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Case study Foreign State Immunity from Execution Through the Iraq vs. Dumez SA Case

04/09/2010

Civil court of Brussels (chambre des saisies), 27 February 1995

Journal des tribunaux 1995, p. 565

Ahmed OUERFELLI

Facts:

Dumez S.A., a French limited company, concluded a sub-contract with a Kuwaiti company, Fiafi, pursuant to which it was obligated to perform some of the contractual commitments of the Kuwaiti company regarding the Iraqi ministry of Defence. The role of Dumez was to construct various buildings. The contract between Fiafi and the Iraqi government, which governed the relationship between Dumez and the Iraqi ministry, contained an arbitration clause. In an attempt to fulfil its contractual obligation to pay Dumez, Iraq delivered bills payable after a certain period of time—a form of payment that was viewed as a default under the contract.  Due to the default of the Iraqi government, Dumez brought a claim before Iraqi courts, which issued a judgment in favour of the Dumez (Baghdad Court, 7 April and 19 July 1990).

However, a law dated 16 September 1990--promulgated after the invasion of Kuwait by the Iraqi forces--barred Iraqi courts from rendering any decision against the government. Dumez found that the best way to recover its debt was to sue the Iraqi government before French courts. The Nanterre court ordered the Iraqi government to pay an amount of more than US$ 22 million with interest.

On the basis of that judgment, Dumez proceeded to make several attachments of Iraq’s assets in France and Belgium, including an attachment on a Belgian bank account holding more than US$ 90 million of Iraqi assets. The French judgment was granted enforcement in Belgium (1993), and the enforcement order was appealed by the Iraqi government, in parallel with the appeal against the French judgment before the Versailles court.

On the appeal of the decision of the “execution judge” (le juge de l’exécution), the Brussels civil court held the following:

·        Iraq was subjected to UN measures of embargo, and that Belgium also took similar measures, including a Royal decree dated 8 August 1990, according to which Iraq was condemned to indemnify Kuwait for the damages resulting from the 1990 invasion of Kuwait;

·        The judge ruling on attachments (juge des saisies) is bound by the res judicata of the decisions on the merits. This means that an appeal of a decision made by this judge shall not become an indirect appeal on the judgment on the merits;

·        The French judgments are automatically recognized in Belgium;

·        On the issue of jurisdictional immunity, invoked by the Iraqi government, the court highlighted that the Iraqi government acted as a private entity and that the procurement contract contained an arbitration clause. Furthermore, the court remarked that it may not revoke the decision of the Versailles court on the merits or the enforcement order.

·        On the issue of immunity from execution, invoked by Iraq on the grounds that sovereign states are equal and shall not be subjected to mandatory execution of decisions taken by each other, the court remarked first that the sovereignty of Iraq was reduced due to several UN Security Council resolutions, and that, at any rate, UN Resolution No. 687 obligated Iraq to pay all its debts occurring prior to 2 August 1990 through the normal ways (seront réglées par les voies normales), and that Iraq’s unilateral declarations on the annulment of its foreign debts are null and void when considered in light of its commitment to pay all compensation for the losses caused to others--including environmental losses—and/or harm caused to foreign states and natural and legal persons. The Belgian court also created a Fund for these indemnifications, which was to be financed via income from Iraq’s petroleum exportation sector. The court held that no judgment is barred from the recognition of direct effects of the UN resolutions, provided that such judgment is within the reasonable limits of such resolutions. However, the Belgian court also held that Dumez could not benefit from the exceptional rules of indemnification created by Resolution No. 687, since the debt was manifestly incurred prior to 2 August 1990.

On the immunity principle itself, the court affirmed that public legal persons do not have an absolute immunity from execution as argued by Iraq, but rather that the immunity is limited to the state property destined for the fulfilment of its sovereignty functions (jure imperii).

It added that the state bears the burden of proof to demonstrate the destination of the attached property is in fact for use in the sovereign functioning of the state.

Finally, the court refused to consider evidence produced that the attached amount was allocated for the needs of the Iraqi diplomatic mission in Belgium, because, according to the judgment, the amount was disproportioned to the reasonable needs of such a Delegation.

The Belgian court refused the allegation that the attachments affected the acquisition of a building for the Iraqi embassy in Brussels, since the decision was taken more than 3 years prior to the attachment. Instead the court iterated that the attached amount was most probably part of a total 4 billion Belgian Francs effected pursuant to the UN Resolution.

