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On 20 February 2015 the EU Council issued a joint proposal for a Decision on the EU position regarding an EU-Ukraine Association Agenda.

The proposal sets out a list of priorities for the implementation of the 2014 EU-Ukraine Association Agreement. The draft Association Agenda is annexed to the proposed Decision.

The draft Association Agenda comments on the situation in Crimea (page 15), whereby the EU and Ukraine agree to maintain dialogue and co-operation covering areas including:

2.3: Foreign and Security Policy

(i) Enhancing the co-operation within the CFSP area

Consult and coordinate on actions taken at bilateral and multilateral levels in the framework of international efforts with the joint aim of finding a sustainable political solution to the situation in some regions of Donetsk and Luhansk Oblasts of Ukraine, caused by the illegal activities of the Russian Federation.

On 13 February 2015 the Commercial Court (Richards J) granted the claimants (who were investment funds interested in euro-denominated debt securities issued by Argentina) a declaration that €225 million interest due on debt securities was subject to a trust governed by English law.

The case concerned certain euro exchange bonds governed by a trust indenture and English law. The indenture provided that Argentina irrevocably submitted to the jurisdiction of the English and Argentine courts with respect to any proceedings arising out of or in connection with the indenture as it related to debt securities governed by English law. In the indenture, Argentina also covenanted to pay the principal of and interest on the exchange bonds to the trustee, at the places and times and in the manner provided in the debt securities and the trust indenture.

Richards J held as follows:

• In circumstances where there was so much dispute surrounding the attempt by Argentina to pay sums due on the exchange bonds, a declaration authoritatively stating the position under the governing law of the trust indenture and the euro debt securities was helpful.
• The court was concerned not to intrude improperly into matters before the US courts. However, the making of a declaration in the terms sought by the claimants would not do so. The declaration would establish the status of the funds held by the trustee as a matter of English law. A declaration as to the effect of a trust indenture governed by English law was within the proper jurisdiction of the court.
• A second declaration sought by the claimants, to the effect that a US freezing injunction did not prevent the trustee from paying out of the trust account, was however denied. A declaration in those terms served no useful purpose. It would be a declaration that the trustee would be in breach of trust unless it had a defence.

Knighthead Master Fund LP and others v The Bank of New York Mellon and another [2015] EWHC 270 (Ch), 13 February 2015

The Export Control (Various Amendments) Order 2015 is due to come into force on 24 February 2015. It amends the Export Control (Russia, Crimea and Sevastopol Sanctions) Order 2014 (as well as current Syrian trade restrictions, which are not covered here)

In respect of Russia, Crimea and Sevastopol, the principal amendments are as follows:

• relating to the sale etc. of items listed in Annex II of Council Regulation (EU) No 1290/2014 (the Russia Sanctions Regulation) and related technical assistance, brokering services and financial assistance;
• relating to the provision of certain associated services for certain types of oil exploration and production, as regards Russia;
• a ban on all foreign investments and related investment services in Crimea or Sevastopol;
• a broadening of the former export prohibition on goods and technology suited for use in the sectors of transport, telecommunications, energy and the prospection, exploration and production of oil, gas and mineral resources, and associated technical assistance, brokering services and financial assistance;
• a ban on the provision of technical assistance, or brokering, construction or engineering services relating to infrastructure in Crimea or Sevastopol in those sectors; and
• a ban on the provision of services directly related to tourism activities in Crimea or Sevastopol, including a ban on ships providing cruise services and flying a Member State flag or owned or operated by a Union shipowner calling at certain ports in the Crimean Peninsula.
• the creation of offences and the provision of penalties for contravention of the updated prohibitions in Council Regulation (EU) No 1290/2014 (the Russia Sanctions Regulation) and Council Regulation (EU) No 1351/2014 (the Crimea and Sevastopol Regulation).

The Export Control (Various Amendments) Order 2015, in force 24 February 2014

On 12 January 2015 the Irish High Court (Cregan J) held that the court could consider whether there was an arbitration agreement on a “full judicial consideration” basis rather than on a prima facie basis.

The case concerned an issue of contract formation and incorporation of an arbitration clause between the parties. The key question was whether such issue was for the London arbitration tribunal or whether it could be considered by the Irish courts.

