Republic of Serbia v Imagesat International NV, England and Wales High Court (Commercial Court), Judgment, Law, casemine.com

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Attorney(S)

MR R. JACOBS QC AND PROF D. SAROOSHI (instructed by Clyde & Co LLP)
for the Claimant

Judges

THE HONOURABLE MR JUSTICE BEATSON

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Republic of Serbia v. Imagesat International NV

Smart Summary

Factual and Procedural Background

This opinion concerns a challenge under section 67 of the Arbitration Act 1996 to a Partial Award dated 7 May 2008 made by an arbitrator in an ICC arbitration between the claimant, Republic of Serbia ("Plaintiff"), and the defendant ImageSat International N.V. ("Defendant"). The arbitration arose from a contract between Defendant and the State Union of Serbia and Montenegro ("State Union"). The Partial Award addressed a preliminary issue regarding the proper parties to the arbitration, specifically whether Plaintiff is the continuation or "continuator" of the State Union and thus a proper party. Plaintiff launched proceedings seeking to set aside the Partial Award on the basis that the arbitrator lacked substantive jurisdiction.

The contract, concluded on 4 June 2005, involved the State Union's purchase of satellite equipment and exclusive rights related to Defendant's satellites, with disputes subject to ICC arbitration under English law. The State Union did not pay sums due and later denied being bound by the contract after Montenegro's referendum favoring independence in May 2006, leading to the creation of two states: Plaintiff and Montenegro.

The arbitrator found Plaintiff to be the continuation of the State Union and thus bound by the contract, issuing a Final Award in Defendant's favor. Plaintiff challenges this finding, arguing lack of jurisdiction and that it is a successor rather than a continuator state.

Legal Issues Presented

As a matter of English law, is Plaintiff a party to the agreement and arbitration clause under which Defendant brought the arbitration? If not, has Plaintiff subsequently become, or is it to be treated as if it is, a party to the agreement and arbitration clause under English law?
Is Defendant estopped or precluded from contending that Plaintiff is the "continuator" in law of the State Union?
Is Plaintiff precluded by sections 73 and/or 31 of the Arbitration Act 1996 and/or by a submission to jurisdiction from contending that the arbitrator did not have substantive jurisdiction?
Are, or were, the questions whether Plaintiff is (a) the "successor", or (b) the "continuator" of the State Union non-justiciable or non-arbitrable under English law?
If not:
1. Is Plaintiff the "continuator" of the State Union under public international law?
2. If so, is it relevant whether the position under public international law forms part of English law, and if so, does it form part of English law?
3. In light of the above, is the agreement and arbitration clause binding on Plaintiff as a matter of English law?
Alternatively:
1. Is Plaintiff a "successor" to the State Union under public international law?
2. If so, is a "successor" under public international law treated as a party to or bound by such a private contract?
3. If so, is it relevant whether the position under public international law forms part of English law, and if so, does it form part of English law?
4. In light of the above, is the agreement and arbitration clause binding on Plaintiff as a matter of English law?

Arguments of the Parties

Plaintiff's Arguments

Plaintiff contends it is not a party to the arbitration agreement, but rather a successor state to the State Union, which ceased to exist after Montenegro's independence.
It relies on constitutional provisions (Article 60 of the Constitutional Charter), international communications, and statements by international organisations to support its position as a successor state rather than a continuator.
It argues the issue of whether it is a continuator or successor is non-justiciable and non-arbitrable, involving matters of public international law and foreign affairs prerogative.
Plaintiff submits that Defendant is estopped from asserting it is a continuator due to prior conduct and correspondence.
Plaintiff claims it did not waive any jurisdictional objections and challenges the arbitrator's substantive jurisdiction.
It asserts there is no settled customary international law on the continuator/successor distinction, making judicial or arbitral determination inappropriate.

