SerVaas Inc v Rafidain Bank & Ors

Property owned by a foreign state is immune from enforcement unless it is, at the relevant time, in use or intended for use for commercial purposes. The court must examine the present or intended use of the property itself, rather than the transactions by which the state acquired it or the purpose of the underlying debts. A diplomatic certificate creates a rebuttable presumption under the State Immunity Act 1978. Assets intended to be transferred to a development fund for sovereign purposes remain immune, even if acquired through commercial transactions or financing arrangements.

SerVaas sought a third-party debt order against distributions which Rafidain Bank was expected to make to Iraq under a scheme of arrangement. It also sought continuation of injunctions preserving those assets. Iraq applied to discharge the injunctions and argued that the proposed enforcement was barred by section 13(2)(b) of the State Immunity Act 1978 and article 9(1) of the Iraq (United Nations Sanctions) Order 2003.

The court considered only those immunity issues at this stage. The central questions were whether the admitted claims were property in use or intended for use for commercial purposes, and whether they were property or assets of the Development Fund for Iraq.

1. Summary disposal. Although the applications were not formally applications for summary judgment, the summary judgment principles were applicable by analogy. The question was whether SerVaas had a real prospect of establishing that the relevant assets were executable.
2. Section 13(2)(b). The certificate issued under section 13(5) created a rebuttable presumption that Iraq’s admitted claims were not in use or intended for use for commercial purposes. The relevant inquiry concerned the present or intended use of the property which was to be attached. The historical character of the debts, the manner in which Iraq acquired them, and the possibility of profit were not determinative.
3. The admitted claims were not being used to provide finance to Iraq. Iraq intended to transfer the distributions to the Development Fund for Iraq, where they would be mixed with other funds and used for purposes identified in Security Council Resolution 1483. That was an exercise of sovereign authority. SerVaas therefore had no real prospect of rebutting the presumption, and the claims were immune from execution under section 13(2)(b) of the State Immunity Act 1978.
4. Article 9(1). Reading article 9(1) of the Iraq (United Nations Sanctions) Order 2003 with article 5 of the United Nations and International Court of Justice (Privileges and Immunities) Order 1974 conferred on the Development Fund for Iraq the legal capacities of a body corporate under English law. The fund was therefore separate from Iraq. The admitted claims were, on the evidence, Iraq’s property and not the fund’s property. Payment for them with fund money, directions to transfer future distributions, and restrictions imposed by Resolution 1483 did not establish ownership by the fund.
5. SerVaas accordingly had at least a real prospect of defeating the claim to immunity under article 9(1), although the court indicated that it would be inclined to decide that issue in SerVaas’s favour on the material before it.
6. The third-party debt order application was dismissed because the claims were immune under section 13(2)(b). Further argument was reserved on the continuation or discharge of the injunctions.