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Embassy Bank Accounts and State Immunity from Execution: Doing Justice to the Financial Interests of Creditors

Published online by Cambridge University Press:  05 February 2013

CEDRIC RYNGAERT
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Abstract

Embassy bank accounts are among the properties of states most widely present in foreign states. Accordingly, they constitute an ideal target for attachment by creditors. International instruments have largely upheld state immunity from execution regarding bank accounts, however. Likewise, state practice largely – and apparently increasingly – supports state immunity from measures of attachment, by applying a presumption that funds in embassy bank accounts are used for governmental non-commercial purposes. This approach is overly deferential to the state. Instead, it is argued that domestic courts should require that the state, at least partially, discharge the burden of proof regarding the nature (commercial/sovereign) of the funds in the bank account. A failure to discharge this burden should result in a rejection of immunity. Only such an approach adequately balances the interests of states and creditors, and does sufficient justice to the creditor's right of access to a court. In addition, it is argued that such a balance is also brought about by construing literally general waivers of immunity from attachment, as not requiring an additional specific waiver regarding embassy bank accounts.

Keywords

attachmentbank accountsburden of proofimmunityUN Convention
Type
INTERNATIONAL LAW AND PRACTICE
Information
Leiden Journal of International Law , Volume 26 , Issue 1 , March 2013 , pp. 73 - 88
Copyright
Copyright © Foundation of the Leiden Journal of International Law 2013

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References

1 Ostrander, J., ‘The Last Bastion of Sovereign Immunity: A Comparative Look at Immunity from Execution of Judgments’, (2004) 22 BerkeleyJIntlL 541Google Scholar, at 564.

2 Reinisch, A., ‘European Court Practice Concerning State Immunity from Enforcement Measures’, (2006) 17 EJIL 803CrossRefGoogle Scholar, at 828 (submitting that ‘cases dealing with embassy accounts may rank among the most frequently litigated enforcement immunity cases’).

3 Art. 23 of the European Convention on State Immunity (1972), ETS No. 074, UNTS, Vol. 1495, at 182.

4 2004 United Nations Convention on the Jurisdictional Immunities of States and Their Property, Art. 19(3). See General Assembly Resolution 59/38, annex, Official Records of the General Assembly, Fifty-Ninth Session, Supplement No. 49 (UN Doc. A/59/49).

5 Ibid. Art. 21(1)(a).

6 G. Hafner, M. G. Kohen, and S. Breau, ‘State Practice Regarding State Immunities’ (2006), Martinus Nijhoff and Council of Europe at 163–4. See, e.g., Z. v. Geneva Supervisory Authority for the Enforcement of Debts and Bankruptcy, Tribunal fédéral suisse, 31 July 1990, 102 ILR 205, 207; Cass. fr., Arrêt n° 867 (09-72.057), 28 September 2011 (‘les fonds affectés aux missions diplomatiques bénéficient d'une présomption d'utilité publique, puis, que les comptes bancaires d'une ambassade sont présumés être affectés à l'accomplissement des fonctions de la mission diplomatique de sorte qu'il appartient au créancier qui entend les saisir de rapporter la preuve que ces biens seraient utilisés pour une activité privée ou commerciale’).

7 See, e.g., State of the Netherlands v. Azeta BV, Rechtbank Rotterdam (District Court, Rotterdam), 14 May 1998 KG 1998, 251, English summary at NYIL (2000), at 264; Société Eurodif v. République islamique d'Iran, Cour de cassation (1st Civil Chamber), 14 March 1984, Revue critique de droit international privé (1984) 644, 77 ILR 513; and the Botswanan judgment of Angola v. Springbok Investments (Pty) Ltd, Application for review, MISCA No. 4/2002; Oxford Reports ILDC 7 (BW 2003); H. Fox, The Law of State Immunity (2008) at 628–9; Reinisch, supra note 2, at 829 (‘It seems that many courts are more and more willing to presume the public purpose of property, at least if claimed by the respondent state and not disproved by the applicant’).

8 See, e.g., Af-Cap, Inc. v. Republic of Congo and Ors, 383 F.3d 361 (5th Cir 2004); Oxford Reports ILDC 119 (US 2004) (overruling the lower court in this regard).

