October 3, 2017
The DIFC Court recently issued its first ever decision on sovereign immunity. Neither the UAE nor the DIFC has any legislation expressly conferring sovereign immunity upon foreign states.
In a decision welcomed by the investment community, Justice Sir Jeremy Cooke dismissed arguments by the Kurdistan Regional Government of Iraq (the KRG) that it was entitled to state immunity.
The KRG had sought to avoid the recognition and enforcement in the DIFC of arbitral awards exceeding US$ 2 billion rendered against it in favour of Pearl Petroleum (a consortium majority owned by UAE’s Crescent Petroleum and Dana Gas).
The action was part of a global enforcement campaign against the KRG, led by Gibson Dunn’s London, New York, Dubai and Frankfurt offices, to recover more than US$ 2 billion that remained unpaid under the awards.
Justice Cooke found that the KRG had comprehensively waived any available defence of immunity by contractually agreeing to: "waive on its own behalf and that of the KRG any claim to immunity for itself and its assets". The Judge also found that the KRG was estopped from arguing otherwise. This would render it far more difficult for the KRG to press similar immunity defences in other jurisdictions.
The judgment underlines the importance of incorporating a sufficiently robust waiver of immunity—both from suit and from execution—when contracting with States or their related entities. The judgment also reflects the DIFC Court’s continued pro-arbitration stance.
The KRG has since settled its liabilities under the awards. The settlement emphasizes the importance of a coordinated and robust global enforcement strategy.
The Proceedings Before the DIFC Court
The DIFC Court had granted an ex parte order recognising two awards issued in favour of Pearl in ongoing LCIA arbitration proceedings. The awards were issued in London by a Tribunal comprising Lord Hoffmann (as President), Lord Collins of Mapesbury and Mr John Beechey.
The KRG applied to set aside the ex parte order. The KRG claimed that, as a self-governing region of a State, it was entitled to invoke sovereign immunity from the Court’s jurisdiction and from enforcement against its assets. The underlying contract granted Pearl exclusive rights to develop and produce petroleum within two fields in the Kurdistan Region of Iraq. The KRG claimed that the contract related to acts undertaken in the exercise of sovereign authority.
Pearl responded that there is no concept of foreign state immunity within the UAE or the DIFC—that being the received view of the legal community. To the extent that such immunity existed, Pearl argued that the KRG was not entitled to invoke it since the KRG is not, in itself, a "State" and nor was it exercising Iraq’s sovereign authority. In the alternative, Pearl argued that the KRG had contractually waived any defence of sovereign immunity.
The KRG also argued that the DIFC Court had no jurisdiction to determine the existence, extent or waiver of sovereign immunity and that such matters must be determined by the UAE’s Union Supreme Court—a process that could take many months.
The Court’s Decision
Justice Sir Jeremy Cooke held that it was plainly within the Court’s jurisdiction to decide issues of immunity—both as to the existence and scope of the doctrine in the UAE and DIFC and as to waiver. Accordingly, the KRG’s plea for the question to be referred to the UAE Union Supreme Court was rejected.
Justice Cooke accepted Pearl’s waiver arguments (as the English Court had in earlier, related proceedings), having come to the "clear conclusion that the KRG has waived any right to such immunity". He therefore held that it was unnecessary to decide on the existence or ambit of any doctrine of state immunity in the DIFC or the UAE, or whether the KRG acted in exercise of sovereign authority.
Justice Cooke commented that "the whole purpose of the waiver provisions was to avoid any such arguments and in my judgment, the provisions relied on by the Claimants succeed in doing so".
Significantly, Justice Cooke held that it was "inherent" in the KRG’s submission to the underlying arbitration agreement that it submitted itself to any process necessary to render the arbitration effective. The result is that, in the DIFC (as in many other jurisdictions), an agreement to arbitrate constitutes a waiver of immunity against suit. As a matter of contractual construction, the KRG had also waived immunity from execution over its assets.
Justice Cooke dismissed the KRG’s arguments that sovereign immunity could not be waived via a prior written agreement. He found this to be out of step with current international thinking, having examined the position taken by the UN Convention on Jurisdictional Immunities of States and their Property (to which neither the UAE nor Iraq are party).
The Message for Parties and Practitioners
The thrust of the Court’s judgment is that, where a clear and unequivocal waiver from suit and enforcement is given in a contract, there is no good reason why effect should not be given to the words used. The judgment underlines the importance of incorporating a comprehensive waiver of immunity—both from suit and from execution—when contracting with States or their subsidiary entities. This is so even when contracting in the UAE or the DIFC, where no doctrine of state immunity is understood to exist
The judgment also reflects the DIFC Court’s continued pro-arbitration stance. Investors can take comfort that the DIFC Court will take a modern and pragmatic approach to the issue of sovereign immunity, as it has to other issues arising in the enforcement process.
The judgment also underscores the challenges presented in seeking to enforce significant arbitral awards, particularly against sovereigns and their related entities whose assets are difficult to locate or reach. Successful enforcement will require creative thinking, multi-jurisdictional expertise and a robust and coordinated global strategy—ideally one developed and pursued in parallel with the underlying arbitration.
Representation in the DIFC Court proceedings
For Pearl Petroleum, Crescent Petroleum and Dana Gas: Tom Montagu-Smith QC at XXIV Old Buildings in London instructed by Gibson Dunn & Crutcher (Cyrus Benson, Nooree Moola and Emily Beirne).
For the KRG: Michael Black QC and Arshad Ghaffar at XXIV Old Buildings instructed by Addleshaw Goddard (Paul Hughes and Charlotte Bhania).
Gibson Dunn has considerable experience in achieving successful outcomes in high-value, multi-jurisdictional enforcement campaigns. To discuss our expertise further, please contact:
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