UK Supreme Court Holds Sovereign Immunity Does not Bar Execution of US Judgment on Argentina’s Assets in Britain

The Supreme Court of the United Kingdom has ruled that the Republic of Argentina cannot invoke sovereign immunity to prevent execution of a United States court judgment on assets in the United Kingdom that are owned by the South American country. NML Capital Limited  v. Republic of Argentina [2011] UKSC 31  (Jul. 6, 2011). The claimant, a Cayman Islands-based hedge fund named NML Capital Limited, obtained a judgment in excess of US$284 million against Argentina in the U.S. District Court for the Southern District of New York. The judgment represented amounts payable on defaulted bonds that  the republic issued in February and July 2000.

NML sought to execute on the judgment in the U.K. When the High Court granted NML permission to serve the claim form out of the jurisdiction on Argentina, the Argentine government applied to set aside the court’s order on the ground that it was shielded by sovereign immunity. The High Court rejected the sovereign immunity argument, but the Court of Appeal disagreed.

The Supreme Court concluded that the Argentine Republic could not invoke sovereign immunity to defeat NML’s judgment collection action. In its judgment, the court explained that legal theory regarding sovereign immunity has evolved over time. Although states were once considered to be absolutely immune to judicial procedure in the courts of foreign nations, the prevailing “restrictive doctrine” of state immunity views immunity as appropriate only as to “governmental acts in the exercise of sovereign authority (acta jure imperii) but not to commercial activities carried on by the state (acta jure gestionis).” The restrictive doctrine of sovereign immunity is reflected in 3(1)(a) of the State Immunity Act 1978, which provides that “proceedings relating to a commercial transaction” are not subject to sovereign immunity. Section 3(3)(b) of the 1978 Act defines “commercial transaction” as including “any loan or other transaction for the provision of finance…”

Lord Phillips, who wrote the leading judgment and was joined by Lord Clarke, concluded that “proceedings relating to … a commercial transaction” includes proceedings relating to a judgment which itself relates to a commercial transaction. Therefore, in the view of Lords Phillips and Clark, the commercial transaction exception to the State Immunity Act applied to NML’s action to execute on a judgment. Lords Mance, Walker, and Collins disagreed with this interpretation but nonetheless found that Argentina could not invoke sovereign immunity because of 31 of the Civil Jurisdiction and Judgments Act 1982. Section 31 of the 1982 Act provides, in relevant part, as follows:

(1) A judgment given by a court of an overseas country against a state other than the United Kingdom or the state to which that court belongs shall be recognised and enforced in the United Kingdom if and only if…

(a) it would be so recognised and enforced if it had not been given against a state; and

(b) that court would have had jurisdiction in the matter if it had applied rules corresponding to those applicable to such matters in the United Kingdom in accordance with sections 2 to 11 of the State Immunity Act 1978

The court also concluded that language in the dispute resolution provisions of the Argentine bonds constituted a submission to the jurisdiction of the English courts and a waiver of sovereign immunity.

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