Concerning the argument taken from the Vienna Convention on Diplomatic Immunity, the court held that the Convention provides that the accredited country shall not deviate from the goals of the establishment of a diplomatic representation and that the host country is entitled to verify whether these goals are being respected by the accredited country. As a matter of consequence, the debate before the court on the nature of foreign state assets allocated for private (jus gestionis) activities is not inconsistent with the wording of the Vienna Convention. Thus, the Vienna Convention shall not be misconstrued, counter to its stated goals, to pertain to activities that have nothing to do with the jure imperii activities of a foreign state.

As a result, the court rejected the arguments of the Iraqi government and ordered the bank to pay the attached amounts to Dumez, with provisional execution.

 

Comment

1.     About Immunity from Jurisdiction:  The court did not clearly state whether including    arbitration clause in a contract is considered a waiver from jurisdictional immunity.  This rule, however, is at the core of the law of arbitration[1].  It was applied by the French Court of Rouen in the case of “Pak vs The Tunisia National Office of Grains[2], it was considered required for the application of the principle of good faith in the execution of the contractual commitments. 

2.     About the Immunity from Execution:  We do not see any use of broaching the subject of amputated Iraqi sovereignty by the force of international resolutions.   Because the occupation of a country by another or putting the resources of the occupier under the international trusteeship should not result in lifting the immunity from execution enjoyed by foreign countries.  Occupation does not nullify the legal existence of a country and trusteeship does not void its sovereignty.  In this framework, a resolution was issued by the French judiciary in Tunisia, during the time of the mandate, concerning the granting of the power to execute an arbitration judgment issued in France.  The French civil court in Tunisia affirmed in its judgment dated January 29, 1913 the following: “The Tunisian Governor represents the Tunisian sovereignty” (Le Bey participe de la souverainte tunisienne)[3].

3.     As for confining the immunity to political actions and the funds allotted to them, this rule is agreed upon, even though some “exceptional” judgments went so far as to generalize immunity on all the funds of foreign country without distinction[4].

4.     The burden of establishing a reason for the allocation of fund is serious.  The Belgian court rendered a judgment dated February 15, 2000 in which it adopted a more moderate approach recognizing immunity of the state and a presumption that the funds available to it are dedicated to its sovereign activities unless the creditor proves otherwise.  The case involved Leica Company putting a hold on a bank account belonging to the Iraqi diplomatic mission in Belgium.  The Brussels Court of Appeal ruled that the hold should be lifted because the company was not able to prove that the money was allotted to non- diplomatic activities[5].  To the contrary of the Domez ruling of 1995 aforementioned, the Leica ruling affirmed that the allocation of money depends on the mere discretion of the state under the relative supervision of the judiciary, which is meant to verify the reality about the allocation and its seriousness, and it is not meant to discuss the feasibility of the allocation or whether it is relevant, because this is an issue related to the sovereignty of the state.  This direction in the case of Iraq against the company is supported by the secrecy of the name governed by the French law “Vinci” for construction and major projects, in which the court also adopted the presumption of the allocation of state funds to its sovereign activities and ruled for lifting the hold on the money.[6]  It should be noted that Leica company succeeded Domez company which transferred to Leica part of its activities.  In 2003 a judgment was issued about the same debt that was the subject of the original case between Domez and the Iraqi State, but a contrary decision was adopted and the judgment was issued to free the money.   However the court also ruled to reject the request of Iraq’s proposal to fine “Vinci” for its own benefit, given that the creditor cannot be censured on the ground that he envisaged all possible means to draw out his debt.

5.     Some judicial decisions and doctrines burden the arbitration clause with more than its real connotation:  What is agreed upon is that the state’s acceptance of arbitration in a transaction represents evidence that it has agreed to be treated the same as private entities; this is an indication that the contract does not concern its sovereign activities, and should be deemed a waiver of immunity from litigation.  Unfortunately some opinions go further and also deem it a waiver of execution; an opinion which is exaggerated and has not received the consensus of jurists. [7]  Waiver of immunity must be narrowly construed. [8]  The text of chapter (24) of the Journal of the Private International Law (Tunisian), November 27, 1998 issue, for example, stipulated that foreign state property as well as the legal entities referred to in chapter (19) of the same journal (legal entities that behave as a general authority in the name of, or on behalf of a sovereign) do not enjoy immunity from execution if such entities are assigned to private activity or have commercial character. One can conclude from this that the funds that enjoy immunity from execution are  funds that are allocated to the sovereign activities of the state, contrary to the funds that are used by foreign country to conduct normal activity such as the activities of the dignitaries.[9]   These assets are the type that can be confiscated or attached without waiving the immunity by the owner state.

