In what circumstances is it possible for a state or state entity to invoke state immunity in connection with the commencement of arbitration proceedings?
International Arbitration (2nd Edition)
Under the Chilean Constitution, the law must authorize all of the state acts as well of the acts of its entities (Principio de legalidad). This means that, if the state or one of its entities wants to participate in an arbitration proceeding, there must be a law that specifically allows them to enter into arbitration.
In foreign investment matters, Chile has signed several Free Trade Agreements as well as Agreements on Promotion and Protection of Investments, all of which provide for international arbitration as the dispute resolution system, whether it may be an institutional or ad hoc arbitral tribunal.
Chile also has a specific law that regulates the international contracts celebrated by the public sector (Decreto Ley No 2.349, dated October 1978). Under such statue, the Chilean state or one of its entities may agree on an arbitral clause in the international contracts celebrated between them and a foreign organization, institution or company. The international contract’s main purpose shall be the regulation of business relations or economical or financial matters between the parties.
Finally, the International Commercial Arbitration Law No 19.971 (ICAL) states in its Article 1(1) that such statue shall apply without prejudice of any multilateral of bilateral treaty in force in Chile, and its Article 1(5) states that it shall not affect any other law by virtue of which certain matters may only be submitted to arbitration under other statues different than ICAL.
Consequently, and accordingly to all of the above mentioned laws and regulations, the Chilean state or one of its entities, may invoke state immunity for the commencement of an arbitration proceeding, when they have not specifically agreed on arbitration in an international contract or an international treaty celebrated with a foreign state or entity.
As a rule, Portuguese courts consider that a State can invoke immunity from jurisdiction from acts that are jus imperii as opposed to acts of juri gestionis.
Additionally, the limitations and extension of sovereign immunity are determined in accordance with the European Convention on State Immunity and its Additional Protocol and the United Nations Convention on Jurisdictional Immunities of States and Their Property.
States may in principle benefit from immunity against any legal action before the court of another country or an arbitral tribunal (‘immunité de juridiction’), if they have not entered into an arbitration agreement (generally considered as a waiver). Yet, a state could still challenge the jurisdiction of an arbitral tribunal by arguing that it did not consent to have recourse to arbitration.
In the first place, it is noted that there are very little statutory rules in Switzerland concerning state immunity. Also the question whether a state or state entity may invoke its immunity in connection with the commencement of arbitration proceedings is not expressly regulated.
As one of the very few rules, in terms of international arbitration art. 177 para. 2 PILA stipulates that a state, an enterprise held by a state, or an organization controlled by a state may not invoke its own law to contest its capacity to be party to an arbitration agreement or use its own laws as a defence against the arbitrability of the dispute. The legal doctrine, for the most part, agrees that it can be derived from the ratio legis of the aforementioned provision that it is not permissible for a state or a state entity to plead immunity from jurisdiction before an international arbitral tribunal seated in Switzerland.
The legislation on domestic arbitration does not contain a provision comparable to art. 177 para. 2 PILA. Thus, it remains uncertain whether immunity is a permissible defence in domestic arbitrations.
Generally, where a state has validly agreed to arbitration, it cannot invoke state immunity or rely on its own national law to contest its capacity to be a party to arbitration proceedings. The arbitration agreement (be it in a commercial contract or a treaty) constitutes a waiver of the state’s immunity with regard to the scope outlined in the arbitration agreement or the treaty, respectively.
It is important to note that German courts consider this waiver to also encompass exequatur proceedings (i.e., proceedings about the declaration of enforceability of the award resulting from the arbitration). However, with regard to the subsequent enforcement as such, sovereign assets are still immune from enforcement (see question 32).
Ukrainian law recognises State immunity in respect of court proceedings, but does not specifically address immunity in international arbitration. There is currently no court practice addressing this issue either.
The Panama Arbitration Law expressly provides that a state or state entity cannot invoke state immunity to avoid its obligations under an arbitration clause.
