The case concerns debts owing from a foreign sovereign state and whether assets subject to a Third Party Debt Order (“TPDO”) in the UK are immune to execution by virtue of the State Immunity Act 1978.


SerVaas Incorporated is a judgment creditor of the Republic of Iraq.  Rafidain Bank, the first respondent, was a state-controlled Iraqi bank which maintained a branch in London and is in provisional liquidation. On 3 April 2008, a scheme of arrangement, sanctioned by the High Court, was set up in relation to the first respondent under which claims could be made in respect of monies owed by the first respondent. Iraq submitted claims of $253.8 million which it said were owed to it by the first respondent. 

The appellant is seeking to intercept the monies due to Iraq under the scheme. Iraq contends that the assets in question are immune to any such interception pursuant to the 1978 Act.

The 1978 Act

S 1 of the Act provides a foreign state with general immunity from the jurisdiction of the UK courts.

S 13(2)(b) provides that the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award. This will not apply, however, where the process is in respect of property which “is for the time being in use or intended for use for commercial purposes” (s 13(4)). The Act defines the term ‘commercial purposes’ as meaning any contract for the supply of goods or services, 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 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.

High Court decision

At first instance, the appellant applied for a TPDO relating to the debt owed to Iraq in addition to the continuation of an injunction restraining the liquidators and administrators from making any payment to Iraq.  Iraq sought to set aside the injunction on the ground that the TPDO should be summarily dismissed because the assets in question were immune from execution pursuant to s 13(2)(b) of the Act.

Arnold J held that the certificate signed by the Chargé D’Affairs of the Embassy of Iraq in London, which stated that Iraq’s claims were not in use nor intended for use for any commercial purposes, must be accepted as sufficient evidence pursuant to s 13(5) of the Act, unless proved otherwise by the appellant.

It was held that the appellant had no real prospect of successfully rebutting the presumption created by the Certificate.  As such, the moneys due to Iraq were immune from execution pursuant to s 13(2)(b).  The injunction was upheld, pending a further hearing before the Court of Appeal.

Court of Appeal decision

On 18 May 2011, the appellant appealed, contending that the origin of the debt was commercial (as Iraq had acquired the debts in order to make a profit) and thus were not immune under s 13(2)(b).

Stanley Burton LJ upheld Arnold J’s decision that the monies represented by the debt were not, at the time of the TPDO application, being used for commercial purposes and were intended to be paid to the Development Fund of Iraq (set up to fund Iraq’s debt restructuring programme). The Certificate confirmed this and there was no evidence before the Court to prove otherwise.  It was not considered relevant that the money derived from commercial transactions.

Hooper LJ concluded that Iraq had purchased the debts “in the exercise of its sovereign authority, as part of a huge international restructuring of debts incurred in the Saddam Hussein era”.  The debts were therefore immune under the Act and the appeal was dismissed (with Rix LJ dissenting).

Issues before the Supreme Court

Permission to appeal to the Supreme Court was granted on 14 December 2011. The issues to be decided at the hearing on 28 May 2012 will be:

(1) the scope of the immunity available to a State pursuant to s 13 of the Act in respect of judgment measures against its property; and

(2) the correct interpretation of s 13(4) and the application of the expression: “for the time being in use or intended for use for commercial purposes”.