HL Deb 17 January 1978 vol 388 cc51-78

5.7 p.m.


My Lords, I beg to move that this Bill be read a second time. The primary purpose of the State Immunity Bill is to lay down in a statutory form the law on the immunity which foreign States enjoy from the jurisdiction of courts in the United Kingdom, a subject which is at present covered entirely by the common law. If the Bill is enacted the immunity of foreign States will no longer be complete, and in relation to a wide range of matters which are set out in the first part of the Bill a foreign State will be amenable to the civil jurisdiction of our courts in much the same way as is the private individual or the body corporate today. Immunity from criminal jurisdiction is not affected and that will remain. The Bill represents a major change in our law, and one which I believe to be highly desirable, long overdue and to the benefit of United Kingdom nationals and companies.

International law and practice relating to the immunity of Sovereigns and of States on which our common law is based was first developed long ago when, generally speaking, in their international context, Sovereigns and States confined themselves to acts of a sovereign nature such as diplomatic activities. It was before the time when States began to engage extensively in trading or industrial activities or to acquire extensive property outside their own frontiers. So it was natural in those earlier days that the courts of all countries should adopt a practice of not assuming jurisdiction over foreign Sovereigns and foreign States, on the ground that the exercise of jurisdiction would be incompatible with the dignity and independence enjoyed by every Sovereign or sovereign State. The principle was founded on broad considerations of public policy, international law and comity.

This practice became embodied in the common law of this country as a rule of absolute immunity. In the words of Lord Atkin in a case decided shortly before the war, the two basic elements of the rule were, 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 secondly, 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". However, immunity from the processes of jurisdiction accorded to States does involve denying a remedy to those who have a claim against that State. As, particularly since the First World War, sovereign States began increasingly to engage in activities which could equally well be carried out by private persons or trading corporations, the continuing immunity and the corresponding denial of justice to individual claimants against States began to be questioned. The first international moves 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, places commercial ships operated by States in the same position as if they were privately owned. The Convention, however, proved to be imperfect and had to be supplemented by a Protocol in 1934. But it pointed to a major change of international custom and practice. It has been ratified by a large number of maritime countries. Plans to implement its provisions in this country, however, were overtaken by the outbreak of the war and for one reason or another we have never been able to ratify it. 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.

While the rule of absolute immunity has remained firmly embedded in our common law, at any rate until very recently (a point to which I shall come in a moment), it has come under much criticism in this country, particularly in the last quarter of a century. In the rest of the world the rule has been largely abandoned.

Some of your Lordships may remember the concern expressed in this country when in 1949 the Court of Appeal felt itself constrained in proceedings for defamation brought against the Tass Agency, to accord the Agency immunity as a department of the Soviet State. That case led to the appointment of an inter-departmental committee under the chairmanship of the late Lord Somervell to examine whether our law accorded the organs of foreign States immunity wider than was desirable or strictly required by international law. But the committee's report was inconclusive as to the exact position reached in international law, and they were particularly daunted by the difficulty they saw in drawing a sufficiently precise distinction between sovereign activities on the one hand and trading, commercial or industrial activities on the other. Accordingly, the Government of the day did not feel justified in taking legislative action, and absolute immunity remained the law of this country. This invited continuing disapproval by many critics, and not least of those was the noble and learned Lord, Lord Denning, whom I am glad to see is not only in his place but is to address your Lordships later.

As long ago as 1957 the noble and learned Lord said obiter in a leading case in your Lordships' House: It seems to me that at the present time sovereign immunity should not depend on whether a foreign Government is impleaded directly or indirectly but rather on the nature of the dispute, not on whether conflicting rights have to be decided but on the nature of the conflict … If the dispute concerns, for instance, the commercial transactions of a foreign Government (whether carried on by its own departments or agencies or by setting up separate entities), and it arises properly within the territorial jurisdiction of our courts, there is no ground for granting immunity". Indeed, the law of absolute immunity has been continuously criticised by judges, writers of legal text books and contributors to the legal periodicals, and it was against this background that in the early 'sixties my predecessors and the Law Officers of the day took a leading part in encouraging an examination of the current international law and practice and the possibilities of an international convention on State immunity by the Member States of the Council of Europe. The result of that task was the European Convention on State Immunity, which was opened for signature in May 1972. Much of the present Bill is founded on that. We believe that the Convention, which is now in force, represents not only a consensus of European opinion but broadly reflects the present state of international practice on State immunity among a good cross-section of States generally. It is remarkable that we have delayed and tarried so long in dealing with this situation.

The trend away from strict immunity has indeed gone very far in some countries—and perhaps the state of affairs in the United States is the outstanding example. As long ago as 1952 the State Department declared that it would not in future accord immunity to commercial activities of foreign States, and that where proceedings were brought in United States courts it would advise the judges accordingly. In 1976 statutory expression was given to this approach by the United States' Foreign Sovereign Immunities Act. This establishes not only that foreign States are amenable to United States jurisdiction in respect of their non-sovereign activities. It also sets out machinery for suing States, and even permits execution against assets of foreign States in certain circumstances. Other States, among them Germany and Italy, have equally moved a long way from absolute immunity. The results, I fear, from the point of view of this country, is the worst of both worlds. The United Kingdom is unable to assert immunity when we are sued in foreign courts, while persons in this country who have claims against foreign States are deprived of a remedy.

The Bill is intended to redress the balance. It follows, as I have said, more or less the line of the European Convention, but applies its principles in relation to all foreign States. When the Bill is enacted we shall be in a position to ratify the 1972 Convention.

