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what is the true construction of the expression “property which is for the time being in use or intended for use for commercial purposes” in section 13(4) of the State Immunity Act 1978 (“the Act”).

Map of Iraq, where Yahya ibn Umar conducted hi...

Map of Iraq, where Yahya ibn Umar conducted his revolt (Photo credit: Wikipedia)

Trinity Term
[2012] UKSC 40
On appeal from: [2011] ECWA Civ 1256

JUDGMENT
SerVaas Incorporated (Appellant) v Rafidian Bank
and others (Respondents)
before
Lord Phillips, President
Lady Hale
Lord Clarke
Lord Sumption
Lord Reed
JUDGMENT GIVEN ON
17 August 2012
Heard on 28 and 29 May 2012Appellant Respondent
Martin Pascoe QC Mark Howard QC
Richard Fisher
Charlotte Cooke
Oliver Jones
Robert McCorquodale
(Instructed by
Addleshaw Goddard
LLP)
(Instructed by Cleary
Gottlieb Steen &
Hamilton) Page 2
LORD CLARKE (WITH WHOM LORD PHILLIPS, LADY HALE, LORD
SUMPTION AND LORD REED AGREE)
Introduction
1. The question in this appeal is what is the true construction of the expression
“property which is for the time being in use or intended for use for commercial
purposes” in section 13(4) of the State Immunity Act 1978 (“the Act”).
The facts
2. On 9 September 1988 the appellant (“SerVaas”), which is a company
incorporated in Indiana, entered into an agreement (“the Agreement”) with the
Iraqi Ministry of Industry (“the Ministry”) for the supply of equipment, machinery
and related services required for the commissioning of a state owned copper and
brass processing factory in Iraq. On 2 August 1990 Iraq invaded Kuwait and on 4
August 1990 the assets of Rafidain Bank (“Rafidain”) in the United Kingdom were
frozen in accordance with the United Nations (“UN”) sanctions regime established
under UN Security Council Resolution 661. On 13 August 1990 SerVaas
terminated the Agreement and on 25 January 1991 it commenced proceedings in
the Paris Commercial Court against the Ministry in order to recover money due to
it under the Agreement. On 21 February 1991 provisional liquidators (“the
Provisional Liquidators”) were appointed in respect of Rafidain on a winding up
petition presented by the Bank of England.
3. On 16 April 1991 the Paris Commercial Court gave judgment in default in
favour of SerVaas in the sum of US$14,152,800 (“the Judgment”) in respect of
money due under the Agreement. On 10 July 1991 the Judgment was recognised in
the Netherlands and shortly thereafter SerVaas recovered US$966,515 by partial
enforcement of the Judgment in the Netherlands against Iraq’s assets. On 1
October 1991 the judgment was recognised in Germany and on 2 April 1992
Mummery J ordered that the provisional liquidation be limited to those assets of
Rafidain situated in England and Wales. On 4 June 1996 the Bank of England’s
petition was adjourned generally. In July 2002 SerVaas received US$6,736,285
from the UN Claims Commission by way of compensation for losses caused by
Iraq as a result of the invasion of Kuwait.
4. In May 2003 the regime of Saddam Hussein in Iraq fell. On 22 May 2003
the Security Council passed Resolution 1483 which established the Development Page 3
Fund for Iraq (“DFI”). On 28 July 2003 Lewison J made an order permitting the
Provisional Liquidators to collect the assets of Rafidain’s London Branch and to
agree claims against Rafidain. On 21 November 2004 Iraq made a debt
cancellation agreement with government creditors comprising the Paris Club. In
December 2004 Iraq began a process of debt restructuring with its commercial
creditors and the creditors of other specified Iraqi entities, including Rafidain,
under the auspices of the Iraq Debt Reconciliation Office (“the IDRO Scheme”).
