Factual and Procedural Background
There are three applications before the court arising from a judgment debt owed by Iraq to Plaintiff under a 1991 default judgment from the Paris Commercial Court concerning a contract between Plaintiff and the Iraqi Ministry of Industry for supply of equipment to an Iraqi state-owned factory. Plaintiff partially enforced the judgment in the Netherlands and recovered some sums from the United Nations Claims Commission, but a substantial amount remains unpaid. Plaintiff registered the judgment against Iraq in the English High Court, enabling enforcement against Iraq in England.
Defendant Rafidain is a state-controlled Iraqi commercial bank in provisional liquidation in England, subject to a court-sanctioned scheme of arrangement under which Iraq holds admitted claims against Rafidain worth US$253.8 million. These admitted claims arise from a debt purchase scheme where Iraq acquired claims against Rafidain, partly funded by the Development Fund for Iraq ("DFI") or Iraqi bonds whose interest is paid from the DFI. Plaintiff seeks to enforce the judgment debt via a Third Party Debt Order ("TPDO") against the assets due to Iraq under the scheme, supported by injunctions preventing payment of dividends to Iraq pending determination of the TPDO application. The Interested Party Iraq opposes the applications, arguing immunity from execution under the State Immunity Act 1978 and the Iraq (United Nations Sanctions) Order 2003.
Legal Issues Presented
- Whether the assets due to Iraq under the scheme are immune from execution under section 13(2)(b) of the State Immunity Act 1978, considering the commercial use exception in section 13(4).
- Whether the assets are immune from execution under article 9(1) of the Iraq (United Nations Sanctions) Order 2003, which grants immunity to the Development Fund for Iraq and its assets.
- Whether Plaintiff is entitled to a Third Party Debt Order against Rafidain's assets payable to Iraq.
- Whether the injunctions granted to preserve assets pending the TPDO application should be continued or discharged.
Arguments of the Parties
Plaintiff's Arguments
- A TPDO can be made against Rafidain as a third party debtor owing money to Iraq through its London branch, governed by English law.
- A TPDO may be granted in respect of debts payable in the future, such as dividends under the scheme.
- The debts due from Rafidain under the scheme, administered by the provisional liquidators and administrators, are assets of Iraq subject to enforcement.
- Injunctions can be granted against third parties to preserve assets for enforcement, even if injunctive relief against Iraq itself is barred by the 1978 Act.
- The admitted claims purchased by Iraq, including those acquired by bonds, are property used or intended for commercial purposes within the meaning of the 1978 Act exception, especially as they involve provision of finance or commercial transactions.
- The admitted claims arise from commercial activities of Rafidain's London branch and Iraq acquired the claims for profit, evidenced by the expected dividend exceeding the purchase price.
- Under the Iraq (United Nations Sanctions) Order 2003, the admitted claims are not property of the Development Fund for Iraq (DFI) but of Iraq itself, so immunity under article 9(1) does not apply.
Interested Party Iraq's Arguments
- The assets are immune from execution under section 13(2)(b) of the 1978 Act unless the commercial use exception applies; Iraq submits the admitted claims are not currently in use or intended for use for commercial purposes but are held for sovereign purposes.
- The presumption created by the certificate from Iraq's Chargé d'Affaires that the admitted claims are not used for commercial purposes has not been rebutted by Plaintiff.
- The present and intended use of the assets, not their origin or acquisition, determines immunity; the assets are to be paid into the DFI and used in accordance with United Nations Security Council Resolution 1483 for humanitarian and reconstruction purposes, which are sovereign, not commercial.
- Under article 9(1) of the 2003 Order, the DFI and its assets have immunity equivalent to the United Nations, including immunity from execution; the admitted claims are assets held by Iraq on behalf of the DFI and thus immune.
- The DFI need not have legal personality under international law, but English law confers legal personality and immunity on it by virtue of the 2003 Order and the 1974 Order.
