Public International Law Key Insights: Sovereign Immunity and State Responsibility

January 1, 2024

The new Foreign State Immunity Law ("FSIL") came into effect in the People's Republic of China ("PRC") on January 1, 2024. The FSIL provides various exceptions to the doctrine of immunity in relation to foreign States. This marks a significant change from PRC's previous position, whereby foreign States enjoyed immunity from suit and execution regarding all transactions and doctrine.

Regarding immunity from suit, a foreign State is now unable to invoke the doctrine of immunity in the context of arbitration if it involves a commercial activity and the issue involves the validity of the arbitration agreement, validity and enforcement of arbitral awards, or any other issue in relation to arbitration. It is also possible for a foreign State to expressly waive its immunity in its contract.

In terms of execution, the FSIL prohibits foreign States from invoking the doctrine of immunity where the target of the execution of arbitral award is an asset within the PRC, if the asset is used for a commercial purpose and is relevant to the arbitral proceedings. Similar to immunity from suit, a foreign State may also expressly waive its immunity of execution in writing.

The restrictive approach to the doctrine of immunity adopted by the PRC government is likely to encourage parties to adopt arbitration as the dispute resolution mechanism when parties enter into contractual relationships. The recognition of the validity of arbitration agreements and arbitral awards involving foreign States also reflects the pro-arbitration approach adopted by the PRC government. On the other hand, parties should be careful during contract drafting in light of the recognition of express waiver under the FSIL.

January 19, 2024

Justice Dias, sitting in the Commercial Court of England and Wales, ruled in Border Timbers Ltd v Republic of Zimbabwe that state immunity cannot be raised as a defence at the confirmation stage of a foreign arbitral award. The decision, described by Justice Dias as "a novel approach for which there is no direct authority", also rejected claims that Zimbabwe waived its sovereign immunity defences by signing the ICSID Convention. In so doing, the decision departed from those issued by other common-law courts, including by Justice Fraser in Infrastructure Services Luxembourg Sarl v Spain [2023] EWHC 1226 (Comm) as well as those in Australia, New Zealand and the United States (who have interpreted Article 54 of the ICSID Convention as amounting to a submission to jurisdiction for the purposes of sovereign immunity defences).

In the underlying arbitration, brought under the Switzerland-Zimbabwe BIT, claimants were awarded USD 124 million (along with moral damages and costs) for expropriation by Zimbabwe. After the enforcement order was served in 2022, Zimbabwe applied to set aside the registration order under the UK State Immunity Act of 1978.

Justice Dias held that courts do not exercise any discretion over the registration of ICSID awards if the other procedural requirements under UK law are met. She also determined that Article 54 of the ICSID Convention is not a general waiver of immunity, in that it waives immunity in relation to recognition and enforcement, but not in relation to other steps such as execution against assets. Both of these holdings were in contrast to Justice Fraser's decision in Infrastructure Services. In further contrast to Infrastructure Services, Justice Dias held that courts must independently satisfy that there is a valid consent to arbitration and are not bound by a tribunal's findings as to its own jurisdiction.

The English Court of Appeal will take up both Border Timbers and Infrastructure Services on appeal. In the meantime, parties should be mindful of this split in authority.

January 19, 2024

On January 19, 2024, Ghana Power Generation Company Limited ("GPGC") filed a petition in the US District Court for the District of Columbia to enforce the USD 128 million balance that remains from an UNCITRAL award against the Republic of Ghana. Ghana has yet to appear in the proceedings and now risks a default judgment.

The enforcement effort stems from Ghana's refusal to pay GPGC for an emergency purchase agreement to provide two gas turbine power plants. Ghana reconsidered the relevant agreement — entered into on June 3, 2015 between the parties and ratified by Ghana's parliament on July 23, 2015 — after its December 2016 elections. When the new government sought to terminate the agreement in February 2018, GPGC commenced the arbitration. The tribunal issued its final award on January 26, 2021, awarding GPGC USD 134.3 million and USD 3.3 million in costs (plus interest on both amounts). The petition filed in the DC District Court — brought under the New York Convention and the US Federal Arbitration Act — seeks payment of the USD 128 million balance.

After GPGC filed an affidavit in support of default on April 23, 2024, the clerk entered default the next day. At the time of writing (May 2024), Ghana has yet to appear in the enforcement action.

March 13, 2024

In Commisimpex v Congo-Brazzaville, France's Cour de Cassation, the highest civil and criminal court, rejected the Republic of Congo's request to nullify and release the seizure of an aircraft. The Falcon 7X, which served as the presidential jet, had been seized while undergoing maintenance work in southwest France in June 2020, as part of a series of legal proceedings brought by Commisimpex against Congo for unpaid public works invoices.

Congo appealed the Paris Court of Appeal's judgment from June 3, 2021, which had upheld Commisimpex's seizure of the aircraft. Congo contended that immunity applied to all property designated by foreign governments for the exercise of their diplomatic activities, and that the Court of Appeal had interpreted the scope of Commisimpex's authority to execute on the Republic of Congo's property too broadly. Congo also maintained that forced execution on this property could be valid only if it had expressly and specifically waived immunity on the property.

France's Cour de Cassation, however, rejected Congo's arguments. The court referenced principles of customary international law, under which a state's general waiver of immunity from execution was sufficient without any special waiver. Citing the Vienna Convention on Diplomatic Relations, the court also noted that premises, furnishings, and modes of transportation for diplomatic missions could not be subject to seizure or enforcement measures. In this case, the court observed that it was neither supported nor demonstrated that the aircraft was used by Congo's diplomatic mission in France, rather than for diplomatic activity by Congo's president. As such, the court considered Congo's express waiver of immunity to be sufficient.

Accordingly, claimants attempting to attach assets in France used in diplomatic activities must be prepared to delineate between assets used by a head of State for diplomatic activities or by a diplomatic mission itself, given the requirement of a special waiver of immunity for diplomatic assets.

April 24, 2024

Following Russia's invasion of Ukraine in early 2022, the Group of Seven (G7) countries collectively froze nearly USD 300 billion in Russian foreign currency reserves held abroad, with the bulk held in Germany, France, and Belgium. On April 24, 2024, as part of a broader foreign aid package, the US Congress passed the Rebuilding Economic Prosperity and Opportunity for Ukrainians ("REPO") Act, which President Biden then signed into law.

The REPO Act broadly prohibits the release of nearly USD 6 billion of frozen Russian sovereign assets based in the United States until the US President can certify that hostilities between Russia and Ukraine have ceased, and Russia has either compensated Ukraine or is taking part in international mechanisms to do so. Moreover, the law permits the President to confiscate and allocate these funds into two newly created Funds: (i) a "Common Ukrainian Fund" managed by G7 nations and (ii) a domestic "Ukrainian Support Fund" administered by the US Secretary of State and USAID. Both of these resources can then be used to support Ukrainian reconstruction efforts.

Although the REPO Act attempts to preclude judicial review, the Russian government could nonetheless try to challenge its implementation. The legislation raises unique questions about sovereign immunity, as central bank assets typically receive a high level of protection under international law. Russia has already created regulatory frameworks that limit multinationals' ability to extract cash from Russia or sell Russian assets. Moreover, since Russia remains a party to treaties governing the enforcement and mutual recognition of court judgments, it could act against multinationals in other countries. These developments add further complications and risks for foreign investors in Russia.