On 26 July 2005 Iraq announced an offer to repurchase claims from the
commercial creditors of specified Iraqi debtors, including Rafidain, where claims
arose before 6 August 1990. In May 2006 Iraq issued an invitation to tender claims
for cash purchase and for exchange. Thereafter Iraq took assignments of certain
debts owed to Rafidain’s creditors by Rafidain in accordance with the IDRO
Scheme. As was its right, SerVaas did not register an interest in and has chosen not
to participate in the IDRO Scheme.
5. On 3 April 2008 Henderson J sanctioned a scheme of arrangement for the
distribution of assets held by the Provisional Liquidators to Rafidain’s creditors
(“the Scheme”). By 18 August 2009 Iraq had submitted claims in the Scheme
which were admitted in the sum of US$253.8 million (“the Admitted Claims”).
The original commercial debts constituting the Admitted Claims were acquired by
Iraq by way of assignment from existing creditors of Rafidain. On 4 November
2009 SerVaas obtained an order registering the Judgment in England and Wales
against the Ministry and Iraq under the Civil Jurisdiction and Judgments Act 1982
(“the Registration Order”). It was served on Iraq on 2 May 2010 and became
enforceable against the Ministry and Iraq in England and Wales on 2 September
2010. On 11 October 2010 Iraq’s US lawyers responded to a request from the
Scheme Administrators by stating that the dividend payment on the Admitted
Claims should be paid to the account in the name of the DFI with the Federal
Reserve Bank in New York. As at 18 November 2010, the debt due in respect of
the Judgment is said to have amounted to US$34,481,200.49, inclusive of interest
and allowable costs.
The proceedings
6. In the meantime on 7 October 2010 Mann J granted an application by
SerVaas lifting the stay on proceedings against Rafidain and enjoining Rafidain,
the Provisional Liquidators and the Scheme Administrators from making any
payment to Iraq under the Scheme in respect of the Admitted Claims or
recognising or giving effect to any assignment or transfer of the Admitted Claims
to a third party which would have the effect of reducing the amount payable to Iraq
to an amount less than the Judgment debt. On 13 October 2010 SerVaas issued an
application for a Third Party Debt Order (“the TPDO Application”) against
Rafidain in relation to the debt payable to Iraq by Rafidain by way of dividend
under the Scheme, seeking an order that Rafidain pay to SerVaas such part of the Page 4
monies otherwise payable to Iraq as was necessary to satisfy the judgment. That
injunction has been variously continued until now. In the meantime on 11
November 2010 Iraq issued an application to discharge the injunction on the
ground that monies due to Iraq by Rafidain were immune from execution by virtue
of section 13(2)(b) of the Act and/or article 9(1) of the Iraq (United Nations
Sanctions) Order 2003 (SI 2003/1519) (“the 2003 Order”).
7. On 30 November 2010 the Chargé d’Affaires and Head of Mission of the
Embassy of Iraq in London signed a certificate (“the Certificate”) in these terms:
“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 has directed the Scheme Administrators, and
intends to continue to so direct the Scheme Administrators, to
transfer any assets or distributions in respect of any Admitted
Scheme Claim of Iraq under the Scheme to the Development Fund
for Iraq.”
8. Following a hearing on 3 December 2010, Arnold J dismissed the TPDO
Application on 14 December 2010 holding that the Admitted Claims were immune
from execution by reason of section 13(2)(b) and (4) of the Act because they were
not property which was for the time being in use or intended for use for
commercial purposes within the meaning of section 13(4). Iraq’s submission that
the provisions of the 2003 Order were engaged was dismissed. Arnold J granted
both sides permission to appeal. On 18 May 2011 the Court of Appeal heard
SerVaas’ appeal on the section 13(2)(b) point, reserved judgment against Arnold
J’s decision and adjourned generally Iraq’s appeal on the 2003 Order point with
liberty to restore. On 3 November 2011, by a majority (Stanley Burnton and
Hooper LJJ, Rix LJ dissenting), the Court of Appeal dismissed SerVaas’ appeal
and refused permission to appeal to this Court, which subsequently granted
permission. The only party other than SerVaas to have taken an active part in the
proceedings to date has been Iraq. Page 5
The issues
9. The issues in this appeal are not concerned with a state’s immunity from
suit, which is governed by section 3 of the Act, but (as stated in the Statement of
Facts and Issues) are solely concerned with the scope of its immunity from
execution of a judgment given against it, which is governed by section 13(2)(b)
and 13(4). Section 13(2)(b) provides, so far as relevant:
“(2) Subject to subsection… (4) below

(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.”