The broad principles on which the Convention is based are as follows. First, that States acting in a sovereign capacity are entitled to immunity from civil jurisdiction. This covers, for example, all diplomatic activities of States. Secondly, that the commercial, industrial and other non-sovereign activities of States enjoy no immunity. Thirdly, that no measures of coercion may be used against States or their property; execution or seizure is not permitted. As a counterpart to the principle that judgments cannot be enforced against them, Member States of the 1972 Convention undertake to recognise and give effect to such judgments. I have no doubt that would and will be done in practice.

It might seem that these broad principles could have been laid down in the Convention and consequently enacted in the law of Member States in broad terms. But for practical reasons that would not be satisfactory. First, the dividing line between sovereign and non-sovereign acts (as was found to be the case by the Somervell Committee) is not capable of precise definition.

Secondly, and more importantly, if countries undertake to recognise and give effect to judgments given against them, they need an assurance not only that those judgments are given in respect of issues which may properly be entertained against States, but also that there was a proper territorial basis on which the foreign court was entitled to entertain the proceedings; that is to say, that the matter complained of arose within the area of the court's jurisdiction. In other words, there must be a proper link with the foreign court which justified it hearing the action.

The European Convention therefore removes immunity (with one exception) only from those non-sovereign activities which can be clearly linked with the jurisdiction of particular foreign courts. For example, where the issue concerns land owned by a State, only the courts of the country where the land is situated may assume jurisdiction; where commercial activities are involved they must have been conducted through an office or other establishment of the foreign State in the country of the court.

So the European Convention has sought to list all those non-sovereign activities of States where a link justifying foreign jurisdiction can be identified. This Bill enacts a corresponding list and the activities are identified in Clauses 3 to 10 of the Bill. For instance, Clause 3 mentions commercial, industrial and financial activities, with the link of an office in the country; Clause 4 refers to contracts to be performed in the country of the court; Clause 6 refers to personal injuries or damage to property caused in that country; matters relating to real property are dealt with in Clause 7; issues concerning patents, trade marks and similar rights registered or protected in the foreign country are dealt with in Clause 8; arbitrations in or in accordance with the law of the country are dealt with in Clause 10, and so on.

Inevitably this selection leaves some gaps where States engage in activities of a non-sovereign character and yet cannot readily be submitted to the jurisdiction of foreign courts because the particular activity is not clearly linked sufficiently closely with the territory over which a foreign court operates. I am conscious that there is one such gap left by the Bill which is of considerable practical importance; namely, the ownership or possession of movable property. Some of the most important cases on State immunity which have come before our courts have, in fact, concerned such interests of foreign States, such as gold bars or bank accounts. In respect of these issues the Bill will not change the law. The originators of the European Convention did not find a solution and the Government have not been able to provide one in the Bill, though in Clause 7(3) and (4) the Bill goes some way towards easing the position of persons claiming property which is in the possession of another person but in respect of which a foreign State claims an interest.

Generally speaking, although maritime jurisdiction is the subject not of the European Convention to which I have referred but of the Brussels Convention of 1926, the principles applied by the Bill to jurisdiction over State-owned ships are the same, but there is an important difference in relation to seizure and execution. The Brussels Convention goes further than the European one in permitting commercial ships and cargoes to be arrested and in allowing execution against them to enforce a judgment. The embargo against the use of all coercive processes against States embodied in Clause 14 is therefore subject to an exception in the case of ships and cargoes.

I said earlier that the corollary to the removal of immunity enjoyed by foreign States before our courts must be recognition in the United Kingdom of judgments given against the Crown in foreign courts. Provision to that effect, limited, of course, to the courts of other States party to the European Convention, is found in Clause 19. On the other hand, in respect of the rest of the world we want to remain free to reduce their immunities still further, and in particular to retain the possibility of permitting execution against their property should we find that the immunity which the Crown enjoys in the country concerned, particularly in relation to freedom from execution, is not as extensive as the immunity we accord to them. A bit of reciprocity does not seem to be out of place in this field. This necessary latitude is preserved by Clause 16.

I said at the beginning that there had been some recent developments in the common law of this country to which I would refer. In 1976 the Privy Council in a case referred to it from Hong Kong, called the Philippine Admiral, held that a foreign trading vessel is not immune from admiralty jurisidiction. That decision, persuasive though it will be for our judges, is not, of course, part of the law of the United Kingdom. But very recently a similar view has been taken by a majority of the Court of Appeal in the Trendtex case regarding the ordinary jurisdiction of the courts of this country over commercial transactions of foreign States. The majority believed that the common law was not crystallized by the decided cases but was itself developing in line with the international practice which it embodies. The case is now on appeal before your Lordships' House and naturally I must not speculate on its ultimate outcome. If it is decided before this Bill is enacted, Her Majesty's Government will certainly review the provisions of the Bi11 in the light of it, but whatever the outcome of that case I believe that only legislation can achieve some of the results that we are looking for: a degree of precision which will make the law certain to apply, and enactment of the particular provisions—including the provision for recognition in the United Kingdom of foreign judgments given against the Crown—which are needed to enable the United Kingdom to ratify both the Brussels Convention and the European Convention.

Those are the main objectives of the Bill. I am sorry if I have taken a little time to describe them, but I believe that this provides an opportunity to clear up one or two areas of uncertainty. For instance, 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 21 will equate the position of the Head of State and that of his family while he visits this country as a guest and an invitee of the Government with the position of an ambassador. Therefore, it might not at this moment of time apply to every Head of State of whom your Lordships may be able to think. I shall not be more specific than that.

