)) and that there cannot be a deemed extension of time.

It appears that the preliminary issue before the arbitrator, who had full submissions and skeleton arguments, was conducted on the assumption that the issue as to delay by Serbia in raising the point concerned the effect of inter-party correspondence and the Terms of Reference and not because of its failure to do so in its Answer. Serbia would, in these circumstances, not have known that it should make an application under section 31(3) in respect of the Answer. Not surprisingly it did not do so. It cannot now do so. The point could have been taken by ImageSat at the arbitration. ImageSat took other points on delay but not this one. Serbia cannot now make an application under section 31(3). I share Flaux J’s view that there are difficulties in saying that an application pursuant to section 67 is barred because the jurisdictional objection was not raised in the Answer where the point could have been, but was not, raised in the arbitration, and the arbitrator has dealt with it.

Serbia’s position is that the “continuator”/”successor” issue is non-justiciable because (a) it trespasses on the ambit of the Crown’s prerogative in matters of foreign affairs, and the recognition of a foreign state; (b) there is no settled principle of customary international law which is part of English law on the point, so that it involves making a decision solely by reference to public international law, and (c) there are no judicial or manageable standards by which a court or arbitrator can reach a decision.

The consequence of my finding that Serbia contractually submitted to the arbitrator’s jurisdiction by its agreement in the Terms of Reference is that a number of the matters that were canvassed under issue 4 do not fall for decision. The submission to jurisdiction included the question whether Serbia was a party to the underlying contract which gave rise to the dispute and thus the “continuator”/”successor” point. The parties thus gave the arbitrator substantive jurisdiction to determine whether Serbia is a new “successor” state or a continuation of the State Union and to this extent he was required to determine the issue.

In the absence of a contractual submission, the first question would have been whether an arbitrator is able to deal with an issue that in another context would not be justiciable in English law. Can the arbitrator make a determination as to his jurisdiction under section 30; that is a “provisional” determination subject to challenge under inter alia section 67?

In a case where it is not in issue that the parties have entered into an agreement to arbitrate but a jurisdictional issue arises, for example as to whether the dispute that has arisen falls within the terms of the agreement to arbitrate, the arbitrator has the competence pursuant to section 30 to rule on the matter. It appears from Republic of Ecuador v Occidental Exploration and Production Co[2006] QB 432 that this will be so even in a case when the determination of that matter involves considering a question which, in another context, would be non-justiciable.

In Ecuador v Occidental the Court of Appeal (Lord Phillips of Worth Matravers MR, Clarke and Mance LJJ) considered jurisdictional issues that arose under an agreement to arbitrate under UNCITRAL Rules that both parties agreed was validly made by them. Provision for the arbitration had been made in a bilateral investment treaty between Ecuador and the United States. The treaty provided that nationals and entities of one state would have direct dispute resolution rights against the other state in respect of investment disputes, by inter alia UNCITRAL arbitration.

The arbitrators considered and rejected an objection by Ecuador that the dispute fell outside the categories of claim specified in the treaty. Ecuador then applied to the Court under section 67 to set aside the Award. The issue was whether the Court had jurisdiction to determine this application. It was argued on behalf of Occidental that the Court did not have jurisdiction because determining the section 67 application would involve interpreting the provisions of the investment treaty which were (see e.g. R v Lyons[2003] 1 AC 976 at [27], [79] and [104]) non-justiciable in an English court. Before dealing with the decision of the Court of Appeal on that point, I observe that there is no suggestion in the judgment that the arbitrators could not deal with Ecuador’s objection or should not have dealt with it because the interpretation of the treaty was non-justiciable or non-arbitrable. Indeed the approach of the Court of Appeal is inconsistent with such a suggestion.

I turn to the decision of the Court of Appeal. The Court stated that determining the application would involve interpreting the provisions of the investment treaty and, in other contexts, this would be non-justiciable and impermissible. However, it also stated (at [31]) that the context is always important in deciding whether a principle of non-justiciability applies. It held that the court has jurisdiction to determine an application which involves interpreting the provisions of an international treaty where this is necessary to determine a person’s rights and duties under domestic law.

