Servaas Incorporated v Bank & Ors

The Court of Appeal considered whether sums payable to the Republic of Iraq under an approved scheme of arrangement for Rafidain Bank were immune from execution under section 13 of the State Immunity Act 1978. The majority held that the relevant right to payment was not "for the time being in use or intended for use for commercial purposes" within the meaning of section 13(4) because the moneys were intended to be paid into the Development Fund for Iraq (DFI) for non-commercial, sovereign purposes. The court gave effect to the certificate of the Chargé de2 'affaires under section 13(5) and concluded SerVaas had no evidence to rebut it. The court reaffirmed the distinction between the commercial origin of a debt and the present use or intended use of that debt for the purposes of the section 13 immunity exception, relying on Alcom Ltd v Republic of Colombia and related authorities.

This appeal arose from Arnold Je2 's decision in the Chancery Division ([2010] EWHC 3287 (Ch)) that moneys payable to Iraq as an admitted scheme creditor under Rafidain Bank's scheme of arrangement were immune from execution by virtue of section 13 of the State Immunity Act 1978. SerVaas (a judgment creditor holding a French judgment registered in England) sought a Third Party Debt Order (TPDO) to attach sums due to Iraq. Iraq relied on section 13(2)(b) and (4) of the SIA and produced a certificate from the Charge9 de2 'affaires certifying that the Admitted Scheme Claims had never been and were not intended to be used for commercial purposes and that distributions were to be paid into the Development Fund for Iraq (DFI).

The Court of Appeal heard whether the right to receive the distributions (a chose in action) was "for the time being in use or intended for use for commercial purposes" (section 13(4)), and whether the certificate under section 13(5) was rebutted. The factual background included: SerVaas's contractual judgment against an Iraqi ministry; Iraq's purchase of commercial claims arising from Saddam-era debts (partly using DFI funds and partly by issuance of Iraqi bonds) under a debt-restructuring programme; Rafidain's sanctioned scheme admitting Iraq's claims; and imminent distributions intended to be remitted to the DFI.

The majority (Stanley Burnton LJ and Hooper LJ) agreed with Arnold J that the commercial origin of the debt did not demonstrate that the debt was then being used for commercial purposes. They accepted the Charge9e2 de2 'affaires' certificate as sufficient evidence under section 13(5) and held SerVaas had no real prospect of rebutting it on the summary application. The majority dismissed the appeal and left the immunity finding intact. Rix LJ dissented on the key issue and considered there was a real prospect that SerVaas could prove at trial that the admitted claim was then being used for commercial purposes (as part of the working out of Iraqe2 's debt-purchase transactions) and would have sent the matter to trial. The court therefore dismissed the appeal by majority.

• Nature of relief sought: TPDO and injunction restraining distribution under a scheme of arrangement.
• Issues framed: (i) is the right to distributions immune from execution under s.13 SIA? (ii) was the certificate under s.13(5) rebutted? (iii) (contingent) whether Article 9(1) of the Iraq (United Nations Sanctions) Order 2003 provided immunity.
• Reasoning: the origin of a debt (its commercial provenance) does not determine whether the property is being used for commercial purposes; the relevant enquiry is the actual or intended use at the critical date; the Charge9's certificate creates a presumption accepted by the court unless rebutted by evidence; SerVaas offered no evidence to rebut the certificate on summary process.

Appeal dismissed. The majority held that the admitted claims were not "for the time being in use or intended for use for commercial purposes" under section 13(4) of the State Immunity Act 1978 because distributions were intended to be paid into the Development Fund for Iraq for sovereign (non-commercial) purposes. The Charge9 de2 'affaires' certificate under section 13(5) stood unrebutted on the summary application. Rix LJ dissented and would have ordered a trial on the issue of current use.

Appeal from Arnold J in the Chancery Division: [2010] EWHC 3287 (Ch). Determined in the Court of Appeal (Civil Division) [2011] EWCA Civ 1256 on 3 November 2011; hearing on 18 May 2011. Iraq cross-appeal (contingent) adjourned pending outcome of SerVaas's appeal.