Supreme Court rules on State immunity from enforcement

20/08/12

On Friday 17 August the Supreme Court gave judgment in SerVaas Incorporated v Rafidain Bank & Republic of Iraq & Ors [2012] UKSC 40. The decision is the first time that the Court has considered the question of State immunity from enforcement since the decision of the House of Lords in Alcom Ltd v Republic of Columbia [1984] AC 580.

The case concerned an attempt by SerVaas to obtain a Third Party Debt Order in relation to certain claims by Iraq in the scheme of arrangement of the London branch of Rafidain Bank (an Iraqi state owned bank). Iraq had obtained an assignment of its claims in the scheme from commercial creditors of Rafidain as part of Iraq's sovereign debt restructuring programme. SerVaas contended that because the debts had arisen from commercial transactions, they were (until paid) in use for commercial purposes and therefore within the exception to State immunity from enforcement in s. 13(2) of the State Immunity Act 1978.

Lord Clarke (with whom Lord Phillips, Lady Hale, Lord Sumption and Lord Reed agreed) upheld the immunity of Iraq's claims. Servaas' approach, the Court held, wrongful conflated the origin of a debt with its current or intended use. The correct approach to determining whether any debt was in use for commercial purposes is the same as that outlined in by Lord Diplock in Alcom in respect of bank accounts, namely, whether it can be said that the debt is earmarked solely for being drawn upon to meet commercial liabilities. Lord Clarke observed that it was artificial and highly technical to seek to distinguish the use of the debts themselves from the use of the proceeds of those debts.

The judgment is here.