17
The Three Exceptions to Immunity from Enforcement and the Five Categories of State Property listed as Immune

The preceding chapter discussed general aspects of immunity from enforcement, State practice, the distinction into pre and post judgment measures of constraint, UNCSI’s provisions including the legislative history, types of measures of constraint and matters relating to property of the State.

This chapter contains three sections. The first sets out the three exceptions which UNCSI permits in regard to immunity from enforcement—express consent, allocation of property, and relating to property of the State in use or intended for use for other than governmental non-commercial purposes. The second section relates to the five categories of State property listed in UNCSI as property in use or intended for use for other than governmental non-commercial purposes. Finally in the third section general conclusions are drawn with respect to both Chapters 16 and 17.

The three exceptions to the General Rule of Immunity from enforcement

Exception (a) Express consent of the State

Article 18

State immunity from pre-judgment measures of constraint

No pre-judgment measures of constraint, such as attachment or arrest, against property of a State may be taken in connection with a proceeding before a court of another State unless and except to the extent that:

(a) the State has expressly consented to the taking of such measures as indicated …

Article 19

No post-judgment measures of constraint, such as attachment, arrest or execution, against property of a State may be taken in connection with a proceeding before a court of another State unless and except to the extent that:

(a) the State has expressly consented to the taking of such measures as indicated

ILC Commentary to Article 18

The phrase ‘the taking of (8) such measures, as indicated:’ in paragraph 1(a) refers to both the measures of constraint and the property. Thus express consent can be given generally with regard to measures of constraint or property, or be given for particular measures or particular property, or, indeed, be given for both measures and property.

Once consent has been (9) given under paragraph 1(a), any withdrawal of that consent may only be made under the terms of the international agreement (subparagraph (i)) or of the arbitration agreement or the contract (subparagraph (ii)). However, once a declaration of consent or a written communication to that effect (subparagraph (iii)) has been made before a court, it cannot be withdrawn. In general, once a proceeding before a court has begun, consent cannot be withdrawn.

Just as consent of the State waives the bar of immunity from adjudication so consent of the State in respect of State property waives the bar of immunity from execution against such property. State practice recognizes that the rule of immunity whether from adjudication or from execution can be waived by the consent of the State and the UN Convention in Articles 18 and 19 makes this plain, requiring the express consent to be made in writing.

‘may be taken in connection with a proceeding before a court of another State’

The word ‘proceeding’ in UNCSI Articles 18 and 19 refers to the procedure by which a national court may permit measures of constraint in respect of a judgment given or an arbitral award made against another State. Whether or not a judgment of a national court or an award of an arbitral tribunal has adjudicated the dispute determining immunity not to apply, it is the national court in respect of such a judgment or arbitral award against another State that permits measures of constraint to be taken in the forum State territory.

Consent of the State

Effect of consent to jurisdiction to measures of constraint

… consent to the exercise of jurisdiction under article 7 shall not imply consent to the taking of measures of constraint.

ILC Commentary to Article 18

Paragraph 2 makes more (12) explicit the requirement of separate consent for the taking of measures of constraint under part IV. Consent under article 7 of part II does not cover any measures of constraint but is confined exclusively to immunity from the jurisdiction of a court of a State in a proceeding against another State.

State practice by treating immunity from enforcement as a distinct regime from that of immunity of adjudication provides that consent to the exercise of the national court’s exercise of jurisdiction over the subject-matter of a claim is not sufficient to constitute consent to the execution of any judgment which results from such proceedings and this Article 20 gives it effect. The specified forms by which such consent may be given are identical to those for consent to adjudication by a national court as set out in Article 7 save that the written communication is limited to ‘after the dispute between the parties has arisen’. (See further Chapter 11 on consent.)

Allocation of State property by the State

UN Convention Article 18

unless and except to the extent that: …

… (b)the State has allocated or earmarked property for the satisfaction of the claim which is the object of that proceeding.

Article 19

unless and except to the extent that: …

… (b)the State has allocated or earmarked property for the satisfaction of the claim which is the object of that proceeding

ILC Commentary Article 18 Under (10) paragraph 1(b), the property can be subject to measures of constraint if it has been allocated or earmarked for the satisfaction of the claim or debt which is the object of the proceeding. This should have the effect of preventing extraneous or unprotected claimants from frustrating the intention of the State to satisfy specific claims or to make payment for an admitted liability. Understandably, the question whether particular property has or has not been allocated for the satisfaction of a claim may in some situations be ambiguous and should be resolved by the court.

This second exception to the immunity from execution of State property may be seen either as a specific example of consent demonstrated by act rather than express statement of consent or as a move towards recognizing that the identified purpose for which the State property is destined may determine its status as immune or not. In Alcom the House of Lords recognized the specific allocation of State property as a method to meet the requirement of the UK Act, section 13(4) which removed immunity from execution of State property ‘which is for the time being in use or intended use for commercial purposes’; attachment of the current account of the diplomatic mission of a foreign State was declared only permissible when it was earmarked by the mission for the exclusive use for commercial transactions, for example, for issuing documentary credits for the price of goods purchased by the State (see Chapter 7).1 A clear illustration in the terms of the English Alcom decision of funds ‘earmarked by the foreign State solely … for being drawn upon to settle liabilities incurred in commercial transactions’ is provided in Orascom where oil revenues of Chad were paid to a London bank directly into a Transit Account out of which amounts were set aside every month to cover debts owed by Chad to the World Bank and to the European Investment Bank. Burton J distinguishing Aikens J in AIG2 ruled:

The monies are not the London assets of a national fund of Chad, and are not being operated or traded in London pursuant to a global custody or any other agreement between Chad and Citibank. The monies are in London because they were required to be channelled through the mechanisms expressly set up by the RMP, in order to preserve them so that Chad’s direct oil revenues pursuant to the oil contracts were not simply passed direct to Chad, and so that there could be security and protection for the World Bank and the European Investment Bank to allow for their loans to Chad to be safely and transparently repaid.3

Use or intended use for commercial purposes

UN Convention Article 19

unless and except to the extent that: … (c) it has been established that the property is specifically in use or intended for use by the State for other than government non-commercial purposes and is in the territory of the State of the forum, provided that post-judgment measures of constraint may only be taken against property that has a connection with the entity against which the proceeding was directed.

ILC Commentary to Article 19

(11) The use of the word ‘is’ in paragraph 1(c) indicates that the property should be specifically in use or intended for use by the State for other than government noncommercial purposes at the time the proceeding for attachment or execution is instituted.

To specify an earlier time could unduly fetter States’ freedom to dispose of their property. It is the Commission’s understanding that States would not encourage and permit abuses of this provision, for example by changing the status of their property in order to avoid attachment or execution. The words ‘for commercial [nongovernmental] purposes’ included in the text adopted on first reading have been replaced by the phrase ‘for other than government non-commercial purposes’ in line with the usage of that phrase in article 16.

The UN Convention takes a cautious step in allowing a restrictive rule of immunity from execution beyond express giving of consent or specific allocation by the foreign State of its property. Precisely because of the difficulties in achieving an agreed text its formulation is narrow and uncertain. The three Understandings attached to Article 19 which Article 25 provides ‘form an integral part of the Convention’ read as follows:

The Understandings

With respect to article 19

The expression ‘entity’ in subparagraph (c) means the State as an independent legal personality, a constituent unit of a federal State, a subdivision of a State, an agency or instrumentality of a State or other entity, which enjoys independent legal personality.

The words ‘property that has a connection with the entity’ in subparagraph (c) are to be understood as broader than ownership or possession.

