HC Deb 03 May 1978 vol 949 cc405-20

10.32 a.m.

The Solicitor-General (Mr. Peter Archer)

I beg to move, That the Chairman do now report to the House that the Committee recommend that the State Immunity Bill [Lords] ought to be read a Second time. If someone were told that the Bill was being taken in Second Reading Committee and that the Committee consisted almost entirely of practising lawyers, he might be forgiven for concluding that it was a technical measure of no practical consequence. He would be right about its being a technical measure, but its practical consequences are real, and are of two kinds.

First, the Bill may help to ensure that individuals who have claims against foreign States may obtain redress in circumstances where previously they would have had no redress. Second, it has a part to play in building a body of international law relevant to the needs of the 1970s and 1980s, commanding a wide measure of agreement and with a real prospect of being applied across a wide sector of the world.

The primary purpose of the Bill is to prescribe in statutory form the immunity from suit which foreign States shall be entitled to claim from the jurisdiction of the courts in the United Kingdom. The present rules are embodied in the common law, and originally the rule was simple and absolute. It can, perhaps, best be summarised in the words of Lord Atkin in the case of "The Cristina" in 1938, which were quoted by my noble Friend in the other place on Second Reading—this is column 52 of the Official Report, 17th January, Lord Atkin said that there were two basic elements: first, that the courts of a country will not implead a foreign Sovereign, that is, that they will not by their process make him against his will a party to legal proceedings where the proceedings involve proceedings against his person or seek to recover from him specific property or damages"; and second, that they will not by their process, whether the Sovereign is a party to the proceedings or not, seize or detain property which is his. That doctrine arose as a matter of reciprocal respect, when it was felt that for one State to assume jurisdiction over another was inconsistent with sovereign equality between States.

But the rule attracted criticism at least as long ago as 1873 when another great commercial judge, Sir Robert Phillimore, in the case of the "Charkieh", said: No principle of international law, and no decided case, and no dictum of jurists of which I am aware, has gone so far as to authorise a sovereign prince to assume the character of a trader, when it is for his benefit; and when he incurs an obligation to a private subject to throw off, if I may so speak, his disguise, and appear as a sovereign, claiming for his own benefit, and to the injury of a private person, … all the attributes of that character. How far the common law on the matter is capable of changing, and how far it has in fact changed, was recently discussed at some length in the court of Appeal in the case of Trendtex Corporation v. Central Bank of Nigeria. In another place there was some discussion about how much light would be shed on the debates relating to this Bill when that decision was considered by the Appellate Committee in the other place. I am now informed that the case has been settled and that, consequently, we shall be denied what would certainly have been a constructive and a fascinating decision.

What is certain is that in this generation, when States engage widely in commercial activities and generally do many things which in earlier times would not have been associated with the jus imperii, Sir Robert Phillimore's pronouncement is increasingly frequently of practical application. In the Trendtex case, the Master of the Rolls said: In the last 50 years there has been a complete transformation in the functions of a sovereign State. Nearly every country now engaged in commercial activities. It has its departments of State—or creates its own legal entities—which go into the market places of the world. They charter ships. They buy commodities. They issue letters of credit. This transformation has changed the rules of international law relating to sovereign immunity. Many countries have now departed from the rule of absolute immunity. So many have departed from it that it can no longer be considered a rule of international law. It has been replaced by a doctrine of restrictive immunity. The immunity of States is not a matter which ought long to be left in an area of doubt. It affects the rights and duties of individuals, and it has important effects on international trade and finance.

The first internationally agreed move away from absolute immunity occurred in relation to maritime law. A diplomatic conference in Brussels produced in 1926 a convention on State owned ships which, broadly speaking, sought to place commercial ships operated by States in the same position as if they were privately owned. It was supplemented by a protocol in 1934. The United Kingdom participated in the discussions and signed the 1926 convention in that year.

The Convention and Protocol have now been ratified by a large number of maritime countries, but plans to implement its provisions in this country were overtaken by the outbreak of war. For one reason or another, we have never been able to ratify. This Bill will now, at last, bring our law into line with the provisions of that convention and the protocol and enable the United Kingdom to ratify them. The relevant provisions are found in Clause 10 and parts of Clause 13.

There may be hon. Members who remember the concern expressed in both Houses in 1949 when the Tass Agency was sued for defamation, and the Court of Appeal stayed the proceedings on the ground that the agency was a department of the Soviet State and entitled to immunity.

An interdepartmental committee under the chairmanship of the late Lord Somervell was then appointed to examine whether our law accorded the organs of foreign States immunity wider than was desirable or than was strictly required by international law. But the committee's report was somewhat inconclusive as to what international law required, and it was troubled by the problem of drawing a sufficiently precise distinction between sovereign activities, on the one hand, and trading, commercial or industrial activities, on the other.