There is a degree of uncertainty about the ability of our authorities to sue foreign States for taxes, customs and other duties. Such levies are outside the scope of the European Convention, but we are taking the opportunity in Clause 12 to make it clear that in relation to value added tax and Customs and Excise duties there is no immunity.

I hope that the Bill will commend itself to your Lordships as a useful measure of reform of our law. It will codify and, I think, bring greater certainty into an area where clear guidance is needed; it will provide remedies in cases where they are sometimes at present unjustly denied, and bring our law on the immunity of foreign States more into line with current international practice. I beg to move.

Moved, That the Bill be now read 2a.—(The Lord Chancellor.)

5.30 p.m.

Baroness ELLES

My Lords, a subject so complex and having such important consequences for the trading activities between United Kingdom citizens, or corporations, and foreign states does not often come to be debated before your Lordships' House. I must thank the noble and learned Lord the Lord Chancellor for having introduced this Bill on State immunity with such clarity. We are indeed grateful for his assistance in comprehending its scope, application, and effect.

The need for some form of legislation in this field has been evidenced particularly in the last 30 years by the increase in the extension of State activities to acts other than those exercised under sovereign authority. The apparatus of State has been brought into the market place, and, in relation to those with whom it deals, it is fair and equitable that the same norms should apply in its relationship with an individual as between that individual and another private person.

Recognising the political and economic changes in world affairs, learned judges have in recent years been faced with the task of deciding on the intricacies of the application of international law into English law, on the diverse doctrines of incorporation or of transformation and on the identification in precise legal terms of which rules of customary international law should be applied. In some aspects, the practice of States appears to be so divergent that it cannot always truly be said that there is any consensus as to the rules of international law which should be applied, nor indeed that there is any norm in international law which can be clearly distinguished and identified.

In the case of State immunity, the legal systems of some States recognise the difference between sovereign acts and acts relating to commercial activities, but it is suggested that the criteria used to decide the differences between these categories of act have not yet been clearly established. Hence, in my own view, the sensible and pragmatic approach contained in the Bill before your Lordships.

The introduction of this Bill confirms the view that adherence to the principle of absolute immunity has certainly become outdated, and a change is to be welcomed to bring our laws more into line with those of other nations. Already in 1952, as indeed the noble and learned Lord indicated, at the time of the famous "Taft letter" it appeared that most, if not all, States were applying the principle of restrictive immunity. It may, however, be recalled that the number of sovereign States at that time was about 90, of which comparatively few were probably engaged in major transnational litigation, whereas now, with about 149 or 150 sovereign independent States, many are involved in trading activities and the circumstances are totally different.

The removal of uncertainties in English law regarding the scope and application of the doctrine of sovereign immunity may indeed contribute to the reduction of friction between sovereign States. The United States Congress, again as the noble and learned Lord said, confirmed this principle in the Foreign Sovereign Immunities Act of October 1976. It states clearly and without condition that, Under international law, states are not immune from the jurisdiction of foreign courts in so far as their commercial activities are concerned". The Bill before your Lordships acknowledges this rule, and in that respect, is much needed and to be welcomed. Both major political Parties have held this view for some time, as exemplified by the contribution of successive Governments to the formulation of the European Convention and the signing of the Convention following its adoption by the Council of Europe. It is to be hoped that eventually this Convention will be signed and ratified by more States so that, at least in Western Europe, there may be some visible sign of the consensus on the doctrine contained in that Convention.

A tribute should be paid to the work of those who prepared the Convention within the Council of Europe and the initiative taken by that body, but it also had recourse to the studies of the Harvard Law School, the International Law Association and other learned bodies, and their contribution should certainly be acknowledged in your Lordships' House not only for the work that they have already done but for the further development of international law which they are still undertaking.

Despite the clear need for a recognition by the United Kingdom courts of the political and economic changes in the activities of States, the Bill, in its present form, gives rise to some concern in spite of its quite excellent drafting. The intentions and objectives underlying the Bill may be desirable and praiseworthy, including as they do a strengthening of the guarantee of the rights of the individual involved in commercial activities with foreign States, but it must be asked whether the Bill, in its present form, achieves those objectives. It is all very well to give an individual the right to bring a foreign government before a United Kingdom court to assert his rights, but unless the State concerned has either declared its willingness to accept enforcement or has ratified the European Convention—and that, at the moment, applies only to Austria, Belgium, and Cyprus—or unless the subject matter of litigation is a ship or its cargo, there appears to be no legally binding right of redress.

The individual may incur heavy costs and may have to rely on the willingness of the foreign Government or—which to my mind is undesirable—on diplomatic pressure from Her Majesty's Government. Having removed procedure and proceedings from the diplomatic to the legal arena, enforcement of judgments and acceptance of obligations remains outside the legal field. It may well be that the need will arise for the diplomatic protection of the successful litigant.

The Bill may discourage transactions between British exporters and foreign governmental entities negotiating large-scale loans. Such contracts with the United Kingdom may now become unattractive to foreign States which have hitherto been able, contrary to the practice in those countries which have followed the doctrine of restrictive immunity, to rely on the doctrine of absolute sovereign immunity from our courts. At the same time, the capital exporter will not achieve sufficient and adequate protection by bringing a foreign State before a municipal court without any legally assured right of redress or observance of the judgment on that State. If the Bill is to remain in its present form, only time will tell, and the standing and probity of foreign governments will be on trial. But this may be at the risk and expense of the individual United Kingdom litigant.