Article 19 does not prejudge the question of ‘piercing the corporate veil’, questions relating to a situation where a State entity has deliberately misrepresented its financial position or subsequently reduced its assets to avoid satisfying a claim, or other related issues.

Comment on the first and third understanding relating to ‘entity’ and ‘piercing of the veil’ will be found in Chapter 13 under ‘Definition’.

specifically in use or intended for use by the State for other than government non-commercial purposes property that has a connection with the entity

This requirement in the UN Convention 19(c) of a connection with the defendant State party to the proceedings is a less restrictive requirement than the one previously proposed in the 1991 ILC Draft of ‘a connection with the claim which is the object of the proceedings’, in that it brings within the exception all property owned or possessed by the entity; or indeed, according to the broader construction which the Second Understanding to Article 19 permits, some less specific right or interest held by such an entity in the property which paragraph (c) allows to be attached. It constitutes a tentative and somewhat elusive enlargement of the exception so as to render the property of a State agency engaged solely in commercial activities subject to attachment and execution in respect of judgments rendered against it. For discussion of the terms used in this Third Exception and the previous Second Exception see Chapter 16 ‘Subject-matter of coercive measures; Property of the State’.

Immunity of the property of State agencies

UN Convention Article 19(c)

property that has a connection with an entity against which the proceeding was directed

For a discussion of this requirement in UNCSI, Article 19(c) of a connection with the defendant State Party to the proceedings see Chapter 16 under ‘Subject-matter of coercive measures’.

The five categories of State property listed as immune

Prior to the Second World War it was generally accepted that the immunity of a State extended to its property, and few distinctions were made as to the State property to be treated as immune.

UNCSI Article 21 sets out five categories of State property which ‘shall not be considered as property specifically in use or intended for use by the State for other than government non-commercial purposes’.

UN Convention Article 21

Specific categories of property

1. The following categories, in particular, of property of a State shall not be considered as property specifically in use or intended for use by the State for other than government non-commercial purposes under article 19, subparagraph (c):

(a) property, including any bank account, which is used or intended for use in the performance of the functions of the diplomatic mission of the State or its consular posts, special missions, missions to international organizations or delegations to organs of international organizations or to international conferences;

(b) property of a military character or used or intended for use in the performance of military functions;

(c) property of the central bank or other monetary authority of the State;

(d) property forming part of the cultural heritage of the State or part of its archives and not placed or intended to be placed on sale;

(e) property forming part of an exhibition of objects of scientific, cultural or historical interest and not placed or intended to be placed on sale.

2. Paragraph 1 is without prejudice to article 18 and article 19, subparagraphs (a) and (b).

Commentary paragraph 1

(1) Article [21] is designed to provide some protection for certain specific categories of property by excluding them from any presumption or implication of consent to measures of constraint. Paragraph 1 seeks to prevent any interpretation to the effect that property classified as belonging to any one of the categories specified is in fact property specifically in use or intended for use by the State for other than government noncommercial purposes under paragraph 1(c) of article 19. The words ‘in particular’ suggest that the enumeration in subparagraphs (a) to (e) is merely illustrative.

(2) This protection is deemed necessary and timely in view of the trend in certain jurisdictions to attach or freeze assets of foreign States, especially bank accounts, assets of the central bank or other instrumenta legati and specific categories of property which equally deserve protection. Each of these specific categories of property, by its very nature, must be taken to be in use or intended for use for governmental purposes removed from any commercial considerations.

The categories of property which came first to be located in another State’s territory, and were so recognized in State practice, warships and property of an accredited diplomatic envoy, were unquestionably in use for public purposes or in the exercise of sovereign authority. Much of the early law establishing the immunity of State property from execution relates to these immune categories. There is continued acceptance today that such categories must be protected from enforcement relating to commercial debts, and indeed some willingness to introduce new categories as immune. Whilst a foreign State may rely on its ownership of the property as the justification, national courts increasingly place the emphasis on the public use and purpose which State property serves rather than State ownership as the basis for immunity.

A principle that property dedicated to public use is not subject to satisfaction of private claims has long been recognized. One source is the recognition of res extra commercium in Roman law and later in the laws of war and prize, civil law early recognized a category of public property not subject to the claims and demands of private parties. Another source is respect for the integrity of the individual, demonstrated in bankruptcy law provisions such as the protection afforded to a workman’s tools of his trade. Some members of the Law Commission applied a similar rationale of avoidance of disruption of the activities of the State pertaining to its sovereignty when approving the immune categories in the ILC’s Draft.4 The property of the ambassador of a foreign State and ships of war were two obvious candidates for inclusion. In The Parlement Belge the English Court of Appeal applied the protection of property in public use to State property and, drawing on earlier decisions,5 formulated a general principle of immunity of ‘the public property of any State which is destined to the public use’.6 The Parlement Belge applied that principle to a ship in use for both governmental and private commercial uses. The inconvenience of such a rule in its application to claims relating to ships and cargoes arising out of the commercial operation of sea-going vessels was addressed in the Brussels Convention of 1926, which sought to place vessels owned or operated by governments for commercial uses in the same position as to immunity and liability as owners and operators of private vessels. Until The Philippine Admiral held that an action in rem could be brought against a government ship operated by a private party in respect of dues relating to its operation, English law continued to observe a rule of immunity from execution of all types of property owned, possessed, or controlled by a foreign government.

The ILC First Special Rapporteur’s list of specific categories of property was based on one approved by the ILA in its draft Montreal Convention, which in turn was derived from section 1611 of the US FSIA 1976 which provided that the property of international organizations, the property of a foreign central bank or monetary authority, and property used in connection with a military activity were all immune from attachment and execution.7 The long-established category of property of the diplomatic mission was separately and less comprehensively treated in FSIA, section 1605(a)(5) the expropriation exception, and s.1610 (see under diplomatic property below). In addition, the ILC included a novel category of property forming part of the cultural heritage of the State; a fifth relating to property forming part of an exhibition of scientific or historical interest was added by the drafting committee in 1986.8 These categories were carried through to the final 2004 UN Convention with some clarification. Property of missions to international and regional organizations were added to the diplomatic property category; the immunity of the property of central banks was limited to that in use or intended use for monetary purposes. The draft and final text assumes that this category and those relating to cultural and historical objects are restricted to property located in the forum State.

As the general prohibition of execution against State property diminishes, the list of exempt categories of property to be regarded as in public use and immune may expand.

An alternative scenario, however, has been envisaged. Were immunity from adjudication to be held to be contrary to a jus cogens norm, such as the right of access to court, a violation of a fundamental human right contrary to a jus cogens norm might be held to override immunity from execution and even the categories of State property recognized as immune from measures of constraint. Thus in their separate concurring opinion in Al-Adsani, Judges Pellonpaa and Bratza argued that if the ECtHR had held immunity incompatible with the right of access to court in Article 6 because of the jus cogens nature of the prohibition of torture, ‘the Court would have been forced to hold the prohibition of torture must also prevail over immunity of a foreign State’s public property, such as bank accounts intended for public purposes, real estate used for a foreign State’s cultural institutes and other establishments abroad [including even, it would appear, embassy buildings] etc since it has not been suggested that immunity of such public property from execution belongs to the corps of jus cogens’.9

Express consent or allocation removes immunity of State property categorized as immune

UN Convention Article 21

… 2. Paragraph 1 is without prejudice to article 18 and article 19, subparagraphs (a) and (b).