On the other hand, the Rules of the International Chamber of Commerce (ICC), specifically Article (28) Paragraph (6), stipulate the following:

 “Every Award shall be binding on the parties. By submitting the dispute to arbitration under these Rules, the parties undertake to carry out any Award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made.”

The French Judiciary has interpreted this paragraph to say that it contains a waiver of immunity from execution (see the case of Criton Company v. Qatar).[10] But this opinion has not gained consensus and various jurisprudence scholars have adopted a contradictory opinion in many cases, such as the case of Iran v. Eurodif. [11]

6.     Meeting the conditions for immunity from execution does not mean the loss of the rights of the litigant in question, who remains entitled to bring a case demanding execution under the pretext that the litigant was harmed by the lack of implementation of the judgment that was issued to his benefit, because of the immunity accorded to the foreign state. This rule has been developed to enable the litigant to bring a suit against the state to seek punishment for the failure of the state to provide the conditions necessary to secure the rights of the litigant.



[1] Yugoslavia vs. SEEE: Cass. (fr), 18 November 1986, Revue Critique de Droit International Privé 1987, p. 786, note by Pierre MAYER; Journal de Droit International 1987, p. 120, note by Bruno Oppetit; idem, Société SOABI vs. Senegal: Cass. Civ. (fr) 11 June 1991, Journal de Droit International 1991, p. 1005, note by Emmanuel Gaillard; Revue Critique de Droit International Privé 1992, p. 331, note by P.L.; Revue de l`Arbitrage 1991, p. 637, note by A. Broches. See, Isabelle Pingel-Lenuzza: "Les immunités des Etats en droit international", Bruylant eds., 1998, Collection de droit international, p. 299 et seq., espec. p. 309 (no. 274). 

[2] Rouen Court of Appeal, June 20, 1996, Bec Frères v. Office des céréales de Tunisie, 1997 Revue de l’Arbitrage 263267 (note by E. Gaillard). Compare with Paris Court of Appeal, 9 July 1992, Norbert Beyrard France v. République de Côte d’Ivoire, 1994 Revue de l’Arbitrage, p. 133 (note by P. Théry) « By entering into an arbitration agreement, in the absence of which the deal would clearly not have been concluded, the Tunisian State has thus accepted the ordinary legal rules of international trade; by doing so, it has waived its immunity from jurisdiction and, as agreements must be performed in good faith, its immunity from execution ».

[3] Tribunal de Tunis, 17 December 1884, Revue de l`Arbitrage 1885. II. 84; Jurisprudence administrative tunisienne. II- Tribunaux judiciaires, 1er fascicule (1884-1905), Centre de Recherches et d’Etudes Administratives (CREA) eds., Tunis 1983, p. 16 (n° 2); Algiers Court of Appeal, 20 July 1887, Revue de l`Arbitrage 1887. II. 409; Jurisprudence administrative tunisienne. II- Tribunaux judiciaires, 1er fascicule (1884-1905), éd. CERP, Tunis 1983, p. 44 (n° 15); Cass. Req. (fr), 27 mars 1891, Hamida Ben Ayed vs./Government of Tunisia, Revue de l`Arbitrage 1891. II. 474; Jurisprudence administrative tunisienne. II- Tribunaux judiciaires, 1er fascicule (1884-1905), CERP eds, Tunis 1983, p. 96 (n° 38); Tribunal de la Seine (fr), 30 June 1891, Héritiers Ben Ayed c/ Bey de Tunis, Journal des Tribunaux 1891, p. 226; Jurisprudence administrative tunisienne. II- Tribunaux judiciaires, 1er fascicule (1884-1905), éd. CERP, Tunis 1983, p. 106 (n° 43); Paris Court of Appeal, 14 December 1893, Journal des Tribunaux 1894, p. 38; Jurisprudence administrative tunisienne. II- Tribunaux judiciaires, 1er fascicule (1884-1905), éd. CERP, Tunis 1983, p. 149 (n° 62); Tribunal de Tunis 29 January 1913, Revue de l’Arbitrage 1913. II. 296, note by Marcel MORAND; Jurisprudence administrative tunisienne, II- Tribunaux judiciaires, 2ème fascicule (1906 – 1928), éd. CERP, 1985, p. 289 et ss. (n° 320); Algiers Court of Appeal, 22 January 1914, Journal des Tribunaux 1914, 326 et Revue de l’Arbitrage 1914, II, 204, Jurisprudence administrative tunisienne, II- Tribunaux judiciaires, 2ème fascicule (1906 – 1928), éd. CERP, 1985, p. 317 et ss. (n° 334).