The Government of the day did not feel justified in taking any action, and the rule of absolute immunity continued to be followed in the courts of this country, while in the rest of the world it began increasingly to give way to practices denying immunity in respect of commercial activities. Probably the most significant change came in 1952, when the State Department of the United States declared, in the Tate letter, that it had examined contemporary State practice and had reached the conclusion that immunity should not be granted, inter alia, in respect of a foreign State's commercial activities.

The rule of absolute immunity followed by the courts of the United Kingdom has been widely criticised, and it was against this background that in the early 1960s the Lord Chancellor and the Law Officers of the day encouraged an examination of the current international law and practice, and the possibility of an international convention on State immunity, by the member States of the Council of Europe. This led to the European Convention on State Immunity, which was opened for signature in May 1972. One of the objectives of the Bill is to enable the United Kingdom to ratify that convention.

Although parts of the Bill are modelled on the convention, its provisions are more radical than the convention. Initially, the Bill followed the convention in most respects, but it was pointed out in another place, particularly by Lord Wilberforce and Lord Denning, that in restricting itself in that way the Bill might lead to a situation where the United Kingdom courts continue to recognise immunity in circumstances where it would not be generally recognised in international law. My noble Friend listened carefully to what was said, as might be expected of him, and he was persuaded.

I wish, therefore, to spend a few moments explaining the background, and why we have gone substantially further in removing immunity than the European convention would require us to do.

Hon. Members will recognise that there are three distinct legal concepts which we shall consider in our proceedings on the Bill. First, there are grounds on which the courts of this country will assume jurisdiction over a dispute. If the dispute has nothing to do with this country or any of its citizens, the courts will normally not entertain proceedings and the question of claiming immunity will not arise.

Second, there are the rules governing State and diplomatic immunity once the courts have accepted jurisdiction. Third, there are the rules relating to the enforce- ment of judgments once the court has proceeded to deliver judgment.

A basic feature of the convention is that contracting States assume an obligation to give effect to judgments given against them in the courts of other contracting States. A convention which simply sets out the cases in which the courts of a State could assume jurisdiction over other States, overruling claims to immunity, would have had little interest for those States which, unlike the United Kingdom, already assumed jurisdiction very extensively. For them, the interest of a convention lay in securing the recognition and enforcement of judgments given against the foreign State.

A consequence of this basic feature is that, broadly, the convention provides that claims to immunity will be rejected only where the territorial connection with the court which assumes jurisdiction is sufficient to warrant recognition and enforcement of its judgment by other convention States.

It is our intention to apply the principles of the Bill to all States, whether parties to the convention or not. In relation to those not parties to the convention, there is, of course, no need to restrict our courts in that way. For example, we do not need to say that immunity in relation to commercial activities shall depend on whether an obligation falls to be performed in the United Kingdom. But we can say that it is not to be accorded in relation to any such activities where our courts accept jurisdiction.

Again, the convention embodies the principle that execution may not be levied against the property of a State without its consent. This is a corollary of the basic features that each contracting State accepts an obligation to give effect to judgements given against it by the courts of another contracting State where the case falls within the catalogue of cases where immunity is not to be accorded. As the defendant State will give effect to the judgment, there is no need for execution to be levied.

But there is far less cause for affording foreign States immunity from execution if they are not under any binding obligation to comply with our judgments. Consequently, Clause 13 removes immunity from execution to the full extent to which we believe it is permissible to do so under current international law and practice.

While introducing this far-reaching curtailment of State immunity, we can still ratify the European convention. Article 24 of the convention permits a contracting State to declare that its courts shall be entitled to entertain proceedings against a contracting State, even where the case does not fall within the express provisions limiting immunity, to the extent that they are entitled to entertain them in relation to States that are not parties to the convention.

Between contracting States that make declarations under Article 24 there is then an obligation to give effect to judgments on that wider basis, while other States which have made no such declaration are freed of their obligations to recognise and enforce the wider category of judgments, so it would thus be reciprocal.

I began by referring to the case of Trendtex Corporation v. Central Bank of Nigeria. In that case the Court of Appeal, by a majority, declined to follow the older authorities and rejected a claim to sovereign immunity by the defendants where the matter in dispute concerned commercial transactions. It declared that the common law must follow the movement of international law and practice and that, on the research available to the court, the rules of international law had changed significantly.

Similarly, the Privy Council, in the case of the "Philippine Admiral" in 1976 held that in actions in rem against ships, immunity will not be accorded to a vessel owned by a foreign Government if it is being used either by the Government itself, or by a third party, for trading purposes and is not intended to be used for public purposes.

