SerVaas Inc v Rafidain Bank & Ors

There are three applications before me. First, the Claimant (“SerVaas”) applies for a Third Party Debt Order (“TPDO”) against the First Respondent (“Rafidain”). Secondly, SerVaas applies for the continuation of an injunction granted against the Respondents by Mann J on 7 October 2010 which was continued by Proudman J on 21 October 2010 and by Warren J on 4 November 2010 and a further injunction granted against the Respondents by Warren J on 4 November 2010 (“the Injunctions”). The Injunctions were granted to preserve the assets which are sought to be made the subject of the TPDO. Thirdly, the Interested Party (“Iraq”) applies as a party given notice of the Injunctions to discharge the Injunctions on a number of grounds. Among those grounds are that the application for the TBDO should be summarily dismissed because the assets in question are immune from execution by virtue of either or both of section 13(2)(b) of the State Immunity Act 1978 (“the 1978 Act”) and article 9(1) of the Iraq (United Nations Sanctions) Order 2003 (SI 1519/2003, “the 2003 Order”). It is common ground that, if either of those contentions is well founded and the application for the TPDO is dismissed, then the basis for the Injunctions falls away. By agreement between the parties, I have so far heard argument only with regard to those two contentions. Other issues which may or may not arise depending on my resolution of those issues have been reserved for further argument, if necessary, later.

On 9 August 1988 SerVaas entered into a contract with the Iraqi Ministry of Industry (“the Ministry”) for the supply of equipment, machinery and related services required for the commissioning of a new copper and brass facility at Iraq’s state-owned Al-Shaheed scrap metal factory in Ameria-Falluja. The factory processed spent shell casings left in Iraq following the Iran/Iraq War. Shortly after the invasion of Kuwait by Iraq, SerVaas terminated the contract by notice dated 13 August 1990. SerVaas subsequently brought a claim against the Ministry in the Paris Commercial Court for sums due under the contract. The Ministry did not appear, and on 16 April 1991 the court gave default judgment in favour of SerVaas for US$14,152,800 (“the Judgment”).

In the same year, SerVaas obtained US$966,515.90 by partial enforcement of the Judgment in the Netherlands. SerVaas has also recovered US$6,736,285 from the United Nations Claims Commission (“UNCC”) in July 2002. Apart from those payments, the Judgment remains unsatisfied. As at 18 November 2010, the amount outstanding (including interest and costs) is US$34,481,200.49.

SerVaas has been advised that Iraq is responsible for the debts of the Ministry. On 4 November 2009 SerVaas obtained an order from the High Court of Justice (Queen’s Bench Division) registering the Judgment against Iraq (“the Order”). The Order was served on Iraq on 2 May 2010. It is common ground that the period in which an appeal can be lodged expired on 2 September 2010, and therefore the Judgment can now be enforced against Iraq in this country.

Rafidain is a state-controlled Iraqi bank which maintained a branch in (among other places) London. It carried on business as a commercial bank. The primary business of its London branch was advising, confirming and reimbursing letters of credit issued by Rafidain, Rasheed Bank (another Iraqi commercial bank) and the Central Bank of Iraq (“the Central Bank”).

Rafidain has been in provisional liquidation in England since 21 February 1991. Since April 1992 the scope of the provisional liquidation has been limited to assets within England and Wales. The Second to Fourth Respondents are the provisional liquidators (“the PLs”). On 3 April 2008, Henderson J sitting in this Court sanctioned a scheme of arrangement proposed by the provisional liquidators of Rafidain between Rafidain and its creditors (“the Scheme”). The Second to Fourth Respondents are also the administrators of the Scheme (“the Administrators”).

The terms of the Scheme provide that:

Both the Ministry and Iraq submitted claims in the Scheme. Iraq’s claims have been admitted for US$253.8 million (“the Admitted Claims”). Iraq’s Admitted Claims represent the assigned entitlement to claims against Rafidain which were acquired by Iraq as part of an optional reconstruction process entered into between commercial creditors and certain identified Iraqi debtors, including Rafidain. Under this debt purchase scheme, Iraq has paid approximately 10.25% on claims which it acquired.

