Can state immunity be invoked in Cairn Energy case?

Source: Indian Express

Relevance: This article highlights options before India in the Cairn energy case.

Synopsis: State immunity can be invoked to resist the seizure of sovereign assets, but not commercial properties. Besides, fighting the case will consume an enormous amount of resources and attract bad press.

Background

A French court recently authorized Cairn Energy to attach Indian assets in France. Cairn Energy has been attempting to seize Indian assets in several jurisdictions to recover $1.7 billion due from India.

Also Read: Cairns energy issue and other such disputes – Explained, pointwise

Implications 

• The attaching of Indian assets in France is a terrible advertisement for India at a time when it wishes to project itself as a prime destination for foreign investment.
• This episode puts India in the league of countries like Pakistan, Congo, Venezuela, Russia, and Argentina. These countries have been part of attachment proceedings overseas due to their failure to comply with international arbitral awards.

State immunity – a possible solution?

State immunity is a well-recognized doctrine in international law which safeguards a state and its property against the jurisdiction of another country’s domestic courts.

• This covers immunity from both jurisdiction and execution.
• Despite the universal acceptance of this doctrine, there is no international legal instrument in force administering its implementation in municipal legal systems of different countries.
• Attempts are underway to create binding international law on the application of the rules of state immunity, such as the United Nations Convention on Jurisdictional Immunities of States and Their Property (UNSCI). However, this convention is yet to be ratified by 30 countries — the minimum number required to bring it in force, as per Article 30 (1) of UNSCI.
• India has signed the convention, but not ratified it.

Absolute immunity & Restrictive immunity

Over the years, the doctrine of state immunity has progressed from absolute immunity (immunity from any foreign proceedings unless the state gives its consent) to restrictive immunity (immunity only for the sovereign functions of the state).

• By and large, most prominent jurisdictions follow the concept of restrictive immunity. In the context of the execution of the investment treaty arbitration awards, it implies that state property that serves sovereign functions — such as property of the diplomatic missions, central bank assets, etc. — cannot be attached.
• However, properties serving commercial functions are available for seizure.
• But, in practice, it is not always easy to draw an exact line dividing the two types of property.

Forum shopping

The absence of an international legal instrument results in countries dealing with questions of immunity through national legislations and domestic judicial practices. In many countries, the judiciary deals with issues of state immunity. This means that certain jurisdictions are perceived as favorable over others when it comes to the execution of investment treaty arbitration awards. This encourages “forum shopping”, where foreign investors approach countries where the possibility of executing the award is higher.

Air India – a potential target

In the case of India, the most popular commercial property that foreign investors would target for attachment are the global assets of India’s public sector undertakings such as Air India.

• To attach the assets of these PSUs, it would have to be shown that these companies are nothing but the “alter ego” of the Indian state.

Way forward

India needs to carefully study the laws on state immunity in different jurisdictions where attachment proceedings are likely to come up. However, in the absence of state immunity for commercial properties, a better option would be to admit that amending the tax law retrospectively was a mistake that resulted in the international ruling and international embarrassment.