Cregan J held that:

• It was unsatisfactory that a court, having heard the matter, should only consider on a prima facie basis whether an arbitration agreement existed. It would be leaving open the essential question of whether there was an arbitration agreement between the parties on a final and conclusive basis. A finding that an arbitration agreement existed on a prima facie basis meant that the issue may have to be re-argued before the arbitrator as to whether an arbitration clause existed on a conclusive basis. This was unsatisfactory for the court, the arbitrator and the parties, and was wasteful of costs.
• If the court only conducted the analysis to a prima facie review level, and left the matter open to the arbitrator, and if the arbitrator decided whether or not there was an arbitration agreement, that decision was open to challenge by way of appeal on a point of law. The courts could therefore be faced with the prospect of having to decide the issue again. Moreover, in a worse case scenario the parties might have to fight the issue on no less than three separate occasions. This could not be in the interests of proper case management.
• The question of whether there was an arbitration agreement was a question of law which was best decided by a court. The Irish (and other national) courts were well used to considering whether on the basis of the affidavit evidence before them there was a valid and concluded contract in existence between the parties. Moreover, if there were disputed facts on affidavit then oral evidence could be heard before a court to resolve such conflicts of facts.
• Consequently, the court could give “full judicial consideration” to the issue of contract formation at stake in the present case.

The Lisheen Mine v Mullock & Sons (Shipbrokers) Ltd & others [2015] IEHC 50, 12 January 2015

On 12 February 2015 the EU extended one of the exemptions from restrictive measures against Iran until 30 June 2015, by way of Council Regulation (EU) 2015/229. The exemption relates to the execution of obligations provided for in contracts concluded before 23 January 2012, or in ancillary contracts, where the supply of Iranian crude oil, petroleum products or petrochemical products, or the proceeds derived from their supply, are for the reimbursement to EU persons or entities of outstanding amounts.

The EU also relisted two entities based on new statements of reasons, by way of Council Implementing Regulation (EU) 2015/230. They are:

• The National Iranian Tanker Company (NITC) (for allegedly providing financial and logistical support to the Government of Iran); and
• Gholam Hossein Golparvar (for allegedly acting on behalf of IRISL and companies associated with it).

On 5 February 2015 the Court of Appeal held that ss 4(2) (which disapplies the exception to immunity created by s. 4(1) where an individual is not habitually resident in the UK at the time the employment contract is made) and 16(1)(a) (immunity in cases concerning embassy or consular employment disputes) of the State Immunity Act 1978 were incompatible with Article 6 ECHR and Article 47 of the EU Charter (right to a fair trial).

The case concerned two Moroccan nationals employed at the Sudanese and Libyan embassies respectively. They brought claims for unfair dismissal, non-payment of the minimum wage, unpaid wages, breach of the Working Time Regulations 1998, racial discrimination and harassment. The question was whether such claims were barred by state immunity.

The Court of Appeal held that:

