In Another Hemisphere: State Immunity In Jersey And Elsewhere Since FG Hemisphere Associates LLC

The mere fact of being owned by a sovereign state does not give a Jersey company "sovereign immunity" from legal proceedings. As a result, creditors can sue and enforce against a state-owned company's assets, including strategically important assets (such as oil pipeline companies) to obtain payment. In the Jersey case of FG Hemisphere Associates LLC the Privy Council held that a state's debts could not be enforced against companies owned by that state. In Tepe Insat Sanayii AS v Boru Hatlari Ile Petrol Tasima AS (Botas) [2016] JRC 012A, the Royal Court has now considered the reverse question: can state-owned companies avoid liability by claiming state immunity from legal proceedings? In answering "no", the Court held there are two different types of state immunities: immunity from suit prior to judgment, and immunity from enforcement of a judgment obtained. At the same time, the High Court of Australia separately made the same distinction. Surprisingly, applying this distinction Jersey's Court held an application to enforce an arbitration award in which a company claimed state immunity involved immunity from suit, rather than immunity from enforcement.

Background

The issue arose from an unpaid bill. Tepe was a Turkish construction company. Botas was a Turkish oil company owned by the Republic of Turkey. Botas employed Tepe to construct facilities on sections of the Baku-Tblisi-Ceyhan oil pipeline which transports petroleum from Azerbaijan to the Mediterranean.

Botas refused to pay, so Tepe took it to ICC arbitration, and won. As Botas still refused to pay, Tepe sought to enforce the awards by arresting Botas' assets. These included wholly owned subsidiary companies registered in Jersey: BIL, the operator of the BTC pipeline, and TPIC, Botas' principal operational E&P arm exploring and producing petroleum throughout Turkey, the Middle East, Russia and central Asia, and Latin America.

Tepe applied to register the awards under Jersey's applicable arbitration legislation. At the same time it applied for an arrêt - a traditional Jersey remedy (Guernsey has one similar) - to arrest Botas' shares to satisfy the awards.

The issue

Botas objected that it was wholly owned by the Turkish state, and so its wholly owned assets, BIL and TPIC, were entitled to sovereign immunity from enforcement.

The Court rejected this argument. Whilst Botas was owned by Turkey, it was not the state itself.

This begged the question how it could claim sovereign immunity.

...