In the Ecuador case, this was so because the investment treaty provided for arbitration and was intended to facilitate the parties’ agreement to arbitrate: see [2006] QB 432 at [32], [37], [41] and [46]. The agreement to arbitrate was recognised under English private international law and gave rise to rights between the parties to it, including ([40]) “the right to have disputes arbitrated within its terms, and not to have disputes arbitrated which fall outside its terms”. There are other examples of the Court having regard to questions of public international law where this is necessary to determine private law rights: see e.g. R v. Prime Minister of the United Kingdom, ex parte Campaign for Nuclear Disarmament[2002] EWHC 2777 (Admin) at [59]; AY BankLtd. v Bosnia & Herzegovina & others[2006] EWHC 830 (Ch).

The Court in the Ecuador case rejected the argument that a matter that was justiciable in an arbitration should be treated as non-justiciable by the Court when it arises in the context of a section 67 application. It stated (at [41]):

In doing so the Court of Appeal appears to have accepted that “justiciability” in a Court differs from “justiciability” or “arbitrability” before an arbitral tribunal. Given the importance of arbitral tribunals as dispute resolution mechanisms in relation to the commercial transactions of sovereign states, and the unavailability of sovereign immunity or act of state defences to a state which has agreed to submit a dispute to arbitration, this is not surprising.

The question is whether the position is different where the jurisdictional issue is whether a person or entity is a party to the underlying contract containing the arbitration clause. Mr Jacobs submitted that the reasoning in Ecuador v Occidental about an accepted agreement to arbitrate by the parties does not apply to the logically prior question, whether there is such an agreement between the parties. He argued that if that question requires the resolution of a non-justicable or non-arbitrable issue neither the arbitrator nor the court can deal with it. In view of my conclusion on issue 3, this question does not fall for decision and I can deal with it briefly.

The two sources and limits to an arbitrator’s jurisdiction I have considered (see [65]), the arbitration clause in the underlying contract and the particular reference, should be borne in mind. Whatever the position regarding the underlying contract, if it is not in issue that the person or entity is party to the particular reference, the position should not in principle differ from that laid down in Ecuador v Occidental. But where whether the person or entity is party to the particular reference is also in issue, there appears to be some force in Mr Jacobs’ submission. This is because the only sources for the mutual assent that is the basis of arbitration are the original contract or the particular reference, here the Terms of Reference. Serbia states it is not a party to the underlying contract. If the Terms of Reference did not confer jurisdiction on the arbitrator to consider whether Serbia was the “continuator” of the State Union, can Serbia maintain that it has not assented to the arbitration?

Notwithstanding the force of Mr Jacobs’ submissions, it would be striking if the arbitrator is not able to make a ruling as to whether Serbia was to be treated as a party to the agreement. It would be particularly striking if an arbitrator was not entitled to investigate and could not determine even on the provisional section 30 basis whether a person or entity that has raised an objection is a party to the underlying contract and the arbitration agreement.

If, after the arbitrator has dealt with the matter, the court cannot exercise its powers under section 67 because to do so involves a question which in other contexts would be non-justiciable, there would be a significant gap in the court’s supervisory powers. The non-justiciability of the issue would mean the court would not be in a position either to uphold the challenge and set aside the Award or to conclude that the challenge is not well founded. The arbitrator’s provisional determination would thus be deprived of substance and rendered illusory. But under the 1996 Act the Court is given the power to decide whether the Award, as a provisional determination pursuant to section 30, should stand.