The line adopted by the Bill accords generally with the doctrine developed in those cases. Indeed, the fact that the Court of Appeal arrived at its conclusions in Trendtex after an extensive examination of recent decisions in Belgium, Germany, the Netherlands and the United States will offer the House some reassurance that what the Bill seeks to do accords with the current state of international practice.

It may be suggested that these recent decisions remove the necessity for legislation in this field and that it may be left to the courts to develop the law. The Government believe that that would not be right. There is always the possibility that one day these questions may fall to be decided judicially in another place, and it may there be held that the courts ought to follow the older line of established precedence.

The law ought now to be firmly established by statute. Furthermore, the recent cases relate only to commercial transactions, whereas the Bill, following the European convention, removes immunity over a wider area of other activities where the State may not be acting commercially. Clauses 4 to 9 and 11 remove immunity in respect of many important matters which the recent cases do not touch.

There is a further important consideration which, in the Government's view, adds an element of urgency to this legislation. In 1976, the United States Congress passed the Foreign Sovereign Immunities Act, which renders foreign States amenable to the jurisdiction of the United States courts in respect of practically all non-sovereign activities and permits execution to be levied against their commercial assets.

The position now obtaining in the courts of the United States accords with the interests of all those who, in commerce or finance, engage in transactions with foreign States. Unless we change our law, much of the work connected with these transactions—an important invisible export—could be lost to this country. I believe that, for these reasons, the Bill will be welcomed in all parts of the Committee and of the House.

I shall now briefly draw attention to some of the major changes which the Bill is intended to bring about. Clause 2 provides that a State is not to be immune in respect of proceedings where it has submitted to the jurisdiction of the court. It specifically provides that such submission may be contained in a prior written agreement. Under the common law, a State could disregard any prior written agreement and it would be bound only by a submission to jurisdiction made in the course of the proceedings before the court.

Clause 3, as amended in the other place, provides that a State shall not be immune in respect of any acts in a commercial or similar capacity, and it singles out two particular activities where it is not always possible to determine whether the subject matter is commercial or not. In any event, the term "commercial transaction" is given a very wide meaning. It will cover all commercial, industrial, financial, professional, or similar activities—in short, almost anything that a State may do outside its sovereign authority.

Clause 13 permits execution against property used, or intended for use, for commercial purposes. Judgments given against the Crown in the courts of contracting States to the European convention will have to be recognised here; that is the result of Clause 18, and it corresponds with the obligation assumed by other contracting States to give effect to judgments given against them in the courts of the United Kingdom.

In respect of the rest of the world, we shall, of course, assume no such obligation. Indeed, we want to remain free to reduce their immunity still further should we find that they do not accord corresponding immunity to the United Kingdom. That is achieved by Clause 15, which also allows immunity to be extended where there is an international commitment to do so.

The Bill also provides an opportunity to clarify one or two other areas of uncertainty. The exact extent of the privileges and immunities of foreign Heads of State in their private capacity is difficult to ascertain from the decided cases. Clause 20 would equate the position of a Head of State with the position of an ambassador.

There is a degree of uncertainty about the ability of our authorities to sue foreign States for taxes, customs and other duties. We are taking the opportunity in Clause 11 to resolve those doubts.

I hope that the Bill commends itself to the Committee and the House as a useful measure of reform to codify and, I think, to clarify an area where clear guidance is needed. It will provide remedies in cases where they are sometimes at present unjustly denied, and it will bring our law on the immunity of foreign States more into line with current international practice. Those of us who discuss the Bill are unlikely to earn wide coverage in the news media, but we may merit a footnote in the law books of the future.

10.52 a.m.

Sir Michael Havers

I thank the Solicitor-General for his helpful explanation of the Bill. May I offer congratulations, too, to the noble Lords Lord Denning and Lord Wilberforce, and to Baroness Elles, who in the other place did so much to improve the Bill. Also, while in a congratulating mood, may I congratulate the noble Lord the Lord Chancellor, and particularly his officials, who responded to the various amendments and did so much to improve the Bill between the time it was first put before the other place and its presentation to us. It is now a very much better Bill.

It is astonishing to see, from a reading of the Committee stage in the other House, how the proceedings ended up with five people right on top of their subject and all determined that this should be the best possible Bill to remove a difficulty which even I, as a lawyer, had not understood existed—this not being one of my specialities—that if a State entered into a contract with you, Mr. Spence, for example, on behalf of some large company, or as an individual, and in that contract the State had agreed to waive any right to immunity which it might subsequently have, that was an absolutely worthless paragraph in the contract and could not be binding upon that State at all—which seems a ridiculous situation.

