Sovereign immunity

Percy, who's Queen?

Why would an entity — regardless of its absolute executive power — think it should ever be entitled to claim immunity from suit on a commercial contract?

There is no good reason, except “Percy, who’s Queen?”

The Sovereign Immunity Act 1978, which provides (among other things) that a State is not immune as respects proceedings relating to a commercial transaction entered into by the State; or an obligation of the State which by virtue of a contract (whether a commercial transaction or not) falls to be performed wholly or partly in the United Kingdom.

The parties can contract out of this in writing. This can create problems for the verbally incontinent amongst our brethren.

It's a bit nuanced, but not much. The commercial contracts exception allows a sovereign to be sued in the UK courts, but other part of the Act protect it against injunctions, the enforcement of judgments and arbitral awards.

Contractual waiver of sovereign immunity

The great question of whether one should specifically exclude sovereign immunity from a commercial contract governed by English law.

Spoiler: No.

Twist: Industry-standard commercial contracts do anyway. This creates more problems than it solves.

General

Waiving sovereign immunity is a faintly stupid thing to do if your commercial contract happens to be governed by English law, since the Sovereign Immunity Act 1978 excludes any immunity of a state to a commercial contract. Now, to be sure, here arises a great opportunity for the chicken lickens in your litigation department to pipe up. “What if,” they will say, “the sovereign ignores the exclusive jurisdiction clause, and takes action against you in its own court? What then, say ye?”

You got me. But hang on a minute: can you really launch an action in your own court and, by the same lights, claim immunity from suit? Is this not having your Brexit cake and eating it too? And even if it isn’t we are talking here about a sovereign who has, with the complicity of its own court system, already ignored one term of your contract (exclusive jurisdiction). Why would it respect the rest any way?

Sovereign immunity and the Cassanova problem

The fact that (unless agreed otherwise) Sovereign Immunity generally doesn’t apply to commercial contracts doesn’t stop industry standard commercial contracts purporting nonetheless waive that immunity which, in a ghastly ironic turn, makes sovereign immunity more likely to apply. For you may be sure agents, when representing sovereigns, will protest they do not have their client’s authority to waive its sovereign privileges. They will find themselves compelled, by the terms of their agency, to insist the waiver is deleted.

Now in the architecture of the ISDA Master Agreement this involves writing in the Schedule, something like “Section 13(d) shall not apply to Party A or Party B”. Is this mere silence on the matter, or is it an explicit agreement to contract out of it?

Had the ISDA Master Agreement only had the sense to shut up about sovereign immunity in the first place, there would have been no problem: what the eye don’t see the chef gets away with.

This will still be the stance you find yourself having to adopt. “I am not agreeing that sovereign immunity applies,” you will find yourself maintaining to the insistent gaze of your credit officer. “I am simply not saying that it doesn’t apply.”

This falls short of what the Sovereign Immunity Act 1978 requires for sovereign immunity to kick in. Hold that confident smile until it hurts.

See also

• Waiver of immunities - ISDA
• Template:Cdeaprov - CDEA
• Waiver of Immunity - GMSLA
• Waiver of Immunity - GMRA