To draw once again on the United States Foreign Sovereign Immunities Act—and this point has already been referred to by the noble and learned Lord—that Act allows claims for relief and the foreign State may be liable, in the same manner and to the same extent as a private individual under like circumstances except in certain instances. I believe that that is an improvement which would benefit the Bill before your Lordships' House.

Another provision of the Bill which fails to give a litigant in the English courts adequate protection, is the right given to a foreign State not to give security for costs. In the European Convention, the Article dealing with this particular matter leaves the question open, and I think that the Bill should take a more robust line on this particular aspect.

Finally, Clause 12, to which the noble and learned Lord referred but which is not mentioned fully in the Explanatory Memorandum of the Bill, and which provides for proceedings to be taken against a foreign State for failure to pay taxes, customs dues and levies—a matter specifically excluded from the European Convention incidentally—appears to me to introduce a new element into our law by allowing a Department of Her Majesty's Government to take proceedings in our domestic courts against the foreign State in question. It must therefore be asked who will bear overriding responsibility for deciding whether such proceedings should be initiated. Will it be a political decision based on existing relations and taken by the Foreign and Commonwealth Office, or a decision taken on technical consideration by the Customs and Excise without any reference to diplomatic relations? Is it indeed in the interest of maintaining good relations between States that the normal course of diplomacy or, possibly, eventual arbitration by some international court should not be resorted to rather than litigation in domestic courts?

These are some of the considerations which appear to me to arise on the Bill. However these may eventually be settled, the effects of the Bill will undoubtedly be far-reaching, affecting, in relation to the security of the transaction, commercial and financial transactions between companies and individuals and foreign States, and influencing the need for export guarantees and the new approach needed in foreign direct investment, especially in developing countries. The choice between restricting the effects of the Bill to ratifiers of the European Convention or extending its provisions to all States does not, in my opinion, offer a totally satisfactory answer to what is undoubtedly a highly complex and difficult area of law. But the great advance which it already contains over existing provisions in our law is certainly to be welcomed and I willingly support the Bill's Second Reading.

5.41 p.m.


My Lords, I am happy to speak in this debate following the noble Baroness, Lady Elles, because she has covered the Bill comprehensively and clearly and has said a good deal of what I should have wished to say. I particularly welcome what she said both at the beginning and at the end of her speech when she drew attention to the general overall importance of the Bill. It looks like a lawyers' Bill, a technical Bill fit only for discussion by lawyers, and I am afraid that those discussing it this evening are all lawyers, but one cannot say too often that it is not a technical Bill; it is a Bill of very great importance to a large number of companies and individuals who are trading, and trading every day to a greater extent, not only with foreign States but, more importantly, with the huge and proliferating number of State agencies which are now set up all over the world to carry out trading activities.

It is important in this commercial context not to give any greater immunity in our courts to foreign States or foreign State trading agencies than is recognised by international law generally, and that is a consideration we should bear in mind in considering the Bill. Its form, as is clear to the House, is derived from the European Convention on State Immunity, drawn up by the Council of Europe and to be applied as between Council of Europe States and such other States as the Convention may be extended to. But it is a Council of Europe document and that part of the Bill which deals with State immunity—and I shall be speaking about only that part of the Bill—is based on this Council of Europe document.

That raises the question whether this Western European document, based on Western European legal philosophy and institutions, is wholly suitable as a model for application to Eastern European trading operations, where one knows that all trade is conducted through State agencies and in particular ways; to Latin America; to particular countries such as India, Nigeria, Iran or even to the United States. I shall come back to that shortly.

To extend a particular Instrument drawn up between a family of nations in a particular way to this very much wider field seems to require at any rate some examination. A particular consideration in that context is that the European Convention has, as the noble and learned Lord on the Woolsack made clear, provisions about judgments and the enforcement of judgments, and these are brought into Part II of this Bill as between the Council of Europe Members. These provisions as to judgments in the European Convention have had a substantial influence—I shall explain this shortly—on the provisions in the Convention itself and it seems to me doubtful whether these substantive provisions in the Convention, influenced as they have been by the provisions about judgments, are suitable for application to other States.

A great deal of work has been put into this Bill and I quite agree that it represents a great advance, and that we must take advantage of it and build upon it. But I hope it will not be rushed either through this House or through Parliament generally I do not want to step into dangerous waters but I have heard rumours that the rails are being lubricated, or whatever the right expression is, to ensure a rapid passage. I hope we will give the Bill mature consideration so far as we can before parting with it.

There are two particular reasons which I would give for taking that course. The first relates to the United States' Act of Congress to which reference has been made. That took three years of very elaborate discussions before it got through Congress. A great many difficulties and complications showed up which had not previously been thought of and which have been reflected in amendments brought into the Act. I very much doubt, however, whether the lessons of that Act of Congress have been fully absorbed in this Bill. Indeed, it seems quite apparent that they have not; there is no reference whatever in the Explanatory Memorandum to consideration of the United States Act and there is no provision that I can find in the Bill which indicates that the lessons which they have learnt in Washington have been drawn on here.

The second reason for taking this with some care and caution arises out of the Trendtex case, to which the noble and learned Lord referred. Again, I cannot discuss and would not want to discuss the merits of that case, but the fact is—and it is a fact—that this particular piece of litigation concerning proceedings by a Swiss company against the Central Bank of Nigeria, which I think I am right in saying has no office in London (the noble and learned Lord will correct me if I am wrong) and raising the question whether the Bank is an agency or Department of the State of Nigeria and, if so, whether it is entitled to immunity, is now pending before this House in its judicial capacity.

