England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/07/2016

Mr Justice Males :

The issue

1. If a state were to use its own premises in order to carry out consular activities such as the handling of passport and visa applications, it could not be said that the premises were "in use … for commercial purposes" within the meaning of section 13(4) of the State Immunity Act 1978. The premises would therefore be immune from any process for the enforcement of a judgment or arbitration award against the state under that section (quite apart from the immunity which attaches to "consular premises"). But what is the position if, instead of handling the applications itself, the state grants a lease of the premises to a privately owned company to which it outsources this task?
2. That is what has happened in this case. The Federal Republic of Nigeria is the registered proprietor of the freehold interest in office premises at 56/57 Fleet Street in London. It has granted a lease of the premises to a company called Online Integrated Solutions Ltd ("OIS") for the purpose of providing visa and passport services (although other office use is also permitted) in exchange for an annual rent of £150,000. OIS, which describes itself as an official partner of the Nigerian High Commission, provides Nigerian visa and passport services on behalf of the High Commission.
3. The claimant has obtained permission to enforce in this country an arbitration award made against the Federal Republic together with a judgment of the Nigerian Federal High Court which was entered by way of enforcement of the award in Nigeria. It has also obtained a final charging order in respect of the Fleet Street property and has issued proceedings in the Chancery Division for an order for sale of the property. The defendants contend that the property is immune from execution and apply to have the charging order set aside. That is the application which is currently before me, although the arguments of Ms Hilda Ephraim-Adejumo for the defendants also challenged the permission granted to enforce the award and the Nigerian judgment in this country.

The arbitration

4. The claimant is a company registered in Israel. On 22 October 2002 it entered into a contract with the Federal Republic of Nigeria for the supply of military equipment. The contract was governed by Nigerian law and was subject to arbitration in Nigeria in accordance with the Nigerian Arbitration and Conciliation Act 1998. In due course a dispute arose and on 31 January 2012 Mr Babajide Ogundipe, a Nigerian barrister, was appointed as sole arbitrator by the Chief Judge of the Federal High Court of Nigeria. On 8 February 2013 the arbitrator awarded US $5 million to the claimant as damages for breach of the contract, together with costs of Naira 4.71 million (equivalent to about £26,500). The award did not carry interest.

Proceedings in Nigeria

5. On 17 March 2013 the defendant state, represented by the Attorney General, applied to the Federal High Court in Abuja to set aside the award. That application failed.
6. The claimant then applied to the Federal High Court for leave to enforce the award. On 30 June 2014 the Federal High Court granted leave to recognise and enforce the award in the same manner as a judgment and entered judgment ordering the defendants (the Federal Government and the Attorney General) to pay the sums awarded together with interest at the prevailing bank rate from 11 March 2013.