9 Ostrander, supra note 1, at 565.

10 Af-Cap, Inc. v. Republic of Congo and Ors, supra note 8.

11 Ibid.

12 E.g., Alcom Ltd v. Colombia, (1984) AC 580; Liberian Eastern Timber Corp v. Government of Liberia, 89 ILR 360, 659 F. Supp. 606 (D.D.C. 1987).

13 See, e.g., Republic of ‘A’ Embassy Bank Account Case, Supreme Court of Austria, 3 April 1986, 77 ILR 488, at 494.

14 E.g., Birch Shipping Corp. v. Embassy of Tanzania, Misc. No. 80–247 (D.D.C. Nov. 18, 1980), 507 F. Supp. 311, 313 (D.D.C. 1980).

15 Crawford, J., ‘Execution of Judgments and Foreign Sovereign Immunity’ (1981) 75 AJIL 820CrossRefGoogle Scholar, at 864.

It indeed appears to be desirable to protect the legitimate interests of the creditor (and ultimately of the state itself, as creditors may no longer be willing to contract with governments if their loans are not guaranteed by the possible attachment of government property). See, on the legitimate interests of the creditors, below, section 2.

16 See, e.g., Russian Federation v. Noga Import/Export Company, 10 August 2000, Court of Appeal of Paris (First Chamber), 127 ILR 155, at 160–1 (holding that ‘the protection of the funds held in the bank accounts, opened in the name of the embassy for the requirements of its public activities on the territory of the receiving State, is based on the rules of the law of diplomatic relations and the specific regime governing diplomatic immunities’) (emphasis added). See also Philippine Embassy Bank Account Case, Federal Republic of Germany, Federal Constitutional Court, 13 December 1977, 65 ILR 146.

17 Art. 22(3) VCDR provides that ‘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’, but clearly, embassy accounts held at a private bank are not located on the premises of the mission. See also P.-T. Stoll, ‘State Immunity’, Max Planck Encyclopedia of International Law (online), para. 63 (also rejecting Art. 30(2) VCDR and Art. 31(4) of the 1963 Vienna Convention on Consular Relations as legal bases for the attachment of bank accounts).

18 See also Stoll, supra note 17, para. 66 (‘Art. 21 (1) (a) [UN Convention], which in effect secures the immunity of State property used or intended for diplomatic or consular functions explicitly, includes “bank accounts” and thereby covers what is missing in the two Vienna Conventions [on respectively Diplomatic and Consular Relations]’).

19 ‘Report of the International Law Commission on the Work of Its Forty-Third Session, 29 April–19 July 1991, Official Records of the General Assembly, Forty-Sixth Session, Supplement No. 10’ (1991), YILC, UN Doc. A/46/10 vol. II(2) at 58.

20 Ibid. 59.

21 North Sea Continental Shelf Cases (Federal Republic of Germany/Denmark; Federal Republic of Germany/Netherlands), Pleadings, Oral Arguments and Documents, Judgment of 20 February 1969, at 43, para. 74 (observing, as regards the practice and opinio juris requirements for a norm to constitute customary international law: ‘State practice, including that of States whose interests are specially affected, should have been both extensive and virtually uniform in the sense of the provision invoked; and should moreover have occurred in such a way as to show a general recognition that a rule of law or legal obligation is involved’). Compare Ostrander, supra note 1, at 568 (‘The position of the ILC on [the attachment of bank accounts] remains somewhat unclear’).

22 Commentary (1) to Art. 1 of the UN Convention, UN Doc. A/46/10, 1991 YILC, vol. II(2). (‘The present articles apply to the immunity of a State and its property from the jurisdiction of the courts of another State’) limits itself to stating that ‘[t]he purpose of the present articles is to formulate rules of international law on the topic of jurisdictional immunities of States and their property’. This was not lost on the Brussels Court of Appeal, which held in a case regarding the attachment of a foreign state's bank accounts, NML Capital Ltd v. Republic of Argentina (2011): ‘les articles de la Convention des Nations Unies sur les immunités des Etats ne peuvent être considérés comme le résultat d'une codification de coutumes établies, sinon commes des dispositions créer pour régler un domaine en evolution, exigeant une intervention jugée “nécessaire et opportune” (. . .) servant de fil conducteur aux pratiques en la matière’. NML Capital Ltd v. Republic of Argentina, Brussels Court of Appeals, RG No. 2009/AR/3338, 21 June 2011, at 8.

23 ILC, Introductory remarks, 1991 YILC, vol. II(2), at 23.

24 ICJ, Jurisdictional Immunities of the State (Germany v. Italy), Judgment of 3 February 2012, dissenting opinion of Gaja, J., para. 9.