Iraq’s uncontradicted evidence is that the debts which constituted the Admitted Claims were purchased either using monies from the Development Fund for Iraq (“the DFI”) or, in two cases, by means of Iraqi bonds. The DFI was set up pursuant to United Nations Security Council Resolution 1483 (“Resolution 1483”), the relevant parts of which are set out below. In the case of the debts purchased by means of bonds, it is Iraq’s case that the interest on the bonds is paid from DFI funds. The Admitted Claims purchased by means of bonds are worth about US$109 million or about 43% of the total.

The Administrators anticipate that claims will be paid at the rate of 53% pursuant to the Scheme. Thus Iraq’s Admitted Claims amount to an asset sufficient to meet the Judgment debt due to SerVaas. Distributions are now imminent.

By its application for the TPDO, SerVaas seeks to enforce the remainder of the Judgment against the assets which are to be distributed to Iraq under the Scheme. The Injunctions are designed to prevent payment by the Respondents of a dividend to Iraq in respect of its Admitted Claims and prevent recognition by the Respondents of any assignment of such claims pending the determination of the application for the TPDO. The Respondents are neutral with regard to both of SerVaas’ applications, and have not participated in the proceedings. As indicated above, Iraq opposes both of SerVaas’ applications.

SerVaas contends that it is entitled to the TPDO for the following reasons:

By its application for the Injunctions, SerVaas seeks post-judgment injunctive relief in aid of execution of a foreign judgment. Although section 13(2)(a) of the 1978 Act (as to which, see below) prevents injunctive relief being granted against Iraq itself, SerVaas contends that it can seek injunctive relief against a third party against whom a TPDO would in due course be available in order to preserve assets within the jurisdiction for execution.

SerVaas accepts that, as matters stand, the decision of Court of Appeal in NML Capital Ltd v Republic of Argentina [2010] EWCA Civ 41, [2010] 3 WLR 874 is an obstacle to its applications. Shortly stated, this is to the effect that section 31 of the Civil Jurisdiction and Judgments Act 1982 does not provide a comprehensive jurisdictional code for the recognition and enforcement in the UK courts of judgments of foreign courts against states, but rather is subject to the provisions of the 1978 Act. If it stands, this decision means that SerVaas will not be able to enforce the Judgment against Iraq, unless it can establish that one of the exceptions to state immunity set out in sections 2-11 of the 1978 Act applies; but SerVaas does not suggest that any of those exceptions are applicable. SerVaas relies, however, on the fact that the Supreme Court has granted NML permission to appeal against the Court of Appeal’s decision, and the appeal has been fixed for hearing on 22-24 March 2011. SerVaas contends that, in those circumstances, the application for the TPDO should be adjourned until after the judgment of the Supreme Court and the Injunctions should be continued in the meantime. Iraq opposes this on a number of grounds, including the two which are the subject of this judgment.

None of the applications before me are applications for summary judgment. No doubt for that reason, neither side reminded me of any of the well-known authorities on the principles to be applied to summary judgment applications. Since Iraq seeks summary disposal of SerVaas’ application for a TPDO, however, it seems to me that those principles are applicable by analogy. They were recently summarised by Lewison J in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15]. That summary was cited with approval by Etherton LJ (with whom Wilson and Sullivan LJJ agreed) in AC Ward & Son v Catlin (Five) Ltd [2009] EWCA Civ 1098, [2010] Lloyds Rep IR 301at [24].

Section 13 provides, so far as is relevant, as follows:

“(2)

Subject to subsections (3) and (4) below—

(a)

relief shall 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 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; …

(5)

The head of a State’s diplomatic mission in the United Kingdom, or the person for the time being performing his functions, shall 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.”

Section 17(1) defines “commercial purposes” to mean “purposes of such transactions or activities as are mentioned in section 3(3)”. Section 3(3) defines “commercial transaction” to mean:

“(a)

Any contract for the supply of goods or services;

(b)

Any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation;

(c)

Any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority”.

There is an exception for “a contract of employment between a State and an individual”.

It is common ground that section 13(2)(b) bars SerVaas’s application for a TPDO unless the exception in section 13(4) applies. My attention was drawn to four authorities on the interpretation and application of that exception.

