‘Waiver of Sovereign Immunity’ Clauses in Contracts

Abstract

An increasingly common problem for commercial entities that contract with states and state-controlled entities and seek to arbitrate disputes or execute on judgments and awards, occurs when states attempt to raise the defence of sovereign immunity to avoid the enforcement of the arbitral award. The most common panacea advised to counter the defence mentioned above, both in the realms of jurisdiction before the executing court as well as actual attachment of properties for the purposes of realizing the arbitral award, is a 'waiver of sovereign immunity' clause. This clause has lately come into the limelight due to the multifarious litigation in response to the Argentine Sovereign Debt Crisis and the problems faced by private parties in having their judgments/awards against the Argentine Republic enforced and executed in national courts of various jurisdictions. The recurrence of these incidents has necessitated an examination of the scope and effect of the 'waiver of sovereign immunity' clause as it stands today. A close scrutiny of the form, structure and legal basis of the 'waiver of sovereign immunity' clause clearly demonstrates that though practitioners have been astute enough to appreciate the gravity of the problem, their recommended panacea has fallen extremely short of its avowed purpose.