QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Svenska Petroleum Exploration AB
|- and -
|Government of the Republic of Lithuania
S Shackleton Esq & D Holloway Esq (instructed by Messrs Eversheds) for the Defendant
Hearing dates: 4th-6th July 2005; 11th & 12 July 2005
Further submissions and materials received: 27 July; during August; and 26th September 2005.
Crown Copyright ©
Mrs Justice Gloster, DBE:
"It is undisputed that no provisions of any Lithuanian law prevented GOVERNMENT from signing an arbitration agreement at the time when the JVC was signed in 1993. The issue of arbitrability only arises due to subsequent Lithuanian laws, i.e. article 29 of the underground law from 1995 and article 11 in the Law of Commercial Arbitration from 1996.
The JVC is a commercial contract regarding the exploration and exploitation of oil fields within Lithuania. The dispute between SVENSKA and GOVERNMENT is a dispute which relates to an alleged breach of contract by GOVERNMENT. Such a dispute is clearly arbitrable. The claims of SVENSKA, i.e. the relief sought from this Tribunal are divided into three different claims, a request for a declaratory award sentence, a request for damages and a request for a specific performance award ordering GOVERNMENT to abrogate an existing licence and to issue a new licence. The alleged non-arbitrability can in the opinion of the Arbitral Tribunal at most be applicable to that part of SVENSKA's claim, which relates to the revocation and issuance of licences. It follows that GOVERNMENT is obliged to answer to the remainder of the claims in any event.
Under these circumstances, the Arbitral Tribunal has not found it appropriate – at this stage of the case – to make a final decision whether the claim for revocation and issuance of licences is arbitrable, or whether the relief sought would be an appropriate relief in this matter.
Accordingly, the parties are invited to elaborate further on this issue in the course of the dealing with the merits of the case."
"In his dissenting opinion, Mr Gytis Kaminskas has addressed the issue of arbitrability, and has concluded that the dispute related to the Principal Claim is not arbitrable under Lithuanian law by virtue of Article 29 of the Underground Law and Articles 2 and 11 of the Law on Commercial Arbitration of 1995.
We do not agree with Mr Kaminska's position, and we believe that this issue was already decided upon in our Interim Award, dated 21 December 2001, in which Award the unanimous finding of the Arbitral Tribunal was stated as follows … [Here the Tribunal set out the passage that I have already quoted above].
The Claimant has after the Interim Award withdrawn its claim for a specific performance award ordering First Respondent to abrogate an existing license and issue a new license. Claimant's requested remedy is now limited to a claim for damages. This claim is in the view of the majority clearly arbitrable under Lithuanian law. The parties have not previously nor after the Interim Award argued that the claim for damages is not arbitrable or that the Arbitral Tribunal otherwise lacks jurisdiction with respect to this claim.
Article 29 of the Underground Law and Article 11 of the Law on Commercial Arbitration governs the administrative legal relations, which disputes are decided by the Administrative Court of Lithuania. These provisions are not applicable to disputes originating from a commercial contract, where relief sought is a claim for damages.
The claim for damages is a claim for breach of contract and does not depend on or relate to the validity of any administrative or Governmental act, including the grant or revocation of any rights in relation to the underground either to the Claimant, the Second Respondent or the JV-Company."
"1 … It is not expedient to apply to a court for annulment of the award of the Arbitration Tribunal of the International Chamber of Commerce in the case considered in Copenhagen on 30 October 2003.
2. … to commission the state enterprise State Property Fund to notify [Svenska] or its representatives of the position of the [State] or its representatives of the position of the [State] on the award referred to in Clause 1."
Neither Geonafta nor the State has honoured the Final Award.
"A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act."
Summary of the parties' contentions
i) the State has expressly waived any entitlement to rely on State Immunity and has agreed to submit to the Court's jurisdiction; accordingly it falls within the exception contained in section 2 of the Act;
ii) it was party to a commercial transaction and the present proceedings relate to that transaction; accordingly it falls within the exception contained in section 3 of the Act;
iii) it was a party to the arbitration agreement contained in Article 9 of the JVA, alternatively is estopped from denying that fact by virtue of the Interim Award; accordingly it falls within the exception contained in section 9 of the Act.
"The Government of the Republic of Lithuania hereby approves the above agreement and acknowledges itself to be legally and contractually bound as if the Government were a signatory to the Agreement."
The Lithuanian text of the expression accompanying Lithuania's signature is slightly different. It states:
"the Government of the Republic of Lithuania approves this agreement and undertakes the obligations as a signatory thereto."
As the JVA was executed in both Lithuanian and English, Article 37 of the JVA accords equal weight to both versions of the text. However I do not attach any significance to the slightly different wording for the purpose of the issues which I have to determine.
"Fields within the Agreement Area
As soon as practical after the Effective Date, Svenska shall carry out a technical economic feasibility study in respect of the Kretinga and Nausodis fields within the Agreement Area and the Parties shall, where the study, in the opinion of the Parties proves this to be economically feasible, develop either or both fields by a separate agreement"
"[The State] declares that its signature of these Terms of Reference does not constitute an acceptance of the jurisdiction of the ICC Court of Arbitration and/or the Arbitral Tribunal.".
"The Arbitral Tribunal holds that by signing the [JVA] and by acknowledging itself to be legally and contractually bound "as if the Government were a signatory to the agreement," GOVERNMENT became a party to the Joint Venture Agreement with SVENSKA and [Geonafta] … By this signature, the agreement became effective in accordance with article 11.1 of the [JVA]. This interpretation is supported by Government Resolution No 205 of 27 March 1993, in which the Government authorises the Minster of Energy and Mr Motuza to approve the founding agreement of the Genciu Nafta enterprise "on behalf of the Government." The Arbitral Tribunal cannot accept Government's allegation that this signature is merely an approval by GOVERNMENT in its administrative capacity. As pointed out by Svenska, the [JVA] vests a number of rights and obligations on the part of GOVERNMENT, and it needs a strong support, which is not available in this case, to consider that GOVERNMENT's signature is of no significance to such rights and obligations…"
In the absence of any indication in the wording of the JVA or any other indication of intentions in relation to the arbitration agreement, the Tribunal also relied on a presumption of Lithuania's intent. At pages 63 and 65 the arbitrators said:
"The Arbitral Tribunal also holds that by signing the [JVA], GOVERNMENT is bound by the arbitration clause in article 9. Although GOVERNMENT signed the [JVA] in a different capacity than a "Founder," we have found that GOVERNMENT is as a party to the [JVA] signed "as if it was a "signatory" and therefore became bound by the provisions of the [JVA], as if GOVERNMENT had been a "Founder." GOVERNMENT is therefore also bound by the arbitration provision in article 9 unless there is support for an allegation that GOVERNMENT intended a different dispute resolution mechanism. […] Such support does not exist." …
"The [JVA] was an agreement between three parties, each having its rights and obligations …In such a contract there is an implicit assumption that the parties have agreed to the same dispute resolution mechanism."
i) the absence of any evidence that Lithuania's signature did not amount to an implied agreement to arbitrate disputes with Svenska;
ii) the absence of any evidence that Lithuania intended a different dispute resolution mechanism to apply from that provided for under Article 9 of the JVA; and
iii) an assumption that Lithuania agreed to the arbitration agreement at Article 9 of the JVA.
i) the State having participated in a hearing before the Tribunal on jurisdiction;
ii) the Tribunal having found in the Interim Award that Lithuania was bound by the arbitration clause set out in Article 9 of the JVA;
iii) the State having not appealed the Interim Award, but rather having participated in the hearing before the Tribunal on the merits; and
iv) the State having not appealed the Final Award, but rather having chosen to defend the matter on enforcement;
the State was now estopped from arguing that it was not a party to the arbitration agreement.