• There was conflicting authority on when Article 6 ECHR was engaged. In Holland v. Lampen Wolfe[2000] 1 WLR 1573 the House of Lords held that where the extent of the jurisdiction of a state party to the ECHR was in question it had to be determined first. Therefore, Article 6 was not engaged where the national court did not have adjudicative jurisdiction due to the international rules of state immunity. This view was supported by the House of Lords in Jones v. Saudi Arabia [2007] 1 AC 270. By contrast, in Al-Adsani v. United Kingdom (2002) 34 EHRR 11 (and subsequent cases) the ECtHR proceeded on the basis that Article 6 was engaged and then evaluated the claim to immunity by reference to the concepts of legitimate aim and proportionality.
• In the present case, Holland v. Lampen Wolfe was to be followed. “It is difficult to see how Article 6 can be engaged if international law denies to the Contracting State jurisdiction over a dispute. There can be no denial of justice for which the State is responsible if there is, as a matter of international law, no court capable of exercising jurisdiction. Moreover, Article 6 cannot have been intended to confer on Contracting States a jurisdiction which they would not otherwise possess, nor could it have conferred a jurisdiction denied by general international law in such a way as to be binding on non-Contracting States. It is unfortunate that in none of its many decisions in which the point has arisen has the Strasbourg court grappled with these considerations”.
• However, in the present case the court did not have to choose between these competing approaches. According to the ECtHR a state would not be in breach of Article 6 simply because it gave effect to an international law rule requiring the grant of immunity. The grant of immunity would be held to be a proportionate means of achieving a legitimate aim (i.e. compliance with international law).
• It was necessary to consider whether the immunity of the respondents (under ss 4 and 16(1)(a) SIA) was required by international law or lay within the margin of appreciation accorded to states to determine the extent of their obligations under international law. The answer was in the negative. S. 16(1) granted immunity beyond what was required by international law. S. 4(2)(b) was not required by international law.
• As regards s. 16(1), there was no rule of international law requiring the grant of immunity in respect of employment claims by members of the service staff of a mission in the absence of some special feature, e.g. where the claim was for the recruitment, renewal of employment or reinstatement of an individual, or where the proceedings would interfere with the security interests of the state. No such considerations arose in the present case. The effect of s. 16(1) was a blanket immunity in all cases concerning embassy or consular employment disputes.
• As regards s. 4(2)(b), this limited the exception to immunity in respect of employment contracts, so that immunity was only disapplied where the individual was habitually resident in the UK at the time the employment contract was made. There was no international legal obligation requiring the UK to have such a provision in its national law. Moreover, there were no legitimate objectives which might possibly be achieved by such a limitation on the exception to immunity. The purpose of such an exception seemed to be a need to identify the cases where the UK had a sufficient jurisdictional interest in the claim, based on its interest in adjudicating on the employment law rights of its local work force. Limiting access to justice in this way could not be justified.
• Furthermore, both ss 4(2)(b) and 16(1) infringed Article 47 of the EU Charter (right to effective remedy and fair trial), which had been incorporated into English law following the Lisbon Treaty. In so far as relevant to the present case, the content of Article 47 was identical to that of Article 6 ECHR, so Article 47 was also violated.
• Article 52(5) of the EU Charter stated that the Charter only applied to Member State national courts, and EU institutions and like bodies when they were implementing Union law. However, the present claims fell within the scope of EU law as they were derived from EU law measures (e.g. the Working Time Regulations, discrimination and harrassment).
• An EU Charter right could be relied on “horizontally” in certain circumstances (i.e. despite the fact that Libya was not a Member State of the EU). The right to an effective remedy guaranteed by Article 47 was a general principle of EU law, so that Article 47 had horizontal direct effect.
• In conclusion, based on the breach of Article 6 ECHR the court proposed to make a declaration of incompatibility pursuant to s. 4(2) of the Human Rights Act 1998 as regards ss 4(2)(b) and 16(1)(a) SIA.
• As regards the breach of Article 47 of the EU Charter, the court was bound to disapply ss 4(2)(b) and 16(1)(a) SIA. The applicants would then be able to bring their EU law claims in the English courts.

Benkharbouche & Janah v. Embassy of the Republic of Sudan & others [2015] EWCA Civ 33, 5 February 2015

On 12 February 2015 the General Court handed down its judgment in Akhras, a key sanctions case.

Akhras concerned a challenge to Mr Akhras’ listing pursuant to the EU’s restrictive measures against Syria. Mr Akhras was originally listed in 2011 and subsequently relisted in 2012 and 2013 for being a “[p]rominent businessman benefiting from and supporting the regime” in Syria.

The General Court held that:

• The applicant’s request that the Court declare that the challenged instruments do not apply to him was rejected. Such applications involved a finding or a declaration on the part of the Court. An application seeking a declaratory judgment was to be rejected for lack of jurisdiction. “It is clear from settled case-law that the Court, in the context of a review of legality based on Article 263 TFEU, does not have jurisdiction to give declaratory judgments (see, to that effect, the order of 25 November 2008 in Case C‑500/07 P TEA v Commission, not published in the ECR, paragraph 33, and Case T‑145/06 Omya v Commission[2009] ECR II‑145, paragraph 23)”.
• On the applicant’s challenge to his 2012 listing, the Council had failed to comply with its obligation to state reasons. Simply stating that the applicant was the founder of the Akhras Group did not automatically mean that he was involved in civilian repression, or supported or benefited from the Syrian regime. Moreover, the statement that the applicant provided support for the Syrian regime had not been substantiated with supporting information.
• On the subsequent listing, the lack of individual notification of the contested acts did not, on its own, justify annulment of the acts in question, as lack of such notification had not demonstrably resulted in an interference with the applicant’s rights of defence.
• The reasons for the applicant’s subsequent listing offered by the Council were sufficient. “They set out the significant roles played by the applicant in the Syrian business world, his links with the person principally responsible for the repression in Syria and the type of support which the applicant is alleged to have provided to the regime”. Moreover, the Council had been entitled to rely on the presumption that a leading businessman such as the applicant provided the Syrian regime with economic support.
• In conclusion, the applicant’s 2012 listing was annulled, but his 2013 listing was upheld.