Section 13(4) provides, so far as relevant:
“(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; …”
Section 17, which, like section 13, is in Part I of the Act, provides so far as
relevant that in Part I of the Act:
“‘commercial purposes’ means purposes of such transactions or
activities as are mentioned in section 3(3) above; …”
Section 3(3) defines “commercial transaction” as meaning:
“(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; and
(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…”
Section 13(5) provides: Page 6
“(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.”
10. It is common ground: (a) that the monies payable under the Scheme to Iraq
are a debt and a chose in action and as such that they are “property” within the
meaning of section 13(2)(b) of the Act; (b) that Iraq’s stated intention is to transfer
the proceeds of the Admitted Claims to the DFI; (c) that, by virtue of section
13(5), the Certificate creates a rebuttable presumption that the Admitted Claims
are not in use or intended for use for commercial purposes; (d) that the onus lies on
SerVaas to show a real prospect that it can rebut that presumption; and (e) that the
debts were intended for use for sovereign and not commercial purposes. These
proceedings are summary proceedings, so that, as identified in the Statement of
Facts and Issues, the particular issue to be resolved in the appeal is whether there is
any real prospect of SerVaas rebutting the presumption created by the Certificate
that Iraq’s right to receive payment of dividends from the Scheme in respect of the
Admitted Claims as at 13 October 2010 was property which was not for the time
being in use for commercial purposes within the meaning of section 13(4) of the
Act. The questions for decision are thus whether (a) the Admitted Claims were in
use for the purpose of a transaction or activity in which Iraq engaged otherwise
than in the exercise of its sovereign authority for the purpose of section 3(3)(c) of
the Act; or (b) the Admitted Claims were (to the extent that they were acquired by
Iraq in exchange for bonds) in use for the purpose of a loan or other transaction for
the provision of finance or of any other financial obligation for the purpose of
section 3(3)(b) of the Act.
Discussion
11. It is not in dispute that the judgment which SerVaas seeks to enforce arises
from the Agreement, that it is a commercial contract and that Iraq is liable for the
debts of the Ministry. Nor is it in dispute that, although incorporated in Iraq and
state controlled, Rafidain conducted business as a commercial bank. It was not and
is not Iraq’s central bank. Moreover the Admitted Claims are all claims arising
from commercial transactions between Rafidain and the third parties involved and
are not claims arising from commercial transactions between Rafidain and Iraq.
They are simply debts previously owed by Rafidain to their commercial creditors
which have now been transferred to Iraq. Rafidain, although placed in liquidation
in England in 1991, is not in liquidation elsewhere and continues to trade outside
the jurisdiction of the English court. The Scheme is a mechanism for distributing Page 7
the assets of Rafidain’s London branch to its creditors. The Admitted Claims in
respect of which dividends are, subject to the TPDO application, payable to Iraq
total US$253.8 million. But for the intervention by SerVaas, the US$253.8 million
would have been transferred to the account of DFI in New York within a matter of
days of that intervention in accordance with the instruction of 11 October 2010
referred to above. The dividend rate under the Scheme is 56 per cent, giving rise to
a total dividend payable to Iraq of US$142.1 million.
12. In essence the case for SerVaas is that the nature of the transaction which
gave rise to Rafidain’s liability was entirely commercial. The Admitted Claims and
the right to a dividend contribution are properly described as in use, in order either
to obtain payment or to complete the underlying commercial transactions giving
rise to the claim or alternatively as part of the transaction pursuant to which Iraq
acquired the Admitted Claims, the nature of which was not a sovereign act. There
is an issue between the parties as to whether, as SerVaas say, Iraq bought the debts
in order to make a profit and as part of a commercial venture or whether, as Iraq
says, they were bought in the exercise of sovereign authority as part of a huge
restructuring of debts incurred in the Saddam Hussein era.
