Servaas Incorporated (Appellant/Cross-Respondent) v (1) Rafidain Bank (2) Michael David Gercke and Others (Interested Party/Respondent/Cross-Appellant)
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE ARNOLD |
| Judgment Date | 14 December 2010 |
| Neutral Citation | [2010] EWHC 3287 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 2130 of 1991 |
| Date | 14 December 2010 |
[2010] EWHC 3287 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Before: the Hon Mr Justice Arnold
Case No: 2130 of 1991
Martin Pascoe QC and Richard Fisher (instructed by Addleshaw Goddard LLP) for the Applicant
Mark Howard QC and Oliver Jones (instructed by Cleary Gottlieb Hamilton & Steen LLP) for the Interested Party
Hearing date: 3 December 2010
Approved Judgment
MR. JUSTICE ARNOLD:
Introduction
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.
Factual background
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:
i) A Scheme Claim is, in broad terms, a Liability of Rafidain if the circumstances giving rise to it occurred before or on the Record Date (21 February 1991).
ii) The PLs will make payments as paying agents of Rafidain in accordance with the directions of the Administrators.
iii) The right of any Scheme Creditor is to receive a Distribution in respect of an Admitted Scheme Claim. Scheme Creditors accept their rights under the Scheme in lieu of any entitlement against Scheme Assets.
iv) The Administrators are entitled to make Distributions on such dates and in such amounts as they consider appropriate wherever there are sufficient funds available for the purpose.
v) The Scheme will continue, and the PLs will remain in office, until all Scheme Assets have been distributed to Scheme Creditors.
vi) Thereafter the PLs will vacate office and apply for their release.
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.
SerVaas' applications
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:
i) A TPDO can be made in respect of monies payable by Rafidain (as a third party) and owing to Iraq because the debt is owed by a branch of Rafidain in London, and will be discharged under English law (being its governing law) by the making of the TPDO.
ii) A TPDO can be made in respect of a debt payable in the future (i.e. a dividend to be paid by Rafidain under the Scheme) even if not currently due. Such a debt is a debt “due or accruing due” to the judgment debtor by the third party.
iii) Under the Scheme, Rafidain is the debtor of Iraq, and the Administrators are distributing as Rafidain's paying agent. It is the debt due from Rafidain under the Scheme which is the asset of Iraq that the TPDO would operate against.
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.
The NML case
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...
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