This article forms part of the Farrer & Co series "safeguarding your interests in times of conflict". In this series, we discuss the challenges that individuals and businesses face during global instability and what can be done to face them. Please contact Hendrik Puschmann and Oli Blundell for further information.
The Supreme Court is due to give a judgment on the foreign act of state doctrine, which will determine when, and whether, the English courts can assist victims of nation state wrongdoing. In this article we discuss the background, context, and the potential future of the doctrine ahead of this landmark decision.
It is highly unusual for nation states to have to seek refuge in the courts of one jurisdiction in relation to the acts of another. In the current climate, however, the risks of entering into contracts with foreign states are perhaps more acute than ever. Whilst states can have excellent credit, they can also be a law unto themselves. So, when can the English courts come to the aid of a state in distress?
What is the foreign act of state doctrine?
If a nation state fails to fulfil an obligation, redress can often be out of reach. In England, the general rule is that the courts will not adjudicate either: (i) the executive acts of a foreign state taken abroad; or (ii) the legislative acts of a foreign state. This is the “foreign act of state” doctrine, and it is founded in the notion of “comity”. Comity means, in general terms, that nation states will respect one another’s differences and leave well alone.
It was only quite recently established that the foreign act of state doctrine applies to international arbitration, even though the tribunal is not a part of the state (and such that “comity” has no real place). The High Court opined in 2018 that this is because of “a general principle of English private international law which recognises the sovereignty of nations within recognised spheres” (Reliance Industries and others v The Union of India).
The doctrine in context: Belhaj
There are gaps in the doctrine, but at the moment they are small and the borders are fuzzy. The 2017 Supreme Court decision in Belhaj and another v Straw and others concerned allegations that the UK government – and Jack Straw personally – had assisted foreign governments in carrying out the extraordinary rendition of the claimants from Malaysia to Libya. The UK government invoked the foreign act of state doctrine in its defence, but in a landmark decision, the Supreme Court declined to allow it.
Instead, the Court considered when, on public policy grounds, the English courts should take jurisdiction over serious international wrongs. One reason would be the engagement of “fundamental human rights”, and the other would be “jus cogens”. The term jus cogens proposes that some issues are so profoundly fundamental as to compel a court to take jurisdiction where it otherwise could not. Arbitrary disappearances (which were the issue in Belhaj) were, in Lord Sumption’s view, one such issue.
The doctrine and the Ukrainian conflict
The foreign act of state doctrine has arisen again in Law Debenture Trust Corporation plc v Ukraine, a case about several billion dollars in bonds issued by Ukraine to Russia. Ukraine did not pay amounts due under those bonds in 2015, but has claimed in its defence that the bonds were issued under duress from Russia (principally in the form of threats to Ukraine’s territorial integrity). The Supreme Court has been asked to decide whether those allegations are so fundamental as to provide the English courts with a “domestic foothold” under which to try them. Judgment is awaited.
If the decision in Law Debenture Trust Co comes out in favour of Ukraine, then it may well be reflective of the West’s stance towards Russia more generally. That is to say, we may see a trend emerge where the guiding principle moves a little away from safeguarding international harmony, and a little closer to policing profoundly reprehensible international behaviour.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, September 2022