In Alcom Ltd v Republic of Columbia [1984] AC 580 the House of Lords held that money in a bank account used to meet the expenditure incurred in the day-to-day running of Columbia’s diplomatic mission was not within the exception. Lord Diplock (within whom Lords Fraser of Tullybelton, Keith of Kinkel, Roskill and Templeman agreed) said at 602F-603D and 603H-604E:

“The crucial question of construction for your Lordships is whether a debt which has these legal characteristics falls within the description contained in section 13(4) of ‘property which is for the time being in use or intended for use for commercial purposes.’ To speak of a debt as ‘being used or intended for use’ for any purposes by the creditor to whom the debt is owed involves employing ordinary English words in what is not their natural sense, even if the phrase ‘commercial purposes’ is given the ordinary meaning of jure gestionis in contrast to jure imperii that is generally attributed to it in the context of rights to sovereign immunity in public international law; though it might be permissible to apply the phrase intelligibly to the credit balance in a bank account that was earmarked by the state for exclusive use for transactions into which it entered jure gestionis. What is clear beyond all question is that if the expression ‘commercial purposes’ in section 13(4) bore what would be its ordinary and natural meaning in the context in which it there appears, a debt representing the balance standing to the credit of a diplomatic mission in a current bank account used for meeting the day-to-day expenses of running the mission would fall outside the subsection.

‘Commercial purposes,’ however, is given by section 17(1) the extended meaning which takes one back to the comprehensive definition of ‘commercial transaction’ in section 3(3). Paragraph (a) of this tripartite definition refers to any contract for the supply of goods or services, without making any exception for contracts in either of these two classes that are entered into for purposes of enabling a foreign state to do things in the exercise of its sovereign authority either in the United Kingdom or elsewhere. This is to be contrasted with the other paragraph of the definition that is relevant to the instant case, paragraph (c), which on the face of it would be comprehensive enough to include all transactions into which a state might enter, were it not that it does specifically preserve immunity from adjudicative jurisdiction for transactions or activities into which a state enters or in which it engages in the exercise of sovereign authority, other than those transactions that are specifically referred to either in paragraph (a) or in paragraph (b), with the latter of which the instant appeal is not concerned.

…

My Lords, the decisive question for your Lordships is whether in the context of the other provisions of the Act to which I have referred, and against the background of its subject matter, public international law, the words ‘property which is for the time being in use or intended for use for commercial purposes,’ appearing as an exception to a general immunity to the enforcement jurisdiction of United Kingdom courts accorded by section 13(2) to the property of a foreign state, are apt to describe the debt represented by the balance standing to the credit of a current account kept with a commercial banker for the purpose of meeting the expenditure incurred in the day-to-day running of the diplomatic mission of a foreign state.

Such expenditure will, no doubt, include some moneys due under contracts for the supply of goods or services to the mission, to meet which the mission will draw upon its current bank account; but the account will also be drawn upon to meet many other items of expenditure which fall outside even the extended definition of ‘commercial purposes’ for which section 17(1) and section 3(3) provide. The debt owed by the bank to the foreign sovereign state and represented by the credit balance in the current account kept by the diplomatic mission of that state as a possible subject matter of the enforcement jurisdiction of the court is, however, one and indivisible; it is not susceptible of anticipatory dissection into the various uses to which moneys drawn upon it might have been put in the future if it had not been subjected to attachment by garnishee proceedings. Unless it can be shown by the judgment creditor who is seeking to attach the credit balance by garnishee proceedings that the bank account was earmarked by the foreign state solely (save for de minimis exceptions) for being drawn upon to settle liabilities incurred in commercial transactions, as for example by issuing documentary credits in payment of the price of goods sold to the state, it cannot, in my view, be sensibly brought within the crucial words of the exception for which section 13(4) provides.”

In AIC Ltd v Federal Government of Nigeria [2003] EWHC 1357 (QB) Stanley Burnton J (as he then was) held that a number of bank accounts maintained by Nigeria were not within the exception, including 16 accounts which were the subject of a certificate from the High Commissioner which stated not only that the funds in those accounts were not in use nor intended for use for commercial purposes, but also that the accounts had been dormant for at least 18 months. Stanley Burton J said:

“56.

The test in section 13(4) of the State Immunity Act applies as at the date of the issue of process of execution against the property in question: the words ‘for the time being’ make this clear. The use or intended use of property may change over time. In the case of a bank account, the onus is on the judgment creditor to show that the use or intended use of the account is, apart from minimal exceptions, for commercial purposes within the meaning of the Act: Lord Diplock in Alcom at page 604D-E. Evidence of recent use of an account wholly for commercial purposes over a significant period of time may lead to the conclusion that the account is used or intended for use wholly for commercial purposes; but the older the use in evidence, the weaker the inference that may be drawn as to the use or intended use of the account.

57.