"27. In my judgment the present case is an appropriate case in which to exercise the discretion conferred upon the Court by section 103(2) of the Act to recognise an arbitration award by permitting the Claimants to rely upon it in defence of the Government's claim to set aside the proceedings notwithstanding that, leaving aside the effect of that award, the Government could, it is assumed, prove that it was not a party to the arbitration agreement. Firstly, having objected to the tribunal's jurisdiction on the grounds that it was not party to the arbitration agreement the Government participated in a two day hearing on that very issue in Denmark in October 2001 when both factual and expert evidence on the law of Lithuania was adduced. Secondly, the tribunal decided that issue against the Government in an interim award published in December 2001 of some 69 pages which set out extensively the facts and evidence relied upon, the expert evidence of Lithuanian law, the arguments of the parties and the reasoning and conclusions of the tribunal. Thirdly, having lost on that issue, the Government did not take the opportunity to seek a review of the interim award in the Danish Courts. No reason was suggested as to why this step could not have been taken. Fourthly, the Government participated in a 13 day hearing on the merits which resulted in a final award against the Government published in October 2003. Fifthly, having decided not to challenge the final award in the Danish Court in February 2004 and to notify the Claimants of the Government's position, the Government then, after the Claimants took steps to enforce the final award in April 2004, claimed immunity from the jurisdiction of this Court, a contention which could only made good if the State was not party to the arbitration agreement, contrary to the decision of the arbitral tribunal in its interim award which the Government had not challenged."
"36. … Having considered the evidence on Danish law it seems to me that it cannot be said that the decision of the arbitral tribunal in Denmark finally and conclusively determined that the Government was party to the arbitration agreement…..
37. There was discussion in the evidence of Danish law as to the circumstances in which, by reason of delay or waiver, the right to review the interim award might be lost but this did not feature in the Claimants' argument. It was not said, for example, that although the interim award did not, as at the date of the award, finally and conclusively determine the question whether the Government was party to the arbitration agreement, yet it now did because of delay in exercising, or waiver, of the right of review."
Does the State fall within the exception contained in section 2 of the Act?
"(1) A State is not immune as respects proceedings in respect of which it has submitted to the jurisdiction of the courts of the United Kingdom.
(2) A State may submit after the dispute giving rise to the proceedings has arisen or by a prior written agreement; but a provision in any agreement that is governed by the law of the United Kingdom is not to be regarded as a submission.
(3) A State is deemed to have submitted -
(a) if it has instituted the proceedings; or
(b) subject to subsections (4) and (5) below, if it has intervened or taken any step in the proceedings.
(4) Subsection (3)(b) above does not apply to intervention or any step taken for the purpose only of –
(a) claiming immunity; or
(b) asserting an interest in property in circumstances such that the State would have been entitled to immunity if the proceedings had been brought against it."
"GOVERNING LAW AND SOVEREIGN IMMUNITY
35.1 GOVERNMENT and EPG hereby irrevocably waives [sic] all rights to sovereign immunity.
35.2 This Agreement shall be governed by the laws of Lithuania supplemented, where required, by rules of international business activities generally accepted in the petroleum industry if they do not contradict the laws of the Republic of Lithuania."
"9.1 Disputes between the Founders concerning the performance or interpretation of this Agreement are settled through negotiations between the Founders.
9.2 In the event that disputes cannot be settled within 90 days of the receipt of the written notice by either Founder about the existence of such disagreement, the disputable matter shall be submitted upon agreement of the Founders for consideration to:
(a) the Court of the Republic of Lithuania; or
(b) independent arbitration in Denmark, Copenhagen, to be conducted in accordance with International Chamber of Commerce Rules of Arbitration in the English language. In case the Founders do not reach agreement on the institution where the dispute is to be settled, the disputable matter shall be submitted for consideration to an independent arbitration provided in sub-paragraph (b) of this paragraph."
i) on the true construction of Article 35, did the State waive its own sovereign immunity thereunder, or did Article 35 amount to a waiver of Sovereign Immunity in respect of Geonafta only;
ii) if the former, did the waiver of the State's immunity in clause 35.1 amount to a submission to the jurisdiction of the English court, irrespective of whether the State was a party to the arbitration agreement contained in Article 9 of the JVA.
If the answer to sub-issue ii) is that the waiver of the State's immunity contained in clause 35.1 amounts to a submission to the jurisdiction of the English court only if the State was in fact a party to the arbitration agreement under Article 9 of the JVA, because only in that event would the Court have jurisdiction to enforce the Award, then there is no separate or free-standing issue under section 2 of the Act, since in reality the issue falls to be decided under section 9.
"Article 6.193: Rules on Interpretation of Contracts
1. A contract must be interpreted in accordance with good faith. In interpreting a contract, it is necessary primarily to determine the parties' good intentions and not rely only on a literal interpretation of the text of the contract. In the event the real intentions of the parties cannot be established, the contract must be interpreted in accordance with the meaning that reasonable persons analogous to the parties would have attributed to it in the same circumstances.
2. All terms and conditions of the contract must be interpreted taking into account their interrelation, the essence of the contract as well as its purpose and the circumstances of its conclusion. When interpreting a contract, it is necessary to have due regard to usual terms and conditions, although they are not provided for in the contract.
3. In the event of doubt concerning terms which may have several meanings, the meaning, which is most suitable according to the nature, essence and subject-matter of the contract, shall be attributed to these terms.
4. In the event of doubt concerning contractual conditions, these shall be interpreted against the contracting party that proposed such conditions, and in favour of the party that accepted them. In all cases, the conditions of a contract must be interpreted in favour of consumers or a party who concludes a contract by way of adherence.
5. When interpreting the contract, pre-contractual negotiations, an established course of conduct between the parties, post-contractual conduct and existing usages shall be taken into consideration as well.
Article 6.194: Language Discrepancies
Where a contract is drawn up in two or more languages and all texts of the contract have equal legal force, in the case of discrepancy between the versions, preference shall be given to the text which was drawn up first.
Article 6.195: Filling in Gaps of a Contract
Where parties leave certain matters unagreed, which are necessary for the performance of the contract, the court, at the request of a party, may fill in such gaps in the contract by establishing appropriate conditions, taking into account non-mandatory legal norms, the intentions of the parties, the purpose and essence of the contract, standards of good faith, reasonableness and justice.
1. The Article commented on repeats Articles 4.1 – 4.6 of the UNIDROIT Principles. The contract has to be interpreted when a dispute arises between the parties concerning its validity, type, nature, amendment, termination, true meaning of one or another condition, etc.
