Issue 2, 2008 - Sovereign Immunity

This case provides a useful opportunity to consider the position under English law when Members contract with state entities.

English law provides a presumption that a state is immune from English court proceedings. However this is subject to a number of exceptions. These include commercial transactions entered into by that state, which are defined to include any contract for the supply of goods or services. This exception should therefore embrace most shipping transactions.

However the majority of shipping contracts contain arbitration clauses. An arbitration agreement should amount to a waiver of sovereign immunity, but occasionally intervention by the English court may be needed to enforce the agreement. In this scenario a further exception to the principle of

state immunity applies, provided the arbitration agreement is in writing.

Occasionally there might be the need to secure or enforce a claim against the assets of a state. Difficulties may be encountered when dealing with diplomatic assets or those of a central bank. However ships owned by a state can be arrested in England to enforce a claim against that state, provided that at the time the cause of action arose, the ship was in use or intended for use for commercial purposes.

It follows therefore that state immunity can rarely be invoked successfully in the context of a shipping transaction. As the recent ruling shows however, this has not stopped some states from claiming immunity to avoid debts and Members should consider these risks when contracting with state owned entities.