The High Commissioner's certificate is supplemented by the witness statement of Mr Francis Ogunyinka, the then Finance Attaché of the Nigeria High Commission in London, corrected by the witness statement of Mr Lerer dated 19 May 2003, as to the previous use of the accounts. That evidence shows that in respect of some accounts, such as 21229656, which was used for the purchase of books for Nigerian government schools, the previous use was commercial. In some cases, such as account 31163507, where the use was for scholarships, the use was clearly not commercial. In other cases no clear conclusion as to the nature of the previous use can be drawn. For example, account 36122968 was ‘used for the purpose of payment of expenses of Federal Government officials’. If payment was made direct to third parties for goods or services supplied to Federal Government employees, the payment would be commercial in nature; if the payment were made to employees pursuant to their contracts of employment to reimburse them for expenses they had incurred, the purpose would be non-commercial: see section 3(3) of the State Immunity Act.

58.

A mere statement that an account is dormant begs the question of the duration of the dormancy. In this case, however, the period of dormancy is specified in the certificate of the High Commissioner. If an account has been dormant for at least 18 months, it cannot be said to be presently used for any relevant purpose, and the previous use is weak evidence of the present intention as to its use. In this case, that evidence is insufficient to disprove the statement in the High Commissioner's certificate.

59.

For the reasons set out above, even where there is evidence that an account was previously wholly used for commercial purposes, it does not establish that the present or intended use of that account is commercial. ”

In AIG Capital Partners Inc v Republic of Kazakhstan [2005] EWHC 2239 (Comm), [2006] 1 WLR 1420 Aikens J (as he then was) held that cash and assets representing a national fund held in England by third party financial institutions on behalf of Kazakhstan’s national bank were not within the exception. He expressed his reasons at [92] as follows:

“(1)

The London assets formed part of the national fund. That fund was, in my opinion, created to assist in the management of the economy and government revenues of Kazakhstan, both in the short and long term. Management of a state's economy and revenue must constitute a sovereign activity.

(2)

The national fund had to be managed by NBK in accordance with the law set out in the Budget Code, in particular article 24. That demanded that the national fund be invested: article 24, para 2. I accept that this required that investment to be placed in authorised financial assets in order to secure, amongst other things, ‘high profitability levels of the [national fund] in the long term outlook at reasonable risk levels’. I also accept the uncontroverted evidence that the securities accounts held by AAMGS on behalf of NBK were actively traded at all times and that NBK obtained from Kazakhstan a commission on good results and paid a penalty for poor ones. But I cannot accept that this activity is inconsistent with the Stability and Savings Funds of the national fund being used or intended for use for sovereign purposes. The aim of the exercise, at all times, was and is to enhance the national fund. To do that the assets have to be put to use to obtain returns which are reinvested in the national fund, i.e. to assist the sovereign actions.

(3)

Mr Salter relies on the definition of ‘commercial purposes’ set out in section 17(1) of the 1978 Act and points to the fact that ‘commercial purposes’ means transactions and activities mentioned in section 3(3) of the Act. Those include ‘any transaction or activity (whether of a commercial… financial… or other similar character) into which a state enters or in which it engages otherwise in the exercise of sovereign authority’. He says that the trading activities of the securities accounts by AAMGS are clearly financial transactions and their aim is to make profits. Therefore they could not be transactions ‘in the exercise of sovereign authority’ within section 3(3). So, for the purposes of 13(4), at least the securities accounts of the London assets constitute ‘property in use or intended for use for commercial purposes’. Again, I must disagree. The dealings of the securities accounts must, in my view, be set against the background of the purpose of the global custody agreement. That was established to assist in running the national fund. The securities accounts contain assets which are part of the national fund. In my view the dealings are all part of the overall exercise of sovereign authority by Kazakhstan.

(4)

Last, but not least, there is the certificate of the ambassador. That is clear and unambiguous. I have seen no evidence to contradict it other than the fact that the securities accounts are traded. For the reasons I have given, the trading of those accounts does not mean they were being used or were intended for use for commercial purposes.”

Finally, in Orascom Telecom Holding SAE v Republic of Chad [2008] EWHC 1841 (Comm), [2008] 2 CLC 296 Burton J held that funds held in an account which derived from oil and oil pipeline revenues pursuant to a World Bank Revenue Management Program (“RMP”) were within the exception. He expressed his reasons as follows:

“22.