Mr Jacobs submitted that once Serbia raised the issue of whether it was a proper party to the arbitration the court would have to conclude that, without a certificate from Her Majesty’s Government, i.e. the Foreign and Commonwealth Office, it cannot be shown that it is a proper party. If, however, this is so, why would the Court be able to conclude that Serbia (which has brought the section 67 application) is not a proper party to the arbitration without a certificate from Her Majesty’s Government? There is force in Mr Owen’s response that, if the issue is non-justiciable, it is difficult to see how Serbia can challenge the Partial Award. Its acceptance of its status as a “successor state” does not avoid the problem because a principle of non-justiciability “is not one of discretion but is inherent in the very nature of the judicial process” (see e.g. Buttes Gas and Oil Co. v. HammerNo 3) [1981] 3 All ER 616 at 628) and cannot be waived: see, e.g. Ecuador v Occidental at [57]. Neither Serbia nor ImageSat has sought the production of a certificate from Her Majesty’s Government.

Serbia’s position on non-justiciability also involves both the arbitrator and the court having to accept its assertion that it was not a party to the underlying contract and the arbitration agreement. There is also force in the response (see ImageSat’s skeleton argument, paragraph 118(5)) that it would be wrong to “allow a State to escape liability under a commercial contract merely by pronouncing that it was not an original party to the contract, and then sheltering behind a cloak of non-justiciability in order to prevent an arbitration or adjudication based on the true legal position”. The approach taken by the Court of Appeal in Ecuador v Occidental suggests that ImageSat’s submissions are to be preferred.

As to whether, absent the arbitration context, the “continuator”/“successor” issue is non-justiciable, the answer to the question is not straightforward. The issue is not strictly one of recognition of the state which is a matter within the Crown’s prerogative relating to the conduct of foreign affairs: see Oppenheim’s International Law, 9^th eds, Jennings and Watts, 133. However, Can v United States 14 F3d 160 (1994) and 767 Third Avenue Associates v Consulate General of the Socialist Federal Republic of Yugoslavia 218 F3d 152 (2000), decisions of the United States Federal Court of Appeals for the Second Circuit relied on by Mr Jacobs, held that issues of state succession are non-justiciable and committed to the government, and that there are no standards for a court to judge a claim of succession to a former sovereign. Lord Wilberforce, in Buttes Gas and Oil Co v Hammer at 632, had regard to United States cases dealing with the principle of non-justiciability despite the difference in the constitutional position and the relationship between the executive and the judicial branches of the State in the two countries.

Mr Owen and Professor Mendelson pointed to a number of cases in which the court has made a determination about whether a government or a state existed. So, in LuigiMonta v Cechofracht[1956] 2 QB 552, in the context of a war risks clause in a commercial charterparty, it was held an arbitrator was entitled to conclude whether a government was in existence in Formosa although the UK government did not recognise a government of Formosa. Again, courts have considered whether North Korea and the Turkish Republic of Northern Cyprus are states: see respectively Al Fin’s Patent [1971] Ch 160 and Calgar v Billingham [1996] STC (SCD) 150. Thirdly, in Grehard Dirks’ Applications (1960) 1 RPC 1 the court considered issues concerning the identity of the Federal Republic of Germany and whether it was a continuity of the previous Germany. Apart from the Luigi Monta case, the courts were construing statutory requirements, in those cases, in the Patents Act 1949 and the Income and Corporation Taxes Act 1988, and that may be a distinction because the court is required to construe the provisions of a statute. There are, however, also indications that in a commercial context not involving the sovereign acts of a state within its own territory the court need not refrain from deciding the disputed issue unless there is some indication from the executive that a decision will embarrass diplomatic relations between the United Kingdom and that state: see Korea National Insurance Corporation v Allianz Global Corporate and Specialty AG[2008] EWCA Civ 1355 and Republic of Somalia v Woodhouse Drake and Carey[1993] QB 54. In the latter case the court (Hobhouse J) determined for itself that a regime in Somalia did not exist as a government of the State. Mr Jacobs sought to distinguish this case as one in which the issue was very clear because all that had been asserted was that there was a change of government. A principle of non-justiciablity, however, is a bar in all cases and not only in difficult cases. The case indicates that the court can form its own view, taking account of the relevant dealings of Her Majesty’s Government.