13. Arnold J did not resolve that issue. His conclusions were concisely
summarised thus in para 29:
“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.”
14. The majority of the Court of Appeal held that Arnold J was correct to hold
that the origin of the debts was irrelevant. As Stanley Burnton LJ put it at para 32,
the fact that the property, here a debt, arises from a commercial transaction does Page 8
not inform the question whether that property was, at the relevant time, used for a
commercial purpose. As I read his judgment, Stanley Burnton LJ did not express a
view on the question whether the origin of the debts was commercial but held that,
at the relevant time, the debts were not being used at all and that it followed that
SerVaas could not discharge the burden of showing that they were in use for
commercial purposes. At para 39 he expressly approved the conclusions reached
by Arnold J in para 29 of his judgment quoted above. Hooper LJ agreed with
Stanley Burnton LJ but went further. He said at para 60 that in his view the
evidence pointed overwhelmingly against the conclusion that Iraq bought the debts
in order to make a profit. The debts, he said, were bought by Iraq, in the exercise
of its sovereign authority, as part of a huge restructuring of debts incurred in the
Saddam Hussein era. As appears below, it is not necessary to resolve this question
in order to determine this appeal. Rix LJ dissented on the ground that the property
in question, namely the Admitted Claims giving rise to a dividend (not the
dividend itself), was (as he put it at para 83) very arguably for the time being in
use for commercial purposes, so that the issue should be sent for trial.
15. As I see it, the central question in this appeal is whether the nature of the
origin of the debts is relevant to the question whether the property in question was
in use for commercial purposes. In my opinion it is not. This conclusion is based
upon the language of section 13(4). It is also informed by the decision of the
House of Lords in Alcom Ltd v Republic of Columbia [1984] AC 580 (“Alcom”).
In addition we were referred to three decisions at first instance and, in particular, to
a number of decisions of various courts of appeals in the United States and to a
decision of the Court of Appeal in Hong Kong.
16. As to the language of section 13(4), I would accept Mr Howard QC’s
submission on behalf of Iraq that the expression “in use for commercial purposes”
should be given its ordinary and natural meaning having regard to its context. I
would further accept his submission that it would not be an ordinary use of
language to say that a debt arising from a transaction is “in use” for that
transaction. Parliament did not intend a retrospective analysis of all the
circumstances which gave rise to property, but an assessment of the use to which
the state had chosen to put the property.
17. The language of section 13(4) is to be contrasted with other parts of the Act.
It is, for example, to be contrasted with section 3(1), which refers to proceedings
“relating to” a commercial transaction, and section 10, which refers to claims “in
connection with” a ship. In enacting section 13(4), Parliament could have referred
to property that “related to” a commercial transaction, or arose “in connection
with” a commercial transaction as being susceptible to enforcement. It chose not to
do so, which suggests that it intended a difference in meaning. Property will only
be subject to enforcement where it can be established that it is currently “in use or
intended for use” for a commercial transaction. It is not sufficient that the property Page 9
“relates to” or is “connected with” a commercial transaction. I would accept Mr
Howard’s submission that this is consistent with the different treatment of the two
categories of immunity in the Act.
18. I turn to the authorities. In Alcom the House of Lords held that money in a
bank account used to meet the expenditure incurred in the day-to-day running of
Colombia’s diplomatic mission was not within the exception. Lord Diplock (with
whom the other members of the House agreed) said this at pages 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 Page 10
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.”
19. It seemed to me that the whole of that passage merited quoting. However,
the critical point for present purposes is the proposition that the judgment creditor
must show that the bank account was earmarked by the state solely for being
drawn down upon to settle liabilities incurred in commercial transactions. The
essential distinction is between the origin of the funds on the one hand and the use
of them on the other. As Stanley Burnton LJ said in the instant case at para 34, it Page 11
was not suggested by Lord Diplock in Alcom that if the moneys in the bank
account resulted from commercial transactions, that might be relevant to the
question whether the account was used or intended for use for commercial
purposes.