In accordance with Article 45 of the Law on Approval, Entry into Force, and Implementation of the Civil Code of the Republic of Lithuania, Article 6.193-6.195 of the Civil Code are applied to the interpretation of contracts irrespective of the time of their conclusion. This rule is set out because the rules on the interpretation of contracts provided in the Article commented on are not new – they were known and recognised by both legal doctrine and judicial practice before the entry into force of the Civil Code.
Paragraph 1 of the Article establishes two significant principles of interpretation of contracts. First, contracts must be interpreted in good faith. This principles requires that consideration be given to the intentions of both parties, analysis of the contract as a whole, and not certain part[s] of it, and in case of doubt as to the validity of a contract, to give priority to an interpretation that confirms the validity of the contract, etc. In addition to good faith, the principles of justice and reasonableness must be applied when interpreting contracts. For instance, both good faith and justice require that a contract be interpreted in favour of a party which is economically weaker, e.g. for the benefit of the consumer or an employee or a party which concluded the contract by way of adherence.
Second, the Article commented on embodies the principle of subjective interpretation of contracts which requires the determination of the true intentions of the parties and not only the written text of the contract. This principle means that in case of any discrepancy between the textual meaning of provisions of the contract and the true intentions of the parties, priority must be given to the parties' true intentions which they had in mind when concluding the contract. However, this principle should not be overestimated. In case the parties' true intentions vary, attention should be focused on the textual analysis of the contract, since it might be helpful in determining which party's intentions correspond to the textual meaning of the contract. Therefore, the Article commented on also establishes that when the parties' true intentions cannot be determined, the contract must be interpreted in the way a reasonable person, being a party under identical circumstances, e.g. having the same profession, experience or qualification, would understand its text.
2. Paragraph 2 of the Article being commented on sets out several other principles of contractual interpretation. First, this Article establishes the principle of systemic interpretation of the contract which requires any contractual condition to be interpreted with regard to the entire context of the contract. Furthermore, no part of the contract, annex or any other constituent part should be left without consideration or evaluation (e.g. it is necessary to have regard to the preamble of the contract, its annexes, subsequent amendments, etc). In this case, the presumption that each word or phrase has a certain meaning and significance is valid, as usually parties do not use them without a reason. Therefore, it is necessary to determine the meaning of each word or phrase, and not on the contrary, to state that one or another word or phrase is meaningless or insignificant. Also, it is necessary to bear in mind that terms and conditions of a contract are of two types: explicitly expressed and implicit (Article 6.196 of the Civil Code). Therefore, when interpreting a contract, due regard must be paid not only to explicitly expressed terms and conditions, but also to implicit terms and conditions, for instance, those which are usually found in contracts of a similar nature. When interpreting contracts, it is necessary to take into account traditions of the trade, mutual relations between the parties, the circumstances of the conclusion of the contract, etc.
Another principle of contractual interpretation is the determination of its objectives. The purposes of a contract may help to reveal the parties' true intentions, the meaning of one or another condition, etc. The purposes of the contract may help to determine the type, nature of the contract and the extent of mutual rights and duties of the parties.
3. Paragraph 3 of the Article commented on sets out the rule of interpretation when polysemic words and definitions are encountered. Frequently, the same words may have several meanings. Sometimes parties indicate in the contract interpretations of definitions used in the contract. Definitions must be interpreted in the way they were defined in the contract by the parties. Words or definitions the meaning of which is not set out in the contract must be assigned the meaning which is most acceptable in terms of the type, nature, essence, subject-matter, parties of the contract and other important circumstances.
4. Paragraph 4 of the Article being commented on embodies the so-called contra preferentem rule. This means that terms and conditions that are unclear and ambiguous in the contract are to be interpreted against the benefit of the party which proposed or drafted them. For instance, unclear and ambiguous terms and conditions of a contract are to be interpreted against the benefit of the party which drafted them and in favour of the party who concluded the contract by way of adherence. As most consumer contracts are contracts of adherence, the Article being commented on sets a general rule that in case of doubt, it is necessary to interpret contracts for the benefits of users and the party which has concluded the contract by way of adherence, i.e., the party who is economically weaker.
5. Paragraph 5 of the Article being commented on sets out the general rule that not only the text of the contract, but also the actual circumstances surrounding the conclusion and fulfilment of the contract as well as other action of the parties are important for the interpretation of the contract. Therefore, when interpreting a contract, it is necessary to take into account the parties' pre-contractual negotiations, signed documents of negotiations, verbal and written statements by the parties, exchanges of correspondence, established relations between the parties, traditions of the trade and other customs, actual acts of the parties when concluding, fulfilling or making any amendments, etc to the contract. Actual acts of the parties must also be interpreted in order to determine the true intentions of the parties (paragraph 1 of the Article being commented on).
Frequently, after lengthy negotiations parties include in the contract a special condition indicating that this is to be the sole agreement and the whole previous correspondence of the parties or the signed documents become invalid (the reservation of integration or consolidation). However, such a contractual condition does not have any impact on the interpretation of the contract – the whole pre-contractual documentation between the parties may be used for the interpretation of the contract and for the determination of the common intentions of the parties."
"Some difficulty may arise ... in the event that an agreement contains, not a provision submitting disputes to the English courts (or other courts in the United Kingdom), but a provision merely setting out the State's agreement to waive any immunity that it may possess in any jurisdiction in which the counterparty should choose to bring proceedings. Such an agreement does not sit comfortably within the framework of s.2. The English courts may have jurisdiction in respect of the subject-matter of proceedings brought against a State in these circumstances, but that would not be because the State had submitted to the jurisdiction in the normal sense. To fall within s2(1), the waiver of immunity provision would have to be characterized as a submission by the State to the jurisdiction of the English courts to the extent that such courts may have jurisdiction under their own rules in the absence of consent. It is submitted, that such characterization, whilst not free from artifice, would accord with the spirit of the section"
"The Ministry of Finance hereby waives whatever defence it may have of sovereign immunity for itself or its property (present or subsequently acquired)."
Saville J. held that
"It seems to me that, read in the context of what was undoubtedly a commercial bargain between the parties, the intent and purpose of the clause is quite clear, namely, to put the State on the same footing as a private individual so that neither in respect of the State not its property would any question of sovereign immunity arise in connection with the State's obligations to the plaintiffs under the agreement. [at p. 523, col 1.]"
Mr. Bools submitted that, in the present case, the purpose of Article 35 is similarly clear.
"7. Governing Law and Arbitration
(a) This agreement shall be governed by… the laws of England…and the [State] hereby submit (sic) to the jurisdiction of the English courts.
(b) Any dispute relating to….shall be resolved in London … under the auspices of, and accordance with the rules and regulation of the Coffee Trade Federation."
The State had expressly accepted that it had, by clauses 6 and 7 submitted to the jurisdiction of the English court in respect of claims under the agreement. The relevant issue in A Company Ltd was whether the State was entitled to invoke immunity from a Mareva injunction under subsections 13(2) and (3) of the Act. Those subsections expressly provide that there should be no injunction or other relief against a State unless it gives written consent, and that a provision merely submitting to the jurisdiction of the courts does not amount to such consent for the purposes of the subsection. Thus the question in the case was whether the immunity given in clause 6 amounted to a written consent to injunction relief and other enforcement measures, not whether such a clause amounted to a submission to the jurisdiction, which is the issue here. Not surprisingly, Saville J concluded that, in the context of the commercial agreement which he had to consider (which contained, in another clause, not only an express submission to the jurisdiction of the English Court but also an agreement to arbitrate here), the waiver of immunity at clause 6, in particular by its reference to property, clearly amounted to a consent to enforcement measures, or, in other words, a waiver of State immunities in relation to enforcement.
