English court dismisses state immunity claim over unpaid rent

The case centres on a private landlord’s claim for damages related to a property in London that was leased to Romania for its ambassador and family as a diplomatic residence.

The claim for close to £85,000 for unpaid rent and dilapidations was allowed despite the Romanian state objecting on the basis of state immunity.

Section 1 of the State Immunity Act 1978 (SIA) stipulates that a foreign state is immune from the jurisdiction of the English court, with some notable exceptions. The exception under scrutiny in this particular case was s6, which concerns the immunity of foreign states in relation to property rights and disputes over interest in, possession, or use of property located in the UK.

Romania argued that the property served as the ambassador’s residence as part of “its diplomatic mission” and therefore it should enjoy sovereign immunity under the SIA, protecting it from any legal claims related to the property.

However, in the ruling – Christodoulou v Romania – handed down on 3 February in the Mayor’s and City of London Court, the judge dismissed this argument. He noted a specific exclusion to the exception outlined in s6, as referenced in s16(1)(b) of the SIA, which states that s6(1) “does not apply to proceedings concerning a State’s title to or its possession of property used for the purposes of a diplomatic mission”.

The judge said he was satisfied that Romania’s lease of the property would not fall within the definition of “commercial transaction”. However, he reasoned that regardless of whether or not the property was “used for the purposes of a diplomatic mission”, the proceedings undeniably related to the property’s “use”, not its title or possession. He added: “It is difficult to imagine any aspect of a leased property which is more ‘use’ related than the payment of a rent” and that the rent damages claim clearly fell within the s6(1)(b) exception, as did the claims for failures in meeting the property’s “repair obligations”.

Consequently, the court dismissed Romania’s challenge to the court’s jurisdiction. The judge said that in the court’s view the claims were “justiciable” and “not subject to state immunity”.

The case serves to highlight the limits of state immunity in UK law and that foreign states cannot necessarily rely upon such protections in relation to rent arrears or property maintenance claims even when the property is used for diplomatic purposes.

Sylvia Tonova, an investment arbitration expert at Pinsent Masons, said the ruling could impact future recovery actions against states in the UK.

“Investors should be aware that state property they think is protected by sovereign immunity might not be immune from damages claims, and that this might have wider implications if those investors are acting against states which are hoping to rely on immunity,” she said. “Parties to agreements involving states which have extensive property portfolios should take advice and give careful consideration of the SIA to see if certain property might be available to enforce against.”

Max Rossiter, a civil fraud and asset recovery expert at Pinsent Masons, added that the decision highlights how states can be vulnerable to claims and that they should not assume their sovereign status will protect them against recovery actions, even in junior English courts.

The judgment indicates that there were earlier efforts by the Romanian state to engage with what was then known as the Foreign, Commonwealth Office (FCO) – now the FCDO – in mediation. The judge said he would support an agreed stay for alternative dispute resolution.

While this case only reached the county court, Tonova said the ruling would have international resonance and acted as an important indication of the English courts’ ongoing commitment to enforcing contractual rights of private parties against foreign states and diplomatic entities. “While it is only a county court claim, it shows that the English courts are willing to enforce clear contractual rights, and should further give comfort to investors that the English courts will enforce their rights,” she said.