As to the United States authorities, in Transorient v Star Trading and the Republic of Sudan (1990) 731 F Supp. 619 the US District Court for the Southern District of New York adjudicated on the argument by Sudan that it was a new successor state and relieved of prior contractual obligations. The court rejected Sudan’s submissions on the basis of the principle of international law that changes in a state’s government and internal constitution do not bring about a change in its legal personality. The examples relied on by Mr Owen and Professor Mendelson have persuaded me that the first limb of Serbia’s non-justiciability submissions is not well-founded.

Although “customary international law is part of the common law” (ex parte Pinochet (No. 3) [2001] AC 147, at 276 per Lord Millett), the second limb of Serbia’s submissions on non-justiciability is that there is no settled principle of customary international law which is part of English law on the “continuator”/“successor” issue. Accordingly a decision on this matter would have to be made solely by reference to public international law. The fact that the court would have to have regard to public international law principles does not, however, suffice to render the matter non-justiciable. All depends on context. There are cases, in particular Ecuador v Occidental, where the courts have had regard to public international law where this is necessary to determine private law rights. In the present case it was Serbia which raised the issue of its legal identity and the arbitrator had to take account of public international law to deal with that issue. This limb of Serbia’s submissions only has force if put together with the third limb of its submissions on non-justiciability. That is that there are no judicial or manageable standards by which a court can reach a decision as to whether a state is a “continuator” or “successor” state and there is no principle of customary international law on this issue.

The test applied in the English Courts for identifying principles of customary international law was considered in R (European Roma Rights) v Prague Immigration Officer[2005] 2 AC 1. Lord Bingham stated (at [23]) that the American Law Institute’s Restatement of the Foreign Relations Law of the United States (3d), section 102(2) accurately summarised the relevant law. This stated:

Mr Jacobs submitted that this test was not met in relation to whether a state is a “successor” or “continuator”. He argued that Crawford’s The Creation of States in International Law does not explain or identify the relevant criteria or the content of such standards. He relied on Brownlie’s Principles of Public International Law (7^th ed 2008, 80-81) which states:

Mr Jacobs also relied on the decisions of the United States Court of Appeals to which I have referred, in particular 767 Third Avenue Associates v Consulate General of the Socialist Federal Republic of Yugoslavia. He submitted these cases support the proposition that issues of state continuation and succession are solely for determination by the executive branch of the state and that there are no judicially discoverable and manageable standards for a domestic court or arbitrator to resolve questions of succession under international law. Such controversial issues have, he stated, been seen as calling for judicial restraint: Korean National Insurance Corporation v Allianz Global Corporate and Speciality AG[2008] EWCA Civ 1355 at [26] and [31], citing Kuwait Airways Corp v Iraqi Airways Co (Nos. 4 and 5)[2002] AC 883 at [971] ([319] of the CA judgment).

On behalf of ImageSat it was argued that the position in international law as to the determination of whether a state is a continuator or a successor is sufficiently clear. The distinction itself is well embedded in international law and there are criteria upon which continuity can be determined. Reliance was placed inter alia on the Harvard Research Draft on the Law of Treaties (1935) 29 AJIL Supplement 653, the opinion of the United Nations Assistant Secretary General of Legal Affairs when, following the partition of India, Pakistan claimed to be a co-continuation of the state of British India, and the Single German Nationality (Teso) case91 ILR 211 (1987), a decision of the German Constitutional Court. These it was submitted showed that the loss of territory by a state does not lead to a change of identity provided the remaining part of the state maintains the attributes of statehood. It was also submitted by Professor Mendelson that the position of the states concerned are important and often decisive: see the examples of the Commonwealth of Independent States and Russia in relation to Russia’s continuity of the Soviet Union and of the Czech Republic and Slovakia in relation to Czechoslovakia. Finally, he submitted that a state which breaks away from another is not a continuator in the sense of retaining the legal personality of the state from which it has broken away. In the case of Serbia, Professor Mendelson submitted that, its position vis à vis international organisations and the ICJ (see [23]-[37]) and the positions taken by them and the terms of Article 60 (see [21]) mean that, applying these criteria, it is a continuator.

