Dechert and Sumption win Supreme Court vulture fund case

Sovereign states will no longer be able to claim immunity from suit in the UK in commercial cases after a landmark Supreme Court judgment this morning.

The judgment was a victory for Dechert and Brick Court silk Jonathan Sumption QC, in one of his last appearances before the court he is due to join early next year. The case was heard before Sumption’s appointment was confirmed in May.

Dechert brought the case to the Supreme Court on behalf of hedge fund client NML. NML, a so-called vulture fund, is seeking enforcement of a New York summary judgment related to bonds issued by the Republic of Argentina in England.

The fund bought the bonds between 2001 and 2003 at just over half their face value, before successfully pursuing Argentina for the return of their full value plus interest – over $284m (£177m) – in New York.

In 2008 Mr Justice David Steel granted NML permission to serve the proceedings outside of New York.

Argentina, represented by Travers Smith partner Toby Robinson, who instructed Brick Court’s Mark Howard QC, applied to have Steel J’s order overturned on the grounds that it was immune from suit. At first instance Mr Justice Blair rejected the application, but his ruling was overturned by the Court of Appeal in February 2010.

The case was heard by the Supreme Court in March this year. This morning the five-strong panel of Lords Phillips, Mance, Collins, Walker and Clarke handed down their judgment unanimously allowing NML’s appeal.

However, the five judges gave differing reasons for deciding that Argentina could not rely on sovereign immunity. Lords Phillips and Clarke said the claim fell within section 3(1)(a) of the 1978 State Immunity Act, as it related to a commercial transaction.

Lords Mance, Walker and Collins disagreed with Phillips’ leading judgment on this point, but agreed that Argentina was not immune. This was because of provisions in section 31 of the Civil Jurisdiction and Judgments Act 1982.

The judges also debated the effect of the rule in Parker v Schuller. This 1901 case set the basis for cases being thrown out of court due to procedural irregularities and forcing claimants to start again. Argentina was arguing that because NML had raised new points at an inter parteshearing the claim should be set aside.

Phillips suggested the rule was no longer valid, thanks to the introduction of the Civil Procedure Rules. He said: “Procedural rules should be the servant not the master of the rule of law.”

Although the other judges thought this did not apply on the facts of this case, they agreed with Phillips’ observations on the application of Parker v Schuller.

The line up:

For NML –

Dechert partner Andrew Hearn instructed Jonathan Sumption QC of Brick Court Chambers and Peter Ratcliffe and Sandy Phipps of 3 Verulam Buildings.

Dechert’s Robert Cohen acted for NML in New York. 3 Verulam Buildings’ Andrew Onslow QC appeared for the claimants at first instance, alongside Jonathan Nash QC of the same chambers who also appeared in the Court of Appeal.

For the Republic of Argentina –

Travers Smith partner Toby Robinson instructed Brick Court Chambers’ Mark Howard QC and Benjamin John and Ciaran Keller of Maitland Chambers.

Maitland Chambers’ Anthony Trace QC appeared for the defendants at first instance and before the Court of Appeal.