Section 3 of the Act - Is the State a party to a commercial transaction and do the present proceedings relate to that transaction?
"(1) A State is not immune as respects proceedings relating to –
(a) a commercial transaction entered into by the State….
(3) In this section 'commercial transaction' means –
(a) any contract for the supply of goods or services
(c) any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which State enters or in which it engages otherwise than in the exercise of sovereign authority."
Is the State a party to a commercial transaction?
"1. It is presumed that Government will purchase and take all oil produced hereunder at Market Price as defined in Article 19.2. If Government does not pay (30 days after invoice or on other mutually agreeable terms) for the crude oil take in hard currency, then each Party shall be allowed to take its shares hereunder in kind.
2. If Svenska and/or EPG shall elect to take its/their shares hereunder in kind, Government shall give whatever licence or permission may be required to allow export of oil from [Lithuania]."
In effect the JVA granted the State the right to buy all oil produced under the JVA at market price. Only if the State did not elect to do so, could Geonafta and Svenska export the oil produced for sale elsewhere.
"As soon as practical after the Effective Date, Svenska shall carry out a technical-economic feasibility study in respect of the Kretinga and Nausodis fields within the Agreement Area and the Parties shall, where the study, in the opinion of the Parties proves this to be economically feasible, develop either or both fields by separate agreement."
i) Article 11 provided that the Agreement was only effective when all parties, including the State, signed it. Article 11.2 provided that the Agreement could only be changed with the State's consent.
ii) Article 15.1 granted the joint venture company the right to the oil extracted under the Agreement, a right which only the State could grant.
iii) Under Article 24 the State granted an exemption from customs duties.
iv) Article 26 granted the State a right of access to records and reports and in return the State gave an undertaking of confidentiality.
v) Similarly, Article 29 granted the State a right of access to the Agreement Area and in return the State gave the joint venture an indemnity in respect of loss or damage.
vi) Article 31 gave the State a right of requisition and in Article 31.4 the State gave an indemnity in return.
vii) Article 34 defined the State's position in the event of a force majeure event.
Do the present proceedings relate to that transaction?
"(b) Do the proceedings relate to a commercial transaction entered into by a State?
24. In my judgment, the proceedings resulting from an application to register a judgment under the 1920 Act relate not to the transaction or transactions underlying the original judgment, but to that judgment. The issues in such proceedings are concerned essentially with the question whether the original judgment was regular or not: see section 9(2)(a) to (f). The correctness of the original judgment on questions of law or fact is irrelevant. Section 9(2)(d), the fraud exception, is exceptional: in effect, a judgment obtained by fraud is treated as irregular, on the basis that "fraud unravels all". The registering court is entitled to examine the nature of the cause of action underlying the original judgment only under section 9(2)(f), which is a narrow and seldom-applied exception concerned with illegality and the like.
25. This conclusion is supported by reference to section 9 of the State Immunity Act, which applies where a state has entered into a written arbitration agreement, and excludes immunity "as respects proceedings in the courts of the United Kingdom which relate to the arbitration". Most, if not all, arbitration agreements entered into by a state relate to commercial transactions entered into by that state. If, for the purposes of the Act, proceedings relating to the arbitration also relate to the underlying commercial transaction, it is difficult to see why section 9 was required.
26. Furthermore, if Parliament had intended the State Immunity Act to include an exception from immunity relating to the registration of foreign judgments, it would have been illogical to limit it to commercial transactions entered into by the state (which is the consequence of AIC's contentions), with no provision for the registration foreign judgments where the exception to immunity before the original court was the equivalent of one of the other exceptions to immunity in that Act.
27. In Holland v Lampen-Wolfe  1 WLR 1573, Lord Millett, at 1587F to H, opined that the words 'proceedings relating to' in section 3(1)(a) should be given a narrow construction. This is consistent with my above conclusion.
28. It follows that, even if the underlying transaction between AIC and the Defendants were commercial, section 3(1)(a) of the State Immunity Act is inapplicable. There is in this case no other relevant exception to the immunity of a state from the jurisdiction of this court. It follows that the Nigerian judgment should not have been registered under the 1920 Act.
29. This conclusion means it is unnecessary to consider whether any issue estoppel arising from the foreign judgment applies to the question whether the state defendant entered into a commercial transaction. Both parties in the present case assumed that this court must determine that question itself. My provisional view is that this is correct. However, in a case in which the claimant has obtained judgment from a foreign court on an alleged contract with the state defendant, but the defendant denies that it entered into the contract, this implies that this court might arrive at a conclusion inconsistent with the judgment of the foreign court on the merits. That would be an anomalous situation. It is an added reason for preferring the narrow interpretation of section 3(1)(a) of the State Immunity Act.
30. The conclusion that the Defendants are immune from the proceedings for the registration of the judgment in this country is unsurprising. Leaving aside Admiralty proceedings and the like, the underlying principle of the State Immunity Act is that a state is not immune from the jurisdiction of the courts of the United Kingdom if it enters into commercial transactions or undertakes certain activities having some connection with this jurisdiction. Purely domestic activities of a foreign state are not the subject of any exception to immunity. Sections 3(1)(b), 4, 5, 6, 7, 8 and 11 all contain territorial qualifications to the exceptions to immunity to which they relate. Section 3(1)(a) does not include any such qualification, but even there the claimant wishing to bring proceedings must establish a basis for jurisdiction under CPR Part 6.20, normally under paragraphs (5) or (6), relating to contractual claims. Paragraph (5) requires that the contract be one which was made within the jurisdiction, or made by or through an agent trading or residing within the jurisdiction, or (in the case of a foreign state defendant) be one which the state has agreed should be governed by English Law or subject to the English courts having jurisdiction. Paragraph (6) is limited to breaches of contract committed within the jurisdiction. The Nigerian judgment in this case relates to a purely domestic matter, and I do not think that it was ever intended that the State Immunity Act should exclude immunity in such cases."
i) The question of the meaning of the words "relating to" is one of statutory construction aimed at ascertaining the intention of Parliament. The words "proceedings relating to" as a matter of ordinary language are wide enough to cover the present situation: the present proceedings "relate to" the JVA. Notably, the words Parliament chose to use were "relate to" and not, for example, "arising directly out of". Some looser connection between the transaction and the proceedings must therefore have been intended.
ii) If that is right, the question becomes whether there is any reason to believe that Parliament intended to depart from the ordinary meaning of the words it used. There is none.
iii) The underlying principle behind section 3 is clear enough: states should have immunity in relation to Sovereign activities, but if a state descends into the commercial arena, it should be dealt with as if it were a private party. It would be illogical to limit that treatment to adjudication to the exclusion of enforcement proceedings.
iv) Treating states in this way would not result in the courts interfering in domestic transactions of other states unconnected with the United Kingdom, because the court's ordinary jurisdictional rules will still have to be satisfied.
v) The suggested reading of section 3 is not incompatible with section 9 expressly dealing with arbitral proceedings: the fact that a state might lose immunity under two provisions of the Act is not surprising. Therefore it is no answer to say that most commercial transactions contain arbitration clauses and would fall within Article 9 in any event. Some would not and would therefore only be covered by section 3.
vi) Finally, there is no force in the argument that it would be illogical to limit enforcement of judgments/awards to those arising out of commercial transactions while not applying it to other transactions covered by other sections of the Act: each section of the Act has to be considered according to its own terms: so, for example, section 4 deals with "proceedings relating to a contract of employment between the State and an individual…" It may well be that enforcement proceedings in relation to an employment award equally "relate to a contract of employment" in the same way that the present proceeding relate to a commercial transaction.