Proceedings in England

7. The Government did not comply with the order of the Nigerian court so the claimant sought to enforce the award in this country. On 4 March 2015 it made a without notice application to register the award under section 101 of the Arbitration Act 1996 and also to register the Nigerian judgment under section 9 of the Administration of Justice Act 1920. Phillips J made both orders on 14 April 2015 and also gave permission for service of the claim form, the witness statement in support of the application and the order itself on the defendants out of the jurisdiction through diplomatic channels under section 12 of the State Immunity Act. These were duly served on 24 June 2015.
8. Phillips J's order provided that the defendants had permission to apply to set aside the registration within two months after service of the notice of registration and that enforcement would not be commenced until after the expiry of that period. That, as Ms Zahra Al-Rikabi accepts on behalf the claimant, was a mistake. What the order should have said was that the defendant had two months and 22 days after service within which to enter an acknowledgment of service: see section 12(2) of the State Immunity Act which provides that the time for acknowledging service begins to run two months after the date of receipt of the claim form at the Ministry of Foreign Affairs of the defendant state.
9. Despite being properly served, the defendants did not acknowledge service.
10. On 25 August 2015 (and thus before the period of two months and 22 days had expired) the claimant applied for a charging order in respect of the property. An interim charging order was made by Master Kay QC on 17 September 2015. This was after expiry of the period of two months and 22 days, albeit not by very much. Section 12(3) of the State Immunity Act provides that no judgment in default shall be given against a state except on proof that the time for acknowledging service has expired. This has been described as a matter going to the court's jurisdiction (see Norsk Hydro ASA v State Property Fund of Ukraine [2002] EWHC 2120 (Comm) at [24] to [26]), but the critical date is the date when judgment is given and not the date when an application for such judgment is issued.
11. The interim charging order was served on the defendants through diplomatic channels on 26 October 2015. However, no permission had been granted to serve this order out of the jurisdiction. Such service was therefore invalid. Again the defendants did not acknowledge service.
12. The claimant's application for a final charging order came before Master Kay QC at a hearing on 6 November 2015. This was only 11 days after the (invalid) service of the interim order, although the rules provide that there should be a period of not less than 21 days between a defendant's receipt of an interim order and the hearing of an application for a final order: see CPR 73.7(5). Nevertheless the Master made a final charging order which provided that the defendants had 21 days from receipt to apply to vary it or set it aside. This order provided for service by email as well as diplomatic channels. Service by email was effected on 10 November 2015 and by diplomatic channels on 19 January 2016.
13. On 5 February 2016 the claimant issued a Part 8 claim form in the Chancery Division seeking an order for sale of the property. This was served on the defendants, again through diplomatic channels, although no permission for such service had been granted.
14. It appears to have been the service of this application which finally prompted the defendants into action. On 12 May 2016 they issued an application to discharge or set aside the final charging order and sought an extension of time within which to make that application.
15. The claimant resists that application and seeks to cure the procedural errors identified above, either by retrospective validation of such errors or by orders dispensing with the need for service.

The parties' submissions

16. I deal first with the issue of substance whether the property is immune from execution under the State Immunity Act. On behalf of the defendant Ms Ephraim-Adejumo contends that:

a. in accordance with the decision of Stanley Burnton J in AIC Ltd v Federal Government of Nigeria [2003] EWHC 1357 (QB) the Nigerian judgment was not capable of being recognised under section 9 of the Administration of Justice 1920 because it does not fall within the scope of section 31 of the Civil Jurisdiction & Judgments Act 1982; and

b. the premises at 56/57 Fleet Street are "property of a State" which is immune from enforcement of a judgement or arbitration award pursuant to section 13 of the State Immunity Act.

17. On behalf of the claimant Ms Al-Rikabi accepts that the Nigerian judgment does not fall within the scope of section 31 of the Civil Jurisdiction & Judgments Act 1982, but she submits that the award can be enforced pursuant to section 101 of the Arbitration Act 1996 and that the Nigerian judgment can be enforced under section 9 of the 1920 Act because in both cases proceedings for such enforcement "relate to the arbitration" within the meaning of section 9 of the State Immunity Act, with the consequence that the defendants are not immune to such enforcement proceedings.
18. Ms Al-Rikabi contends also that the property is "in use … for commercial purposes" within the meaning of section 13(4) of the Act and is therefore susceptible to enforcement by way of a charging order and an order for sale.
19. Accordingly three issues of substance arise, namely (a) whether the award can be enforced against the defendant state, (b) whether the Nigerian judgment can be enforced and (c) whether the property is in use for commercial purposes so as to be immune from enforcement. There is a further issue, albeit scarcely touched on in submissions, whether the property forms part of the Nigerian diplomatic mission to this country.

Enforcement of the award

20. Section 9(1) of the State Immunity Act 1978 provides:

"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."