ILC Commentary Paragraph 2

(8) Notwithstanding the provision of paragraph 1, the State may waive immunity in respect of any property belonging to one of the specific categories listed, or any part of such a category, by either allocating or earmarking the property within the meaning of article 18(b), paragraph 1, or by specifically consenting to the taking of measures of constraint in respect of that category of its property, or that part thereof, under article 18(a), paragraph 1. A general waiver or a waiver in respect of all property in the territory of the State of the forum, without mention of any of the specific categories, would not be sufficient to allow measures of constraint against property in the categories listed in paragraph 1.

The effect of the immune status conferred on the five categories of State property listed in Article 21(1) is to defeat the operation of the third exception in Article 19(c) in respect of post-judgment coercive measures. Paragraph 2 makes plain the execution may take place against the five categories of listed immune State property where the State has either given express consent to execution against such property in pre-judgment or post-judgment or to both types of proceedings, or specifically allocated such property for the satisfaction of a claim.10 The Australian FSIA 1985, section 31(4) has a more specific requirement, ‘a waiver does not apply in relation to property that is diplomatic property or military property unless a provision in the agreement expressly designates the property as property to which the waiver applies’.

Diplomatic property

UN Convention Article 21

Specific categories of property

1. The following categories, in particular, of property of a State shall not be considered as property specifically in use or intended for use by the State for other than government non-commercial purposes under article 19, subparagraph (c):

(a) property, including any bank account, which is used or intended for use in the performance of the functions of the diplomatic mission of the State or its consular posts, special missions, missions to international organizations or delegations to organs of international organizations or to international conferences;

ILC Commentary to Article 21

(3) Property listed in paragraph 1(a) is intended to be limited to that which is in use or intended for use for the ‘purposes’ of the State’s diplomatic functions. This obviously excludes property, for example, bank accounts maintained by embassies for commercial purposes. Difficulties sometimes arise concerning a ‘mixed account’ which is maintained in the name of a diplomatic mission, but occasionally used for payment, for instance, of supply of goods or services to defray the running costs of the mission. The recent case law seems to suggest the trend that the balance of such a bank account to the credit of the foreign State should not be subject to an attachment order issued by the court of the forum State because of the noncommercial character of the account in general. Property listed in paragraph 1(a) also excludes property which may have been, but is no longer, in use or intended for use for diplomatic or cognate purposes. The expressions ‘missions’ and ‘delegations’ also include permanent observer missions and observer delegations within the meaning of the 1975 Vienna Convention on the Representation of States in their Relations with International Organizations of a Universal Character.

By the beginning of the eighteenth century the immunity from civil jurisdiction of an ambassador was well established11 and it followed that he enjoyed immunity for the premises of the mission and his movable property.12 The Vienna Convention on Diplomatic Relations 1961 (VCDR) codifies the inviolability of the premises of the diplomatic mission and the obligation of the receiving State to protect them from intrusion. VCDR, Article 22(3) explicitly provides: ‘The premises of the mission, their furnishings and other property thereon and the means of transport of the mission shall be immune from search, requisition, attachment or execution’.

The exemption of diplomatic premises and property from execution is a general principle of State immunity, widely accepted and observed both in legislation and by national courts.13 Issues as to mixed user of the State property may arise where a building is owned in the forum State territory but only part used for the purposes of the diplomatic mission: the German Federal Court in rejecting the departure of a member of the mission from premises and its advertisement for sale as loss of diplomatic immunity for the premises has stated that ‘given the difficulties of delimitation … international law defines the protective scope of the [foreign State] very broadly and refers to a typical abstract danger not to a specific impairment of the diplomatic activity’.14 The US and the UK have enacted domestic legislation requiring the consent of the receiving State for the use of a specific property as premises of a diplomatic mission and in the UK a certificate issued by a Secretary of State is conclusive evidence in English courts as to whether the building or part of it is mission premises;15 the Australian SIA defines diplomatic property in section 3(a) as ‘property that, at the relevant time, is in use predominantly for the purpose of establishing or maintaining a diplomatic or consular mission, or a visiting mission, of a foreign State to Australia’. In Sweden, when allowing attachment of rents paid ‘arising from commercial or other private law activities’ in respect of part of a building in Sweden owned by Russia, the Supreme Court upheld the Russian State’s immunity from enforcement as to part of the building ‘in use by the diplomatic mission and for official functions of the State’, but dismissed the claim of immunity to the whole building holding that ‘the reason that the property is owned by the state and for non-commercial purposes was insufficient’ since the building was used only to a limited extent and ‘not in considerable part’ for official purposes of the State.16

The FSIA, in including immovables in the US within the category of property in commercial use for which section 1610(1)(4)(B) permits execution, expressly provides ‘that such property is not used for purposes of maintaining a diplomatic or consular mission’. US courts apply this principle to refuse attachment of diplomatic premises to satisfy judgments for unpaid rent and commercial debts and also hold the premises to be within the prohibition of execution on diplomatic premises in VCDR, 22(3).17 Even in the extreme situation where Congress has enacted legislation permitting attachment of diplomatic premises, as discussed in Chapter 8 on US law relating to immunity from execution, the executive has intervened to prevent execution against diplomatic property. The 1998 amendment in respect of immunity from execution was made to the FSIA (section 1610(f)) to permit US victims of terrorism to attach and execute judgments against the property (including diplomatic and consular property) of a foreign State with respect to which financial transactions are prohibited or regulated under US blocking statutes.18 But the President has exercised his discretionary waiver power granted under the statute to suspend this provision ‘in the interests of national security’. President Clinton exercised the waiver on 21 October 1999 and his action was explained thus: ‘If the US permitted attachment of diplomatic properties, then other countries could retaliate, placing our embassies and citizens overseas at grave risk. Our ability to use foreign properties as leverage in foreign policy disputes would also be undermined’.19

The bank account of the diplomatic mission

UN Convention Article 21(1) … (a) property, including any bank account, which is used or intended for use in the performance of the functions of the diplomatic mission of the State or its consular posts

Uncertainty as to what further requirement applied beyond a right to ownership by a State to determine the use for the purpose of sovereign purposes of an intangible property right such as entries in a bank account in the forum State held in the name of a diplomatic mission led to the express inclusion of the bank account of a diplomatic mission in the UN Convention’s list of immune categories in Article 21(a); its inclusion was justified on the ground that attachment of ‘operating bank accounts of an embassy cannot but disrupt normal diplomatic intercourse’.

The problems of identification of the use of State funds are particularly acute where funds are mixed in an account, particularly when, as is a frequent practice, the account is opened in the name of the diplomatic mission. Where an account is opened by a foreign State in the forum State territory for the specified purpose of purchasing goods or payment of commercial services rendered there is little difficulty in establishing that the funds are in use or intended use for commercial purposes.20 But where funds are placed in a general account to meet disbursements of a foreign State, some of which relate to commercial transactions and others to expenses of diplomatic staff or other public purpose, proof of the use or intended purpose of the funds becomes more difficult. Is the holding of the account in the diplomatic mission’s name alone sufficient to constitute evidence of the funds’ use or intended use for a sovereign purpose?