Case T‑579/11 Tarif Akhras v Council, 12 February 2015

On 10 February 2015 HMRC published a brief on the application of the decision of the Court of Justice of the European Union (CJEU) in Case C-7/13 Skandia America Corp. (USA), filial Sverige v. Skatteverket of 17 September 2014 for VAT group rules in the UK.

Skandia America was US-incorporated with a Swedish branch, which became part of a Swedish VAT group. The Swedish tax authority viewed services provided by Skandia America to its Swedish branch as taxable transactions. Skandia disagreed on the grounds that these were intra-company transactions and consequently not supplies for VAT purposes. The matter was referred to the CJEU. The CJEU stated that under the Swedish grouping provisions only the branch that was physically located in Sweden could belong to a Swedish VAT group, and so it was different from the taxable person of the US head office. The transactions between the US head office and the Swedish branch were therefore liable to VAT.

Under the UK’s VAT grouping provisions, a company must have an establishment in the UK to join a UK VAT group. However, unlike in Sweden, the whole body corporate is part of the VAT group, not just the establishment (branch or head office) in the UK. Services provided between an overseas establishment and a UK establishment of the body are not normally supplies for UK VAT purposes, as they are transactions within the same taxable person.

Consequently, an overseas establishment of a UK-established entity is part of a separate taxable person if the overseas establishment is VAT-grouped in a member state that operates similar “establishment only” grouping provisions to Sweden. Intra-entity services provided to or by such establishments are supplies made to or by another taxable person and must account for VAT accordingly:
If the UK entity is in a UK VAT group, the same applies to supplies between the overseas establishment and other UK VAT group members in UK. Here, the anti-avoidance legislation in ss 43(2A)-(2E) of the VAT Act 1994 does not also apply, as the overseas establishment is not seen as part of the UK VAT group.

• services provided by the overseas VAT-grouped establishment to the UK establishment will be treated as supplies made in the UK under place of supply rules, and subject to the reverse charge if taxable;
• services provided by the UK establishment to the overseas VAT-grouped establishment will be treated as supplies made outside the UK under place of supply rules.

Revenue and Customs Brief 2 (2015): VAT grouping rules and the Skandia judgment

It has been widely reported that Lukoil, Russia’s second largest oil company, has commenced arbitration proceedings in the London Court of International Arbitration (LCIA) against China’s Sinopec over an uncompleted $1.2 billion deal.

The parties had entered into a sale-purchase agreement whereby Lukoil would sell to Sinopec 50% of a company involved in various Kazakh hydrocarbon production projects, Caspian Investment Resources Ltd. It is reported that Lukoil considers Sinopec in breach of contract over the uncompleted deal.

On 23 January 2015, in consideration of the State Immunity Act 1978 (“SIA”) the Commercial Court (Hamblen J) set aside two without notice orders allowing service of an arbitration claim form on the defendant.

The claimants and the defendant were parties to ongoing LCIA arbitration proceedings in London, pursuant to a contractual arbitration clause. The tribunal had ordered the defendants to pay US$100 million to the claimants within 30 days of the date of the order, otherwise the order would be peremptory. As the defendants did not pay, the tribunal permitted the claimants to apply for enforcement of the order under s. 42 of the Arbitration Act 1996 (“the 1996 Act”). The claimants’s solicitors (Freshfields) wrote to the defendant’s solicitors (WilmerHale) asking for confirmation that they were authorised to accept service on behalf of the defendant. WilmerHale responded saying Freshfields’ request was premature. In anticipation of permission being granted by the tribunal the claimants issued an application notice for an order for permission to serve the arbitration claim form on WilmerHale. That application was granted. This first order was sent to WilmerHale following the tribunal’s grant of permission the same day. It was accompanied by the arbitration claim form requesting the court to order the defendant to comply with the tribunal’s peremptory order and an affidavit from Freshfields in support of that application. On the same day the claimants issued their without notice application for the second order.