21. The defendant state has agreed to arbitration and accordingly has no immunity in proceedings "which relate to the arbitration". The issue is whether proceedings to enforce an award under section 101 of the Arbitration Act 1996 are "proceedings which relate to the arbitration" within the meaning of section 9. In Svenska Petroleum Exploration AB v Government of the Republic of Lithuania [2006] EWCA Civ 1529, [2007] QB 886 the Court of Appeal held at [117] that they are. It drew a distinction between an application for recognition or enforcement of an award, which is a proceeding which relates to the arbitration and therefore does not attract immunity, and enforcement by execution on property of the state which does attract immunity unless the commercial exception in section 13 applies.
22. This ruling was approved in the Supreme Court in NML Capital Ltd v Republic of Argentina [2011] UKSC 11, [2011] 2 AC 495 by Lord Mance at [89] who said that "a major purpose of section 9 must on any view have been to lift state immunity in respect of the enforcement of arbitration awards against states, including foreign arbitration awards since the subsection is in general terms".
23. Accordingly the claimant was entitled to register the award for recognition and enforcement under section 101 of the Arbitration Act. The arbitration exception to state immunity in section 9 of the State Immunity Act applies.

Enforcement of the Nigerian judgment

24. Enforcement of the Nigerian judgment is a separate matter, which is of importance in this case because it is the judgment and not the award which carries interest. The judgment cannot be recognised or enforced under section 101 of the Arbitration Act because it is a judgment and not an award. It can only be enforced, if at all, under section 9 of the Administration of Justice 1920. This provides:

"… the judgment creditor may apply to the High Court in England … to have the judgment registered in the court, and on any such application the court may, if in all the circumstances of the case they think it just and convenient that the judgment should be enforced in the United Kingdom, and subject to the provisions of this section, order the judgment to be registered accordingly."

25. Accordingly the court has a discretion whether to order enforcement in the United Kingdom. In AIC Ltd v Federal Government of Nigeria [2003] EWHC 1357 (QB) Stanley Burnton J held that a judgment against a state should not be enforced in circumstances where the state is entitled to immunity. That aspect of his decision has survived the disapproval of some parts of his reasoning by the Supreme Court in the NML case and is not challenged by Ms Al-Rikabi.
26. However, AIC was not an arbitration case. Ms Al-Rikabi's submission is that just as an application to enforce an arbitration award is a proceeding which relates to the arbitration, so too is an application to enforce a judgment which is in effect an award which has been converted into a judgment under a foreign statutory provision equivalent to section 66 of the Arbitration Act 1996. She submits that this is all part of the process of enforcement of an award, that the reasoning of the Court of Appeal in Svenska Petroleum and of Lord Mance in NML is equally applicable to enforcement of such a judgment, and accordingly that the discretion under section 9 of the 1920 Act should be exercised in favour of registration and enforcement of the judgment.
27. I accept this submission, which is not affected by anything in the AIC case. Accordingly the defendants are not immune in respect of the application for registration and enforcement of the Nigerian judgment and there is no bar to the exercise of discretion in favour of enforcement pursuant to section 9 of the 1920 Act.
28. It follows that (although strictly speaking there is no such application before me) any challenge to the order of Phillips J giving permission to enforce the award and the judgment must fail.

Is the property in use for commercial purposes?

29. As the Court of Appeal pointed out in the Svenska Petroleum case, enforcement by execution on state-owned property is governed by section 13 of the State Immunity Act, even in an arbitration case. Section 13 provides:

"(2) Subject to subsections (3) and (4) below—

…

(b) the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale.

(3) Subsection (2) above does not prevent the giving of any relief or the issue of any process with the written consent of the State concerned; …

(4) Subsection (2)(b) above does not prevent the issue of any process in respect of property which is for the time being in use or intended for use for commercial purposes…

(5) The head of a State's diplomatic mission in the United Kingdom, or the person for the time being performing his functions, shall be deemed to have authority to given on behalf of the State any such consent as is mentioned in subsection (3) above and, for the purposes of subsection (4) above, his certificate to the effect that any property is not in use or intended for use by or on behalf of the State for commercial purposes shall be accepted as sufficient evidence of that fact unless the contrary is proved."