[Counsel for Orascom] relies on the assistance of the authors of State Immunity (OUP), Andrew Dickinson, Rae Lindsay and James Loonam. They point out, at p. 359, para. 4.030 (in a passage which commences with an obvious but unfortunate typographical error in referring to s. 3(1)(c) which is clearly intended to refer to s. 3(3)) that the language of s. 3(3)(a) is very broad, and in particular, in relation to s. 3(3)(b) , that:

‘Two aspects of this element of the definition are of note. The first is that the provision of finance may be either by or to the State. [emphasis added]’

23.

I am entirely satisfied that this account, the Borrower's Account, was established by the RMP, and has been operated, specifically for the purposes of a commercial transaction, namely:

(i)

so as to receive the proceeds of a contract for the supply of goods or services; and/or

(ii)

so as to be part of a system specifically established for the purposes of (repayment of) the loans by the World Bank etc to Chad.”

In the present case, on 30 November 2010 Mr Abdulmahaimen Al-Oraibi, Chargé d’Affaires of the Embassy of Iraq in London and Head of Mission of Iraq, signed a certificate stating that the Accepted Claims “are not in use, and are not intended for use, for any commercial purposes” (“the Certificate”). The Certificate goes on to state that Iraq has “directed the Scheme Administrators … to transfer any … distributions … under the Scheme to the [DFI]”. It is common ground that by virtue of section 13(5) the Certificate creates a rebuttable presumption that the Accepted Claims are not in use or intended for use for commercial purposes and that the onus lies upon SerVaas to rebut that presumption.

SerVaas contends that it has at least a real prospect of establishing that the Admitted Claims which were purchased by means of bonds are “property which is for the time being in use or intended for use for commercial purposes” on the ground that they are property in use or intended for use for the purposes of “any loan or other transaction for the provision of finance” within section 3(3)(b), alternatively for the purposes of “any other transaction or activity … into which a State enters or in which it engages otherwise than in the exercise of sovereign authority” within section 3(3)(c). In the case of the Admitted Claims purchased for cash, SerVaas relies only on the latter contention.

In support of these contentions counsel for SerVaas relied in particular upon two items of documentary evidence concerning the debt purchase scheme. The first is a press release dated 26 July 2005 headed “Iraq Announces Terms of Commercial Debt Settlement Offer”. This includes the following passages:

“The Republic of Iraq today announced its intention to offer to settle outstanding Saddam-era commercial claims against Iraq and Iraqi public sector obligors through a cash buyback (for claims holding a relatively small aggregate amount of registered claims) and a debt-for-debt exchange (for claimants with a larger aggregate amount of registered claims). …

Eligible Claims

…

Eligible claims include claims against Rafidain Bank …

The Cash Offer

Subject to the availability of sufficient funds, Iraq expects to make a cash buyback offer to holders of smaller aggregate amounts of reconciled eligible claims. For this purpose, a claimant currently registered with Ernst & Young with reconciled eligible claims will be eligible to receive the cash buyback offer if the aggregate amount of its outstanding registered claims as of August 6, 1990 is U.S. $35 million or less (or its equivalent in other currencies). …

The cash purchase price for reconciled eligible claims held by claimant eligible for the cash buyback will equal 10.25% of the reconciled outstanding amount of those claims (including principal and accrued interest…) …

The Debt-for-Debt Exchange Offer

For claimants holding an aggregate amount of eligible claims above the U.S. $35 million threshold referred to above (as of August 6, 1990), Iraq expects to make an offer to exchange the reconciled eligible amounts of those claims (principal plus calculated interest accrued through the date of exchange) for two new debt instruments: a syndicated loan or a privately-placed bond. The Republic of Iraq will be the obligor under both instruments. …

The privately-placed bond will also have a maturity of January 2028, but will be exchanged at a 20% exchange ratio (that is for each $100 reconciled amount of tendered eligible claims, including calculating interest accrued through the date of exchange as described above, the tendering holder will receive a new bond with a $20 face value). Principal amortizations of the new bond will commence, in equal semi-annual instalments, in July 2020. …”

Secondly, on 8 May 2006 Citigroup Global Markets Inc and J.P. Morgan Securities Inc on behalf of Iraq issued an Invitation to Tender Claims for Cash Purchase and an Invitation to Tender Claims for Exchange for 5.8% US$ Notes due 2028. The latter commenced as follows:

“On the terms and subject to the conditions set forth in this invitation (the ‘Invitation’), the Republic of Iraq, acting through its Ministry of Finance (‘Iraq’), hereby invites the entity identified as the Holder in Schedule I attached to this Invitation to tender for cash all of the Reconciled Eligible Claims listed in Schedule I (such claims, the ‘Reconciled Eligible Claims’, and the tender thereof, the ‘Tender’) for exchange for the New Notes (as further described below under ‘Consideration’) (the ‘Exchange Offer’).

