Practical lessons for arbitrating against a State: Gold Reserve Part 2

This is the second part of out post on Gold Reserve v Venezuela (first part here). Here we focus on the practical aspects of bringing an arbitration claim against a foreign State.  We have grouped the practical lessons learnt from this case into four issues:

• first, guidance as to whether the application should be heard on an inter partes or ex parte basis;

• second, documents required to be served in support of an application;

• third, points which should have been raised in compliance with the duty of full and frank disclosure; and

• fourth, post-award interest – an important but often overlooked point.

1. Application to be heard on an inter partes or ex parte basis?

The judgment includes helpful guidance as to the circumstances in which an inter partes application against the State for the enforcement of an arbitral award would be appropriate. Teare J noted that in circumstances where it is likely a State will claim the sovereign immunity exemption, it is also likely that the court would not deal with the application on an ex parte basis, but rather direct that a claim form be served and allow the State the opportunity to deal with sovereign immunity issues before the court enters an order.

where it is likely a State will claim the sovereign immunity exemption, it is also likely that the court would not deal with the application on an ex parte basis

It was common ground that Venezuela was only able to claim state immunity in the event that there was no valid arbitration agreement (section 9 of the State Immunity Act 1978). Whether or not there was a valid arbitration agreement depended on whether Gold Reserve was an “investor” under the BIT. This was the central issue in dispute in these proceedings, and in such circumstances an application must draw to the court’s attention those matters which would suggest that the State in question is likely to claim sovereign immunity.

On this particular point, Teare J found that Gold Reserve’s evidence was not sufficient to discharge its obligation of full and frank disclosure upon making an ex parte application. This is because its evidence did not refer to the fact that the arbitration agreement had been disputed in the arbitration or that the validity of the arbitration was still being disputed by Venezuela in proceedings in Paris and Luxembourg. Had such evidence been presented to the Court, Teare J doubted that an ex parte order would have been granted.

2. Documents to be served in the event an order for permission to enforce is granted

First, a short but important point arose about the service on a State of an order of the English Court giving permission to enforce an arbitral award as a judgment.

The question was: what were the documents that were required to be served on the Venezuelan Sate?

Section 12 of the State Immunity Act (the “SIA”) provides that:

“Any writ or other document required to be served for instituting proceedings against a State shall be served by being transmitted through the Foreign and Commonwealth Office to the Ministry of Foreign Affairs of the State and service shall be deemed to have been effected when the writ or document is received at the Ministry.”

The question was: what were the documents that were required to be served on the Venezuelan Sate?

The issue was not straight-forward due to the procedural rules which apply to an application for the enforcement of arbitral award. This is typically an ex parte application following which an order is issued by the English Court entering judgment in terms of the arbitral award and giving the enforcing party permission to enforce, subject to an opportunity to the other party to set aside the order.

Venezuela argued that Gold Reserve had been required not only to serve the order of the court giving permission to enforce, but also the claim form as the claim form was the document instituting proceedings.

Teare J found that section 12 of the SIA only applied to the documents that were required to be served, and in the instance of an application for permission to enforce, the only document that was required to be served was the court order giving permission to enforce. There was no requirement to serve a claim form.

3. Full and frank disclosure: what points should have been raised?           

An array of points were raised by Venezuela as matters which should have been brought to the attention of the judge on the ex parte application to enforce the Award. Teare J agreed on the following points:

• more should have been done in the witness evidence to bring the court’s attention to the jurisdictional arguments advanced by Venezuela in the arbitration, this is especially important because they went to Venezuela’s ability to claim state immunity;

• while service of the arbitration claim was not required given that the order giving leave to enforce may be served without permission, this fact together with its interplay with Section 12 of the SIA should have been brought to the court’s attention; and

• the fact that if Venezuela was obliged to submit its substantive defence to the Award at the same time as making its jurisdictional objections in connection with the arbitration agreement and the SIA, there was a risk it would have been taken to have submitted to the jurisdiction of the English courts should have been brought to the court’s attention so that the court could deal with this in the terms of its Order.

While the court found the lack of full and frank disclosure was serious, resulting in a powerful case for the Order being set aside, as the arbitration claim could still be made this was one of those rare cases where it was appropriate to maintain the Order and reflect the failure to give full and frank disclosure in a costs order.

4. Post- Award Interest

Venezuela argued that the court Order improved upon the terms of the relief given in the Award in two ways; in particular by applying a higher statutory rate of interest from the date of the court’s Order as opposed to continuing the rate of interest specified by the arbitral tribunal until the date of payment.

Teare J noted that the court had a discretion to award a rate of interest other than the statutory rate and that in principle the court’s discretion should be exercised by awarding interest at the rate considered appropriate by the arbitral tribunal.