In the Court of Appeal, after prolonged argument conducted by the most eminent Queen's Counsel, among whom was included the Professor of International Law at Oxford University, important, though not altogether unanimous, pronouncements were made as to the present state of international law on State immunity in commercial matters. I do not think there is any case so far on our books in which such a profound examination has been carried out, and what the members of the Court of Appeal said on that matter as to international law generally will undoubtedly have to be considered when the case reaches this House.

If this House were to endorse some of the wider views expressed in the Court of Appeal, it might appear that the Bill follows a more restrictive line on State immunity than is generally warranted by international law, and that would surely be unfortunate. I would suggest that this Bill, based on the European Convention but extending very widely beyond it, should be in line with, or at any rate should not be more restrictive than, the international law as it will ultimately be declared by the House of Lords

I must fill out that argument for a moment by reference to one or two concrete provisions in the Bill. Those which are most relevant and the core of the Bill are Clauses 3 and 4. I am not going to read them because noble Lords can see what they are dealing with. Clause 4 deals with contracts and says that a State is not immune as regards proceedings on contracts, but limits that particular case to contracts which fall to be performed wholly or partly in the United Kingdom. Clause 3 deals with commercial activities. That states in a very restrictive way that commercial activities must be conducted through an office, agency or establishment maintained for that purpose in the United Kingdom. With that one has to read Clause 15 in the Bill which deals with separate institutions. Parenthetically, I do not believe that either of those clauses would cover the Nigerian case, but that remains to be seen.

The point I would make is that Clause 3 of this Bill is of a very limited character and scope. It is far more limited than the corresponding clause in the United States Act, and the definition of the separate entity in Clause 15 is also very restrictive, even more restrictive than the corresponding article in the European Convention—Article 27. The reason why that is so is explained in the notes to the European Convention and I believe that these are worth bringing to the notice of noble Lords. In the notes to Article 7 in the European Convention, which is the article that corresponds to Clause 3 in the Bill, it is explained that if the article had been concerned only with jurisdiction it might have been framed in more general terms so as to cover all commercial activities having a territorial connection with the United Kingdom. In fact, that is the United States position and I suggest that that is the right position but it is not that taken by the European Convention and therefore not taken by the Bill because of the provisions in the European Convention about judgments, which is what we come back to again.

As has been pointed out, these provisions about judgments apply only as regards Convention countries. They will not apply to other countries—for example, Nigeria, India, Iran or the United States—so it surely must be undesirable to allow this vital Clause 3, which is the one dealing with commercial activities, to be narrowed as it is by the special requirements of Europe. Correspondingly the other way round it must surely be desirable to permit judgments in all cases to be enforced against commercial property of States which is not done in this Bill and is contrarily stated in Clause 14(4) except in relation to ships.

Clauses 3 and 4 are the core of the Convention. One could develop similar arguments on other clauses. It is not simply a question of drafting or of Committee argument. These clauses have assumed the form which they have because they have been derived from the European Convention, because the European Convention takes the form it does, because of its position about judgments so that as a matter of principle they rest on a very insecure foundation. I would respectfully suggest to noble Lords and to the Government that this Bill requires very careful study in the light of, first, the United States Act of Congress, which I do not feel has been sufficiently taken into consideration and, secondly, of the Trendtex case and whatever appraisal of the position in general international law may come out of that case.

The noble and learned Lord on the Woolsack was good enough to say that if the Trendtex case as decided here were to bring out any points which required consideration the Government would take them into account before the Bill was passed. I do not feel that that is quite good enough. The Trendtex case ought to be taken into consideration at the beginning, particularly in this House, and indeed it would be impossible for any of those of your Lordships who might be involved in the Trendtex case to suggest any amendments or take part in any discussion on the Bill while the Trendtex case was pending. That may not be a handicap but it would be a fact. We would be completely disabled from offering the benefit of our help to the House while that case was waiting to come on.

I very respectfully ask your Lordships to take this slowly, to give best consideration to this Bill in this House and not to leave it to a later stage in another place where the opportunities for amendment are much fewer than they are here, and on the contrary to give full consideration to the matters I have suggested before proceeding further with the Bill.

5.55 p.m.


My Lords, I too should like to add my thanks to those which have already been expressed to the noble and learned Lord the Lord Chancellor for the way in which he has introduced this Bill to us. The subject is indeed an important and very interesting one, and it is clear from what the noble and learned Lord, Lord Wilberforce, said that the House will have to give it most careful attention. I rise only to ask one question: what is the justification for Clause 24(4) which provides: This Act shall come into force on such date as may be specified by an order made by the Lord Chancellor by statutory instrument". I can see myself in some danger of making the same speech twice in the House on the same afternoon. My noble and learned friend the Lord Chancellor was not here for the discussion on the Theft Bill so out of courtesy to him I shall shortly recapitulate what I said on that Bill.

As my noble and learned friend will remember, once or twice lately we have had discussions in this House about what appears to be happening; namely, the transfer of power from Parliament to the Executive deciding when, if ever, although it has received the Royal Assent, a Bill is to come into force. When I asked my noble and learned friend whether there was not some form of legal procedure which Parliament could take against a Minister if he refused to bring an Act into force my noble and learned friend said, obviously rightly, that the matter was entirely in the hands of Parliament itself for letting the Executive get away with clauses of this kind. As I made clear in relation to the Theft Bill, may I explain to my noble and learned friend that I am not saying that every Bill should come into force as soon as it receives the Royal Assent. I do not think that. I suggest that, other things being equal, every Act ought to come into force or contain a provision by Parliament that it is to come into force a month after it has received the Royal Assent, the month being intended as a practical means because of the difficulty of lawyers in finding out what Bills are coming into force, whether or not they affect the sort of matters they have to deal with in their practices, sending to the Stationary Office to buy copies of Acts, reading and digesting them and so forth. Nor am I saying that there are not occasions when there are special reasons why there should be some delay after Royal Assent before an Act of Parliament is brought into force.