Eligible claims registered in response to the RFI (as defined below) for which Rafidain Bank has been identified as a Specified Obligor on the Holder’s Schedules I and II are referred to herein as ‘Rafidain Claims’. For the avoidance of doubt the term ‘Rafidain Claims’ as used in this Invitation covers claims against Rafidain Bank, including principal, contractual interest, late penalty interest, indemnities, fees and any other amounts of whatever description due according to the underlying debt instruments governing such claims.

All of the Holder’s right, title and interest in claims that are the subject of an accepted Tender will, on the Closing Date (as described below):

(i)

in the case of Rafidain Claims be sold, assigned and transferred to Iraq without recourse to the Holder and without the need for the execution of any other instrument of assignment;… ”

Counsel for SerVaas argued as follows:

Counsel for Iraq submitted that SerVaas had no real prospect of establishing that the Admitted Claims fell within the exception. He argued as follows:

In my judgment SerVaas has no real prospect of successfully rebutting the presumption created by the Certificate for the reasons given by counsel for Iraq. In my view SerVaas’s argument wrongly conflates the transactions by which Iraq acquired the debts that are the subject of the Admitted Claims with the intended use of those assets. Iraq is not presently using those assets, but intends to pay the dividends on them to the DFI. That property is not being used to provide finance to Iraq, and it is immaterial that that property was acquired by means of bonds in the cases where the consideration took the form of bonds. Nor is the property being used or intended to be used for transactions “otherwise than in the exercise of sovereign authority”. Iraq has decided to transfer the distributions to the DFI in the exercise of its sovereign authority, albeit constrained in this respect by Resolution 1483, for the purposes set out in the resolution. I therefore conclude that Iraq’s Admitted Claims are entitled to immunity from execution by virtue of section 13(2)(b) of the 1978 Act.

As mentioned above, the DFI was set up pursuant to Resolution 1483, which was adopted on 22 May 2003. The key parts of this for present purposes are as follows:

“The Security Council

…

Acting under Chapter VII of the Charter of the United Nations,

…

12.

Notes the establishment of a Development Fund for Iraq to be held by the Central Bank of Iraq and to be audited by independent public accountants approved by the International Advisory and Monitoring Board of the Development Fund for Iraq and looks forward to the early meeting of that International Advisory and Monitoring Board, whose members shall include duly qualified representatives of the Secretary-General, of the Managing Director of the International Monetary Fund, of the Director-General of the Arab Fund for Social and Economic Development, and of the President of the World Bank;

13.

Notes further that the funds in the Development Fund for Iraq shall be disbursed at the direction of the Authority, in consultation with the Iraqi interim administration, for the purposes set out in paragraph 14 below;

14.

Underlines that the Development Fund for Iraq shall be used in a transparent manner to meet the humanitarian needs of the Iraqi people, for the economic reconstruction and repair of Iraq’s infrastructure, for the continued disarmament of Iraq, and for the costs of Iraqi civilian administration, and for other purposes benefiting the people of Iraq;

15.

Calls upon the international financial institutions to assist the people of Iraq in the reconstruction and development of their economy and to facilitate assistance by the broader donor community, and welcomes the readiness of creditors, including those of the Paris Club, to seek a solution to Iraq’s sovereign debt problems;

…

20.

Decides that all export sales of petroleum, petroleum products, and natural gas from Iraq following the date of the adoption of this resolution shall be made consistent with prevailing international market best practices, to be audited by independent public accountants reporting to the International Advisory and Monitoring Board referred to in paragraph 12 above in order to ensure transparency, and decides further that, except as provided in paragraph 21 below, all proceeds from such sales shall be deposited into the Development Fund for Iraq until such time as an internationally recognized, representative government of Iraq is properly constituted;

…

22.