30. The critical issue here is the use to which the property in question is put. The nature or origin of the obligation which it is sought to enforce is irrelevant: SerVaas Inc v Rafidain Bank [2012] UKSC 40, [2013] 1 AC 595 at [15].
31. No consent to enforcement has been given. Instead the Acting High Commissioner of the Nigerian High Commission in London has given a certificate under section 13(5) certifying that "the property is part of the Nigeria High Commission of the Federal Republic of Nigeria in the United Kingdom and it is in use for Consular activities". Ms Al-Rikabi accepts that in the light of this certificate the burden is on the claimant to prove that the property is in use for commercial purposes.
32. Section 17(1) of the Act defines "commercial purposes" as "purposes of such transactions or activities as are mentioned in section 3(3) above". The transactions or activities mentioned in section 3(3) are:

"(a) any contract for the supply of goods or services;

(b) any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation; and

(c) any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority; …"

33. The claimant relies on seven matters as showing that despite the Acting High Commissioner's certificate the property is in use for commercial purposes, namely that:

a. The property is in use by the company named OIS, not the High Commission itself.

b. The property is leased to OIS for an annual rent of £150,000; the lease is personally guaranteed by a director of OIS.

c. OIS's website states that it is "the official partner of a number of diplomatic missions and a specialist Nigerian visa and passport application agency" (the claimant's emphasis).

d. The website also states that the fees payable by those using its services to apply for a visa "comprise the Nigeria High Commission administrative fee for the visa, which we forward on to the High Commission and our fees, comprising our service fee and other fees such as bank charges and fees".

e. OIS's business is not limited to the processing of visa and passport applications, but includes the enrolment of customers' Bank Verification Numbers for banks in Nigeria.

f. OIS is registered for VAT and charges VAT for its visa application services.

g. At one time the property was advertised commercially as being available to rent.