There is no concept of immunity for the state or state entity, in the UAE. The claimant must however submit its claim to the Government of Dubai Legal Affairs Department (the “DLAD”), before it can issue an action. The DLAD will then attempt to settle the dispute amicably within a fixed period of time. After the expiry of such time period, the claimant may proceed with its claim against the state or state entity.
It is generally accepted under Swedish law that a valid arbitration agreement constitutes a waiver of sovereign immunity, with the possible exception for immunity from execution. With respect to the latter, a state or state entity does not enjoy immunity with respect to activities of commercial nature, whereas activities connected to the sovereignty per se arguably are covered by state immunity.
This being said, it is highly likely that a tribunal will accept jurisdiction over a dispute even where the state or state entity has invoked state immunity in connection with the commencement of arbitration proceedings. The potential problems in relation to the subsequent enforcement of the award should be of no concern for the tribunal in this respect.
Section 2.2 of the SAA denies the possibility of a state or a state entity to oppose the prerogatives of its own law in order not to comply with obligations resulting from an arbitral agreement.
Nevertheless, a ruling issued by the Spanish Constitutional Court (TC 107/1992) confirmed its immunity from enforcement and that the premises and assets of diplomatic missions and consulates cannot be seized according to Section 21.2 of the Judicial Power Act, the Vienna Convention on Diplomatic Relations of 1961 and the Vienna Convention on Consular Relations of 1963.
There are no specific provisions governing state immunity. However, after the state consented to arbitration (by concluding the arbitration agreement or by virtue of an international treaty) there should be no legal ground for the state to invoke state immunity in connection with the commencement of arbitration proceedings.
The application of the doctrine of immunity from suit has been restricted to sovereign or governmental activities. The mantle of state immunity does not extend to commercial, private and proprietary acts.
There is no provision where a state or state entity to invoke state immunity.
Article 190 of the Constitution of Ecuador states that Ecuador recognizes arbitration, mediation, and other alternate mechanisms for the resolution of disputes. Arbitration may be applied according to the law only in matters, including commercial matters, that may be subject of settlement. Sovereign powers of the State cannot be submitted to arbitration.
The Republic of Ecuador and Ecuadorian public entities can enter into arbitration agreements with private individual or entities and stipulate arbitration in law (not in equity), subject to the provisions of the Constitution of the Republic and the law so long as legal requirements are met. If they have not signed a valid and binding arbitral agreement on an matter that can be submitted to arbitration, the state or state entity would invoke sovereign immunity.
Domestic Arbitration. The State and State entities are permitted to stipulate arbitration in law, but not in equity. If the State or State entity wishes to enter into an arbitration agreement after a dispute arises, the prior favorable opinion of the Attorney General of Ecuador is required.
International Arbitration. For the State and State entities submit to international arbitration, the prior authorization of the maximum authority of the relevant State entity and the prior favorable opinion of the Attorney General of the State Office is needed.
The final paragraph of Article 422 of the Constitution expressly sets out that, in the case of disputes regarding (public) external debt, the Ecuadorian State must procure solutions by means of arbitration, taking the origin of the debt into account, and subject to the principles of transparency, equity, and international justice. Moreover, submission to international arbitration or to foreign law and foreign jurisdiction in lending transactions is possible under the provisions of the Code of Planning and Public Finances.
State immunity may not be invoked. However, for administrative contracts, the approval of the Minister in question is required to have a valid agreement to arbitrate.
In the event that the Norwegian state or a state entity has agreed to arbitration, it will not invoke state immunity in connection with the commencement of arbitration proceedings. However, it should be noted that the state, and indeed certain state entities, are generally reluctant to enter into arbitration agreements.
It is generally understood that the state may act not only as a state (iure imperii), but it may also act in a commercial capacity (iure gestionis). This means that the state may not invoke immunity in the arbitration proceedings which are of private or commercial character.
Cyprus Courts have recognised the defence of state immunity but have clarified that it does not extend to the actions of foreign states which are of a financial and commercial nature that could also be conducted by a natural person (jure gestionis). A state may invoke such immunity via its Defence to the proceedings, and the Tribunal shall decide accordingly.