All I am suggesting is that Parliament in future should consider whether, in the particular Bill before them, it is not for Parliament to decide, and not a Minister, if and when an Act of Parliament is to come into force. Nothing was more interesting on the Theft Bill than the realisation from what my noble friend Lord Harris of Greenwich said, that there was not any reason at all why it should not come into force as soon as it received the Royal Assent. He assured us that the Minister had no evil intention in putting down the clause, but it was clear that there was no special reason at all—just a matter of general principle to take away from Parliament all the powers your can, and give them to the Minister. It is natural that those who advise Ministers should want Ministers to have these powers. While I have the greatest admiration for the qualities of civil servants in my experience, human nature is the same everywhere, and a man who has to draft Rules will say "There is no hurry because nothing can happen until our Minister makes an order; and our Minister will not do so until I have the Rules ready. So there is no hurry about it." It is almost inevitable.

From the point of view of the Minister, it is nice to have this power. But ought not these things to be decided in general by Parliament and not left to Ministers? There may be very good reasons, indeed, and particularly with a Bill of this nature, why it should not become law when it receives the Royal Assent. I am simply asking, if I may respectfully do so, what they are.

6.1 p.m.


My Lords, speaking for myself, I have the gravest misgivings about the contents of this Bill. It is based upon a European convention of 1972 and that convention was based on the international law, as some people thought it was. Furthermore, it was unduly restricted because of the judgment provisions which are contained in it. That was five years ago. That convention is out of date. Furthermore, it has been extended by this Bill not only to the European countries who signed it or ratified it but also to the whole world; and all the States of the whole world are affected, and our relations with them are affected with it.

Mention has been made of the Trendtex case. It is a very important case which, if our view in the Court of Appeal is right, has altered the approach to all these questions. If this Bill stands and goes through, our decision will have been wrong. But let me tell your Lordships the facts of the case. You should know them.

The Government of Nigeria, through its Departments, before 1975 ordered 20 million tons of cement from European suppliers; and they could not deal with it. They could deal with only 1 or 2 million tons coming into Lagos. Those European suppliers made contracts for the supply of that cement to Nigeria. Ships were chartered to carry the cement and payment was to be made by the Government of Nigeria through letters of credit issued by the Central Lank of Nigeria. Those letters of credit were through the office in Lagos, Nigeria, of the central bank. That bank had not got an office in London but only correspondence in London through the Midland Bank. I must say that there was so much cement ordered that they could not deal with that. When I was in Lagos there were 200 to 300 ships eating their heads off with demurrage running up waiting outside Lagos to get in. When the new military Government took over they cancelled those contracts. They found that the previous Administration had made contracts for cement which were unorthodox, imprudent or inequitable. So they cancelled the contracts.

What about the payment to the European suppliers? What about the ship owners with their demurrage? According to the letters of credit the order had been paid for by the Central Bank of Nigeria. Actions were brought in Germany against the central bank and this action was brought in this country through the Swiss suppliers, who had taken an assignment, against the Central Bank of Nigeria. That Bank of Nigeria pleaded State immunity: "We cannot be sued in the English courts." The Central Bank of Nigeria was not independent; it was simply an entity, an organ of the State of Nigeria. I do not say anything about the rights or the wrongs; but the claim was that they could not be sued. The European suppliers and the shipowners could not get any money; although there might be assets in England if they only got a judgment.

The Court of Appeal held, whether right or wrong, that the Central Bank of Nigeria was not an organ of the Central Government—and we might have been wrong about that. We also said that, if it was an organ of the State of Nigeria, on a commercial transaction like this there was no plea of State immunity available. Were we right or were we wrong? The House of Lords, I trust, will decide. But if this Bill goes through as it stands, that plea of immunity would prevail. The opening clause is quite out of date. Clause 1 says: A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in … this Act". And what of the development of immunity here. Clause 3, relating to all commercial properties, says: A State is not immune as respects proceedings relating to any commercial, industrial or financial activity in which it has engaged in the same manner as a private person through an office, agency or establishment maintained by it for that purpose in the United Kingdom". The Central Bank of Nigeria, so far as I know, have no such office.

I would agree with every word of the speech of my noble and learned friend Lord Wilberforce. When you look at the explanatory notes in this convention, it is limited in that way simply because they have the judgment enforcement provisions. It might have been possible to have framed it in more general terms so as to cover all cases where a State engages in commercial and so forth activities. This Bill is, as I suggest, doing quite wrong. It is giving immunity, when it ought not to be given, to some of these State corporations. My noble and learned friend said, "Right!" So many of these countries now do not trade in their own names or through their own nominal Departments. They have their own organisations. This Bill does nothing to deal with it. There is the clause dealing with separate entities. I wondered myself if they had only thought of a case we have had about Polimpex, the Polish State organisation. This is another case I can tell you about.

The Polish State organisation agreed to sell 200,000 tons of beet sugar to the English merchants, Czarnikow, the great sugar dealers, in London. They agreed to sell it and then when the crop was harvested they had not got 200,000 tons of beet to spare. They wanted it for their own people in Poland; and so they broke the contract with the London merchants. Is Polimpex entitled to immunity from the commercial courts of this country? There is evidence as to what Polimpex was. They do not have separate companies, nationalised undertakings or the like. They have a whole string. They have these organisations and goodness knows whether it would be a separate entity for that purpose. Clause 15 goes on to say that it is only a separate entity which under the law of that State is "capable of suing or being sued". You are going to have all sorts of questions. Do you think those corporations behind the Iron Curtain are "capable of suing or being sued"? I do not know; but some lawyers may tell us. I mention these matters merely to show what we are getting into.