"In my opinion the words "proceedings relating to" a transaction refer to claims arising out of the transaction, usually contractual claims, and not tortious claims arising independently of the transaction but in the course of its performance."
was strictly obiter, it shows that the phrase "proceedings relating to the transaction", in the context of Section 3 of the 1978 Act, should indeed be given a narrow construction; that is to say, they should be limited to claims that arise out of the contract or transaction itself, and not extended to those arising out of some subsequent act, albeit that that act itself might loosely "relate to" the contract or transaction. A claim to enforce an arbitration award necessarily "arises out of" the award. As Mr Bools realistically accepted, there is a clear analogy between proceedings to register judgments and proceedings to enforce arbitration awards. The decision in AIC Ltd v. The Federal Government of Nigeria has been cited with some approval by Dame Hazel Fox QC in the introduction to her work The Law of State Immunity, Oxford University Press (2002) at page xxvii, although she questioned the judge's reasoning by reference to the utility of section 9 of the Act, stating ibid. that his reading "may neglect the prime purpose of section 9 which was to construe consent to arbitration as submission to the English Court's jurisdiction". Be that as it may, and even accepting, as Mr. Bools submits, that there well may be situations where there is no overlap between a section 3 case and a section 9 case, I conclude that these enforcement proceedings under section 101 of the 1996 Act do not relate to the underlying commercial transactions of the JVA, but rather to the arbitration and the Final Award.
"… if a party does not appeal an award within a reasonable time, the courts may find that the party due to unreasonable delay in asserting a right has forfeited his right to appeal the award" (Hakonsson and Frost Report, p.6).
"If an extended period of time has lapsed after the arbitration award was executed, the courts may, however, find that the lack of action has constituted an implied acceptance of the arbitration award and consequently a waiver of the right to challenge. …
It is in our opinion not possible to state when an 'unreasonably long time' has passed. When exercising a 'test of reasonableness' Danish courts will take all circumstances into consideration and the circumstances will rarely be the same from case to case. It is, however, our opinion that a party, who are dissatisfied with an Arbitration Award, but does not commence legal proceedings or raises a challenge as a defence until almost three years later will be seen by the Danish courts as having waived the right to challenge. [Gronborg and Fogh Report, §2.8]"
Messrs Hakonsson and Frost, the State's experts, were more equivocal:
"However, if a party does not appeal an award within a reasonable time, the courts may find that the party due to unreasonable delay in asserting a right has forfeited his right to appeal the award ….
[W]hat constitutes 'reasonable time' is not clear. If the Lithuanian government decides to appeal the interim award before the Danish courts, the relevant court would review the matter and make a decision on the question. In our opinion the fact that more than three years has passed since the final award was announced implies a right that a Danish court would not consider an appeal at this point of time as an action within 'reasonable time'. It is, however, difficult to estimate that risk. [p.6]"
i) that the State's expert report equates the provisions relating to challenging awards and those relating to defending enforcement procedures;
ii) that both sides' experts' reports showed that the Final Award could be subject to challenge by the Danish courts on any of the grounds set out in sections 7(1) and 7(3) of the Danish Arbitration Act (Act no. 81 of 24 May 1982); that there would therefore be no issue preclusion in respect of the argument that the State had not agreed to arbitrate; and thus if Svenska were to seek to enforce the final award in Denmark today, the State would "certainly" be able to raise a defence to enforcement proceedings based on the lack of consent to arbitrate;
iii) the question of whether the State is party to the arbitration agreement at Article 9 of the JVA is clearly reviewable by the Danish courts, either in a challenge to the Award itself (Interim or Final), or as a defence to any enforcement proceedings which may be brought by Svenska in Denmark;
iv) Svenska's latest submission invites this court to speculate as to how much weight a Danish court would give to the State's decision not to challenge the award, but to challenge its enforcement, and this is not a legitimate exercise for this Court;
v) the experts clearly agree that the court would have to weigh up all the circumstances in reviewing whether a challenge to the award, or a defence of enforcement proceedings, would succeed; but the courts nonetheless would have jurisdiction to consider the question of whether the State was a party to the arbitration agreement and that its decision on this question would depend upon the context in which the question was raised; and that this clearly argues against any issue estoppel arising as a matter of law;
vi) if there is a question to be decided under Danish law on the merits, it is unsatisfactory that the court has not had the benefit of hearing oral evidence from the experts on the point raised (again) by Svenska;
vii) that the Danish law evidence cannot be regarded as such as "to prove an issue estoppel"; moreover, the expert evidence has not been fully argued and tested in cross examination and the State has not been given the opportunity to reply to Svenska's fresh allegations;
viii) Accordingly Lithuania's final submission on this issue is that this Court cannot be satisfied on the balance of probabilities that the question of consent to arbitration has been decided finally and conclusively under Danish law.
Scope of section 9 of the Act
"(1) Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration.
(2) This section has effect subject to any contrary provision in the arbitration agreement and does not apply to any arbitration agreement between States."
i) There is no connecting factor between the arbitration clause or the dispute and the United Kingdom or the courts of the United Kingdom. Support for the view that in such circumstances section 9 is not engaged is to be found in Dicey & Morris (2000) The Conflict of Laws 13th edition, London, Sweet & Maxwell at page 251:
"This exception applies to proceedings relating to the arbitration, including proceedings to enforce the arbitration agreement or for review of an award. The Bill which resulted in the 1978 Act expressly provided that this Exception did not apply to proceedings for the enforcement of the award. Although the question is not free from doubt, it is suggested that the exception does not apply to enforcement of an award."
ii) Further support is to be found in Dame Hazel Fox's article (1988) "States and the Undertaking to Arbitrate," 37 International and Comparative Law Quarterly, page 1 at page 13, and also in The Law of State Immunity, Oxford, Oxford University Press at 166 to 167. At the former passage Dame Hazel Fox explains some of the reasons why enforcement proceedings do not come with the scope of the Section 9 exception:
"First the section contains no express limitation to proceedings relating to arbitration of commercial matters. Had section 9 followed Article 12 of the [ECSI]…and one of its purposes was to ratify that Convention- it would have restricted the proceedings to "commercial or civil matters." By omitting to do so, it theoretically covers all arbitration, domestic and international, relating to non commercial matters. For States the distinction has great importance; many disputes with private parties arise by reason of the exercise of governmental power, or involve mixed issues of commercial law or public law. It is in this sensitive area that a State may consent to settlement by arbitration where it would adamantly oppose reference to a local court. To impute automatically submission to the local court by reason of the consent to the agreement to arbitrate is to endanger States' willingness to consent to any third party process of settlement. The 1958 New York Convention on Reciprocal Enforcement of Arbitral Awards recognises the significance of the distinction between commercial and non-commercial matters by allowing States to limit the obligation of their courts to give effect to foreign awards…'which are considered as commercial under the national law of the State making the declaration."