Noting the relevance of the establishment of an internationally recognized, representative government of Iraq and the desirability of prompt completion of the restructuring of Iraq’s debt as referred to in paragraph 15 above, further decides that, until December 31, 2007, unless the Council decides otherwise, petroleum, petroleum products, and natural gas originating in Iraq shall be immune, until title passes to the initial purchaser from legal proceedings against them and not be subject to any form of attachment, garnishment, or execution, and that all States shall take any steps that may be necessary under their respective domestic legal systems to assure this protection, and that proceeds and obligations arising from sales thereof, as well as the Development Fund for Iraq, shall enjoy privileges and immunities equivalent to those enjoyed by the United Nations except that the abovementioned privileges and immunities will not apply with respect to any legal proceeding in which recourse to such proceeds or obligations is necessary to satisfy liability for damages assessed in connection with an ecological accident, including an oil spill, that occurs after the date of adoption of this resolution;

23.

Decides that all Member States in which there are:

(a)

funds or other financial assets or economic resources of the previous Government of Iraq or its state bodies, corporations, or agencies, located outside Iraq as of the date of this resolution, or

(b)

funds or other financial assets or economic resources that have been removed from Iraq, or acquired, by Saddam Hussein or other senior officials of the former Iraqi regime and their immediate family members, including entities owned or controlled, directly or indirectly, by them or by persons acting on their behalf or at their direction,

shall freeze without delay those funds or other financial assets or economic resources and, unless these funds or other financial assets or economic resources are themselves the subject of a prior judicial, administrative, or arbitral lien or judgement, immediately shall cause their transfer to the Development Fund for Iraq, it being understood that, unless otherwise addressed, claims made by private individuals or non-government entities on those transferred funds or other financial assets may be presented to the internationally recognized, representative government of Iraq; and decides further that all such funds or other financial assets or economic resources shall enjoy the same privileges, immunities, and protections as provided under paragraph 22;

…”

The relevant parts of Resolution 1483 have been extended by a number of subsequent Security Council resolutions, but the only one of these which I consider it is necessary to refer to for the purposes of this judgment is Security Council Resolution 1546 adopted on 8 June 2004. This includes the following:

“The Security Council

…

Recognizing the benefits to Iraq of the immunities and privileges enjoyed by Iraqi oil revenues and by the Development Fund for Iraq, and noting the importance of providing for continued disbursements of this fund by the Interim Government of Iraq and its successors upon dissolution of the Coalition Provisional Authority,

…

Acting under Chapter VII of the Charter of the United Nations,

…

24.

Notes that, upon dissolution of the Coalition Provisional Authority, the funds in the Development Fund for Iraq shall be disbursed solely at the direction of the Government of Iraq, and decides that the Development Fund for Iraq shall be utilized in a transparent and equitable manner and through the Iraqi budget including to satisfy outstanding obligations against the Development Fund for Iraq, that the arrangements for the depositing of proceeds from export sales of petroleum, petroleum products, and natural gas established in paragraph 20 of resolution 2483 (2003) shall continue to apply, that the International Advisory and Monitoring Board shall continue its activities monitoring the Development Fund for Iraq …”

The Coalition Provisional Authority was dissolved with effect from 30 June 2004, and power transferred to the Iraqi Interim Government, by Coalition Provisional Authority Order Number 100 dated 28 June 2004. Accordingly, since then funds in the DFI have been disbursed at the sole direction of Iraq, albeit subject to the restrictions contained in Resolution 1483 and its successors, including the oversight of the International Advisory and Monitoring Board. Prior to disbursement the funds are held in accounts at the Federal Reserve Bank of New York in the name of the Central Bank/the DFI.

Resolution 1483 was given effect in the United Kingdom by inter alia the 2003 Order, which was bmade under section 1 of the United Nations Act 1946. Article 4 of the 2003 Order defines “Development Fund for Iraq” as meaning “the Development Fund for Iraq referred to in resolution 1483 of the Security Council of the United Nations adopted on 22^nd May 2003”. Article 9 provides as follows:

“(1)

Except as provided in paragraph (2), the Development Fund for Iraq, its property and assets wherever located and by whomsoever held (including any rights or obligations owned by or to the Development Fund for Iraq), shall have the like privileges and immunities as the United Nations under Part II of the United Nations and International Court of Justice (Privileges and Immunities) Order 1974.

(2)

The Development Fund for Iraq shall not have immunity from suit and legal process concerning liability for damages in connection with an ecological accident, including an oil spill, which occurs after 22nd May 2003.”