34. Ms Al-Rikabi submits that all this shows that OIS is an agent carrying out various activities on behalf of the Nigerian High Commission on a commercial basis, from which it follows that the property is in use for commercial purposes within the meaning of section 13(4) of the 1978 Act.
35. I would accept that if the question whether the property is in use for commercial purposes has to be answered from the point of view of OIS, the answer must be that it is. OIS is carrying on a business with a view to profit of which the principal element consists of processing visa and passport applications on behalf of the Nigerian High Commission in exchange for payment. No doubt the business is structured so that the fees which it charges are sufficient to enable it to pay the rent, staff salaries and other overheads together with the High Commission's administrative fee and to leave it with a profit. From OIS's point of view, such a business is a typical commercial activity.
36. However, the position appears differently if seen from the High Commission's point of view. Ms Al-Rikabi accepts that if the High Commission was carrying out the handling of passport and visa applications itself, using its own staff, that would not be a use of the property for commercial purposes. Rather it would be a consular activity which a state enters into in the exercise of its public functions. Article 5(d) of the 1963 Vienna Convention on Consular Relations scheduled to the Consular Relations Act 1968 includes "issuing passports and travel documents to nationals of the sending State, and visas or appropriate documents to persons wishing to travel to the sending State" as a consular activity. In this case, instead of processing these applications itself, the Nigerian High Commission has chosen to outsource this task to OIS. But it remains the case that the property is being used for a consular activity which, even if the task is outsourced in this way, can only be carried out on behalf of a state.
37. To the extent that it is relevant to consider whose purposes matter in the context of section 13(4), the purposes must be those of the state against whose property execution is sought. That is implicit in section 13(5) which enables the head of a diplomatic mission to give a certificate not only as to the present use of the property in question but also as to its intended future use. Clearly the state can speak about its own intentions as to the purposes to which the property is to be put in the future, but it is not apparent that it could give a certificate about anybody else's future intentions. So in referring to the intended future use for commercial purposes, the subsection must be concerned with the use to which the state intends to put the property. Similarly, the actual present use for commercial purposes or otherwise must refer to the state's purposes concerning the property.
38. Ultimately, however, the primary consideration must be the nature or character of the relevant activity, what is actually being done with (or in this case on) the property in question. That accords with the decision of the Supreme Court in the SerVaas case that "the expression 'in use for commercial purposes' should be given its ordinary and natural meaning having regard to its context" (per Lord Clarke at [16]). In this case the use (or at least the primary use) to which the property is being put is the processing of Nigerian visa and passport applications which is the performance of a public function on behalf of the defendant state. That is so regardless of whether that function is carried out by the defendant state itself or, as in this case, by an agent to whom performance of the function in question has been delegated (or outsourced). Nor does it make any difference that a fee is charged to applicants. That would be so, no doubt, even if the defendant state handled visa and passport applications itself.
39. Ms Al-Rikabi challenges this approach, submitting that the property is being used for commercial purposes because it is leased to OIS at what appears to be a commercial rate and there is nothing on the face of the lease to suggest that it was entered into in the exercise of sovereign authority. Therefore, she says, the transaction is of a private law character falling within the definition of commercial activities in section 3(3)(c) of the Act. In my judgment, however, that is to take too narrow a view. There is in fact no evidence that £150,000 represents a commercial rate for the property and it is plain from the lease that its purpose is to enable OIS to provide visa and passport services. In any event, however, a transaction which has "many of the hallmarks of a commercial transaction" may nevertheless be entered into in the exercise of sovereign authority (see Svenska Petroleum at [133] and Pearl Petroleum Co Ltd v Kurdsistan Regional Government of Iraq [2015] EWHC 2261 (Comm), [2016] 4 WLR 2 at [36]). More fundamentally, however, the lease is not the relevant transaction for which the Fleet Street property is being used. The purpose for which the property is being used is not merely to earn rent under a lease but to provide consular services. That is in effect what the Acting High Commissioner has certified. The contrary has not been proved.
40. Ms Al-Rikabi submits next that although it is not in evidence, there must be a contract between the High Commission and OIS, which must be a contract for the supply of services and thus a "commercial transaction" within the definition in section 3(3)(a) of the Act. She points out that, as indicated by Lord Diplock in Alcom Ltd v Republic of Columbia [1984] AC 580, a contract for the supply of services will qualify as a commercial transaction even if it is entered into by the state in the exercise of sovereign authority. I would accept that it is at least possible that such a contract may exist. However, the fact that any such contract falls within the wide definition of "commercial transaction" in section 3(3)(a) does not mean that the Fleet Street property is in use for commercial purposes. As Lord Clarke pointed out in the SerVaas case at [17], the language of section 13(4) which speaks of property "in use or intended for use" for commercial purposes may be contrasted with that of other sections which use language such as "relating to" a commercial transaction or to claims "in connection with" a ship. He continued:

"Property will only be subject to enforcement where it can be established that it is currently 'in use or intended for use' for a commercial transaction. It is not sufficient that the property 'relates to' or is 'connected with' a commercial transaction."

In this case the property may be connected with a commercial transaction, namely a contract between the High Commission and OIS for the supply of services by OIS to the High Commission, but the purpose for which it is in use is the provision of visa and passport services to Nigerian citizens and others wishing to travel to that country. That is (or those are) the relevant transaction(s) for which the property is in use. The fact, if it is the fact, that these services are being provided by an agent who has a contract with the High Commission is merely incidental.

