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The English Court’s latest take on the Immunity of Servants/Agents of a foreign State and Forum Non Conveniens in relation to a dispute over an oil field in the Kurdistan Region of Iraq

  • United Kingdom
  • International arbitration
  • Litigation and dispute management

04-05-2021

Summary

In a recent judgement issued on 23 April 2021, the High Court of England & Wales in Dynasty Company for Oil and Gas Trading Ltd v Kurdistan Regional Government of Iraq & Anor [2021] EWHC 952 (Comm) (23 April 2021), rejected a claim brought by an oil & gas company operating in the Kurdistan Region of Iraq (“KRI”), Dynasty (the “Claimant”), against the Kurdistan Regional Government (“KRG”) and the then Minister of Natural Resources of the KRG, Dr Ashti Hawrami, for his refusal to provide the KRG’s consent to an assignment (under the applicable production sharing contract) and change of control over the relevant oil field.

Outcome

The High Court upheld Dr Hawrami’s arguments and found that it has no jurisdiction pursuant to the English State Immunity Act 1978 (“SIA”). Butcher J also found that had Dr Hawrami not been entitled to avail himself of immunity, he would have stayed the proceedings on the grounds of forum non conveniens.

Key Takeaways

i.    The English court took the view in this case that, for the purpose of the SIA, the acts of a Government (whether regional of federal) in relation to a production sharing contract (including their consent/disapproval to a change of control of the counterparties to that contract) constituted an exercise of the sovereign authority of the State. The terms of the state’s constitution and the nature of the assets were the factors that underpinned this view;

ii.    Such immunity also extends to servants or agents of the Government/State who at all material times acted on behalf of such Government/State, and are thus protected by the immunity to which the Government is entitled.

iii.    The Brussels Recast Regulation (the claim was brough before the end of the post-Brexit transition period) will likely not be applied to proceedings relating to the acts described in item ii above, because such acts do not qualify as a “civil or commercial matter” for the purposes of Article 1 of the Recast Regulation. In consequence, the Court had a discretion to stay the proceedings on the grounds of forum non conveniens. Exercising that discretion, the English Court could determine that the Courts of determined that the Courts of the Kurdistan Region of Iraq, rather than the Courts of England and Wales, were the appropriate forum for the determination of the dispute.

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A. The Dispute and Factual Background

The dispute relates to two contiguous oil fields in the KRI called the “Kurdamir Block” and the “Topkhana Block”, in relation to which the KRG (via Dr Hawrami) initially entered into a production sharing contract (“PSC”) with WesternZagros (for the Kurdamir Block) in 2008 and with Talisman Energy Inc (for the Topkhana Block) in 2011.

At a later stage, in 2014, Repsol acquired (with the KRG’s prior consent) WesternZagros’ and Talisman’s interest in the two blocks.

In 2019 Repsol entered a Sale & Purchase Agreement (“SPA”) with Dynasty, the Claimant in these proceedings. The SPA was a share sale, whereby Dynasty was to purchase all of the issued share capital of the two blocks. The SPA was governed by English law and subject to an exclusive jurisdiction clause in favour of the courts of England and Wales. Most importantly, the SPA also provided that the completion of the sale and purchase of the shares are conditional on the receipt by the seller of Government consent. Dr Hawrami refused to provide the KRG’s consent to the share purchase.

Dynasty’s primary claim was one of conspiracy and unlawful interference against the KRG, which acting through Dr Hawrami, wrongfully failed to provide consent to a change of control in favour of Dynasty in connexion with two PSCs, with the result that the SPA was terminated.

Dr Hawrami challenged the the jurisdiction of the English Court on the following main grounds:

i.    He has immunity from suit under s. 14 of the SIA;

ii.   Jurisdiction should be declined and the action stayed because England is not the appropriate forum to hear and adjudicate this dispute.

B. The Decision of the Court

1.    Did the KRG and Dr Hawrami enjoy immunity under the SIA?

First, Butcher J started by noting the parties’ agreement on the fact that that: (i) the KRI is a constituent territory of the Iraqi federal state; (ii) no Order in Council has been issued in relation to the KRI for the purposes of s. 14(5) of the SIA; and (iii), in consequence, pursuant to s. 14(6) of the SIA, the KRG, as the government of the KRI, could claim immunity in accordance with, and only in the circumstances provided for by, s. 14(2) of the SIA, as a separate entity.