20. We were referred to three English decisions at first instance. They were AIC
Ltd v Federal Government of Nigeria [2003] EWHC 1357 (QB) (Stanley Burnton
J), AIG Capital Partners Inc v Republic of Kazakhstan [2005] EWHC 2239
(Comm), [2006] 1 WLR 1420 (Aikens J) and Orascom Telecom Holding SAE v
Republic of Chad [2008] EWHC 1841 (Comm) (Burton J). They all focus on
present or future use. For example, at para 92(2) of the AIG case Aikens J focused
on whether the debts were “put to use” for the purposes of a commercial
transaction within the meaning of section 3(3) of the Act.
21. I note in passing that in the AIC case Stanley Burnton J noted at para 56,
after referring to Alcom, that 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. The focus is throughout on actual use. In para
58 he noted that there was evidence that the relevant bank account had been
dormant and said that, if an account was dormant for at least 18 months, it cannot
be said to be presently used for any relevant purpose, and that the previous use was
weak evidence of a present intention as to its use. It was an example of a case, as
he concluded here, where the evidence was insufficient to disprove the statement
in the Certificate.
22. It was suggested on behalf of SerVaas that there is a relevant distinction for
present purposes between the current use of a debt and the current use of a bank
account. For my part, I would not accept that there is such a distinction. In each
case the question is the same, namely whether the relevant property is in use or is
intended for use for commercial purposes.
23. The American cases draw the same distinction between the source of the
property and its use. The immunity of states from execution in the United States is
governed by the Foreign Sovereign Immunities Act 1976 28 USC §§1602-1611
(“the FSIA”), which was a leading precursor of the Act. §1610(a) of the FSIA
provides that, where other specific conditions are satisfied, courts in the United
States may execute against “property in the United States … used for a
commercial activity in the United States”. Page 12
24. There are a number of decisions of courts of appeals in different US states
on the true construction of that provision. The leading case is perhaps Connecticut
Bank of Commerce v Republic of Congo, 309 F 3d 240 (US Court of Appeals, 5th
Cir, Texas, 2002). Connecticut Bank had acquired the rights to a valid London
judgment against the Congo for defaulting on a loan agreement. It obtained a
default judgment in New York in relation to the London judgment debt. The Bank
then sought to attach various debts owed by a group of Texas oil companies to the
Congo. The debts constituted, inter alia, royalty obligations by the oil companies
for activities connected with the exploration for and the sale of the Congo’s oil.
The court held that the debts owed by the oil companies were not “property…used
for a commercial activity” within the meaning of §1610(a).
25. The majority opinion in the 5
th
Circuit Court of Appeals was given by Judge
Garza. He said (at p 251, paras 19-22):
“What matters under the statute is what the property is ‘used for’, not
how it was generated or produced. If property in the United States is
used for a commercial purpose here, that property is subject to
attachment and execution even if it was purchased with tax revenues
or some other noncommercial source of government income.
Conversely, even if a foreign state’s property has been generated by
commercial activity in the United States, that property is not thereby
subject to execution or attachment if it is not ‘used for’ a commercial
activity within our borders. The district court (and the litigants) have
focused on the question of whether the Congo’s joint venture with
the garnishees, which gave rise to the royalty and tax obligations that
the Bank want to garnish, was a ‘commercial activity in the United
States’. This was the wrong question to consider. What matters under
the statute is not how the Congo made its money, but how it spends
it. The amenability of these royalties and taxes to garnishment
depends on what they are ‘used for’, not on how they were raised.”
Judge Garza added (at p 254, paras 36 and 37-39):
“The phrase ‘used for’ in §1610(a) is not a mere syntactical infelicity
that permits courts to look beyond the ‘use’ of property, and instead
try to find any kind of nexus or connection to a commercial activity
in the United States. The statute means what it says: property of a
foreign sovereign…may be executed against only if it is ‘used for’ a
commercial activity. That the property is revenue from or otherwise
generated by commercial activity in the United States does not
thereby render the property amenable to execution. Page 13

To use property for a commercial activity, within the ordinary
meaning of ‘use’, would be to put the property in the service of the
commercial activity, to carry out the activity by means of the
property. Here, the royalty obligations in question represent the
revenue, the income, from an allegedly commercial activity. In
ordinary usage, we would not say that the revenue from a transaction
is ‘used for’ that transaction.”