One might suppose the answer would be found in the VCDR, but on a literal construction the prohibition on execution on property of the diplomatic mission in Article 23 is restricted to property located within the diplomatic premises, to ‘the premises of the mission, their furnishing and other property thereon’.21 The majority of authority including Salmon22 relying on the general tenor of the Vienna Convention that the diplomatic mission must not be impeded in its functions, construe the VCDR as requiring the immunity from execution of embassy bank accounts.23

The leading decision on mixed diplomatic accounts is that of the German Federal Constitutional Court in The Philippine Embassy case, where attachment was sought of an account of a diplomatic mission for unpaid rent. Having declared international law now to require immunity from execution to apply solely to State property in use for sovereign purposes, the court then went on to rule that ‘Claims against a general current bank account of the embassy of a foreign State which exists in the forum and the purpose of which is to cover the embassy’s costs and expenses is not subject to forced execution by the State of the forum’. The court construed international law by reference to the preamble and, the principle ne impediatur legation in Article 3 of the VCDR, as conferring a wide area of protection on the foreign State; proof that despite the enforcement measures the embassy would still be able to function was irrelevant, any differentiation according to the financial position of the foreign State would infringe the principle of the sovereign equality of States; it was the abstract danger, not the specific risk, which the immunity from execution of the property of the diplomatic mission was designed to protect. Abuse, from misuse of the immunity accorded to the diplomatic mission to protect other funds could only be dealt with by the forum State by diplomatic means; the individual creditor might protect himself by obtaining a waiver. In specifying the legal regime to protect the property of the diplomatic mission the Court was careful to state that it made no ruling in respect of other State accounts, such as special accounts for procurement purposes, the granting of loans, or general purpose accounts.24

The principles laid down by the German court in The Philippine Embassy case, despite frequent challenges by commercial creditors of the State, have received approval and been applied by national courts. The Austrian Supreme Court reversed its former practice of distinguishing between commercial and diplomatic uses of an embassy account.25 The English court in Alcom v Republic of Colombia (particulars of which are to be found in Chapter 7) followed the reasoning of the German Constitutional Federal Court when it declared the current account of a foreign diplomatic mission was not susceptible of anticipatory dissection into the various uses, commercial as well as sovereign, to which monies drawn on it might be used in the future. Only specific earmarking of a fund for present or future commercial use, the House of Lords held, would meet the exception to immunity from execution provided in the SIA for commercial property in use or intended use for commercial purposes (SIA, section 13(4) now recognized in exception (b) of UNCSI, Article 19).26 More recently the Netherlands District Court ordered the attachment of balances of the Chilean Embassy held at a bank in Amsterdam to be vacated. The court stated, ‘Establishing, maintaining and running embassies was an essential part of the functions of government and hence of public service. Funds intended for the performance of this function must therefore be treated as property intended for the public service’.27 Initially in cases brought in both France28 and Belgium following its invasion of Kuwait to enforce judgments against Iraq it was argued that Iraq’s jurisdictional immunity was to be treated as set aside by the Security Council’s orders, particularly Resolution 687 of 3 April 1991 to Iraq to comply scrupulously with its obligations with regard to repaying its external debt. It was further argued that Kuwait had set aside its sovereign status by ordering compensation to be paid out of its oil revenues, and secondly, more relevantly it was maintained that the State had assumed responsibility for sums due on a construction contract, a commercial transaction, and judgment had been given against it in its own courts and the judgment’s validity confirmed in the French courts. Sums in many currencies, well in excess of a reasonable sum to meet the expenses of the Iraqi Embassy in Brussels, were, on Iraq’s own admission, deposited in banks in Belgium. The Brussels Court of Appeal, however, reversed in both cases declaring the funds in the embassy account immune. The UN Security Council Resolution had no application to debts incurred prior to the invasion and in no way connected with it. Applying the principles laid down in the Philippine Embassy case the Brussels Court of Appeal recognized a presumption that assets of a diplomatic mission were in use or intended use for sovereign purposes and hence enjoyed a presumption of immunity from execution.29

US courts have found more difficulty in accepting the immunity from attachment of accounts of diplomatic missions. A US District Court decision of 1980 held that dissection of the purposes for which an account in the name of the diplomatic mission was held could be made; exemption of mixed accounts would in the Court’s view create a loophole, for any property could be made immune by using it, at one time or other, for some minor public purpose; and the judge advocated segregation of public purpose funds from commercial funds as the appropriate course for the foreign State to take if it wished to avoid attachment of a general account.30 But a later District Court case refused attachment of a bank account of a diplomatic mission to execute an ICSID award given against a foreign State, holding that such attachment would be contrary to the US obligation under the VCDR’s Article 25 to afford full facilities to the diplomatic mission of a sending State, even though no provision of the Vienna Convention specifically states that official bank accounts used or intended to be used for purposes of the diplomatic mission enjoy diplomatic immunity from attachment.31

State practice as discussed in relation to proof of the use or intended use of State property for commercial purposes continues in general to apply a presumption that State property is in use for sovereign purposes unless the contrary is proved.

Military property

UN Convention Article 21

Specific categories of property

1. The following categories, in particular, of property of a State shall not be considered as property specifically in use or intended for use by the State for other than government non-commercial purposes under article 19, subparagraph (c):

… (b) property of a military character or used or intended for use in the performance of military functions;

ILC Commentary to Article 21(4) The word ‘military’, in the context of paragraph 1(b), includes the navy, air force and army.

Ships of war were recognized to be immune from local jurisdiction from the eighteenth century or earlier, but the modern category of military property is capable of a wider meaning. The US FSIA adopts a very wide definition, describing this immune category as property used or intended to be used ‘in connection with a military activity, and (A) is of military character; or (B) is under the control of a military authority or defence agency’ (section 1611(b)(2)). This definition includes not only all types of armaments and their means of delivery but also basic commodities such as food,32 clothing, and fuel necessary to keep a fighting force operative.33 The scope of immunity relating to this second category is of course dependent on the equipment, however tenuous its connection with armed forces, being located in the forum State territory and under the control of a military unit of the foreign State. The House Report makes it plain that the purpose in enacting this wide category of immune property was ‘to avoid the possibility that a foreign State might permit execution on military property of the United States abroad under a reciprocal application of the Act’. The existence of such an immune category exposes sales of military equipment to a plea of immunity from jurisdiction. Such a possibility seems to be avoided in English law where the only exclusion in section 16(2) is for ‘proceedings relating to anything done or in relation to the armed forces of a State while present in the United Kingdom’. A sale of military equipment would come within the definition in section 3 of the SIA of a commercial transaction, provided the sale is in ordinary private law form and not pursuant to an agreement between States.34 It would seem that to avoid attachment under US law the burden of proof is upon the foreign State to show use or intended use as military property.35

Ships of war and government ships

Ships of war and vessels exclusively in government non-commercial service remain a category of State property exempt from execution. The 1926 Brussels Convention preserved the immunity of such ships (Article 3),36 and it is recognized in the Law of the Sea Conventions and in many of the multilateral Conventions regulating sea-going vessels (see Chapter 5, on treaties relating to State immunity). A modern application of this exempt category is the refusal by the District Court of Amsterdam of leave to attach a Peruvian warship in order to recover the salvage money for assistance rendered during sea trials. Although the 1926 Brussels Convention did not apply because Peru was not a party, the court held that no attachment may be levied on a vessel belonging to a foreign power which is intended for use in the public service. The vessel, a warship delivered by Peru to Dutch companies for refitting, was to be regarded as intended for use in the public service even during sea trials when it sailed under Peruvian command and was manned by a Peruvian crew.37 The exemption for warships extends to war planes and was applied by the UK in an incident when a Sea Harrier military aircraft of the Royal Navy made a forced landing on a Spanish merchant container ship. The British Embassy in a note verbale claimed that the aircraft was immune from seizure under international law, but indicated the British government’s willingness to submit to arbitration. The Spanish Permanent Maritime Court at Tenerife released the aircraft as ‘free property at the disposal of its legitimate owners’, and an appeal by two crewmen of the Spanish merchant ship seeking salvage was abandoned.38

Aircraft and space objects

UN Convention Article 3

3. The present Convention is without prejudice to the immunities enjoyed by a State under international law with respect to aircraft or space objects owned or operated by a State.