25 Ibid, para. 118. In so doing, the ICJ distanced itself from the absolute rule enshrined in Article 23 of the 1972 European Convention on State Immunity, pursuant to which ‘[no] measures of execution or preventive measures against the property of a Contracting State may be taken in the territory of another Contracting State except where and to the extent that the State has expressly consented thereto in writing in any particular case’.

26 Ibid., para. 117.

27 M v. The Democratic Republic of Congo, Fortis Bank SA, The State of Belgium and the French Community, Appeal Judgment, 2008/AR/2441; Oxford Reports ILDC 1623 (BE 2010), 26 April 2010.

28 Etat d'Irak v. Vinci Constructions Grands Projets SA de droit français, Cour d'appel, Brussels, 4 October 2002, JT (2003) 318; République du Zaïre v. d'Hoop et crts, Cour d'appel, Brussels, 8 October 1996, JT (1997) 100.

29 Zaire v. d'Hoop and Another, Tribunal civil, Brussels, 9 March 1995, JT (1995) 567, 106 ILR 294; Irak v. SA Dumez, Tribunal civil, Brussels, 27 February 1995, JT (1995) 565; 106 ILR 284, at 290.

30 Judgment of the Brussels Attachment Section (Beslagrechter/Juge des saisies); Congo, the Democratic Republic of v. M, 31 July 2008, not published.

31 First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms (20 March 1952), 213 UNTS 262.

32 European Convention for the Protection of Human Rights and Fundamental Freedoms (4 November 1950), 213 UNTS 222; 312 ETS 5.

33 M v. The Democratic Republic of Congo and Others, supra note 27, at para. 40, second part.

34 Ibid., at para. 41. This balancing of human rights considerations and sovereignty/immunity imperatives recognized by international law is based on the case law of the European Court of Human Rights. See McElhinney v. Ireland, 34 EHRR (2002) 322; Fogarty v. United Kingdom, 34 EHRR (2002) 302; and Al-Adsani v. United Kingdom, 34 EHRR (2002) 273, with respect to state immunity, and Waite and Kennedy v. Germany, (2000) 30 EHRR 261; Beer and Regan v. Germany, (2001) 33 EHRR 3, with respect to the immunity of international organizations.

35 Iraq v. Vinci Constructions Grands Projets SA, Appeal judgment, Oxford Reports ILDC 49 (BE 2002); JT 2003, 318, para. 45.

36 M v. The Democratic Republic of Congo and Others, supra note 27, at para 40, III (‘La République Démocratique du Congo soutient que ce compte technique est nécessaire à l'exercice de la puissance publique dans la mesure où il est affecté au fonctionnement du Consulat Général à Anvers de la République Démocratique du Congo, et que dès lors il est couvert par l'immunité d'exécution. Comme la République Démocratique du Congo n'est pas en mesure de démontrer que cette affirmation est exacte alors que Monsieur Mabibi-ma-Kibebi [the creditor] se trouve dans l'impossibilité de démontrer le contraire (l'affectation à des fins privées de ce compte) et comme la République Démocratique du Congo ne dépose aucune pièce et ni fournit aucune explication convaincante à ce sujet, il y a lieu d'admettre que pour le montant créditant ce compte, la République Démocratique du Congo ne peut pas se prévaloir d'une immunité d'exécution’).

37 Ibid., IV, para 40. (‘Pour ce qui est des autres biens qui ont fait l'objet des saisies litigieuses, sur la base d'une analyse des éléments de fait et d'une motivation judicieuse que la cour approuve et fait siennes, le premier juge a estimé à bon droit qu'ils doivent bénéficier de l'immunité d'exécution’). The Court did not go into further detail as to the ‘factual elements and the judicious motivation’ which the DRC had offered in its view.

38 E.g., X. v. Brazil, Landgericht, Frankfurt am Main, 23 May 2000, Recht der Internationalen Wirtschaft (2001), 308. A large number of cases is mentioned in Reinisch, supra note 2, 827–33.

39 Crawford, supra note 15, at 864 (‘Whether a liquid fund can be severed in this way will depend as much on availability of evidence and the problems of discovery as on any underlying principle’).

40 See Etat d'Irak v. Vinci Constructions Grands Projets SA de droit français, Cour d'appel, Brussels, 4 October 2002, JT (2003) 318.