Part II of the United Nations and International Court of Justice (Privileges and Immunities) Order 1974 (SI 1974/1261, “the 1974 Order”) includes the following provisions:

“5.

The United Nations shall have the legal capacities of a body corporate.

6.

Except in so far as in any particular case it has expressly waived its immunity, the United Nations shall have immunity from suit and legal process. No waiver of immunity shall be deemed to extend to any measure of execution.”

Before turning to Iraq’s claim to immunity under article 9(1) of the 2003 Order, it is necessary to address three preliminary points. The first is as to the where the burden of proof lies. As I understand it, it is common ground that the onus is upon Iraq to establish that article 9(1) applies.

The second is whether the DFI has legal personality as a matter of English law. SerVaas contends that it does, while Iraq contends that it does not. Although neither side contends that this point is decisive of the issue on article 9(1), it appears to be common ground that it is relevant to that issue.

It is not clear to me from Resolution 1483 whether, as a matter of public international law, the DFI was intended to have legal personality. Most of the references to it in the resolution are supportive of the reading urged upon me by counsel for Iraq that it is merely a fund i.e. a pot of money. On the other hand, it is clear from paragraph 12 that the DFI has an International Advisory and Monitoring Board with a number of members. This might suggest that the DFI is a body which receives, holds and distributes money. That in turn might suggest that it was intended to have legal personality.

As counsel for Iraq accepted, however, even if the DFI was not intended to have legal personality as a matter of public international law, that would not prevent English legislation from conferring legal personality upon it as a matter of English law. In my judgment the effect of Article 9(1) of the 2003 Order read with Article 5 of the 1974 Order is to confer upon it the same privilege as the United Nations, namely the legal capacities of a body corporate, as a matter of English law.

The third preliminary point is as to the nature of the interpretative obligation on the Court which arises out of the fact that the 2003 Order, in particular Article 9, is intended to give effect to Resolution 1483, in particular paragraph 22. Counsel for SerVaas submitted that the Court should apply the ordinary rule of statutory construction that domestic legislation which has been enacted in order to give effect to the UK’s obligations under an international convention or treaty should be construed in the same sense as the convention or treaty if the words of the statute are reasonably capable of bearing that meaning: The Jade [1976] 1 WLR 430 at 436 (Lord Diplock). Counsel for Iraq submitted that the Court was subject to a strong duty of interpretation requiring it to construe the 2003 Order so far as is possible in conformity with, and to achieve the result intended by, Resolution 1483, that is to say, a duty akin to that imposed by section 3 of Human Rights Act 1998 or by the decision of the Court of Justice of the European Union in Case C-106/89 Marleasing SA v La Comercial Internacional de Alimentación SA [1990] ECR I-4135. Counsel for Iraq cited no authority in support of this submission, however, nor did he identify any juridical reason why such a duty should apply in the present circumstances. Accordingly, I consider that the correct approach is that submitted by counsel for SerVaas.

Turning to Iraq’s claim for immunity, counsel for Iraq argued as follows:

Counsel for SerVaas argued as follows:

In my judgment SerVaas has at least a real prospect of defeating the claim to immunity under article 9(1) of 2003 Order for the reasons given by counsel for SerVaas. Indeed, I would go further. On the basis of the evidence and arguments before me, I would be inclined to hold that Iraq is not entitled to immunity on this basis. As a matter of English law, the DFI has the legal capacities of a body corporate. It is therefore separate from Iraq. Article 9(1) confers immunity on the DFI, its property and assets. But the Admitted Claims are the property of Iraq, and not of the DFI. It is true that article 9(1) says “by whomsoever held”, but that refers to property or assets owned by the DFI, but held by others. It may in some circumstances be proper to conclude that property or assets held by a third party are owned by the DFI. For example, the DFI may own gold bullion which is in the possession of a bank. In the present case, however, no sufficient basis for that conclusion has been identified by Iraq. In my view, it is not enough that the assets were purchased with DFI money. (In any event, I am not satisfied that Iraq has established to the summary judgment standard that the interest on the bonds is always paid with DFI money.) Nor is it enough that Iraq has directed the Administrators to pay the distributions to the DFI. Nor is it enough that Resolution 1483 places limits on what Iraq can do with DFI funds.

For the reasons given above, I conclude that:

It follows from conclusion (i) that SerVaas’ application for the TPDO must be dismissed. I will hear further argument as to what should happen with regard to the Injunctions in the light of these conclusions.