Servaas Incorporated (Appellant/Cross-Respondent) v (1) Rafidain Bank (2) Michael David Gercke and Others (Interested Party/Respondent/Cross-Appellant)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Stanley Burnton,Lord Justice Hooper,Lord Justice Rix |
| Judgment Date | 03 November 2011 |
| Neutral Citation | [2011] EWCA Civ 1256 |
| Docket Number | Case No: A2/2011/0013 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 November 2011 |
[2011] EWCA Civ 1256
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
MR JUSTICE ARNOLD
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Rix
Lord Justice Hooper
and
Lord Justice Stanley Burnton
Case No: A2/2011/0013
Mr Martin Pascoe QC & Mr Richard Fisher (instructed by Addleshaw Goddard LLP, London) for the Appellant
Mr Mark Howard QC & Mr Oliver Jones (instructed by Cleary Gottlieb Steen and Hamilton LLP, London) for the Interested Party/Respondent/Cross-Appellant
Hearing date : 18 May 2011
Introduction
SerVaas Inc ("SerVaas") is the judgment creditor of the Republic of Iraq ("Iraq"). It seeks to execute against moneys due to the Republic of Iraq ("Iraq") under the scheme of arrangement relating to Rafidain Bank. Arnold J held that those moneys are immune from execution by reason of section 13 of the State Immunity Act 1978 ("the SIA"). SerVaas appeals against that decision. The judge also held that, if those moneys are not immune from execution under the SIA, SerVaas has a real prospect of defeating Iraq's claim that they are immune from execution by virtue of article 9(1) of the Iraq (United Nations Sanctions) Order 2003 (SI 1519/2003, "the 2003 Order"). Iraq has appealed against that finding.
On 18 May 2011 we heard SerVaas's appeal. Time did not permit the Court to hear Iraq's appeal, which in any event is contingent on SerVaas succeeding in its appeal. We therefore agreed to give judgment on SerVaas's appeal, since only if it succeeded would it be necessary to hear Iraq's appeal. This is my judgment on SerVaas's appeal.
The facts and the proceedings
I can take the facts from Arnold J's judgment.
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. SerVaas terminated the contract and 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 in July 2002. Apart from those payments, the Judgment remains unsatisfied. As at 18 November 2010, the amount outstanding (including interest and costs) was 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 the Ministry and Iraq ("the Order"). The Order was served on Iraq on 2 May 2010, and can now be enforced against Iraq in this country. For the purposes of these proceedings it is unnecessary to distinguish between the Ministry and Iraq, and I shall simply refer to Iraq.
Rafidain Bank was a state-controlled Iraqi bank which maintained a branch in (among other places) London. It carried on business as a commercial bank. It 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. On 3 April 2008, Henderson J sanctioned a scheme of arrangement proposed by the provisional liquidators of Rafidain ("the Scheme"). The Second to Fourth Respondents are also the administrators of the Scheme ("the Administrators").
The terms of the Scheme provide that:
(1) 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).
(2) The provisional liquidators will make payments as paying agents of Rafidain in accordance with the directions of the Administrators.
(3) 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.
(4) The Administrators are entitled to make Distributions on such dates and in such amounts as they consider appropriate whenever there are sufficient funds available for the purpose.
(5) The Scheme will continue, and the provisional liquidators will remain in office, until all Scheme Assets have been distributed to Scheme Creditors.
(6) Thereafter the provisional liquidators will vacate office and apply for their release.
Iraq submitted claims in the Scheme. Its 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 paid approximately 10.25% on claims which it acquired.
The debts which constituted the Admitted Claims were purchased either using moneys from the Development Fund for Iraq ("the DFI") or, in two cases, by means of Iraqi bonds. They were part of a process for dealing with liabilities of Iraq incurred under the Saddam regime. The DFI was set up pursuant to United Nations Security Council Resolution 1483 ("Resolution 1483"), to which I refer 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, but according to the Financial Statements of the DFI for 2009 3 coupon payments of US$80,898 each were paid out of the Ministry of Finance's bank account held at the Central Bank of Iraq. 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. On 9 September 2010 the Administrators sent to the US lawyers acting for Iraq by email a request for "Information required to enable distribution to be paid". It asked for the details of the bank account to which the moneys were to be paid.
On 29 September 2010, SerVaas applied to the Companies Court for an order lifting the stay on proceedings against Rafidain under section 130(2) of the Insolvency Act 1986 and an order restraining the provisional liquidators and the Administrators from making any payment under the Scheme to Iraq. On 7 October 2010 Mann J made the order sought by SerVaas, but subject to SerVaas issuing its proposed application for a Third Party Debt Order ("TDPO")
On 11 October 2010, Iraq's US lawyers responded to the email of 9 September 2010, stating that payment should be made to the account in the name of the DFI with the Federal Reserve Bank of New York.
On 13 October 2010 SerVaas, as judgment creditor, issued an application for a TPDO relating to "the debt owed by [Rafidain] to the Judgment Debtors", i.e. to the Ministry and Iraq. In addition, the injunction restraining the provisional liquidators and Administrators from making any payment to Iraq or the Ministry was continued pending further order.
On 11 November 2010, Iraq and the Ministry issued an application to set aside the injunction on the ground that the moneys due to them were immune from execution because they were not used or intended for use for commercial purposes.
On 30 November 2010, the Chargé d'Affaires of the Embassy of Iraq in London and Head of Mission of Iraq signed a certificate that:
"1. The Admitted Scheme Claims of Iraq under the Scheme [of arrangement in respect of Rafidain] have never been used, are not in use, and are not intended for use, by or on behalf of the State of Iraq for any commercial purpose.
2. Any assets or distributions received in respect of any Admitted Scheme Claim of Iraq under the Scheme are not intended for use by or on behalf of the State of Iraq for any commercial purpose.
3. The State of Iraq had directed the Scheme Administrators, and intends to continue to so direct the Scheme Administrators, to transfer any assets or distributions in respect of the Admitted Scheme Claims of Iraq under the Scheme to the Development Fund for Iraq."
Iraq's Admitted Scheme Claims are all the moneys payable to Iraq under the Scheme, i.e., the moneys that SerVaas seeks to have paid to it by the TPDO for which it has applied.
Arnold J had before him Iraq's application to discharge the injunction on the ground that the property in question was immune from execution and SerVaas's applications for the continuation of the injunction and for a TPDO requiring payment to it of the moneys owing by Rafidain to Iraq.
The DFI
For the purposes of this appeal, it is unnecessary to discuss in any detail the status of the DFI. Its purpose can be seen from some of the paragraphs of United Nations Security Council Resolution 1483 of 22 May 2003 set out in Arnold J's judgment:
"The Security Council
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Acting under Chapter VII of the Charter of the United Nations,
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