This provision would seem to exclude aircraft and space objects from the category of military property declared immune by UNCSI, Article 19.1(c). The immunity of aircraft and space objects was raised in the Working Group set up by the Sixth Committee of UNGA. Some members thought they were adequately dealt with in specialist treaties, whilst others considered that some provision should cover them, particularly in relation to the sale, repair, and detention of aircraft.39 The UNGA Ad Hoc Committee decided, in view of the uncertainty of the law, to include aircraft and space objects in Article 3 covering privileges and immunities of the State not affected by the Convention (see Chapter 5 and Chapter 9 on UN Convention: General Aspects—Exclusions).

Central bank property

UN Convention Article 21(1) … (c) property of the central bank or other monetary authority of the State;

ILC Commentary

(5) With regard to paragraph 1(c), the Special Rapporteur suggested the addition of the words ‘and used for monetary purpose’ at the end of the paragraph, but they were not included for lack of general support.

UNCSI confers immunity and a degree of protection from execution for the property of a central bank greater than that available to other agencies, instrumentalities, or separate entities. UNCSI Article 19(1)(c) of the 1991 ILC Draft Articles provides that property of the central bank or other monetary authority of the State shall be immune and not treated as property in use or intended commercial use unless the State has expressly consented in writing or specifically allocated or earmarked such property to satisfy the judgment. Disputes have arisen as to the extent to which immunity continues in respect of the use of central bank assets for commercial purposes; had the words proposed by the Special Rapporteur been included in Article 21(1)(c) they might have served to restrict the immunity to assets of the State or its central bank solely when used or intended for use for monetary purposes.

Legislative history on central bank property

The 1986 ILC Draft Convention included in its categories of State property immune from execution ‘property of the central bank or other monetary authority of the State’, permitting attachment only where the State had expressly waived the immunity or the State had allocated or earmarked property for the satisfaction of the claim which is the object of the proceedings. In 1988 the Special Rapporteur Ogiso in summarizing the comments of governments in respect of this proposal noted that ‘Germany considers that there is no clear justification for a complete immunity of central bank property and that it should be made clear that immunity may only be claimed by such property of central banks or other authorities of foreign States as serves monetary purposes. Australia, the five Nordic countries and Qatar submit similar comments in this regard’ (UN Doc A.CN.4A./415, 122). In consequence, as noted in the ILC Commentary, Article 19, paragraph 5, ‘with regard to paragraph 1(c) the Special Rapporteur suggested the addition of the words “used for monetary purpose” at the end of the paragraph,40 but they were not included for lack of general support’.41 The wording of UNCSI, Article 21(c) makes plain accordingly that, whether used for commercial purposes or not, ‘property of the central bank’ is to be considered as in use or intended for use by the State solely for governmental non-commercial purposes.

State practice

There is seemingly no general acceptance in State practice for the higher degree of immunity for its property conferred by UNCSI, Article 21 than that which applies to the property of other State entities. Germany and other civil law countries provide no special treatment; the Canadian legislation merely exempts from execution property of a central bank ‘that is held for its own account and is not used or intended for commercial activity’ (section 11(4)); and the Australian statute merely provides that its provisions relating to immunity from execution shall apply to separate entities of foreign States which are central banks or monetary authorities as they apply to the foreign State (section 35(1)). However, in the 1970s, the US and the UK, as investment centres for foreign State reserves, recognized the need for some immunity, particularly from enforcement measures against central bank property. In consequence both the FSIA and the SIA, and more recently the 2005 Chinese Law of Judicial Immunity, contain special provisions relating to immunity from attachment of central bank property, and it is this special treatment of central banks which has been adopted by the UN Convention.

It has been suggested that the more favourable treatment accorded by US and UK law to the property of central banks than that of other State agencies derives from a policy decision to encourage the foreign States to maintain their reserves in these countries rather than compliance with an international legal obligation.42 This suggestion is possibly confirmed by the decision of China in 2005 to enact legislation expressly establishing the immunity from execution of the property of foreign central banks. The promulgation of this law was in response to a request from the Hong Kong Special Adminstrative Regime to continue the protection of foreign central banks’ property enjoyed under UK law by Hong Kong prior to its return to China and thus to maintain Hong Kong’s status as an international financial centre, but the Chinese government has broadened the scope of the legislation by making the new law also applicable to the Chinese mainland and the Macao Special Administrative Region (SAR). Article 1 of the Law of the People’s Republic of China on Judicial Immunity from Measures of Constraint for the Property of Foreign Central Banks, adopted on 25 October 2005, provides:

The People’s Republic of China (PRC) grants judicial immunity from measures of constraint such as the attachment of property and execution to the property of foreign central banks, unless the foreign central banks or the government of their States waive in written form, or the property is allocated to be used for the attachment of property and execution.

The 2005 Chinese Law of Judicial Immunity defines ‘property of foreign central banks’ to mean ‘cash, bills, bank deposits, valuable securities, foreign exchange reserves, gold reserves of the foreign central banks and their real estate and other property’ and grants immunity for such property of a central bank both from pre-judgment attachment and excecution after judgment. No distinction is made in the types of property held by a central bank and the only exceptions to immunity are first by express waiver of immunity from measures of constraint and second by implied waiver by allocation by the central bank or its government of a part of its property for use for attachment or execution. Lijiang Zhu in describing the legislation stresses that the exceptions to the immunity from attachment and execution of the property of a foreign central bank are based on waiver by the foreign State and are not to be interpreted as conferring a unilateral right on the PRC to distinguish the property of a central bank into two categories of property used for commercial purposes and property used for non-commercial purposes.43

This additional immunity for its property afforded to a central bank is of particular use to a country with oil reserves or favourable trade balance which generates revenues beyond the needs of its immediate requirements; such revenues may be held by the central bank of the State and if coming within the immunity afforded to the property of the central bank may ensure their protection from the claims of commercial creditors of the State. A fine distinction here is whether the use of commercial means, investment, or commercial trading in securities to maintain or enhance the value of the reserves of the central bank held as a monetary authority should also be treated as immune. Although such funds are not ‘in use’ for sovereign purposes, an English court has held that their allocation in a stabilization fund for future generations establishes their intended use for sovereign rather than commercial purposes and hence their immunity from execution even though, to ensure the fund retains its worth relative to current values, it may be ‘actively traded’ in commercial securities.44 The underlying philosophy of the US and UK legislation seems to be that a central bank has ‘important responsibilities to its country and the people who live there’ and that ‘money held by the bank is held pursuant to its public duties and so (arguably) unavailable to pay its own debts’.45 However, excess foreign exchange reserves of certain countries have recently given rise to Sovereign Wealth Funds, which are held no longer mainly in diverse exchange currencies, bonds or in long-term commercial assets, but are invested in equities, derivatives, and short-term commercial assets.46 If the purpose of these Funds is ‘to play the markets’ for wealth enhancement rather than to serve as a reserve for the State and its people, it raises the question, quite apart from concerns voiced by the IMF of lack of transparency and threat to world financial stability,47 whether such funds should continue to enjoy the complete immunity from enforcement measures which the UN Convention, US, UK, and Chinese legislation confers in respect of commercial debts incurred in the achievement of such wealth. Increasingly, sovereign funds of States are invested in foreign commercial assets; despite, however, that the capital, and profits, and professional services to invest, hold and realize them are all conducted by way of commercial transactions, proceeds from the funds of the State continue to enjoy immunity from enforcement. Aitkens LJ in AIG firmly rejected such a challenge. Recently the Swiss Federal Court authorized measures of judicial criminal assistance in respect of alleged money laundering relating to the investigation of funds held by offshore companies where the named beneficiaries were the President of Kazakhstan and members of his family. Noting the funds were derived from oil dues paid by US companies and regardless that they were destined for the discharge of public commitments of the State the Federal Court declared that where the State, acting as the holder of private rights in assets in the name of companies, had deployed them in ordinary private law transactions, such assets were subject not only to claims but to measures of execution.48 A similar line of argument, however, found no support in the UK Supreme Court in respect of a claim on distribution of the assets of the liquidation of a commercial bank, despite the strong arguments of Rix LJ in the Court of Appeal.