My Lords, take Clause 4, which, again, my noble and learned friend mentioned: A State is not immune as respects [a contract] which falls to be performed wholly or partly in the United Kingdom …". It is immune as respects all other contracts; the only exception is when it is performed in the United Kingdom. What about the charter-parties we have every day in our courts, or even the sugar case that I mentioned? English merchants buy here under a contract but they sell the goods on, and they are supplied to some other, far-off countries. We heard a case in which a ship was chartered to carry fertiliser from Poland to Pakistan. The contract was negotiated through the London market, and the firms were governed by the law of England, in London. It was a German ship, it got to Karachi, bombing was taking place there, the ship was delayed and there was a claim against the charterers, Pakistan. Is there immunity, or not? The contract was not to be performed in England, but elsewhere. As my noble and learned friend says, Clauses 3 and 4 do not affect only this Continent of Europe and the countries which have signed the Convention: they affect all the countries of the world, whether it be Africa through to India and Pakistan, or Poland behind the Iron Curtain.

International law is not static. The whole of this law has been developing rapidly since 1972. The framers of this Convention and, I am afraid, of the Bill have gone by the law as it was. When I first started, there were three cases saying that States had absolute immunity: The "Cristina", reported in 1938 Appeal Cases; Dollfuss Mieg, reported in 1952 Appeal Cases; and Rahimtoola, reported in 1958 Appeal Cases. The framers of the Bill have not had any regard to the cases which have developed since 1972. I have them here; they are all in the last year or two. There is The "Philippine Admiral", in 1977 Appeal Cases. That, again, is a case in which a Philippine Government ship went into Hong Kong, where repairs were done and goods supplied to the ship. The suppliers want to sue and get their money. The Philippine Government claim State immunity and, according to a case in 1920, the ship could not even be arrested. Fortunately, the Privy Council said it could, and that has been a step forward. That case is reported in 1977 Appeal Cases. Then there is the case of Trendtex which I have just cited, reported in 1977 Queen's Bench 529, on appeal to this House. Then there is the Thai case, reported in 1975 1 Weekly Law Reports 1485. I could go through them all. This Bill, it seems to me, has not taken into account the developments in the law since 1972.

Furthermore, it is a very unwise thing to deal with these matters of international law by legislation in regard to one country. This Bill, if it is passed into our statute law, will sterilise it and stabilise it, if you like, for the United Kingdom.

Other countries may become more liberal: we shall stand still. International law changes. There may be no reciprocity behind the Iron Curtain. They still believe in absolute immunity. I hope they will come round later. In the United States, there has been a case which has not been taken regard of. It was a very important case in 1976 in the Supreme Court, when a more liberal view was taken, not allowing this absolute immunity and giving freedom of action in regard to all commercial and financial transactions. That was in 1976; and Congress has this legislation before it. In fact, in this sort of field we ought not to legislate by Act of Parliament so as to fix the law of this country in this way.

How do they try to get over it here? Clause 16, I think, is the one which says that if there is any trouble about a country not giving reciprocity to us, not "doing as you would be done by" and all that sort of thing, the matter will be reviewed and it will be altered by Order in Council. If these other countries are not giving our people immunity, privileges and the like, Her Majesty can provide for them by Order in Council. Goodness! that is shutting the stable door after the horse has gone. When are we going to find out whether they give the immunity or privileges? Do we have to wait until the cases come on in their courts, or someone tells us? And when is this Order in Council going to be made? In truth, international law is not perceptible of legislation in this sort of way.

My Lords, those are the misgivings I have had. I would, if I may, endorse every word that my noble and learned friend Lord Wilberforce has said. He has had great experience of arguing and hearing these cases, and we have had a good deal in the Court of Appeal. It is not a technical Bill. It is a most important Bill affecting our financial and commercial organisations, especially in the City of London, which, these days, has its contracts with countries and State organisations all over the world. It is of the greatest importance; and I ask that it be not proceeded with, at all events until after the House of Lords has heard and considered the important Trendtex case, which surely will throw a whole new light on this subject.

6.17 p.m.


My Lords, I certainly cannot claim that this Bill has received an enthusiastic reception in this House. Of course, we shall naturally consider very carefully all the matters which have been raised by noble and learned Lords of great expertise. It is the case that this Bill comes before your Lordships at a time when the Trendtex case is waiting to be considered, which I understand will be fairly shortly, by noble and learned Lords, and for that reason I am not going to enter into discussion of a matter which is eminently sub judice. We have heard the most eloquent intervention, if I may say so, by the noble and learned Lord, Lord Denning, nothing fearing, into the merits of the case, but I think that perhaps I ought myself to refrain. Perhaps your Lordships ought to know that the judge at first instance—a judge of great commercial standing—took a view different from that of the noble and learned Lord, Lord Denning, as did one of his colleagues in the Court of Appeal; but I am not the sort of person to make that sort of point—not very much. But there it is. Of course we shall consider the effect of the Trendtex decision upon this Bill; and I hope that it may still be possible (if I may so put it) to pick the brains of the noble and learned Lord, Lord Wilberforce, and his colleagues to help us in further consideration of this Bill.

