The Privy Council has indicated that only in ‘quite extreme circumstances’ will creditors be able to look to sovereign states to satisfy the obligations of state-owned entities (SOEs) – or vice versa. In La Générale des Carrières et des Mines v FG Hemisphere Associates LLC, [2012] UKPC 27, FG Hemispheres wanted to go after the assets of Gécamines, a corporation owned by the Democratic Republic of the Congo (DRC), in order to enforce arbitration awards made against the DRC in its sovereign capacity.

The case is an appeal from the courts of Jersey, but judging by the range of authorities considered – English, US, Canadian, South African, French – it is clear that the Board is enunciating principles of broad application. One needs to consider first whether the SOE is distinct from the organs of the state in question and whether it has separate legal personality. Constitutional and factual control of the SOE by the state will be relevant, as will the extent to which the SOE exercises sovereign functions – but neither of these factors necessarily makes a SOE an organ of the state. Where a SOE with separate legal personality has been formed for commercial or industrial purposes, with its own management and budget, the ‘strong presumption’ is that its separate status should be respected – with the result that the state that owns it will not be liable for its commercial debts, nor will it be liable for the debts of the state. Under circumstances which the Privy Council described as ‘quite extreme’, this presumption can be rebutted, but it will require a finding that the SOE’s operations and the state are ‘so closely intertwined and confused’ as to make the SOE a ‘mere cypher’. On the facts, this was not the case with Gécamines, which meant that FG Hemispheres could not seek recourse from it for the obligations of the DRC under the arbitral awards.

The judgment also considers veil-piercing in the context of SOEs, concluding that the factors for lifting the veil in domestic law are not necessarily the same as those under international law (an underlying fraudulent or otherwise improper purpose seems not to be a prerequisite under the latter). It may be appropriate in particular circumstances to disregard a SOE’s corporate formalities where its owner has interfered with it or otherwise behaved in such a way as to make those formalities a sham, but that couldn’t be said of Gécamines.

[Link available here].