SerVaas, a judgment creditor of Iraq for monies due under a commercial contract lodged a claim to a share of the assets on liquidation of the state controlled Rafidain Bank; Iraq held a 10 per cent share in the same liquidation assets being the ‘Admitted claims’ acquired by Iraq as part of an optional reconstruction process entered into between commercial creditors and destined for payment into the Development Fund for Iraq established by the UN Security Council Resolution 1483 for use to compensate the humanitarian needs of Iraq people, economic repair, and reconstruction of Iraq’s infrastructure. SerVaas claimed that the funds in the liquidation were held ‘for use for the commercial purposes’ for distribution of the bank assets and hence by SIA, section 13(4) were not barred from enforcement. In the Court of Appeal Brian Rix LJ expressed the view that

until the dividend is paid, the claim’s obvious use and purpose … 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 (set out at para 31).

The Supreme Court, however, having regard to a certificate of the Head of Mission of the Embassy of Iraq which declared that Iraq’s share had never been used, was not in use and not intended to be for use for any commercial purpose, held unanimously that

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’ (Justice Clarke para. 32).49

Tax revenues of the State

Tonnage fees, registration fees, and other taxes due from shipowners to the State of registration have been held exempt from attachment in execution of an ICSID award.50 But tax liens on property used by a foreign State for the purpose of housing its employees has been held not to be immune under the US FSIA. New York City converted the unpaid taxes on rent-free accommodation provided by India for its low-level staff at the UN into tax liens and the Supreme Court affirmed the lower courts’ ruling that the liens came within the exception to immunity for rights in immovable property in FSIA, section 1604(a)(4).51

Cultural heritage of the State

UN Convention Article 19(1)

… (d) property forming part of the cultural heritage of the State or part of its archives and not placed or intended to be placed on sale;

The inclusion of this category in the ILC Draft was novel. Sucharitkul justified it in a blatant appeal to developing States’ susceptibilities:

the taking, even as a judicial sanction, of property constituting the cultural heritage of a nation or the pillage of natural resources over which a State is entrusted with permanent sovereignty was not to be allowed. The State has no power to alienate its own natural resources any more than the power to reduce statehood to a colonial regime. The process of decolonisation is irreversible. The opposite is not permissible with or without the consent of the State. A State may consent to give up its immunity from attachment and execution up to a certain limit beyond which no national jurisdiction or power is recognised. In this connection there exists a standard from which there can be no derogation. The seizure of a gunboat or military aircraft of another State may spark an endless process of hostilities or international conflict.52

The term ‘cultural property’ was first used in international law in the 1954 Hague Convention for Protection of Cultural Property in the event of Armed Conflict and included in its definition are movable and immovable property ‘of great importance to the cultural heritage of every people’, ‘buildings and monuments that house cultural property such as museums’, and ‘centres containing a large amount of state property’ such as cities. The 1970 UNESCO Convention on the means of prohibiting and preventing the illicit import, export, and transfer of ownership of cultural property defines cultural property as ‘property which on religious or secular grounds, is specifically designated by each State as being of importance for archaelogy, prehistory, literature, art or science’ and emphasizes the national as opposed to the universal significance of the property.53 National laws prohibit or limit the export of cultural objects. Until recently State practice on the subject was scant though in 1984 the Swiss Ministry of Foreign Affairs concluded that an exhibition of Egyptian artefacts in Geneva involved sovereign activities and accordingly the objects were immune from attachment.54

In the absence of express undertaking by a forum State in an international convention relevant to the claim, title and the right of possession to cultural objects are determinable by the lex situs of the objects at the time of derivation of such title.55 New Zealand legislation purporting to forfeit an historic object, a rare Maori carving which had been exported without the required authority, was held ineffective by the House of Lords, upholding the Court of Appeal decision, to remove the title in the object from the private owner to the forfeiting authorities.56 In a claim by Iran to ownership or possession of antiquities some 5,000 years old the English Court of Appeal held the claim by the State pertained to its cultural heritage and was not rendered unenforceable as a penal or public foreign law. It was argued that, as Iran had not taken possession, it was seeking to enforce its sovereign authority by means of a penal or public law. But the Court of Appeal held that Iran was not asserting a claim based on the taking of possession by the State and its compulsory acquisition from private owners, ‘but a claim based upon title to antiquities which form part of Iran’s national heritage, title conferred by legislation that is nearly 30 years old. This is a patrimonial claim, not a claim to enforce a public law or to assert sovereign rights’. Referring to the 1970 UNESCO Convention, other international instruments,57 and resolutions of the Institut de droit international and the International Law Association58 on the subject, the Court continued: ‘there are positive reasons of policy why a claim by a State to recover antiquities which form part of its national heritage and which otherwise complies with the requirements of private international law should not be shut out by the general principle invoked by Barakat … There is international recognition that States should assist one another to prevent the unlawful removal of cultural objects including antiquities’ (paragraphs 154–5).59

State property forming part of an exhibition

UN Convention Article 21

(e) property forming part of an exhibition of objects of scientific, cultural or historical interest and not placed or intended to be placed on sale.

Where the presence of the cultural objects is restricted to their temporary public exhibition State practice seems more favourable to conferment of immunity, though, until recent cases seeking the recovery of cultural objects looted during the Second World War, there have been few cases reviewing the legality of the scope of any exemption. In 2004 the Ministry of Foreign Affairs of Switzerland expressed a view that the cultural property of a State on exhibition was to be treated as immune and a court order on the application of the Swiss trading company NOGA for the seizure of paintings from Moscow’s Pushkin Museum sent to Switzerland for the purpose of exhibition was defeated by the Swiss Federal Council ordering their release so that the paintings could be returned to Russia.60 An enquiry into the ownership of a painting sent by a Czech State entity to be exhibited in Cologne, Germany was apparently investigated by the German Constitutional Court without any question being raised as to lack of jurisdiction by reason of the immune nature of property in possession of a State and sent for exhibition in the territory of the forum State.61 In the US the expropriation exception to State immunity in the FSIA, section 1605B(3) has given rise to claims with the US court basing its jurisdiction on the presence on exhibition of the art objects and other cultural articles on exhibition (usually by a Foreign State or a State museum) in US territory. Under the Immunity Seizure Act of 196662 art works and cultural objects on temporary loan to US institutions for the purposes of display and exhibition may receive immunity from seizure, attachment, or any other legal process. However, such immunity must be conferred before the object enters the US.63 Contrary to a previous decision, holding that only the State could assert the immunity of its property, in Rubin v Iran64 the court held that US institutions could assert the immunity of artefacts under the FSIA and that the court could raise the issue sua sponte. Both courts held that only the activity of the foreign State was relevant to a determination of whether the commercial exception applied.65 As discussed in Chapter 8, US law in Republic of Austria et al v Altmann, Austria claimed State immunity in respect of paintings, including two portraits of Adele Bloch-Bauer by Gustav Klimt, which had been in the national collection since the Second World War; despite the wrongful acts—theft by the Nazis or expropriation by Austria—occurring between 1938 and 1948, decades before the adoption of the FSIA in 1976, the US Supreme Court affirmed decisions of lower courts as to the retroactive applicability of the FSIA, and ruled in favour of Austria’s immunity.66 In Malewicz v City of Amsterdam the district court accepted jurisdiction in respect of a claim for expropriation of works by the heirs of the painter by reason that the paintings were on exhibition and situated in the US when the suit was filed and ruled that the FSIA did not apply because of the commercial character of the loans.67