There followed correspondence between WilmerHale and Freshfields in which the applicability of the SIA and the failure to disclose this to the court was raised and debated. (It was agreed that the defendant was a constituent territory of a federal state for the purposes of s. 14(5) SIA). WilmerHale sent copies of that correspondence to the court but it does not appear to have been placed before Flaux J before he made the order. Freshfields did not forward that correspondence to the court until after the order was made, although on that same day it had written to the Commercial Court Listing Office contending that s. 12 SIA did not apply. The defendant subsequently issued the present application and filed an acknowledgment of service, indicating its intention to dispute the court’s jurisdiction pursuant to CPR r. 11(2).

The issues before the court were as follows:

• Whether s. 12(1) SIA did not apply because the claimants were not “instituting proceedings”. Hamblen J held that the claimants had made an arbitration claim in the form of “an application to the court under the 1996 Act” in accordance with section 42 of the 1996 Act and thereby “started” their claim in accordance with the requirements of CPR 62.2 and 62.3. The purpose of the arbitration claim was to persuade the court to make an order in accordance with s. 42 of the 1996 Act, requiring the defendant to comply with the tribunal’s order. The arbitration claim form envisaged that the claimants would be instituting proceedings. Whilst those proceedings were, under the 1996 Act, “in relation to arbitral proceedings”, they were nevertheless separate proceedings.
• Whether the defendant had agreed to alternative service (on WilmerHale) for the purposes of s. 12(6) SIA. The authorisation from WilmerHale was clearly stated to apply to “this arbitration”. Court proceedings were not arbitration proceedings. The fact that those court proceedings may be in relation to and in support of the arbitration proceedings did not remove that clear distinction. WilmerHale (in response to a specific request) had declined to confirm that they were authorised to accept service by the method contemplated by the claimants. In conclusion, there was no or no operative agreement as to the manner of service under s. 12(6) SIA.
• Whether the defendant had waived its right to rely on s. 12 SIA by acknowledging service. Under CPR r. 11.2 a defendant who wished to dispute the court’s jurisdiction was required to file an acknowledgment of service. To challenge jurisdiction on the grounds of invalid service in reliance on s. 12(1) SIA the defendant had to acknowledge service. The claimants were effectively arguing that by invoking its rights under s. 12(1) SIA by the means required under the court’s rules the defendant lost those rights. “That would be an absurd and unjust result which is most unlikely to have been intended by Parliament. That is made all the more clear by the fact that it was not a result which followed at the time that the SIA was enacted… The obviously sensible construction of s.12(3) given the changes in civil procedure since 1978 is to hold that a State “appears” in proceedings when it files an acknowledgment of service and does not issue an application to dispute the Court’s jurisdiction within the requisite period”. On the basis of NML Capital Ltd v Argentina [2011] 2 AC 495 (Lord Clarke at 142-144) the SIA “should be given an updated meaning to allow for procedural changes since it was enacted. In the present case that means construing “appears” in s.12(3) in the manner set out above”. Dickinson on State Immunity (Oxford University Press, 2004) suggested that filing an acknowledgment of service even to dispute jurisdiction would constitute an “appearance” and would preclude a state from reliance on s. 12(1). “However, in that passage there is no analysis or consideration of any of the contrary arguments set out above and I respectfully disagree… In my judgment the Claimant’s “Catch 22” construction of s. 12(3) cannot be correct. It should be construed in the manner set out above. That is consistent with the statutory purpose of s.12, namely, confer an important procedural right on state entities, which can be foregone either: (i) by doing the functional equivalent of entering an unconditional appearance under the old rules of procedure, or (ii) by an agreement to an alternative method of service. It is also in accordance with the fundamental feature of the scheme of CPR Part 11, namely, that a “defendant who files an acknowledgment of service does not, by doing so, lose any right that he may have to dispute the court’s jurisdiction”: CPR 11(3)”.
• Whether the orders should be set aside for failure to make full and frank disclosure. It was not necessary to decide this issue, but Hamblen J held that he would have set the orders aside to mark the court’s disapproval of the “serious non-disclosure” made by the claimants.

PCL & Ors v The Y Regional Government of X [2015] EWHC 68 (Comm), 23 January 2015