Svenska Petroleum Exploration AB v Lithuania & Anor

Factual and Procedural Background

This appeal concerns the attempt by the Appellee, Company A, to enforce in this jurisdiction an arbitration award made in Denmark under the rules of the International Chamber of Commerce ("ICC"). The award was made in favour of Company A against the Appellant, the Government of The State, and Company B, a state-controlled organisation until its privatisation in June 2000.

The dispute arose from a Joint Venture Agreement ("the Agreement") signed in The City in April 1993 between Company A and Company B (formerly a state enterprise), to exploit oil reserves in The State, including the Genciai oilfield. The Government was not expressly a party but signed the Agreement with a rubric stating it approved and was legally bound as if a signatory.

Company A alleged breaches concerning the development of additional oilfields and preferred status in exploration, leading to arbitration initiated under Article 9 of the Agreement. The arbitration panel held the Government had agreed to arbitration and awarded damages to Company A. The Government contested enforcement in this jurisdiction on sovereign immunity grounds.

Following initial enforcement orders and applications to set aside, the matter was heard before various judges, including a Deputy Judge and a High Court judge. The key issues involved whether the Government had agreed to arbitration, the effect of the first arbitration award, and the applicability of the State Immunity Act 1978.

Legal Issues Presented

1. Whether the Government of The State agreed in writing to submit disputes arising under the Joint Venture Agreement to ICC arbitration.
2. Whether the first arbitration award made in Denmark finally determined the question of the tribunal's jurisdiction and thus gave rise to issue estoppel.
3. Whether the Government is entitled to sovereign immunity from enforcement proceedings under the State Immunity Act 1978, particularly sections 2, 3, and 9.
4. The proper interpretation of the Agreement under Lithuanian law, including the effect of the Government's signature and waiver of sovereign immunity.
5. The scope of "proceedings relating to arbitration" under section 9 of the State Immunity Act 1978, including enforcement proceedings.

Arguments of the Parties

Appellant's Arguments

• The Government did not become a party to the Agreement and signed only in an administrative capacity to approve obligations undertaken by Company B.
• Article 9 of the Agreement refers only to disputes between the "Founders" (Company A and Company B), excluding the Government.
• The first arbitration award did not finally determine the tribunal's jurisdiction and thus does not give rise to issue estoppel.
• The Government is entitled to sovereign immunity under the State Immunity Act 1978.
• No express written agreement exists for the Government to submit to arbitration as required by section 9 of the Act.
• Enforcement proceedings do not fall within "proceedings relating to arbitration" under section 9.
• The Agreement is not a commercial transaction entered into by the Government but an exercise of sovereign authority.
• Subsequent Lithuanian court decisions support the Government's position that it is not bound by the arbitration clause.

Appellee's Arguments

• The Government expressly acknowledged itself to be legally and contractually bound as if a signatory to the Agreement.
• Under Lithuanian law, the parties' real common intention governs contract interpretation, allowing consideration of negotiations and conduct beyond the text.
• The waiver of sovereign immunity in Article 35 supports the view that the Government intended to be bound and submit to arbitration.
• The first arbitration award was final and binding, determining the tribunal's jurisdiction and giving rise to issue estoppel.
• Section 9 of the State Immunity Act 1978 applies, removing immunity for proceedings relating to arbitration, including enforcement.
• The Agreement involves commercial transactions and the Government's participation removes immunity under section 3.
• Enforcement of the second award is properly characterised as proceedings relating to arbitration within section 9.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed examination of the Agreement, its negotiation history, and the applicable principles of Lithuanian law governing contract interpretation. The Agreement's text alone did not clearly include the Government as a party to the arbitration clause, as Article 9 referred only to disputes between the "Founders" (Company A and Company B), excluding the Government.

However, the Government's signature accompanied by a rubric stating it was "legally and contractually bound as if it were a signatory" was strong evidence of intention to be bound. The court found that the parties' common intention, assessed in light of the negotiations and the rubric, was that the Government should be bound and disputes involving it should be arbitrated under the ICC rules as set out in Article 9.

The court acknowledged the complexity introduced by various draft versions of the Agreement and the removal of explicit arbitration references in Article 35, but considered this a drafting anomaly not reflecting the parties' true intention.

The court applied Lithuanian law principles, emphasizing good faith and the search for the parties' real common intention, including pre-contractual negotiations and conduct. It rejected the Appellant's argument that only express consent to arbitration suffices under international law, finding no support for such a rigid rule in the applicable law.

The court upheld the first arbitration award as final and binding on the parties, noting under Danish law the Government had lost the right to challenge it by delay and conduct.

Regarding the State Immunity Act 1978, the court held that the Government had agreed in writing to submit disputes to arbitration, satisfying section 9(1), and that enforcement proceedings fall within "proceedings relating to arbitration," thereby removing immunity.

The court rejected the notion that the general waiver of sovereign immunity in Article 35.1 amounted to submission to the jurisdiction of the English courts under section 2(1), instead construing it within the arbitration context.

On section 3, the court expressed no final view on whether the Agreement was a commercial transaction entered into by the Government, but noted the complexity given the sovereign nature of natural resource exploitation and the dual roles of the Government and Company B.

Overall, the court found no error in the trial judge’s conclusions and reasoning, endorsing the approach that the Government is bound by the arbitration agreement and is not immune from enforcement proceedings.

Holding and Implications

The court DISMISSED THE APPEAL.

The holding confirms that the Government of The State agreed in writing to submit disputes arising under the Joint Venture Agreement to ICC arbitration and that the first arbitration award is final and binding. Consequently, the Government is not entitled to sovereign immunity from enforcement proceedings under section 9 of the State Immunity Act 1978. The direct effect is that the Appellee is entitled to enforce the arbitration award as a judgment in this jurisdiction.

No new precedent was established beyond the application of existing principles regarding arbitration agreements involving states, issue estoppel, and the scope of the State Immunity Act 1978.