[4] Zaire vs. D’Hoop and Another case, 106 I.L.R. 294, Civil Court of Brussels, 9 March 1995, Journal des tribunaux 1997, p. 100 : « Que les biens d’un Etat étranger, soit servent à l’accomplissement des fonctions inhérentes à sa souveraineté, soit qu’ils sont détenus à titre purement privé, une mesure d’exécution représente un acte de coercition et est, comme telle, en temps de paix, inadmissible contre un Etat ».

[5] Cour d’Appel de Bruxelles (Brussels Court of Appeal), 15 February 2000, Leica AG vs. Central Bank of Iraq and Iraqi Government, journal des tribunaux 2001, p. 6.

[6] Cour d’Appel de Bruxelles (Brussels Court of Appeal), Cour d’Appel de Bruxelles (Brussels Court of Appeal), 15 February 2000, Leica AG vs. Central Bank of Iraq and Iraqi Government, journal des tribunaux 2001, p. 6.

[6] Cour d’Appel de Bruxelles (Brussels 9è chambre, 4 october 2002, Iraq vs. Vinci Constructions Grands projets (société anonyme de droit français), journal des tribunaux 2003, p. 318.

[7] See, Emmanuel GAILLARD : « Effectiveness of Arbitral Awards, State Immunity from Execution and Autonomy of State Entities. Three Incompatible Principles », IAI Series on International Arbitration, No. 4 : « State Entities in International Arbitration », (E. Gaillard and J. Younan eds., Juris Publishing, 2008), p. 179; “Droit des immunités et exigences du procès équitable”, actes de colloque, sous la direction d’Isabelle PINGEL, éd. Pedone, Paris 2004.Also see Ahmed Ouerfelli, « International Arbitration in the Tunisien Law and Comparative Law » Publication of Mujam’a Al-Atrash, Tunisia 2006, from P. 775 and after.

[8] Kaj HOBÉR: “Some Comments on the Arbitration Agreement and on State Immunity”, http://www.sccinstitute.com/_upload/shared_files/artikelarkiv/k_hober_artikel_eng.pdf.

The book points to a trend that calls for the expansion of the exception to the principle of immunity from execution that many states enjoy. And that the U.S. Law of 1976 relating to the immunity of foreign states (U.S. Foreign State Immunity Act 1976) is one of the first laws that adopted this course and was followed by other legislations.

[9] Al-Mabrook Bin Moussa “Immunity from Jurisdiction and Immunity from Execution,” the works of sudy course about the Tunisian Magazine of the Private International Law,” it was followed by some other legislations.

[10] Cass. 1e civ., July 6, 2000, Creighton v. Ministère des Finances de l’Etat du Qatar, 127 Journal du Droit International (Clunet) 1054, 1055 (2000) (note by I. Pingel-Lenuzza); Jurisclasseur Périodique, Ed. G., Pt. II, No. 10512, at 764 (2001) (note by C. Kaplan and G. Cuniberti); 2001 Revue de l’Arbitrage 114 (note by P. Leboulanger) ; 2001 Revue Trimestrielle de Droit Commercial 410 (observations by E. Loquin); 2000 Bulletin de l’Association Suisse de l’Arbitrage 605, 609 (commentary by Emmanuel Gaillard, Convention d’arbitrage et immunités de juridiction et d’exécution des Etats et organisations internationales, at 471); 15(9) INT’L ARB. REP. A-1 (2000) (commentary by Nathalie Meyer-Fabre, Enforcement Of Arbitral Awards Against Sovereign States, A New Milestone: Signing ICC Arbitration Clause Entails Waiver Of Immunity From Execution Held French Court Of Cassation In Creighton v. Qatar, July 6, 2000, at 48) : « [T]he obligation entered into by the State by signing the arbitration agreement to carry out the award according to Article 24 of the International Chamber of Commerce Arbitration Rules [now Article 28(6) of the Rules in force as of January 1, 1998] implies a waiver of the State’s immunity from execution».

[11] Cour d’Appel de Paris, 21 Apr. 1982, République islamique d’Iran v. Eurodif, 110 Journal du Droit International (Clunet) 145 (1983) (note by B. Oppetit); 1983 Revue Critique de Droit International Privé 101 (note by P. Mayer); 1982 Revue de l’Arbitrage 204 (commentary by Paierre Bourel, Arbitrage international et immunités des Etats étrangers – A propos d’une jurisprudence récente, at 119) : « it cannot... be accepted that an arbitration agreement is an implied waiver of State immunity from execution, as such a waiver can only be inferred from acts that unequivocally manifest an intent to waive such rights ».

 

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