The Bill, and particularly Clause 3, has been criticised by the noble and learned Lords, Lord Wilberforce and Lord Denning, as being too narrow in relation to States not parties to the 1972 Convention. That indeed may well be so, but I think at least it can be claimed for it that it follows the European position; and it can also be said—and it is the case—that the world position is certainly not readily agreed. The position taken by the United States certainly goes further than would be agreed internationally. In relation to the United States legislation we did our best to restrict some of its impact.

But may I say this to the noble and learned Lord, Lord Denning, in regard to what effect this Bill might have had in the remarkable circumstances of the long line of ships loaded with cement which could not get into Lagos—I think we saw it at about the same time. If this Bill had been law at the time when those unhappy events occurred, there would have been several grounds on which the Government of Nigeria could have been deprived of immunity. For instance, the impact of Clause 4, in that letters of credit were drawn on United Kingdom banks. One might have claimed that an obligation to be performed partly in the United Kingdom would be derived from those circumstances. Then Clause 15 in relation to State entities having no immunity here. The Bill does not change the law on what is a separate entity, and that is a question of fact, including the relevant foreign law. If I may say so, with great respect, I think the Bill has been too readily dismissed in regard to its potential impact on a Trendtex situation.

The noble Baroness who spoke from the Opposition Front Bench welcomed the Bill subject to the criticisms that she made, as I understand it. The noble Baroness criticised the absence of legal sanctions against foreign States to enforce judgments. As I indicated in my opening speech, certainly there is no general power of enforcement and there would be no coercive action available. It is, however, generally accepted that States do not take coercive action against each other or their property. It is not a good thing; it is something to be discouraged. The United States Act contains, as I am informed, many safeguards and only allows execution in limited circumstances.

It is the case that execution against the property of another State could create international tensions; and, on the whole, one hopes—and, broadly speaking, it is the case—that States must rely on each other's compliance with legally established obligations. That broadly is the rule of the game, these days; and it applies equally to countries like China and the Soviet Union, so far as I understand. Happily, we are not living in an international jungle in the commercial field. I have reasonable confidence that the procedures that will enable the obligations to be fulfilled by agreement and by arrangement without powers of enforcement ought to work reasonably satisfactorily. If we reach the stage where they do not, then international commerce will be in a very had condition indeed.

The noble Baroness was also concerned about the impact of the Bill on the raising of loans here. As I understand it, a foreign State has the choice. If it waives immunity in advance, in, for instance, the loan contract there will be no immunity, in accordance with the provisions of subsections (1) and (2) of Clause 2 of the Bill. If it does not waive immunity, there will be immunity unless it has an office in the United Kingdom, as provided for in Clause 3. But the loan will then not perhaps be so attractive to lenders. I certainly will bear in mind and discuss with my colleagues the matters of criticism which have been raised. In my view this Bill constitutes an important advance. It improves the position of those engaged in commerce and will improve the position of corporations functioning in this country. I will certainly undertake that the Trendtexcase will be considered most carefully.

My noble and learned friend Lord Gardiner raised the question—not, if I may say so, for the first time, but I make no complaint about that—as to why there is need for Clause 24(4) in this Bill which defers the coming into force of the Bill to a date to be specified by statutory instrument. He was kind enough to say that there might be special reasons in certain cases for delay; and there arre, I venture to suggest, in this case. First of all, Orders in Council have to be made, under Clause 15(3) of the Bill, to confer State immunity on constituent territories of federal States. Steps have already been taken to draw the attention of relevant Commonwealth countries to the Bill and to invite them to make requests for State immunity to be conferred on their constituent parts—for instance, the Canadian provinces—in due course. That process may not be completed by the time that the Bill is enacted. Then, Orders in Council will be needed if the Bill becomes law under Clause 16 to extend the immunities in relation to one or two countries where they conflict with bilateral agreements which are already in force. For example, under the Protocol to the 1968 Treaty of Merchant Navigation with the USSR no execution may be levied against merchant ships. The immunity from execution conferred by Clause 14(5) on non-commercial ships will therefore have to be extended to Russian merchant ships. Finally, Rules of Court will be needed for the procedural matters and the new procedural provisions, which are set out in Clauses 13 and 14. Frankly, I cannot at this moment of time anticipate that this further work which will remain to be done can be completed in anything like the period of a month that my learned friend had in mind.

Certainly we attach importance to the Bill. I am dismayed at the reception it has had from one or two noble Lords. All I can say is that we will look at it again. Our concern here as a Government is to assist the commercial trading activities of our country, certainly not to restrict it. This matter has been needing attention for about 50 years in the maritime field. It has been pressed for for decades in the fields which the Bill seeks to cover.

We have certainly given careful consideration to the earlier cases. I thought that the noble and learned Lord, Lord Denning, did less than justice to those who have been working on this Bill in suggesting that they disregarded all the other learned authorities. That is not so. We have given them careful thought. In my submission, the basic suggestion of the noble and learned Lord, Lord Denning, to replace the Bill with the learning that may emerge ultimately from noble and learned Lords in the Trendtex case, would be frankly a step backwards.

The decision in that case will not remove immunity in many areas where this Bill does so—for instance, Clause 6, personal injuries, Clause 7, real property, Clause 8, patents, and so on, and Clause 10, arbitrations. Are all those protections to go by the board? I think that if the noble and learned Lord, Lord Denning, gives further thought to this he may well think that the Trendtex case itself would not provide all the answers, even if they all agreed with the noble and learned Lord, Lord Denning. My Lords, that is all I have to say on this difficult matter and I will not detain your Lordships' House further on this occasion. We shall have to return to it again, of course.

On Question, Bill read 2a, and committed to a Committee of the Whole House.