High Court upholds Iraqi state immunity

15/12/10

In SerVaas Incorporated v Rafidain Bank & Republic of Iraq & Ors [2010] EWHC 3287 (Ch) Arnold J has held that the Republic of Iraq's right to a distribution under the scheme of arrangement of Rafidain Bank is immune from execution under s 13 of the State Immunity Act 1978.

Following the fall of Saddam Hussein's regime in 2003, the United Nations directed that Iraqi assets worldwide, along with the vast majority of Iraqi oil revenues, be transferred to the "Development Fund for Iraq". That fund was then to be distributed, under the auspices of the United Nations, for the benefit of the Iraqi people. The United Nations further directed that the fund be afforded certain immunities, and those immunities were incorporated into English law in the Iraq (United Nations Sanctions) Order 2003.  

Concurrently, Iraq began to restructure the massive amounts of sovereign debt accumulated during the Saddam regime. As part of that process, Iraq acquired (using funds from the DFI and issuing Iraqi bonds) a variety of claims held by commercial creditors against Rafidain Bank, an Iraqi state owned entity with a branch in London. The London branch of Rafidain Bank has been in provisional liquidation since 1991 and a scheme of arrangement was sanctioned in 2008. The administrators of Rafidain bank have now indicated that they anticipate making a distribution to Iraq under the scheme by the end of the year and Iraq has directed that any such dividend be paid direct to the DFI.

In 1991 SerVaas had obtained a default judgment against the Iraqi Ministry of Industry in the Commercial Court in Paris, and in 2009 it registered that judgment in England and Wales against both the Ministry of Industry and the Republic of Iraq itself. SerVaas then issued an application for a Third Party Debt Order ("TPDO") in relation to Iraq's claims under the Rafidain scheme, and obtained an injunction preventing the scheme administrators from making any distribution to Iraq.

Iraq contended that the TPDO application should be summarily dismissed because (1) Iraq's claims under the scheme were immune from execution under s 13 of the State Immunity Act 1978; and (2) furthermore, Iraq's claims formed part of the DFI.

Arnold J dismissed the application for the TPDO. Iraq's claims in the scheme were held for sovereign purposes and were therefore immune from execution under s 13 of the State Immunity Act 1978. However despite accepting that Iraq's claims were acquired with DFI money and that any distribution under the scheme would be paid directly to the DFI, Arnold J held that there was a serious issue as to whether Iraq's claims in the scheme formed part of the DFI.

The judgment is here.