The position taken by Serbia in its communications to the UN (see [22]) and the ICJ (see [37]), and the position taken by those organisations and by the Council of Europe’s Committee of Ministers (see [26]–[37]) suggest that Serbia and those organisations regarded it as the continuator of the State Union. The fact that, in some cases, described by Professor Mendelson as exceptional, it has been difficult to determine whether a state is a continuation or successor does not mean that the distinction does not exist or is unworkable. The key is whether there are clear standards of international law from which a domestic court can conclude that there is a principle of customary international law on the matter. The material before me, including the passages from Brownlie and Oppenheim, however, suggests that there are not. Despite the factual indications in this case that Serbia is the continuator of the State Union, had the context in this case not been an arbitration concerning a commercial contract, I do not consider the material before me enables me to conclude that the question would have been justiciable.

As to issues 5(1)(a) and (c) and 5(2)(a), (b) and (d), I have set out the territorial and constitutional background and Serbia’s position vis à vis international organisations and their position vis à vis Serbia earlier in the judgment.

Notwithstanding the terms of the fourth paragraph of Article 60 of the Constitutional Charter of the State Union (see [17]) I consider that the term “the successor state” in Article 60 cannot be read as a reference to “successor” in the narrow sense because of the contrast in the fifth paragraph between one “successor state” and one “newly independent state” and because that paragraph provides that the part of the State Union that breaks away “shall not inherit the right to legal personality” of the State Union. The submissions made on behalf of ImageSat that the natural inference is that the other state would so inherit the legal personality of the State Union and would thus be its continuation have force. The position taken by Serbia vis a vis the United Nations and other international organisations, in particular the ICJ and the position taken by most of those organisations to Serbia is also consistent with it being a continuator state and continuing the legal personality of the State Union. For the reasons given in [34]-[35] I do not consider that the decision in Matijasěvić’s case support Serbia’s position in these proceedings.

Under Issue 4 I dealt with a number of the matters raised under issues 5(1) and 5(2). In the light of the conclusion I have reached on submission to the arbitrator’s jurisdiction and my indication as to what I would have concluded on Serbia’s status, the question whether, if Serbia is a successor state it is liable under the contract is a long way down the line from matters that fall for decision. Mr Owen submitted that ImageSat’s contractual rights did not automatically disappear at the moment of state succession and Serbia has not since enacted legislation divesting or appropriating ImageSat’s rights. He submitted that by the date of the break up of the State Union on 3 June 2006 ImageSat had an accrued right under the agreement and Serbia was also liable because the agreement was not “executory on both sides” on that date. Relying in particular on the decision of the Permanent Court of International Justice in German Interests in Polish Upper Silesia (Merits) PCIJ Series A, No. 7 (1928) he submitted that by that stage ImageSat had an accrued cause of action for the €4.625 million down payment under Article 4 of the agreement and a further €40.275 million due under the acceleration provision in Article 13(D). He submitted that the agreement was not wholly executory because ImageSat had reserved the footprint allocated for the satellite system.

Had a decision been necessary on this issue, I would have accepted the submissions of Mr Jacobs and Professor Sarooshi. The acquired rights principle is controversial. It appears from the international law materials that there is no extensive and uniform state practice or opinio juris (see [131]) as to the liability of a successor state for its predecessor’s private contractual liabilities to a private person or entity. Article 33 of the 1983 Vienna Convention on Succession of States in respect of State Property, Archives and Debts (a) is not in force, and (b) restricts its regime to the predecessor state’s obligations to another state, international organisation or subject of international law. Even if there is an acquired rights doctrine, such steps as ImageSat had taken were, in the light of the contractual provisions, mere preparatory steps and did not constitute contractual performance. It was only payment by the State Union which triggered ImageSat’s obligations under the contract. In any event there was no evidence before the arbitrator or me that the footprint had been reserved, and no finding by the arbitrator that it had.

My finding that Serbia conferred substantive jurisdiction on the arbitrator in the Terms of Reference and that, in this context, the “continuator”/“successor” point was arbitrable and justiciable means that this application must be dismissed.