UNCSI, Article 19(d) and (e) has been cited in proceedings in support of the protected immune status in international law of pictures and other cultural objects to rebut claims by former owners and creditors of judgments obtained against the State. As a result of failure of a State to give effect to an arbitral award, cultural objects on loan for an exhibition in Vienna were seized following an order from a district court (in May 2011). However, the Austrian government (the Ministry of Justice via the Ministry of Foreign Affairs), referring to UNCSI, Article 21.1(c), informed the court that cultural objects on loan from a foreign State were immune as a matter of customary international law, and the objects were returned to the Czech Republic.68 In Chabad the US court applied the expropriation exception under the FSIA to make an order for religious manuscripts to be returned to their former owner, holding that the property at issue was in the possession of agencies/instrumentalities engaged in commercial activity in the US.69 The documents, however, were located in Russia in the State Library and on notification of proceedings to enforce the judgment Russia informed the District Court that the court order was in violation of international law, that any provision relating to the immunity of articles had no application outside the forum State territory and that diplomatic channels should be used in respect of any concerns about the collection. Russian State-owned museums cancelled loans intended to be made to Russian institutions.70

Until 2007 the UK gave no protection to art works coming from abroad on temporary exhibition in the country but in view of the increasing problems met by British museums in arranging exhibitions of foreign cultural objects71 and the NOGA affair in Switzerland, the Tribunals Courts and Enforcement Act of 2007 includes in Part 6 ‘provision protecting cultural objects from seizure or forfeiture in certain circumstances’ by conferring ‘immunity from seizure for cultural objects that are lent to the United Kingdom for temporary exhibitions to the public at any museum or gallery that is approved by the Secretary of State’. The statutory immunity applies on entry and continues only so long as the object is in the UK for the purpose of public display in a temporary exhibition at an approved museum or gallery and for not longer than 12 months.72 It does not apply to objects for sale, or objects on long-term loan to museums; nor do works of art that are usually kept in the UK, or are owned by a UK resident, qualify for protection. Approval depends on the museum’s procedures satisfying the Secretary of State, in particular procedures for establishing the provenance and ownership of objects, for exercising due diligence, and providing in advance a list of items to be exhibited.73 The immunity conferred only provides protection from seizure. The immunity does not bar museums in the UK or lenders from being subject to a claim in conversion and the grant of remedies, including damages other than specific restitution of a work of art.74

In the House of Lords the Bill was criticized as encouraging the exhibition of stolen property and a surrender to threats from the State of Russia that it would not be prepared to lend objects to countries that do not have anti-seizure legislation.75 Lord Howarth of Newport described the Bill as ‘an honourable attempt to resolve the tension between two public goods: that there should be the continuation of great exhibitions of works of art, and that there should be access to justice’. He cited a Consultative paper of the Department of Culture, Media and Sports. Although it noted that, in practice, the legislation was likely to prevent claims to works of art when, from the point of view of a claimant, their temporary presence in the jurisdiction rendered it most useful to bring such a claim, the department concluded that the legislation would not contravene the right of access to court under Article 6.1 of the European Convention. In the Department’s view ‘preventing a potential claimant from seeking a particular form of relief in an English court for a limited period of time struck a fair balance between the rights of the claimant and the public interest’. In order to assist institutions seeking protection for an object under Part 6 of the Act, the UK adopted in 2008 the Protection of Cultural Objects on Loan (Publication and Provision of Information) Regulations.

Although the 2004 UN Convention is not yet in force, several States have already enacted immunity from seizure legislation for cultural objects on loan in addition to the UK which adopted such legislation in 2007 as mentioned above. The US was the first to do so (1965), followed by other States including France (1994), Germany (1999), Austria (2003), Belgium (2004), Switzerland (2005), Israel (2007), the UK (2007), Liechtenstein (2007), Finland and the Czech Republic (both 2011). Such legislation has also been enacted in certain US States (New York, Rhode Island, and Texas) and certain Canadian provinces (British Columbia, Ontario, Quebec, Alberta, and Manitoba).76

Conclusions with regard to Chapters 16 and 17

From the general account of immunity from enforcement in Chapter 16 and the account of the three exceptions to measures of constraint and the five categories of State property listed as immune in this chapter (and the more detailed accounts of a foreign State’s immunity from execution under English and US law given in Chapters 7 and 8) it is plain that, though some opportunities for modification may exist, the general legal bar on enforcement against States and their property continues with inconsistencies in its application in national courts and non-payment of dues adjudicated as owing by States, particularly in respect of certain categories of claimants such as employees of a foreign State in a third country.

In the second edition of this book the account of extended proceedings in NOGA v State of Russia gave some idea of the additional legal devices which State immunity provides to a foreign State seeking ways to evade or delay the discharge of its obligations. A debt incurred in respect of the supply of food stuffs entered into in 1992 for which a final award was rendered by the Chamber of Commerce of Sweden in 1997, remains unsettled with $27 million outstanding to the present date. Legal differences as to recognition of the award in French and Swedish courts led to delays; attachment orders sought by NOGA against French banks in respect of funds in the names of the Russian Embassy, and the Central Bank of the foreign State were ordered to be lifted by the Paris Court of Appeal ruling them as immune; waivers by the State held ineffectual; attempts to attach fighter planes and paintings of the State were evaded as was seizure of a ship owned by the defaulting State in use to train cadets. The award continues to be unsatisfied.77

Of course enforcement may be misused by private parties as well as States which is illustrated by the attempt of creditors to execute a judgment rendered against Germany for war debts incurred in 1943–45 by a court order for the sale of the cultural centre, the Villa Vigoni. But the history of the abortive proceedings in this case and a similar case of Sedelmayer78 illustrate the use of State immunity to evade payment of a validly incurred debt which both an arbitral tribunal and national courts have decided is properly due. A debtor determined not to honour his commercial obligations can always use the law to delay, if not to evade, his liability but these cases additionally illustrate that, beyond the inevitable differences which arise between trading parties, the complexity of the current law of State immunity from enforcement offers a debtor State additional methods of denying his creditor execution in satisfaction of a valid award obtained in respect of a commercial transaction.

Proposals have been made regarding supplementary procedures for obtaining compliance and a compulsory dispute settlement procedure is provided in UNCSI Article 27(2) which applies unless a State Party to the Convention makes a declaration stating that it does not consider itself bound by that provision. Only Iran and Saudi Arabia have declared that they are not bound by Article 27(2) of the 14 States who to date have ratified the Convention (see Chapter 9).

A period of grace

A period of grace whether pursuant to a default judgment of the forum State court or for voluntary compliance has been proposed as a way by which to implement the personal nature of the obligation to honour a judgment.

Pursuant to default judgement

UNCSI, Article 23 sets out a procedure for obtaining a default judgment with paragraph 1(c) stating ‘that the present Convention does not preclude a State from exercising jurisdiction’ in rendering such a default judgment. One assumes that paragraph 1(c) merely requires the court of the forum State to satisfy itself that it has the competence to render a default judgment against a State in respect of a dispute on a non-immune matter. It cannot be construed as an authority for the court registering the judgment to reopen the adjudicative stage of the proceedings and to determine afresh whether the defendant State is entitled to immunity; to do so would constitute an appeal process rather than the rendering of a default judgment.

