Servaas Incorporated v Bank & Ors

For execution against state property, the question is the property’s present or intended use, not merely the commercial origin of the transaction that created it. A debt may be in current use where its owner is actively pursuing payment under a commercial debt arrangement. But the statutory certificate of the head of a diplomatic mission is sufficient evidence that property is not used or intended for commercial purposes unless the contrary is proved. On a summary application, the court must assess whether there is a real prospect of rebutting that certificate. Property acquired as part of a sovereign debt-restructuring programme, and intended to be transferred to a fund held for sovereign purposes, may therefore remain immune under section 13 of the State Immunity Act 1978.

Servaas Incorporated, a judgment creditor of Iraq, sought a third-party debt order against sums payable to Iraq under a scheme of arrangement for Rafidain Bank, an Iraqi state-controlled commercial bank in provisional liquidation in England. The sums represented Iraq’s admitted claims acquired during a programme for settling Saddam-era debts. Iraq intended to transfer any distribution to the Development Fund for Iraq.

Arnold J held that the claims were immune from execution under section 13 of the State Immunity Act 1978, but found that, if that conclusion were wrong, Servaas had a real prospect of defeating immunity under article 9(1) of the Iraq (United Nations Sanctions) Order 2003. Servaas appealed the first conclusion. Iraq’s contingent cross-appeal was not heard. The central issue was whether the admitted claims were property in use or intended for use for commercial purposes.

1. Appeal dismissed. The majority, comprising Stanley Burnton LJ and Hooper LJ, held that the admitted claims were property of Iraq within section 13(2)(b) of the State Immunity Act 1978 and were immune from execution.
2. The commercial character of the debts, or of the transactions by which Iraq acquired them, did not determine the use of the resulting property. The Act distinguishes between transactions relevant to adjudicative jurisdiction and property relevant to execution. A debt arising from a commercial transaction may nevertheless be held for sovereign purposes.
3. The evidence showed that Iraq was not using the claims at the relevant date and intended the distributions to be paid to the Development Fund for Iraq. The transfer was made in the exercise of sovereign authority and for the non-commercial purposes identified in United Nations Security Council Resolution 1483. The Chargé d’Affaires’ certificate fortified that conclusion, and section 13(5) required it to be accepted as sufficient evidence unless the contrary was proved.
4. Stanley Burnton LJ agreed with Arnold J’s reasoning and applied Alcom Ltd v Republic of Columbia [1984] AC 580. A dormant bank account was an illustration of property which might have no current use, but the majority found no evidence that these claims were being used commercially.
5. Rix LJ dissented. He considered that the admitted claim was arguably in current use to secure the scheme dividend, distinguished that claim from the dividend after payment into the DFI, and regarded the issue as requiring a trial. The majority’s dismissal left Iraq’s contingent cross-appeal undetermined.

• Court of Appeal (Civil Division): Servaas’s appeal from Arnold J’s decision was dismissed. Iraq’s contingent cross-appeal was not heard.
• Chancery Division: Arnold J held that the admitted claims were immune from execution under the State Immunity Act 1978, but found that Servaas had a real prospect of defeating immunity under article 9(1) of the Iraq (United Nations Sanctions) Order 2003 if the statutory conclusion were overturned: [2010] EWHC 3287 (Ch).