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State-owned entities and the limits of sovereign immunity

September 15, 2021

In Clavis Securities Plc & Ors v Hussain & Ors [2021] EWHC 2003 (Ch), a corporate Defendant sought to challenge the English High Court’s jurisdiction on the basis that the Defendant was owned by the State of Pakistan. In explaining why the Defendant’s commercial activity, did not bring it within the scope of the State Immunity Act 1978, the Court’s decision provides a helpful review of current law.



Six Claimants, all corporate entities, had been formed as part of a mortgage securitisation, and various Claimants acted as directors and company secretary for other Claimants. Defendants, in various guises including as an investor under notes issued pursuant to the securitisation, wrote to the Claimants, enclosing resolutions purportedly removing certain Claimants from their corporate roles. One Defendant also wrote to third parties, purporting to remove them from additional roles. Another Defendant filed forms to (i) change to the registered offices of a Claimant; and (ii) remove various Claimants from their corporate roles. The same Defendant, purported to act for another Defendant, informed a seventh Claimant that criminal proceedings had been brought against her for fraud by false representation.

The Claimants issued a Part 8 Claim on 11 June 2021, seeking, inter alia, a declaration that their removal was null and void.


Jurisdictional challenge

Five of the six Defendants acknowledged service, but stated their intention to dispute the court’s jurisdiction. One of the Defendants, Highbury Investments Limited (Highbury) disputed the High Court’s jurisdiction on the ground that:

“we are an entity that is owned by the Islamic Republic of Pakistan and not distinct from the executive organs of the government of the State. Furthermore, we would be deemed to be property of the State Bank of Pakistan”.

No evidence was given in support of this statement. Another Defendant, Mr Hussain, wrote to the court to say he disputed the court’s jurisdiction, but did not state on what grounds. The other Defendants failed to provide any reason for disputing jurisdiction.

After a hearing had been listed, Mr Hussain and Highbury subsequently wrote to the court, repeating their statements and informing the court they would not be attending or be represented at the hearing.

Mr David Halpern QC, sitting as a Deputy High Court Judge, was satisfied that he had jurisdiction to hear the Part 8 proceedings ahead of the jurisdictional challenge by the Defendants. In arriving at this decision, one of the factors he considered was the merits of Highbury’s jurisdictional challenge.


State-owned entities and the State Immunity Act 1978

Mr Halpern QC found that Highbury’s claim, that it was owned by the State of Pakistan, was “implausible and has not been supported by any corroborative evidence”. Going further, he noted that, even taken at its highest, Highbury’s claim did not bring it within the scope of the State Immunity Act 1978. His decision helpfully sets out the relevant analysis as to whether any state-owned entity should be afforded sovereign immunity:

  1. s14(1) State Immunity Act 1978 does not grant immunity to “any entity … which is distinct from the executive organs of the government of the State and capable of suing or being sued.”
  2. In La Generale des Carrieres et des Mines v. F G Hemisphere Associates LLC [2012] UKPC 27, the Privy Council found that where a state-owned entity engages in commercial activity, there is a strong presumption that it is distinct from the government of the State: “where a separate juridical entity is formed by the State for what are on the face of it commercial or industrial purposes, with its own management and budget, the strong presumption is that its separate corporate status should be respected, and that it and the State forming it should not have to bear each other's liabilities. It will in the Board's view take quite extreme circumstances to displace this presumption."
  3. Where a state-owned entity does displace this presumption, such that it may be afforded immunity under s14(1), it is only immune if “the proceedings relate to anything done by it in the exercise of sovereign authority” (s14(2)) State Immunity Act 1978).
  4. Whether an act is an exercise of sovereign authority “goes to the character of the act rather than its motive or purpose” (Tsavliris Salvage (International) Ltd v The Grain Board of Iraq [2008] EWHC 612 (Comm)). In Tsavliris Salvage, The Hon Mr Justice Gross indirectly quotes Lord Wilberforce’s statement of this principle in Owners of Cargo Lately Laden on Board the Playa Larga v Owners of the I Congreso del Partido [1983] 1 AC 244: 

the ultimate test … is whether the act in question is of its own character a governmental act, as opposed to an act which any private citizen can perform. It follows that, in the case of acts done by a separate entity, it is not enough that the entity should have acted on the directions of the state, because such an act need not possess the character of a governmental act. To attract immunity under section 14(2), therefore, what is done by the separate entity must be something which possesses that character……….in the absence of such character, the mere fact that the purpose or motive of the act was to serve the purposes of the state will not be sufficient to enable the separate entity to claim immunity under section 14(2) of the Act."



Mr Halpern QC had, coincidentally, determined an earlier case involving Mr Hussain, in which he had concluded that Mr Hussain “had perpetrated a similar fraud in relation to the securitisation structure of another corporate group and that his evidence in that case was ‘profoundly dishonest’”. Earlier this year, a judge in another High Court case had held that Mr Hussain and Highbury were parties to a similar fraud involving yet another company.

On the facts of this case, Mr Halpern QC (1) ordered the rectification of the register pursuant to s.1096 Companies Act 2006; (2) exercised his discretion to make declarations requested by the Claimants as to who is entitled to control certain Claimants; and (3) granted injunctions to prevent further fraudulent misrepresentations.