Steven Loble

Difficulties in enforcement of judgments against a sovereign state



The Supreme Court has made it clear that it will be difficult for a party seeking to enforce a judgment against a foreign state to attach assets of that state in a foreign country.  The case is SerVaas Inc v Rafidain Bank & Ors [2012] UKSC 40.


The assets of Rafidain Bank in the UK were controlled by Provisional Liquidators after a winding up petition was presented by the Bank of England.


SerVaas obtained a default judgment in the Paris Commercial Court.  At first instance Arnold J held that the Admitted Claims in the Provisional Liquidation were immune from execution by reason of section 13(2)(b) and 13(4) of the State Immunity Act 1978 (“the Act”).


The relevant sections read as follows: -


“(2) Subject to subsection… (4) below

(b) the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest detention or sale.”

4) Subsection (2)(b) above does not prevent the issue of any process in respect of property which is for the time being in use or intended for use for commercial purposes; …”


The majority of the Court of Appeal agreed.  The case went to the Supreme Court and the Court stated that


“The question in this appeal is what is the true construction of the expression “property which is for the time being in use or intended for use for commercial purposes” in section 13(4) of the State Immunity Act 1978 (“the Act”).”


As well as quoting previous English authorities, Lord Clarke, with whom the other Supreme Court Justices agreed, also cited a case from the US Court of Appeals, 5th Cir, Texas, namely Connecticut Bank of Commerce v Republic of Congo, 309 f 3d 240.


“What matters under the statute is what the property is ‘used for’, not how it was generated or produced. If property in the United States is used for a commercial purpose here, that property is subject to attachment and execution even if it was purchased with tax revenues or some other noncommercial source of government income. Conversely, even if a foreign state’s property has been generated by commercial activity in the United States, that property is not thereby subject to execution or attachment if it is not ‘used for’ a commercial activity within our borders. …What matters under the statute is not how the Congo made its money, but how it spends it. The amenability of these royalties and taxes to garnishment depends on what they are ‘used for’, not on how they were raised.”



The phrase ‘used for’ in §1610(a) is not a mere syntactical infelicity that permits courts to look beyond the ‘use’ of property, and instead try to find any kind of nexus or connection to a commercial activity in the United States. The statute means what it says: property of a foreign sovereign…may be executed against only if it is ‘used for’ a commercial activity. That the property is revenue from or otherwise generated by commercial activity in the United States does not thereby render the property amenable to execution.”


The English Supreme Court concluded,


“On the facts of the instant case SerVaas cannot show that the Admitted Claims were property in use for a commercial purpose. It does not say that Iraq intended or intends to draw them down for commercial purposes. On the contrary, it accepts that they were intended to be used for sovereign purposes. By section 13(5) of the Act, the burden is on SerVaas to prove that the Certificate that the property is not in use for commercial purposes is not correct. It cannot do so unless it can show that it is entitled to rely upon the source of the Admitted Claims and can show that the source is sovereign and not commercial. For the reasons I have given, I would hold that the source of the Admitted Claims is irrelevant. It follows that it is not necessary to express a view upon the question whether the source is sovereign or commercial.”


Conclusion


The result of this case is to make it much more difficult to enforce a judgment against a sovereign state.


Section 13(5) of the Act provides:


“A certificate from the Head of Mission in the United Kindgom as to the use or intended use of property shall be be deemed to have authority to give on behalf of the State any such consent as is mentioned in subsection (3) above and, for the purposes of subsection (4) above, his certificate to the effect that any property is not in use or intended for use by or on behalf of the State for commercial purposes shall be accepted as sufficient evidence of that fact unless the contrary is proved.”


Even if a state is not immune from adjudication, section 13(21) of the Act states:


     (a)     relief should not be given against a State by way of injunction or order for specific performance, or for the recovery of land or other property; and 


     (b)     the property of a State shall not be subject to any process of enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale.”



Whilst the State can consent to such relief, such consent must be express and provision in a contract merely submitting to the jurisdiction of the courts “is not to be regarded as a consent for the purposes of this sub-section”.


Accordingly, this decision must be considered carefully in the following circumstances: -


     1.     When entering into a contract by both the state and parties with which it is contracting;


     2.     When making claims against a state;


     3.     When considering how to enforce a judgment against a state.


For more information on enforcement of judgments see Enforcement of Foreign Judgments and please refer to Disputes with States for more material on issues relating to state immunity.



Steven Loble


steven@loble.co.uk


September 2012

 

 

 

State Immunity