iii) These considerations, submits Mr Shackleton, are particularly relevant in the circumstances of this arbitration given the non-arbitrable (and non-commercial) nature of many of the disputes that arise under Lithuanian law.
iv) Mr Shackleton also relies upon Dame Hazel Fox's rationale for a limited interpretation of the scope of Section 9 (ibid. at page 14):
"The second omission appears to be any limitation of the section to English arbitration. Is an undertaking by a State to refer a future dispute to arbitration outside the United Kingdom, and for which the proper law is foreign law, within the section so as to constitute consent to proceedings in the English court? […] Although as far as I know, the point has not appeared in any English reported case, this disregards the additional requirement that the English court will require a jurisdictional connection between itself and the arbitration agreement, such as England being the place of arbitration, which would rule out such extreme situations. Certainly in the United States […] the case law after some hesitation has emphasised the need for territorial links with the US courts and refused to construe a waiver of immunity in respect of one jurisdiction as waiver to all jurisdictions. On this analogy consent to arbitration in England may constitute consent to proceedings in English courts, but consent to arbitration elsewhere will not […] Had section 9 once again followed the wording of Article 12 of the European Convention there would have been no ambiguity. Article 12 expressly limits the local court proceedings to those relating to the validity or interpretation of the arbitration agreement, arbitration procedure and setting aside the award…Such a limitation would seem to have been in conformity with the general approach which was to separate off enforcement measures and to require a separate express consent by the State to their application."
v) Further he submits that section 9 does not apply in relation to disputes of a public nature relating to a state's licensing of the natural resources on its own territory, particularly when the resources presented a valuable energy source in a time of political and economic transition.
vi) Further he submits that the wide construction considered by Svenska conflicts with the approach of the European Convention on State Immunity 1972. One of the purposes of the State Immunity Act 1978 was to ratify the Convention. Article 12 of the Convention provides:
"Where a Contracting State has agreed in writing to submit to arbitration a dispute which has arisen or may arise out of a civil or commercial matter, that State may not claim immunity from the jurisdiction of a court of another Contracting State on the territory or according to the law of which the arbitration has taken or will take place in respect of any proceedings relating to:
(a) the validity or interpretation of the arbitration agreement;
(b) the arbitration procedure;
(c) the setting aside of the award,
unless the arbitration agreement otherwise provides."
vii) He then submits that this is not a case where it is legitimate to place any reliance upon Hansard. The words of section 9 of the Act are not ambiguous or obscure as required under the first limb of the test in Pepper v Hart as outlined by Lord Browne–Wilkinson at  AC 634. Nor can it fairly be said that either suggested construction leads to an "absurdity" as is required by that case, whatever the merits of either construction.
viii) Even if regard is to be paid to the passages in Hansard relied upon by Svenska, these short statements cannot be regarded as determinative of the issue of the proper construction of section 9. In particular, no evidence has been put forward that section 9 was intended to apply to disputes arising out of a foreign State's regulation of its underground natural resources.
ix) Mr Shackleton also placed reliance upon certain United States authorities. He submitted that, despite the broad language of the American Foreign Sovereign Immunity Act, in the United States, a number of decided cases have declined to infer waiver from the existence of an arbitration agreement in a contract, particularly where there was no link with the United States. It appears that some form of territorial connection, or a willingness to submit to the jurisdiction of any State, will be required before American courts will allow a waiver of sovereign immunity. Thus:
a) In Verlinden B.V. v. Central Bank of Nigeria 488 F. Supp. 1284 (S.D.N.Y 1980) the parties entered into a contract regarding the sale of cement. The contract contained a provision providing for ICC arbitration and the application of Netherlands law. The plaintiff, however, sued on a letter of credit, not the cement contract. The letter of credit contained neither provision. If Nigeria waived immunity, it did so only for disputes under the contract. Even if this was not the case, the Southern District of New York held that when a foreign state agrees to submit its disputes with another, non-American private party, to the laws of a third country, it does not implicitly waive its immunity as to the jurisdiction of the courts of the United States.
b) In Obntrup v. Firearms Center, Inc. (1981) 516 F. Supp. 1281 D.C.C an action in tort was brought against the seller of a gun which malfunctioned and caused damage. The seller joined the manufacturer of the gun, a public corporation in Turkey. The corporation claimed immunity. The plaintiff relied on an arbitration clause in the agreement between the seller and the manufacturer whereby disputes were to be submitted for settlement by the International Chamber of Commerce in Paris; and argued that the arbitration clause amounted to a waiver. Pollak J. rejected the argument and held that
"a waiver of immunity by a State as to one jurisdiction cannot be interpreted to be a waiver as to all jurisdictions."
c) In Zernicek v. Petroleos Mexicanos, 614 F. Supp. 407 (S.D. Tex.) 1985 the court stated:
"[M]ost courts have refused to find an implicit waiver of immunity to sue in American courts from a contract clause providing for arbitration in a country other than the United States."
d) Other authority supports the position. Hans Smit has stated in H. Smit, (1981) International Contracts, New York, Mathew Bender, at page 259 that:
"[I]t may well not be an effective waiver for the purposes of subject matter and in personam competence when suit is brought on the award in a place other than that of the arbitration. After all a person who agreed to an arbitration clause does not contemplate proceedings in a place other than that in which the arbitration is to take place and perhaps the place in which he resides. Construing a waiver of immunity clause as waiving objection to suit in a place with which the defendant has no reasonable connection would appear not only unfair but may also be unconstitutional."
"During the passage of the bill through Parliament a clause excluding a provision for the enforcement of an arbitral award was deleted from this section. This and the reference in section 13(4)(b) to an arbitral award would seem to indicate that proceedings may be brought for registration to turn an award into an order of the court, provided leave to serve proceedings abroad can be obtained under CPR 6.20-12 … Section 13, relating to measures of enforcement, would govern how any such court order could be executed."
"The Lord Chancellor moved Amendment No.15 …
Page 5, line 13, leave out subsection (2).
…. This Amendment is intended to remove the immunity currently enjoyed by States from proceedings to enforce arbitration awards against them. Clause 10(1) [as s.9 then was] removes immunity from proceedings relating to arbitration where the State had submitted to the arbitration in the United Kingdom, or according to United Kingdom law, but by subsection (2) enforcement proceedings are excepted; that exception is now to be removed. If the Government Amendments to Clause 14 are accepted, the property of a State which is for the time being in use or intended for commercial purposes will become amenable to execution to satisfy and award. However, it would not be possible to proceed to such execution without first bringing enforcement proceedings to turn the award into an order of the court on which the execution could be levied, and unless the State had waived its immunity to enforcement, Clause 10(2) would prevent the necessary steps being taken. This Amendment will delete the subsection."
The Amendment was agreed. It is clear therefore that section 9, as enacted, was indeed intended to apply to proceedings for the recognition and enforcement of awards.