Finally, Judge Garza referred to the Act (at p 256, para 42). He noted the
distinction in the Act between the jurisdictional immunity in section 3(1), which
provides that a state is not immune as respects proceedings “relating to” a
commercial transaction and section 13(4), which, as he put it, makes explicit that
the mere relationship to a commercial activity does not suffice to permit execution,
the property must “for the time being” be “in use or intended for use for a
commercial purpose”. He concluded that the Act parallels the FSIA on the footing
that:
“it allows jurisdiction based on mere relationship to a commercial
activity, but very clearly permits execution only depending on the
‘use’ of the property.”
26. The distinction can clearly be seen from the different view of Judge Dennis,
who dissented on this part of the case. He said (at p 264):
“Because the Texas oil companies’ obligation to pay royalties to the
Congo were necessary and integral to, and therefore used for, the
joint venture commercial activity conducted, in substantial part in the
United States, by the Congo and the other parties to the joint venture,
those royalty obligations fell within the exceptions to immunity from
execution provided for by FSIA § 1610(a)(1).”
At page 254 (paras 37-39) Judge Garza, for the majority, rejected that sentence as
a non sequitur for this reason:
“The phrase ‘used for’ on its face denotes something different and
more specific than the phrases ‘integral to’ or ‘necessary to’. It also
denotes something distinct (and narrower) than the other phrases the
Bank uses in its petition, such as ‘related to’ or ‘contemplated by.’” Page 14
27. The Connecticut Bank case has been followed in a number of cases in the
United States. In Af-Cap Inc v Republic of Congo 475 F3d 1080 (US Court of
Appeals 9
th
Circuit, California 2007) the Court of Appeals rejected a submission
that the court should determine whether property was “used” for commercial
activity “by examining the entire underlying activity that generated the property in
question”. In doing so it adopted the reasoning in the Connecticut Bank case,
contrasting the language “used for” with the language “related to” or “connected
with” in other parts of the FSIA. A differently constituted 9
th
Circuit Court of
Appeals also adopted the same reasoning in 2007 in Ministry of Defense and
Support for the Armed Forces of the Islamic Republic of Iran v Cubic Defense
Systems Inc 495 F3d 1024, 2007. The case had similarities with the instant case.
The Court said at pp 1036-1037 (para 6):
“To satisfy § 1610(a), MOD must have used the Cubic judgment for
a commercial activity in the United States, and this it has not done.
We have recently stated that ‘property is ‘used for a commercial
activity in the United States’ when it is put into action, put into
service, availed or employed for a commercial activity, not in
connection with a commercial activity or in relation to a commercial
activity.’ Af-Cap Inc, 475 F3d at 1091 (emphasis in original).
Cautioning that ‘FSIA does not contemplate a strained analysis of
the words ‘used for’ and ‘commercial activity,’’ we instructed courts
to ‘consider[ ] the use of the property in question in a straightforward
manner.’ Id. The Ministry has not used the Cubic judgment as
security on a loan, as payment for goods, or in any other commercial
activity. Instead, Iran intends to send the proceeds back to Iran for
assimilation into MOD’s general budget. Because repatriation into a
ministry’s budget does not constitute commercial activity, we hold
that the Cubic judgment is not subject to attachment under §
1610(a).”
See also EM Ltd v Republic of Argentina 473 F3d 463 (2
nd
Circuit, 2007) at p 484
(para 5), where NML was also a claimant.
28. Those decisions are strong persuasive authority and, given the close
relationship between the language in section 13(4) of the Act and § 1610(a) of the
FSIA, seem to me to support the meaning of the expression “property which is for
the time being in use or intended for use for commercial purposes” in section 13(4)
identified in para 17 above.
