Reliance: More than just the Act of State doctrine.

Popplewell J held in [2018] EWHC 822 (Comm) Reliance v India in April. This post therefore is not a claim to speedy reporting (Allen & Overy have excellent review here). Rather, a quick note on the various implications of the holding in wider context.

The Act of State doctrine (in its narrow sense) essentially holds that courts should not question the validity of acts taken by a foreign government within that government’s territory.

Claimant (at 110) ‘submitted that even if non-justiciable in an English court, (one of the relevant claims, GAVC)…is arbitrable; the basis for the doctrine of foreign act of state, to the extent that it applies, is that one sovereign state should not sit in judgment on the acts of another; unlike a court, an arbitral tribunal is not an organ of a sovereign state; therefore its determination of the validity of the conduct of a sovereign party would not entail one sovereign calling into question the conduct of another; because the rationale for the foreign act of state doctrine does not apply to arbitration, what would in court be a non-justiciable issue can nevertheless be adjudicated upon by arbitrators.’

Popplewell J disagreed in what I understand to be a first formal finding on the subject: at 111 and in discussing relevant authority:

‘whilst some aspects of the foreign act of state doctrine have as their basis the exercise of “judicial self-restraint” (leading to some suggesting it is an expression of comity, GAVC), those are not the aspects of the doctrine which are relevant to the current issue… the principle that the validity and effectiveness of legislative and executive acts of a sovereign state in relation to property within its jurisdiction is not justiciable..is a hard-edged principle of English private international law, and (the majority of authority suggests, GAVC) that its rationale derives from the very concept of sovereignty which recognises the power and right of a state to determine the property rights of those whose property is situate within its territory.’

At 113: ‘there is no good reason why the principle should be any less applicable in arbitration than in litigation before an English court. It does not depend upon the tribunal itself being an organ of a sovereign state or exercising sovereign functions: it depends upon a general principle of English private international law which recognises the sovereignty of nations within recognised spheres, a principle to which arbitration tribunals, no less than courts, are required to give effect when applying English private international law principles.’

The case is an excellent illustration of the now very diverse and not always integrated international dispute resolution landscape. A case like Reliance could have conceivably ended up in BIT arbitration – which as readers will know has its own extensive challenges with domestic regulatory autonomy and the space for investment tribunals to challenge the legality and at the least the proportionate impact of States exercising sovereign regulatory functions.

This leaves two further dispute settlement channels: the use of the courts in ordinary and the use of ‘standard’ commercial arbitration (outside the BIT context), which is what was employed here. As the judgment shows, the former (courts in ordinary) have kept some control over the latter.

Lucia Raimanova and Matej Kosalko signal that classic choice of law rules combined with contractual party autonomy empowers parties to steer the litigation away from issues that a party might wish to avoid: particularly, by opting for the most interesting lex contractus (and, I would add, potentially varying same en parcours de route, to respond to changes in case-law or statutory law), and by having the State concerned sign away its right to invoke the Act of State doctrine (much like the similar contractual surrender of sovereign immunity).

International litigation is seldom confined to singular lines of analysis.

Geert.