41 See, e.g., Philippine Embassy Bank Account Case, supra note 16, 65 ILR 189 (holding that ‘for the executing authorities of the receiving State to require the sending State, without its consent, to provide details concerning the existence or the past, present or future purposes of funds in such an account would constitute interference, contrary to international law, in matters within the exclusive competence of the sending State’).

42 Iraq v. Vinci, supra note 35, analysis S. Vande Walle, A9. This commentator concludes, however, that the court, by placing the burden of proof on the creditor to show that the funds were used for commercial purposes, apart from allowing attachments on mixed accounts of embassies, seems to strike a careful balance between the interests of states and those of creditors. Above, we have argued that only partially shifting the burden strikes a balance between state and creditors’ interests.

43 See C. Schreuer, State Immunity: Some Recent Developments (1988), 155.

44 Cf. E. Denza, Commentary on the Vienna Convention on Diplomatic Relations, (2008) 195 (construing Art. 24 VCDR broadly to cover ‘all physical items storing information’ (emphasis added) and citing ILC Yearbook 1958 Vol. I, 135–6, which clarified that the words ‘and documents’ were added to the text in order to cover, for example, negotiating documents and memoranda in draft). Also, in Shearson Lehman Bros Inc. v. MacLaine Watson & Co. Ltd and Others, [1988] 1 All ER 116, the Court emphasized the communicative character of the documents protected under Art. 24 VCDR (‘The underlying purpose of the inviolability is to protect the privacy of diplomatic communications’). One cannot reasonably submit that embassy bank accounts are instruments of communication.

45 See also NML Capital Ltd v. Republic of Argentina, Brussels Court of Appeals, RG No. 2009/AR/3338, 21 June 2011 (on file with the author), at 9. This passage is in fact obiter dictum, as the Court subsequently held that the state had waived its immunity from attachment. Accordingly, the ratio decidendi of this judgment is Art. 19(a) of the UN Convention (consent) rather than Art. 19(c) or Art. 21(1)(a). See on waiver/consent section 3 of this contribution.

46 Commentary, supra note 22, at 59.

47 Scholars have also cast doubt on the customary-law character of other provisions of the Convention regarding attachment. See, e.g., regarding the immunity from attachment of central bank accounts provided for in Art. 21(1)(c) of the UN Convention: AIG Capital Partners Inc. and CJSC Tema Real Estate Co. Ltd v. Kazakhstan and Ors, Enforcement Decision, (2005) EWHC 2239; ILDC 94 (UK 2005), analysis J. C. Barker, A8 (observing that ‘it remains to be seen whether this provision will provide a stumbling block to those states which currently make such a distinction and which might be reluctant to extend absolute immunity from enforcement jurisdiction to the property of states’ central banks in this way’). See on the immunity of central-bank accounts from attachment: Nwogugu, E. I., ‘Immunity of State Property: The Central Bank of Nigeria in Foreign Courts’, (1979) 10 NYIL 179–96CrossRefGoogle Scholar; Asiedu-Akrofi, D., ‘Central Bank Immunity and the Inadequacy of the Restrictive Immunity Approach’, (1991) 28 Canadian Yearbook of International Law 263–307Google Scholar; Hess, M., ‘Enforcement of Bank Claims in Switzerland: Pledge, Set-Off and Immunity’, in International Monetary Fund, Current Developments in Monetary and Financial Law (1999) Vol. I, 469–502Google Scholar (especially at 486 et seq.).

48 See notably the recent case of Sabeh El Leil v. France, Application No. 34869/05, Judgment of 29 June 2011, para. 67, which concerned an employment dispute. The Court noted, among other things, that France had ‘failed to take into consideration the provisions of Art. 11 of the 2004 [UN] Convention, in particular the exceptions enumerated therein that must be strictly interpreted’ (para. 66).

49 General Secretariat of the ACP Group v. Lutchmaya, Final Appeal Judgment, Cass Nr C 03 0328 F; ILDC 1573 (BE 2009), 21 December 2009; General Secretariat of the ACP Group v. BD, Final Appeal Judgment, Cass nr C 07 0407 F; ILDC 1576 (BE 2009), 21 December 2009.

50 R. Ergec, Examen de jurisprudence – La Convention européenne des droits de l'homme, (2002) R.C.J.B., 155, No. 104.

51 See, e.g., Folgerø and Others v. Norway[GC], No. 15472/02, §100, 29 June 2007; Salduz v. Turkey[GC], No. 36391/02, §51, 27 November 2008.