29. Similar support is to be found in the decision of the majority on this point in
the Court of Appeal in Hong Kong in FG Hemisphere Associates LLC v
Democratic Republic of Congo [2010] HKCA 19. See in particular per Yuen JA at Page 15
para 277 and Stock VP at para 179, where they held that at common law, applying
the restrictive principle of immunity from execution, the question was whether the
property was to be put to use for a private or commercial purpose. Although an
appeal to the Court of Final Appeal succeeded on the basis that the Congo was
entitled to absolute immunity, the reasoning of the majority of the Court of Appeal
was not challenged and remains persuasive authority in cases where the restrictive
principle of immunity from execution apples.
30. On the facts of the instant case SerVaas cannot show that the Admitted
Claims were property in use for a commercial purpose. It does not say that Iraq
intended or intends to draw them down for commercial purposes. On the contrary,
it accepts that they were intended to be used for sovereign purposes. By section
13(5) of the Act, the burden is on SerVaas to prove that the Certificate that the
property is not in use for commercial purposes is not correct. It cannot do so unless
it can show that it is entitled to rely upon the source of the Admitted Claims and
can show that the source is sovereign and not commercial. For the reasons I have
given, I would hold that the source of the Admitted Claims is irrelevant. It follows
that it is not necessary to express a view upon the question whether the source is
sovereign or commercial.
31. In short, SerVaas cannot show that the debt is or was earmarked (or in use)
for being drawn down upon in order to satisfy commercial liabilities. In para 75
Rix LJ said this:
“…it is difficult to see that the property in question, the admitted
claim, has no current use. It is in use in order to secure the scheme
dividend. Of course, the dividend, when secured, might be put to any
of the uses to which money funds might be put, either by being
expended or by being invested. For the present, however, until the
dividend is paid, the claim’s obvious use and purpose, I would have
thought, was to be the means by which the claim’s owner, Iraq, seeks
to secure its value by way of a dividend in the scheme of
arrangement. That is what the commercial debt was bought for in the
first place, and, until the scheme of arrangement (or, in its absence, a
liquidation) has been brought to fruition, the owner holds the debt for
the purpose of seeking payment of its claim. For these purposes, Iraq
is just like the holder of any commercial debt. As purchaser of the
debt, it merely stands in the shoes of the merchants and other
commercial parties who were the original owners of the debt in
question. If those parties were still holders of the debt, it would not
be said that they held it for no current purpose. It seems to me to be
at least highly arguable that Iraq is in the same position. On this
basis, the linchpin of Iraq’s argument fails.” Page 16
32. For my part, I would not accept that analysis. It elides the historical origins
of the Admitted Claims with their current and future use. The determinative
feature, in my view, is the absence of any current or future commercial activity on
the part of the state of Iraq. It is common ground that any dividends received from
the administrators of Rafidain Bank will be paid to and used by the DFI, which is
manifestly not a commercial purpose. The Admitted Claims are simply the means
to the end of the dividends. They are nothing more than a legal mechanism by
which Iraq’s entitlement to receive dividend payments is secured and given effect
to. In these circumstances, it is artificial and highly technical to seek to distinguish
the Admitted Claims from the dividends that they secure. Neither is connected to,
or destined for use in, any mercantile or profit-making activity by Iraq. It follows
that neither can sensibly be described as “for the time being in use or intended for
use for commercial purposes”.
33. It was suggested on behalf of SerVaas that, even if it cannot succeed in
relation to the entirety of the Admitted Claims, in so far as the Claims were
acquired with bonds, they were in use for a commercial transaction within section
3(3)(b) of the Act, namely a “transaction for the provision of finance”. The Court
of Appeal unanimously rejected this part of SerVaas’ submissions. As Rix LJ put it
at para 81, it was mere background. Assuming the expression “in use or intended
for use” in section 13(4) is given the meaning discussed above, I cannot see any
basis for reaching a different conclusion in respect of the Admitted Claims
acquired with bonds.
CONCLUSION
34. For these reasons, which are essentially those given by Arnold J and
Stanley Burnton LJ, I would dismiss the appeal.

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