Whilst a somewhat rare occurrence, there are situations when UK companies, who have entered into contracts with state-owned organisations, find themselves needing to take action to recover payment.

This is, as you might expect, a highly complex area and one where specialist legal advice should be sought. In this article, we are just giving an overview of the enforcement aspects.

The relevant legislation is the State Immunity Act 1978, which grants general immunity from being sued to states, foreign and commonwealth, with limited exceptions. It is not just the state that is immune, but also the government and its departments, the head of state (in their public capacity) and their central bank.

Embassies are also exempt from enforcement under diplomatic immunity, including property, vehicles and money in a bank account, although this may not apply if they are carrying out commercial activities.

Exemption one – agreement to enforcement by the state

If the state has expressly agreed to both enforcement and the jurisdiction of the English courts within the contract, then enforcement is more likely to be permitted by the court.

The head of the diplomatic mission to the UK is deemed to be authorised to give this agreement on behalf of the state.

Exemption two –  commercial transactions

The Act defines a commercial transaction as:

  • any contract for the supply of goods or services;
  • any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation;
  • any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority;

Enforcement action may be taken against any property owned by the state which is, or is intended to be, used for commercial purposes. However, the property of the state’s central bank is not included in this exemption.

Obtaining a writ of control

The writ of control for enforcement against a foreign state will only be sealed once evidence is provided that the state has been served in accordance with CPR 40.10 and that the judgment has taken effect.

In summary

This area is a potential minefield for UK businesses and due diligence before proceeding, great caution and specialist legal advice are needed to carefully draft the contract and limit the risk of exposure.

David Asker

David is an authorised High Court Enforcement Officer and our Director of Corporate Governance

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