That difficulty has now become of great importance, as the Solicitor-General has told us, because our law is now out of date in relation to recent legislation in the United States. Certainty now applies there, and this has had its effect upon the two great financial centres which have been dealing with these contracts because of the efficiency of their law and the lawyers and the ability to get a whole team of people together in one place, either in the City of London or in New York. The fact that a contracting party feels that in this country there may be some uncertainty about whether he can proceed against the State as the other contracting party or about whether a plea of immunity may be successful has already caused a great deal of the work that used to be done in the City of London to go to New York.

Therefore, speed is essential. This is a substantial part of the work of the City and a substantial source of invisible earnings for our balance of payments. As was emphasised in the other place, and as the learned Solicitor-General has impressed upon us today, speed is of great importance in this matter.

I hope, therefore, that it will be thought right if on Second Reading I indicate certain matters which we consider could be further improved. It will be helpful to those who are assisting the learned Solicitor-General if, when the Bill goes into Committee, these matters are not raised for the first time when the amendments are seen but everybody is alerted today to the few important matters which need to be looked at and, if possible, further improved to make the Bill even better.

Clause 3 is virtually a new clause compared with the original. Its basic principle is that where a State has not expressly or impliedly submitted to the jurisdiction of a United Kingdom court under Clause 2, it will still lose its immunity in respect of commercial, industrial, financial or other similar activities provided that it has not entered into them in the exercise of sovereign authority". By virtue of paragraphs (a) and (b) of subsection (3), it is not necessary to decide whether in the cases there covered there was an exercise of sovereign authority, but in other cases it may be so. This has been one of the very difficult problems about which lawyers have had to advise their clients over the years. The law is by no means clear. I shall spare the Committee the technical details, but there are occasions when it is very difficult to advise somebody on the law. We may find yet again that lack of certainty could arise in those special cases in this country, again creating the result which exists at the moment—that people would prefer to go to New York where there is absolute certainty.

Those who had argued that the Bill was premature because of the Trendtex case pending in the Appellate Committee of the House of Lords have now, of course, had that objection struck from under them. I am rather sad about that. I should have liked to see what the Appellate Committee made of Trendtex, because it is one of the most interesting cases in international law that there has been for a long time.

To summarise our views on Clause 3, we consider either that there should be a suitable definition—if it can be devised—of what is meant by in the exercise of sovereign authority or we might consider whether those words could be taken out altogether, though I appreciate that that would be a substantial step.

Many loans are made not directly to a State but to a Government agency and guaranteed by the State. This goes back to the case where "the exercise of sovereign authority" cannot arise directly. If the State is not immune in respect of a loan raised by it, regardless of its purpose, as at present provided, it would seem entirely logical that the State should be similarly not immune in respect of a lesser liability. It should not therefore have an immunity when it is merely acting as guarantor when it has no immunity when it is the borrower. I hope that that point will be taken on board and considered.

I think that that could be covered by an amendment on these lines— … any guarantee given by a State in respect of any financial obligation, irrespective of the purposes for which the obligation was incurred"— or something of that kind. The learned Solicitor-General and I were brought up on the old principle that the greater includes the lesser. On that principle, it must logically do so here, though I think that at the moment it might be excluded.

Clause 13 is very important. It involves the remedies which can be granted by the courts, including interlocutory relief in certain cases. I shall avoid the technicalities of what a Mareva injunction is. I believe that the noble Lord Lord Denning is our greatest expert on the Mareva injunction. But it seems that the position left by the present drafting is as follows. It is possible for a judgment to be enforced against the property of a State, other than central bank funds, without its consent if such property is used for commercial purposes, but it is not possible to obtain without the consent of the State interlocutory relief by way, for example, of a Mareva injunction in respect of such property.

In Committee in the other place, on 16th March, Lord Wilberforce and Lord Denning both emphasised the need for interlocutory relief in respect of assets used for commercial purposes. Obeying the rule, I shall not directly quote what Lord Wilberforce said, but I shall summarise its effect. He said that it was important, if English courts are to have jurisdiction over assets used for commercial purposes and are to be able ultimately to lay hands on them at the suit of a British company, that in a suitable case, subject, of course, to reservations, jurisdiction should exist to grant injunctions.

Therefore, one of the matters we shall be considering in Committee is whether interlocutory relief should be available against a State without its consent in respect of property—other than central bank funds, which have always had to be treated separately which is in use or intended for use for commercial purposes.