While states may in principle benefit from immunity against any legal action before the court of another country or an arbitral tribunal (immunité de juridiction), it is possible for a state to waive such immunity. Under French case law, a state waives its immunity from arbitration proceedings by entering into an arbitration agreement (see Court of Cassation, First Civil Chamber, 18 November 1986, No. 85-11.404). Yet, a state could still challenge the jurisdiction of an arbitral tribunal by arguing that it did not consent to have recourse to arbitration (see Paris Court of Appeal, 12 July 1984, 1985 JDI 129).
If a state or a state entity has accepted the jurisdiction of a tribunal it is in principle not possible for such state or state entity to raise a defense of state or sovereign immunity in connection with the commencement of arbitration proceedings. The prevailing view is that the acceptance of an arbitration agreement is tantamount to a waiver of immunity from jurisdiction.
Where an arbitration has been commenced in respect of disputes where the State has acted as a State and not as a commercial actor, state immunity may be successfully invoked. The restricted doctrine of immunity applies in Nigeria. African Re-insurance Corporation v. AIM Consultants Ltd. (2004) 12 NWLR (Pt. 884) 223. State immunity can also be claimed where it is clearly granted by statute.
According to customary international law, states or state entities may not invoke immunity relating to non-sovereign, commercial acts (acta iure gestionis).
Entering into an arbitration agreement, may even be regarded as a waiver of immunity in relation to sovereign acts (acta iure imperii) as far as subjected to the arbitration agreement. In this context, it may be noted that Austria is party to the Council of Europe’s European Convention on State Immunity, which stipulates that a state being a party to an arbitration agreement may not invoke state immunity in relation to proceedings concerning this arbitration agreement. This is also set out in article 17 of the UN Convention on Jursidictional Immunities of States and Their Property, which Austria ratified in 2006 but has not yet entered into force (21 ratifications out of the necessary 30), as well as in Austrian legislative materials thereto.
Filing an action for annulment of an award or filing a motion under the Austrian Civil Procedure Code by a state may also be regarded as such waiver of immunity.
Under the Foreign Sovereign Immunities Act, a sovereign state is immune from judicial process (including court proceedings under the FAA) unless one or more enumerated exceptions to state immunity apply. One such exception is where the state has waived its immunity by contract and entered into an agreement to arbitrate, subject to additional restrictions. See 28 U.S.C. 1605(a)(6); Corporacion Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploracion Y Produccion, 832 F.3d 92, 107 (2d Cir. 2016), pet. for cert. dismissed, 137 S. Ct. 1622, 197 L. Ed. 2d 746 (2017). However, a waiver of immunity from suit does not constitute a waiver of immunity from attachment of assets. See question 32 for more on sovereign immunity and enforcement.
According to legal literature and case law, a State which agrees to arbitration may not invoke its sovereign immunity in order to challenge and escape the jurisdiction of the arbitral tribunal. Such a defense is deemed waived.
The Israeli Arbitration Law does not include any reference to the issue of raising a state immunity in connection with the commencement of arbitration proceedings. In general, with regard to the State of Israel, when the state is a party to a valid arbitration agreement, it is bound by it and is unable to claim immunity. Therefore, also at the stage of enforcing the arbitral award, there is great doubt that it may raise a claim of immunity.
As for foreign states, the Foreign States Immunity Law, 5769-2008 provides that in the event that a foreign state agreed in writing to refer to arbitration a dispute that has emerged or may emerge in the future, it will have no immunity against jurisdiction, with respect of court proceedings relating to the arbitration, unless otherwise provided for in the arbitration agreement. However, the provisions of this section will not apply to an arbitration agreement between states which are subject to the provisions of the public international law, except for such agreement that one of the parties to which is a separate entity which is not a central bank.
The State Immunity Act 1978 (the 1978 Act) allows a state to be bound in arbitration proceedings if it has agreed to submit to arbitration to resolve a dispute that has arisen, or may arise (s.9(2)). Otherwise it can claim immunity.