- The admitted claims are properly regarded as assets of the DFI or held on its behalf, as Iraq has directed distributions to be paid to the DFI in accordance with Resolution 1483 and its successors.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Alcom Ltd v Republic of Columbia [1984] AC 580 |
Interpretation of "commercial purposes" exception under section 13(4) of the State Immunity Act 1978; a debt must be earmarked for commercial use to fall within the exception. |
Supported the view that the admitted claims are not within the exception because the assets are not earmarked solely for commercial purposes and the debt is indivisible. |
| AIC Ltd v Federal Government of Nigeria [2003] EWHC 1357 (QB) |
Test for current or intended use of property for commercial purposes under section 13(4); the onus on judgment creditor to prove commercial use. |
Applied to confirm that past commercial use is insufficient; current use or intention must be commercial, which was not established here. |
| AIG Capital Partners Inc v Republic of Kazakhstan [2005] EWHC 2239 (Comm) |
Assets held as part of a national fund used for sovereign economic management are not used for commercial purposes despite trading activities. |
Supported the conclusion that trading of bonds or assets does not necessarily negate sovereign use; applied analogously to the DFI and admitted claims. |
| Orascom Telecom Holding SAE v Republic of Chad [2008] EWHC 1841 (Comm) |
Funds held in accounts established for commercial transactions (e.g., loan repayment) fall within the commercial purposes exception. |
Distinguished on facts; the admitted claims here are not held for such commercial transactions but for sovereign purposes under Resolution 1483. |
| NML Capital Ltd v Republic of Argentina [2010] EWCA Civ 41 |
Section 31 of the Civil Jurisdiction and Judgments Act 1982 is subject to the State Immunity Act 1978; foreign state immunity bars enforcement unless exceptions apply. |
Recognized as an obstacle to Plaintiff's enforcement; the court awaited Supreme Court decision but proceeded to consider immunity issues. |
| The Jade [1976] 1 WLR 430 |
Statutory construction rule that domestic legislation giving effect to international obligations should be construed consistently with those obligations. |
Applied in interpreting the 2003 Order in light of UN Security Council Resolution 1483. |
| Marleasing SA v La Comercial Internacional de Alimentación SA [1990] ECR I-4135 |
Interpretative duty to construe domestic law consistently with EU law. |
Rejected as applicable here; court preferred ordinary principles of statutory construction. |
| Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) |
Principles applicable to summary judgment applications. |
Applied analogously to consider whether Plaintiff had a real prospect of success to defeat immunity claims. |
| AC Ward & Son v Catlin (Five) Ltd [2009] EWCA Civ 1098 |
Summary judgment principles. |
Approved Easyair summary of principles; applied in assessing Plaintiff's prospects. |
Court's Reasoning and Analysis
The court first identified the relevant statutory provisions governing state immunity and the exceptions thereto, focusing on section 13(2)(b) of the State Immunity Act 1978 and the commercial use exception in section 13(4). The court reviewed leading authorities interpreting "commercial purposes," emphasizing that immunity is rebutted only if the property is currently or intended to be used for commercial purposes, not merely because it was acquired through commercial transactions.
The court found that Plaintiff failed to rebut the presumption created by Iraq's certificate that the admitted claims are not in use or intended for use for commercial purposes. The admitted claims are to be paid into the Development Fund for Iraq (DFI) and used for sovereign purposes under UN Security Council Resolution 1483, such as humanitarian aid and reconstruction, which are not commercial activities. The court rejected Plaintiff's argument that the bonds or debts represent commercial financing, holding that the purpose of the admitted claims is sovereign, not commercial.
Turning to the immunity claim under article 9(1) of the Iraq (United Nations Sanctions) Order 2003, the court considered whether the DFI has legal personality and whether the admitted claims are its property. The court concluded that the DFI does have legal personality under English law and enjoys immunity equivalent to the United Nations. However, the admitted claims are the property of Iraq, not the DFI, even if held on its behalf. The court held that the admitted claims are not immune under article 9(1) because the immunity applies only to the DFI and its property, not to assets owned by Iraq.
Applying summary judgment principles analogously, the court concluded that Plaintiff has no real prospect of overcoming immunity under section 13(2)(b) of the 1978 Act but does have a real prospect of defeating immunity under article 9(1) of the 2003 Order.
Holding and Implications
The court DISMISSED Plaintiff's application for a Third Party Debt Order against the assets due to Iraq under the scheme on the basis that those assets are immune from execution under section 13(2)(b) of the State Immunity Act 1978.
The court found that Plaintiff has a real prospect of defeating Iraq's claim to immunity under article 9(1) of the Iraq (United Nations Sanctions) Order 2003, but this did not affect the dismissal of the TPDO application.
The direct effect is that Plaintiff cannot enforce the judgment debt against the admitted claims held by Iraq under the current statutory framework and evidence. The court reserved further consideration of the injunctions pending these conclusions.
No new precedent was established; the decision applies existing principles of state immunity and statutory interpretation to the facts before the court.