41. Ms Al-Rikabi relies on the fact that that the processing of Nigerian visa and passport applications is not the only business carried out by OIS which also, according to its website, processes such applications for other states as well as enrolling customers' Bank Verification Numbers for banks in Nigeria. There is, however, no evidence to show to what extent, if at all, the claim on OIS's website to act also on behalf of other diplomatic missions is reflected in the actual work undertaken at the property, while the emphasis of the website is clearly on OIS's relationship with the Nigerian mission. I would not regard the claim on the website as sufficient to disprove the Acting High Commissioner's certificate, but even if such activity is undertaken for other missions, it remains activity of a public rather than commercial character.
42. As to the BVN numbers, the limited evidence about this is that it is a scheme introduced by the Central Bank of Nigeria (itself a "separate entity" within the meaning of section 14 of the 1978 Act) in order to protect customers' transactions and enhance confidence in the Nigeria banking sector and to combat fraud. This appears to involve, or at least to include, at least some elements of performance on behalf of the Central Bank of Nigeria of an essentially public function. In any event, I do not regard the limited evidence to the effect that OIS carries out this secondary function as sufficient to disprove the Acting High Commissioner's certificate: cf. Alcom Ltd v Republic of Columbia where Lord Diplock said that the onus was on the judgment creditor to prove that the property in question was used wholly for commercial purposes.
43. The advertisement relied on by the claimant does not show that there was in fact any commercial use in the past, but even if that were the case, it is the present and intended future use which matters. I attach no significance to the fact that OIS is registered for and charges VAT.
44. I conclude, therefore, that the claimant has not discharged the burden upon it of proving that the property is in use for commercial purposes.

Other immunities

45. Section 16 of the State Immunity Act preserves the immunities available to a state under the Diplomatic Privileges Act 1964 and the Consular Relations Act 1968. The defendants rely on section 2 of the former Act together with Article 22 of the Vienna Convention on Diplomatic Relations of 1961.
46. Section 2 gives the force of law to certain articles of the Convention including Article 22 which provides that "The premises of the mission shall be inviolable". However, despite the terms of the Acting High Commissioner's certificate, I do not accept that the Fleet Street property forms part of the premises of the Nigerian High Commission. The Acting High Commissioner's certificate has no special status for this purpose. A certificate from the Secretary of State would be conclusive on the question whether the property comprises diplomatic or consular premises (see section 1(7) of the Diplomatic & Consular Premises Act 1987), but there is no such certificate.
47. The defendants have not claimed immunity from execution for the property under the Consular Relations Act 1968. Although consular premises are also inviolable, there is no evidence (and no certificate from the Secretary of State) that the property has been designated or accepted as consular premises under section 1 of the Diplomatic & Consular Premises Act 1987.

Procedural issues

48. As noted above, a number of procedural defects have occurred in the course of these proceedings, on both sides. Thus (a) Phillips J's order did not afford the defendants the correct period to which they were entitled within which to acknowledge service, (b) the claimant did not have permission to serve the interim charging order on the defendants out of the jurisdiction, (c) the final charging order was premature, (d) the claimant did not have permission to serve the application for an order for sale out of the jurisdiction, and (e) the defendant's application to set aside the charging order is out of time.
49. I have thought it sensible to address the issues of substance identified above rather than to decide this case on procedural grounds. Even if the defects in the claimant's proceedings cannot be cured, it would be open to it to seek a new charging order, but there is no point in doing so if (as I have held) the property is not amenable to execution. Moreover the numerous defects in the claimant's proceedings could hardly be cured (and Ms Al-Rikabi did not suggest that they could) without also giving the defendants any necessary extension of time to enable them to make their application to set aside the charging orders since, unless the defects in question can be cured, the final charging order should not have been granted.
50. In view of my decision on the issue of immunity it is therefore unnecessary to say anything further about these procedural issues.

The interests of justice

51. Ms Ephraim-Adejumo sought in the course of her submissions to invoke "the justice of the case" as a reason for setting aside the charging orders. I would have thought that the interests of justice in this case would be best served if the defendant state were to honour an arbitration award made against it which has been upheld by and converted into a judgment of its own Federal High Court. However, the law of state immunity exists in international law and has been given effect in the 1978 Act in order to promote wider interests of justice than those of the parties to any individual case. For the reasons I have given the Fleet Street property is immune from execution. The charging orders must therefore be set aside.