Second, Butcher J embarked on a three step analysis to determine whether: (i) the KRG (and Dr Hawrami on its behalf) was exercising the sovereign authority of the State of Iraq; (ii) the relevant acts (i.e. the refusal to consent to the assignment and change of control over the oil fields) were sovereign in nature; and (iii) Whether Dr Hawrami himself is entitled to immunity.

i.    Whether the KRG (and Dr Hawrami on its behalf) was exercising the sovereign authority of the State of Iraq

Butcher J held that that the KRG's relevant acts were done in exercise of the sovereign authority of the state of Iraq as they stemmed from powers granted to it by the Iraqi constitution and under the Kurdistan Region Oil and Gas Law (“KROGL”), which was enacted to give effect to those powers.

ii.   Whether the relevant acts (i.e. the refusal to consent to the assignment and change of control over the oil fields) were sovereign in nature

The Court noted that the entry into the PSCs by the KRG were “sovereign or public acts”, or acts jure imperii, and not “private acts”. Given that these acts concerned the exploitation of the natural resources of the KRI, there is no doubt that those resources were publicly, and not privately, owned, and only a government, acting on behalf of the public, could enter into contracts such as these in relation to the exploitation of such resources. These PSCs were entered into pursuant to powers which were allocated to the KRG under the Constitution and implemented by the KROGL.

Moreover, the terms of those contracts contain a number of provisions which it is apparent that no private person could make, including promises in relation to such matters as compulsory purchase, planning consents, customs, tax exemptions and pipeline rights. As a result, Butcher J concluded that the entry into of the PSCs was in the exercise of sovereign authority.

iii.    Is Dr Hawrami himself entitled to immunity?

Finally, Butcher J started by noting that there is no dispute that Dr Hawrami, at all times material to Dynasty's claim, acted for and on behalf of the KRG, as Minister for Natural Resources of the KRG.

He also noted that the SIA does not expressly provide for the case where a claim is brought against any agents, officials or functionaries of a foreign state. He referred to authority at common law which states that a foreign state's right to immunity could not be circumvented by suing its servants or agents. Consistently with this it has been held that the immunity provided for by s. 1 of the SIA extends to the servants or agents of foreign states who are sued in respect of matters where they were acting in discharge or purported discharge of their duties as such (Propend Finance Pty Ltd v Sing (1997) 111 ILR 611; Jones v Ministry of the Interior of the Kingdom of Saudi Arabia [2007] 1 AC 270).

As a result, the Court held that given that it has recognised that the KRG, as a separate entity, is entitled to immunity when exercising sovereign authority pursuant to a constitutional allocation to it of such authority, then its servants or agents should be entitled to the same immunity, for otherwise it would lead to the circumvention of the immunity which it has been found that the entity should have. Thus, Dr Hawrami is entitled to immunity.

2.    Are English Courts the most appropriate forum to hear this claim?

Dr Hawrami argued that Dynasty’s claim should be stayed on the basis that the courts of the KRI are a more appropriate forum for hearing the action.

Butcher J started by examining whether the case is subject to the Brussels Recast Regulation, and he found that case is one which falls outside the scope of 'civil or commercial matters' because it is concerned with the exercise of public powers (because, amongst other reasons, as a matter of the law of Iraq and of the KRI, decisions as to changes of control under PSCs are considered as administrative decisions taken in the course of the exercise by the government of its administrative duties).

Then, the Court considered whether it should stay the proceedings in its discretion. Upon consideration of a number of factors such as the connexions of the parties to the dispute with particular places (such as Kurdistan and England & Wales), where the relevant events occurred, the applicable law, language of documents and witnesses, Butcher J found that the case has its closest and more real connexion with the KRI and the courts of the KRI are the natural forum for its resolution.

In conclusion, the Court held that it has no jurisdiction pursuant to the SIA. Further, had Dr Hawrami not been entitled to avail himself of immunity, it would have stayed the proceedings on the grounds of forum non conveniens.

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