"The Lord Chancellor: My Lords, I beg to move that the House doth agree with the Commons in Amendment No 2. Clause 9 of the Bill provides that where a State has agreed in writing to submit a dispute to arbitration in, or according to, the law of the United Kingdom, the State is not immune as respects proceedings which relate to the arbitration. The Amendment removes the links with the United Kingdom, and by deleting the reference to the United Kingdom or its law, it will ensure that a State has no immunity in respect of enforcement proceedings for any foreign arbitral award."
The Amendment was passed.
"Two important amendments were made to the text of clause 10 of the Bill [which became s.9] in its passage through Parliament. First, Clause 10(2) excluding the operation of the exception in "proceedings for the enforcement of an award" was omitted. Secondly, words limiting the operation of the exception to arbitrations "in or according to the laws of the United Kingdom" were excluded, thereby permitting proceedings relating to foreign arbitrations (including proceedings to register a foreign award for enforcement)."
Was the State party to the arbitration agreement contained in Article 9 of the JVA?
The applicable principles of Lithuanian Law
i) At the time that the JVA was concluded there was no requirement that an arbitration agreement had to be in any particular form; see Professor Katuoka's Report, §62-64.
ii) At the time that the JVA was concluded there was no legal impediment to the State's agreeing to arbitrate disputes that might arise under that contract; see the First Report of Dr Foigt, page 7; and Professor Katuoka's Report, §64.
iii) The principle of the separability of arbitration agreements is well-recognized under Lithuanian law; i.e. arbitration agreements/ clauses are separable from the contracts in which they might be contained; see Professor Katuoka's Report, §§83 – 89 and Second Report of Dr Foigt, §§27-28.
iv) A valid arbitration agreement required the parties to express their common will to submit disputes between themselves to arbitration in writing; see Professor Katuoka's Report §71-73.
v) Although the JVA was concluded in 1993, when construing it and, in particular, Article 9, the Civil Code 2000 (which entered into force on 1 July 2001) must be applied; Article 45 of the Law on Approval, Coming into Force and Enforcement of the Civil Code of the Republic of Lithuania, dated 18 July 2000; see Professor Katuoka's Report, §§76-77 pp.16-17 and Second Report of Dr Foigt, §16.
i) The overriding principle is that a contract should be interpreted in good faith.
ii) Thereafter, the Court's search is for "the real intentions of the parties without being limited by the literal meaning of the words". In other words, unlike under English law, the primary objective is to ascertain what the parties subjectively actually intended, regardless of the words they used. In the present case, therefore, the enquiry becomes one into whether Lithuania and Svenska intended that disputes between them would be resolved by arbitration, regardless of the literal meaning of the words they used.
iii) In seeking to ascertain the parties' actual intention, regard must be had to "the preliminary negotiations between the parties, practices which the parties have established between themselves, the conduct of the parties subsequent to the conclusion of the contract, and the existing usages". Consequently, and again contrary to the position in English law, the court must look at the negotiations which led to the conclusion of the contract, take into account earlier drafts of the contract and consider each party's subjective intention.
iv) If, despite these sources, what the parties really intended cannot be ascertained then the court will apply an objective interpretation and give the contract "the meaning that could be attributed in the same circumstances by reasonable persons in the corresponding position as the parties".
The State's principal arguments
(1) State not a party to the JVA
(2) Article 9 is limited to disputes between Founders
(3) The Bilateral Investment Treaty
"…why in paragraph 131 you do not say that these two Acts have retroactive effect?"
Professor Katuoka simply replied:
"I do not have anything more to say."
(5) The evidence relating to pre-contractual negotiations (and post-contractual conduct) does not establish that Article 9 should be construed as extending the arbitration agreement to the State
Consideration of the evidence relating to pre-contractual negotiations
"LG has been assigned by the Lithuanian Government to negotiate a joint venture with SPE regarding exploration for and development of petroleum."
The law and arbitration clause stated:
"Swedish law to govern and arbitration proceedings in cases of dispute to be carried out in Stockholm."
Furthermore, the letter of intent itself was subject to a similar provision:
"This Letter of Intent shall be governed by Swedish law. Any disputes arising hereunder shall be settled by arbitration in Stockholm under the auspices of the Arbitration Tribunal of the Stockholm Chamber of Commerce."
"Republic of Lithuania is a sovereign state with its own legislation; any contract or document related to activities carried out in the territory of the Republic and referring to the laws of a foreign country is considered as illegal and void"
Any possible disputes shall be settled by the Court of Arbitration of Den Hague, the Netherlands".
"All provisions of the Letter of Intent unfavourable to Lithuania were reviewed, amended or annulled in this sitting."
Dr Motuza signed the minutes of the meeting and agreed in evidence that it accurately recorded what he understood to be the position at that stage. The negotiating team (and in particular Dr Motuza) informed the Minster of Energy about progress in the negotiations. Thereafter Dr Motuza and Dr Ashmantas reported back to the Prime Minister because, as Dr Motuza said, "The Prime Minister was concerned regarding the development of investments in the oil industry". A memorandum by which Dr Motuza and Dr Ashmantas reported to the State makes clear who had been negotiating with Svenska:
"Executing Resolution No.109 of the Government of the Republic of Lithuania of 29 March 1991 and Order No.4-16333 of the Government of the Republic of Lithuania, the Ministry of Energy of the Republic of Lithuania and the State Geological Survey have performed the following preparatory works on exploitation of oil fields and use of oil.
1. They have held negotiations with the Swedish company Svenska Petroleum Company…"
Moreover it is clear from a copy of the document drawn up at the meeting in November 1991 that there had been negotiations about both the governing law and the seat of any arbitration. The following, apparent compromise, was reached:
"Article 2.2. page 5, [of the LOI] Governing law and arbitration, text to be deleted and replaced by:
'The law governing the contractual relations between the Parties shall be law of a country to be agreed with an established tradition of contracts of this nature among private enterprises and which shall contain generally accepted principles of international business. Arbitration proceedings in cases of dispute to be carried out in Stockholm under internationally accepted arbitration rules.'
The aforesaid shall not prejudice normal rights for the Republic of Lithuania as a sovereign state to issue and enforce new legislation of a public nature."
That document was signed with "the consent and approval" of the Ministry of Energy and the State Geological Service.
"We agreed that provision because we understood the concern of Svenska in relation to the security and protection of the investment and there was no real legal system in Lithuania, so we left it in here. We thought our court system would develop and we would change it later."
"This Agreement after signature by the Parties and by Government shall have the status of law in Lithuania."
In addition, it was also intended that all disputes under the contract would be arbitrated: Article XXIII provided that:
"1. Periodically EPG and Svenska and, as necessary, Government shall meet to discuss the conduct of activities under this Agreement and will make every effort to settle amicably any problem arising therefrom.
2. Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof which cannot be settled amicably, shall be settled by arbitration under the auspices of ICSID (International Center for Settlement of Investment Dispute).
The arbitration proceedings shall be conducted in the English language.
3. This Agreement shall be governed by the laws of ".
"1. Periodically EPG and Svenska and, as necessary, Government shall meet to discuss the conduct of activities under this Agreement and will make every effort to settle amicably any problem arising therefrom.