By voluntary compliance

A period of grace for voluntary compliance is another way by which to implement the personal nature of the obligation to honour a judgment. The Institut de Droit International recommended79 that the procedural laws of the forum State should allow sufficient opportunity (délais suffisants) for the government of the State where suit was brought or execution demanded or effected to be informed.80 The Harvard Research proposed that a State should not permit orders or judgments to be enforced against another State until after that State had been notified and had been given adequate opportunity to object to such enforcement.81 Further, it provided that where a State against which proceedings are instituted consents to give such security as the court may deem sufficient for the satisfaction of the judgment, enforcement is prohibited against other property of the State to satisfy the judgment (Article 24).

Such a period of grace is provided by the US FSIA: no attachment or execution against State property in the US as provided in section 1610(a) and (b) is permitted until the court has ordered such attachment or execution having determined that a reasonable period of time has elapsed following the entry of judgment and the giving of notice as required.

On the same lines, in the search of compromise, was a proposal of the Chairman of the Working Group set up by the UNGA Sixth Committee to consider the ILC Draft Articles: ‘No measures of constraint shall be taken against the property of a State before that State is properly notified and given adequate opportunity to comply with the judgment’.82 This proposal received some support as giving the State concerned time to make arrangements to satisfy the judgment and to avoid economic repercussions which might result from abrupt seizure of State property. It is reflected in Article 23 of the UN Convention, which in effect specifies in advance a four-month period before any ruling in default may be given. Adverse publicity of failure to satisfy a valid judgment within the fixed period might also prove an additional incentive to pay.83

Voluntary compliance supported by an international dispute mechanism

Article 27

Settlement of disputes

1. States Parties shall endeavour to settle disputes concerning the interpretation or application of the present Convention through negotiation.

2. Any dispute between two or more States Parties concerning the interpretation or application of the present Convention which cannot be settled through negotiation within six months shall, at the request of any of those States Parties, be submitted to arbitration. If, six months after the date of the request for arbitration, those States Parties are unable to agree on the organization of the arbitration, any of those States Parties may refer the dispute to the International Court of Justice by request in accordance with the Statute of the Court.

3. Each State Party may, at the time of signature, ratification, acceptance or approval of, or accession to, the present Convention, declare that it does not consider itself bound by paragraph 2. The other States Parties shall not be bound by paragraph 2 with respect to any State Party which has made such a declaration.

4. Any State Party that has made a declaration in accordance with paragraph 3 may at any time withdraw that declaration by notification to the Secretary-General of the United Nations.

A compulsory dispute settlement procedure gained the support of the Working Group of the ILC to whom the issue was referred back in 1998 and in consequence Article 27(2) of UNCSI provides such a procedure which applies unless a State Party to the Convention makes a declaration stating that it does not consider itself bound by that provision. Although on their ratification of UNCSI, Iran and Saudi Arabia have declared they are not bound by Article 27(2), other States who have ratified have not made such an exclusion. Whilst negotiation and voluntary arbitration is available to States, whether or not they have made such a declaration, the additional sanction of reference to the ICJ would be available where no declaration had been made by a State Party in respect of its national whose judgments against another State remained unsatisfied or the forum State of the national court whose award had not been honoured. See Chapter 9.

Less formal methods, diplomatic discussions with the assistance of a third State rather than an international dispute procedure between the two States, may be a better way to remedy a failure to provide adequate funds to meet a commercial obligation.84 As members of the Working Group anticipated in discussing the dispute settlement provision, difficulties arising from failure to satisfy a judgment are not confined to the forum and debtor States but are of concern also to the private party who was the creditor, and possibly third States where enforcement might be sought of the judgment against the debtor State. Such international proceedings, it was feared, might infringe upon the judicial authority of the forum State and the independence of its courts, and undermine the domestic judicial hierarchy. Others thought it would be possible to have implementing legislation which would provide some procedural mechanism for review of national court decisions or their revision to take account of the results of international proceedings. There was, however, a reluctance to give up existing national enforcement procedures in return for an uncertain and possibly lengthy international method of settlement.

A more proactive monitoring of Member States’ compliance with their obligations under the ECHR has been introduced. Since 2001 the Council of Europe has undertaken active supervision of the execution of judgments of the European Court of Human Rights given against States which remain unsatisfied; the Committee of Ministers may call on States to provide information of measures taken, may impose default interest, keep the default on the agenda of its meetings until remedied, and publish the State’s response.85

Whilst there is a general recognition of failure to discharge claims arising from wrongful dismissal of employees working for a foreign State in a third country, (evidenced by the number of applications to the ECtHR), the extent to which in general States fail to pay up has not been fully explored. A first stage in any reform must be to establish the extent to which foreign States evade their commercial obligations. As Scrutton LJ pointed out nearly 100 years ago: default by States in honouring their liabilities leads to unwillingness on the part of private parties to do business or accept them as trading partners. Certainly, as in the NOGA and Sedelmayer cases, there are examples of clear evasion of valid judgments and awards. But in practice it may be that, though States may take longer to honour their commercial debts in the long run, all but a few do so. Fewer than 10 per cent of arbitration awards made against States are said not to be complied with. Undoubtedly in some judgments obtained against States a genuine difference of opinion as to the commerciality of the underlying obligation may exist between the parties or a subsequent cooling of friendly relations for political reasons may take its toll of commercial commitments.

A first step would, therefore, be to undertake an enquiry as to the extent to which foreign States fail to honour their commitments, in particular where judgments in national courts have been given against them determining immunity not to be applicable. A second step, if as seems probable such an enquiry confirmed dissatisfaction with foreign States’ compliance to be particularly strong in respect of certain areas, for amendments both to the law and the practice in those areas. Two have been identified as such likely areas where immunity barring measures of constraint prevents recovery of adjudicated debts, namely (1) immunity to obtain monetary compensation due to an employee awarded by a national court in respect of a judgment of wrongful dismissal by a foreign State in respect of employment in a third State; and (2) sums awarded pursuant to an arbitral award in which a foreign State has expressly consented to arbitration under rules of an international institutional arbitration (see Chapter 16). It may also be that hardship arising from non-payment of fees earned and dues payable that State assets deployed by a foreign State in the territory of another State for the purpose of investment and commercial profit would justify setting aside immunity regardless of whether the long-term use of such assets is intended for sovereign purposes.

In reaching any reform of the present law it must be taken into account that sensitivity is required in the absence of an international law of insolvency with regard to States’ insistence that commitments in respect of their public budget should have priority over claims of individual commercial creditors. Further, at a time of both State and private insolvency there may well be an unwillingness to increase uncertainty by change in the international law, however justified. Nonetheless the discussion of State practice in these two chapters has indicated where future developments are both required and possible. By representations based on a State’s specificity of consent required for a category of property, the nature and timing of the measure of constraint or relief sought, the relevant period for the identification and nature of the use of the State property, the terms on which State property is held in the forum State territory, the application of the rule to the individual fact situation may be adapted. A further possibility of change has been shown with regard to present injustice in the rules by treatment of the two stages of immunity of the foreign State, adjudication and enforcement, as one; of course it will be necessary to define the circumstances to permit such a combination and to obtain the cooperation of the enforcing national authority to such a change but the resulting combination of the two stages of immunity into the first adjudicative stage would bring about the automatic enforcement and discharge of outstanding commitments in respect of sums awarded in judgments given in respect of non-immune commercial transactions.