It has always been accepted that for the purposes of enforcement of judgments the funds belonging to a State's central bank are regarded as the property of that State, but they are not so regarded for the purposes of interlocutory relief, which, again, is a slightly curious result. This means that a central bank as a separate entity, within the meaning of Clause 14 as it stands, would not normally be immune from interlocutory proceedings but its assets would be immune for the purpose of enforcement proceedings unless the State concerned had consented.

In those circumstances, it would seem to us to be more logical if funds belonging to a central bank were deemed to be the property of the State both for purposes of interlocutory relief and for purposes of enforcement proceedings. If the principle applies in relation to enforcement proceedings, it seems difficult to understand why there should be a different principle when one is dealing with interlocutory relief.

Central banks always occupy a curious position. They are very independent—certainly our Bank of England is—and one knows of a number of central banks of foreign States which are very jealous of their independence, which they carefully guard. We believe that problems could arise under local law with regard to the capacity of a State to consent on behalf of a central bank to proceedings being taken against funds.

Therefore, it seems to us certaintly to be a matter for consideration that it might be preferable for Clause 13 to be modified to provide that neither interlocutory relief nor enforcement proceedings should be available against the funds of a central bank without written consent, such consent—perhaps adopting the United States legislation to be given either by the central bank or by the State on its behalf.

Clause 23 was an attempt to avoid any retrospection. This was the result of speeches in the other place, because originally there had been a degree of retrospection which, quite apart from the natural repugnance that all parliamentarians hold about retrospection, also had the difficulty that it might lead to a loss of trust and faith in our English system if a State had entered into a contractual liability, relying upon the law as it then stood, and then suddenly found, having chosen the law of England as the law of the contract, that English law had changed retrospectively. That could well destroy such faith. I believe that there will be very few occasions which would be so affected, but it could destroy the faith of such a contracting country, which is the one thing that we are most anxious should not happen.

It is quite clear that in the other place there was a determination to avoid retrospection, and that, I believe, is why Clause 23 was amended in that sense. Subsection (3) provides that the Bill does not apply to proceedings in respect of matters that occurred before the coming into force of this Act; and section 9 above applies only where the arbitration agreement is made after the coming into force of this Act. I do not want to go into technicalities—I have already had a word with the learned Solicitor-General and I believe that he accepts this but we believe that there are occasions when retrospection could, unintentionally, apply. The noble Lord, Lord O'Brien—representing, one might say, the City interests in the other place—pointed out the dangers that would follow from any form of retrospection. I believe that this is a matter under consideration by those advising the Lord Chancellor, so I merely say that we also are anxious about it and hope that a tightening-up amendment can be achieved before we reach Committee.

I apologise for the detail. I hope that it has been helpful to those who are preparing for the passage of the Bill through the House. We welcome the Bill and look forward to its becoming the law of the land as soon as possible.

11.3 a.m.

The Solicitor-General

I am grateful to the right hon. and learned Gentleman both for his kind words and for his constructive approach to the Bill. It is clear that we are agreed on the urgency of the Bill reaching the statute book and that we share a concern that it shall be as effective as possible for its purpose.

I am grateful to the right hon. and learned Gentleman, too, for the indications which he gave in advance of the Committee stage of the matters which he proposes to raise so that I may consider them, together with my noble Friend the Lord Chancellor. Clearly, no useful purpose would be served by my commenting on them at this stage, except to say, on the question of retrospection, that I had it in mind to table an amendment in Committee. In respect of both that and the other matters raised by the right hon. and learned Gentleman, some consultations between us in advance of the Committee

Spence, Mr. John (Chairman) Price, Mr. Christopher
Berry, Mr. Ryman, Mr.
Buck, Mr. Sever, Mr.
Havers, Sir M. Solicitor-General, The
Miscampbell, Mr. White, Mr. Frank R.

may spare the Committee a certain amount of time when the day comes.

It was suggested to me a few moments ago by my hon. Friend the Lord Commissioner that we might proceed to the Committee stage this morning, but I think that that would be a little too optimistic. Clearly, the amendments will have to be drafted and we shall have to discuss them with my noble Friend. But one may hope that the Committee will not be delayed unduly when the times comes, especially since I understand that no other hon. Member has any particular views on any of the matters that have been raised.

I think that we need not trouble the Committee any further this morning, unless any of my hon. Friends wish to raise any matter. I hope that in due course, when the Bill reaches the statute book, the outcome will be, as a consequence of the contributions made to it by a number of legal minds in both Houses, something of which we shall all have reason to be satisfied.

Question put and agreed to.

Ordered, That the Chairman do now report to the House that the Committee recommend that the State Immunity Bill [Lords] ought to be read a Second time.

Committee rose at seven minutes past Eleven o'clock.