2. Any dispute, controversy or claim arising out of or relating to this Agreement or the breach, termination, or invalidity thereof which cannot be settled amicably, shall be settled by arbitration in Lithuania in accordance with applicable Lithuania legislation.
3. Following receipt of the Lithuanian arbitration award Svenska shall have the right, during one (1) month to challenge the award by initiating arbitration proceedings under the auspices of ICSID (International Center for Settlement of Investment Disputes) or, if ICSID is no longer available, another internationally recognized and accepted institution. Such arbitration shall, unless otherwise agreed, be conducted in Oslo, Norway, under the English language.
Government and EPG hereby waives [sic] all rights to sovereign immunity and submit to the full and final jurisdiction of ICSID (or another institution as aforesaid).
4. This agreement shall be governed by the laws of Lithuania provided that the rules of international business activities generally accepted in the petroleum industry shall apply in cases of conflict."
"9.1 Disputes between the founders concerning the carrying out of this Contract are settled in accordance with the Statute of the Company or through negotiations between the founders.
9.2 In the event that disputes cannot be settled through negotiations, they shall be settled in the Courts of Law of the Republic of Lithuania.
"9.3. The judgement given by a Lithuania Court of Law may be challenged by SVENSKA during one (1) month after receipt thereof by initiating arbitration proceedings under the auspices of ICSID or, if ICSID is no longer available, another internationally recognized and accepted institution. Such arbitration shall unless otherwise agreed be conducted in the English language in Copenhagen, Denmark or such other place as the Parties may agree."
"35.1 GOVERNMENT and [Geonafta] hereby irrevocably waives [sic] all rights to sovereign immunity and submit to the full and final jurisdiction of ICSID (or another institution as stated in Articles 9.2 and 9.3 above.)
35.2 This contract shall be governed by the laws of Lithuania supplemented, where required, by rules of international business activities generally accepted in the petroleum industry."
i) There is, in the contemporaneous documents, nothing (either internal to the parties or by way of communication between them) to suggest that the intention of recasting the contract was to exclude the State from the scope of the arbitration clause.
ii) Every previous draft of the JVA had provided that all disputes were to be arbitrated and there is nothing to suggest that the parties suddenly changed their intention between the March and August 1992 drafts.
iii) All but the very first draft of the JVA contained an agreement by the State to waive Sovereign immunity and to submit to the jurisdiction of an arbitral tribunal. There is nothing in the evidence to suggest that its intention in this regard had fundamentally changed.
iv) Despite Article XXIII, and particularly the applicable law, having been discussed by the parties (and having been discussed internally by the parties), no one had ever suggested either internally in State circles or to Svenska that it was unacceptable for the State to be a party to the arbitration clause.
"As regards 35.1 – here the ICSID (International Centre for Settlement of Investment Disputes) is mentioned. If this is the final instance of dispute settlement, this should be discussed in Article 9."
"9.1 Disputes between the founders concerning the carrying out of this Agreement are settled in accordance with the Bylaws of the Company or through negotiations between the founders.
9.2 In the event that disputes cannot be settled through negotiations, they shall be settled in the Court of the Republic of Lithuania.
9.3 The judgement given by a Lithuanian Court may be challenged by Svenska during One (1) month after receipt thereof by initiating arbitration proceedings. Such arbitration shall be conducted in Copenhagen, Denmark or such other place as the parties may agree upon in the English language in accordance with the International Chamber of Commerce Rules of Arbitration."
"35. GOVERNMENT and EPG hereby irrevocably waives all rights to sovereign immunity.
This Agreement shall be governed by the laws of Lithuania supplemented, where required, by rules of international business activities generally accepted in the petroleum industry if they do not contradict the laws of the Republic of Lithuania"
"The Remarks provided by the Ministries of Justice and Economy are attached. Taking into account these and other remarks made while authorisation, the following paragraphs of the text of Agreement are corrected or otherwise changed: according to remarks of the Ministry of Justice – p.p. 1.5; 8.1; 9; 15.2; 16.2; 26.8; 35.1; Ministry of Economics – p.p. 3.3; 3.4; 4.1; 5.2; 20.4; 32.2 … etc.
"Point 9.3 is completely unacceptable since a decision of the Court of the Republic of Lithuania may be appealed only in the procedure prescribed by the Civil Procedure Code…"
i) Save for a passing reference in a Svenska Board Minute to there being an investment treaty between the two countries, the State has provided no evidence to support its submission that it was the parties' common intention that the investment treaty would govern their disputes. The State's own factual witnesses' evidence does not support the case now being advanced, nor do the internal State communications. In other words there is no evidence whatsoever to support the notion that this was the reason driving the amendments to the draft JVA.
ii) The State's argument in this respect on the interpretation of the various draft JVAs is as follows:
a) When Article XXIII was split, it was intended that the dispute resolution provision in Article 9 apply as between Geonafta and Svenska and that, as provided for in Article 35, the State submit to ICSID jurisdiction in relation to its disputes with Svenska.
b) Thereafter it was realised that it was unnecessary to have a reference to ICSID arbitration in Article 35 because all disputes which might arise would be covered by the treaty and its dispute resolution procedure, Article 7. Therefore the unnecessary reference to ICSID in Article 35 was deleted.
iii) This argument is unsound for the following reasons:
a) First, although this is clearly not determinative, as I have ruled against the State on this point in any event, it is wholly inconsistent with the State's case that it was never intended to be a party to the JVA. If it was never intended to be a party, submits Mr. Bools, why was a clause providing for the resolution of disputes between it and Svenska included in the first place?
b) The State's agreement to submit to ICSID jurisdiction was included in the very first draft of the JVA (21 November 1991) which pre-dates the bilateral investment treaty, which was concluded on 17 March 1992, by several months. It was not the case, therefore, that the reference to ICSID was included simply to reflect what would have been the position under the treaty in any event.
c) The suggestion that the submission to ICSID arbitration was deleted because it was thought to be otiose in light of the treaty is unsupported by any evidence and inconsistent with the evidence of why the amendments to Article 35.1 were actually made – namely because it was thought to be inconsistent with Article 9.
d) Finally, the argument is fallacious because it equates a contractual agreement to submit disputes arising under the JVA with a treaty commitment to submit disputes under the treaty to arbitration. The treaty did not provide the same scope of protection that the express submission in clause 35 would have done: it cannot therefore have been the case that the parties deleted it because they regarded it as otiose: it was not, as it extended ICSID jurisdiction far beyond that which existed under the treaty.
"If the jurisdictional hurdles are overcome, the question arises whether the host state has breached its substantive obligations. [§11-23]"
"(1) Any dispute between one of the Contracting Parties an investor of the other Contracting Party concerning the interpretation or application of this Agreement shall, if possible, be settled amicably.
(2) If the dispute cannot be thus settled within six months … it shall at the request of either party be submitted to arbitration for a definitive settlement…."
Clause (3) goes on to provide that if both States are parties to the Washington Convention then the dispute may be submitted to ICSID. It follows that the procedure laid down in Article 7 is a procedure for resolving claims by an investor that a Contracting State has breached one of its obligations under the Treaty. It does not provide for claims for breach of contract – which do not also amount to breaches of treaty obligations – to be resolved under the treaty disputes resolution provisions.
Geonafta's and Svenska's post-contractual dealings