52 See also Reinisch, supra note 2, at 829 (‘If one accepts that the immunity of state property from enforcement measures primarily depends upon whether or not it serves a public purpose, rules, including evidentiary rules, on determining such purpose become crucial.’). On disclosure see Art. 18 of the European Convention on State Immunity (16 May 1972): ‘A Contracting State party to proceedings before a court of another Contracting State may not be subjected to any measure of coercion, or any penalty, by reason of its failure or refusal to disclose any documents or other evidence. However the court may draw any conclusion it thinks fit from such failure or refusal.’ (Emphasis added.)

53 Some jurisdictions may even view a waiver as the sole exception to the immunity of embassy bank accounts from attachment. See General Health Insurance Company of the Czech Republic v. Embassy of the State of Palestine [1997], Obvodni sond pro Prahu 6 (District Court), Prague 6/case No. E 1426/97, 15 Dec. 1997, cited in Reinisch, supra note 2, at 829, n. 176.

54 Arts. 18(a) and 19(a) of the UN Convention allow measures of constraint to the extent that ‘the State has expressly consented to the taking of such measures as indicated: (i) by international agreement; (ii) by an arbitration agreement or in a written contract; or (iii) by a declaration before the court or by a written communication after a dispute between the parties has arisen’. Art. 20 clarifies that ‘[w]here consent to the measures of constraint is required under articles 18 and 19, consent to the exercise of jurisdiction under article 7 shall not imply consent to the taking of measures of constraint’, thereby confirming that a waiver of immunity from jurisdiction has no bearing on the immunity from execution or attachment.

55 See, e.g., Council of Europe, Explanatory Report to Article 23 of the European Convention on State Immunity (1972), para. 94.

56 See, e.g., Russian Federation v. Noga Import/Export Company, France, Court of Appeal of Paris (First Chamber), supra note 16, 127 ILR 160. The relevant contracts provided in Arts. 8(iii) and 9(iii) respectively that ‘the borrower shall not rely, neither for itself nor for its funds or revenues, on any immunity from judicial proceedings, enforcement, attachment or any other legal proceedings relating to his obligations under this contract’. Ibid, at 157.

57 Cass. fr., Arrêt No. 867 (09–72.057), 28 September 2011.

58 NML Capital Ltd v. Republic of Argentina, supra note 22, at 10–11 (original emphasis), citing Court of Appeals Brussels, 21 June 2002, JT 2002, 714.

59 See, e.g., A Co. Ltd v. Republic of X, QBD, 21 Dec. 1989, 2 Lloyds Rep. (1990) 520, 87 ILR 412.

60 See Reinisch, supra note 2, at 819–820, citing the French case of Société Creighton v. Ministre des finances de l'Etat du Qatar et autre, Cour de cassation (1st Civil Chamber), 6 July 2000, Bulletin civil I, No. 207, Revue de l'arbitrage (2001) 114; and the Swedish case of Libyan American Oil Company v. Libya, Svea Hovrett, 18 June 1980, (1981) 20 ILM 89, 62 ILR 225.

61 Beer and Regan, supra note 34; Waite and Kennedy, supra note 34.

62 Court of Cassation (Belgium), Western European Union v. Siedler M., Case No. S.04.0129.F; The General Secretariat of the ACP Group v. Lutchmaya M., Case No. C.03.0328.F; The General Secretariat of the ACP Group v. B.D., Case No. C.07.0407.F, 21 December 2009.

63 See for a comment Wouters, J., Ryngaert, C., and Schmitt, P., Western European Union v. Siedler; General Secretariat of the ACP Group v. Lutchmaya, Belgian Supreme Court Decisions on the Immunities of International Institutions in Labor and Employment Matters, (2011) 105 AJIL 560CrossRefGoogle Scholar.

64 Compare Germany v. Italy (2012), supra note 24, diss. op. Yusuf, J., paras. 28–29, transposing the judgments of the European Court of Human Rights in respect of the immunity of international organizations to a State immunity context. (‘In today's world, the use of State immunity to obstruct the right of access to justice and the right to an effective remedy may be seen as a misuse of such immunity. Such a balance has to be sought between the intrinsic functions and purposes of immunity, and the protection and realization of fundamental human rights and humanitarian law principles.’)