Defendant's Arguments

Defendant contends Plaintiff is the continuator of the State Union and thus bound by the contract and arbitration agreement.
It argues the distinction between successor and continuator states is well established in international law, with Plaintiff maintaining legal personality of the State Union.
Defendant submits that Plaintiff submitted to the arbitrator's jurisdiction through the Terms of Reference and other procedural conduct, precluding jurisdictional challenges.
It denies that the continuator/successor issue is non-justiciable or non-arbitrable, citing authorities where courts and arbitrators have decided similar issues.
Defendant relies on international practice and statements by international organisations recognizing Plaintiff as continuator.
It asserts that Plaintiff's failure to timely object to jurisdiction and participation in arbitration constitutes waiver or submission to jurisdiction.
Defendant argues that private contractual obligations do not automatically disappear on state succession and that Plaintiff remains liable.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Azov Shipping Co. v Baltic Shipping Co. [1999] 2 Lloyd's Rep 39 and [1999] 2 Lloyd's Rep 159	Arbitrator's jurisdictional determinations are provisional and not conclusive; arbitrator may rule on own jurisdiction (kompetenz-kompetenz principle)	Confirmed that court reviews arbitrator's jurisdiction without presumption of correctness, emphasizing provisional nature of arbitrator's jurisdictional findings.
Black Clawson v Papierwerke [1981] 2 Lloyd's Rep 446	Sources and limits of arbitrator's jurisdiction: arbitration clause and particular reference	Used to explain that arbitrator's jurisdiction depends on contract and reference scope.
Westland Helicopters v Al-Hejailan [2004] 2 Lloyd's Rep 523	Construction of arbitration reference to determine scope of arbitrator's jurisdiction	Applied to interpret Terms of Reference and scope of arbitrator's jurisdiction.
The Amazonia [1990] 1 Lloyd's Rep 236	Estoppel by convention affecting arbitrator's jurisdiction	Referenced regarding estoppel principles and mutual assumptions affecting jurisdiction.
The August Leonhardt [1985] 2 Lloyd's Rep 28	Requirements for estoppel by convention: mutually manifest conduct and common assumption	Applied to assess whether estoppel by convention barred Defendant's jurisdictional argument.
The Indian Grace (No. 2) [1998] AC 878	Estoppel by convention requires mutually manifest conduct; no requirement of concluded agreement	Used to clarify standards for estoppel by convention in arbitration context.
Baird Textile Holdings Ltd. v. Marks & Spencer Plc [2001] EWCA Civ 274	Clarity and certainty required for estoppel by convention	Guided assessment of whether parties had a clear common assumption on jurisdiction.
LG Caltex Gas Co Ltd v China National Petroleum Corp. [2001] EWCA Civ 788	Ad hoc submission to jurisdiction must be explicit; court cautious in inferring enlarged jurisdiction	Discussed in relation to whether Terms of Reference constituted submission to jurisdiction.
Republic of Ecuador v Occidental Exploration and Production Co [2006] QB 432	Justiciability of jurisdictional issues even if involving public international law; arbitrators and courts can decide such issues	Supported the view that arbitrators and courts can decide jurisdictional issues involving international law.
R (European Roma Rights) v Prague Immigration Officer [2005] 2 AC 1	Test for customary international law: general and consistent state practice with opinio juris	Applied to assess whether there is settled customary international law on state succession/continuity.
Buttes Gas and Oil Co. v Hammer (No. 3) [1981] 3 All ER 616	Non-justiciability principle inherent in judicial process; cannot be waived	Considered in relation to whether succession/continuity issue is non-justiciable.
Korean National Insurance Corporation v Allianz Global Corporate and Specialty AG [2008] EWCA Civ 1355	Judicial restraint in foreign affairs matters; non-justiciability of certain state succession issues	Referenced in discussion of non-justiciability of succession issues.
Kuwait Airways Corp v Iraqi Airways Co (Nos. 4 and 5) [2002] AC 883	Foreign affairs and state recognition as non-justiciable	Cited regarding limits on judicial determination of state succession issues.
Luigi Monta v Cechofracht [1956] 2 QB 552	Arbitrator's ability to determine existence of government for commercial contract purposes	Used to show courts/arbitrators can decide state existence/government issues in commercial context.
Calgar v Billingham [1996] STC (SCD) 150	Court's consideration of state existence issues	Referenced in support of judicial determination of state existence.
Grehard Dirks' Applications (1960) 1 RPC 1	Determination of continuity of a state for statutory purposes	Used to illustrate courts' approach to state continuity issues.

Court's Reasoning and Analysis

The court began by considering the scope of the arbitrator's jurisdiction and the nature of the challenge under section 67 of the Arbitration Act 1996. It emphasized that the arbitrator's jurisdictional determinations are provisional and subject to court review without any presumption of correctness.

The court examined the concepts of "continuator" and "successor" states under public international law, noting that these are fundamentally distinct and mutually inconsistent concepts. It reviewed the constitutional and territorial background, including Montenegro's independence and the subsequent positions taken by Plaintiff and various international organizations.

Regarding estoppel and submission to jurisdiction, the court analyzed key documents: the letter of 12 July 2006 from Plaintiff's Public Attorney, Plaintiff's Answer to the Request for Arbitration, and the Terms of Reference. It found that while Plaintiff reserved rights to contest jurisdiction, the overall conduct and the broad language of the Terms of Reference constituted a submission to the arbitrator's substantive jurisdiction, including on the continuator/successor issue.

The court rejected Plaintiff's argument that Defendant was estopped from asserting continuator status, finding no clear mutual assumption or understanding that Plaintiff was participating only as a successor state and not bound by the arbitration agreement.

In relation to timing objections under sections 31 and 73 of the Arbitration Act, the court concluded that Plaintiff had not raised jurisdictional objections in a timely manner and had effectively submitted to jurisdiction.

On justiciability and arbitrability, the court held that the arbitrator had jurisdiction to decide the continuator/successor issue and that, in the arbitration context, such issues are justiciable and arbitrable despite their international law nature. The court relied on the precedent in Republic of Ecuador v Occidental Exploration and Production Co, which supports arbitrators' and courts' jurisdiction to decide matters involving international law when necessary to determine private law rights.

The court acknowledged the complexity and lack of settled customary international law on the continuator/successor distinction but held that this did not preclude the arbitrator or court from deciding the issue in this context.

Finally, the court addressed the contractual liability of Plaintiff, noting that Defendant's accrued rights under the contract survived the constitutional changes and that Plaintiff remained liable.

Holding and Implications

The court DISMISSED Plaintiff's application to set aside the Partial Award. It held that Plaintiff had submitted to the arbitrator's substantive jurisdiction through the Terms of Reference, including on the question of whether Plaintiff is the continuator of the State Union.

The court found that the continuator/successor issue was arbitrable and justiciable in the arbitration and court context. Plaintiff's failure to timely object to jurisdiction and its conduct amounted to a submission to jurisdiction, precluding its challenge.

The direct effect is that the Partial Award stands and the arbitration proceeds or has proceeded accordingly. The decision does not establish new precedent beyond confirming the application of established principles of arbitration law and the justiciability of international law issues in arbitration jurisdiction challenges.