In 1988 it must have seemed like a good idea to SerVaas Inc. to supply equipment to the Iraqi government for a metal processing plant. But Iraq invaded Kuwait two years later, and the UK assets of Rafidain Bank, owned by the Iraqi state, were frozen; these assets included commercial debts owed to SerVaas. After the fall of Saddam Hussein’s government, a process of debt restructuring took place, with the new Iraqi government offering to repurchase claims from commercial creditors of specified Iraqi debtors, including Rafidain. SerVaas declined to participate in the process, having obtained judgments against Iraq, and sought to enjoin Rafidain’s liquidators from making dividend payments to the Iraqi government under the restructuring scheme unless the judgment debt in favour of SerVaas was recognised. Iraq moved to discharge the injunction on the grounds that the funds payable to it by the bank were immune from execution.
SerVaas argued that the funds were subject to an exclusion in the State Immunity Act 1978 for property that is ‘for the time being in use or intended for use for commercial purposes’. Given the clearly commercial purpose of the underlying supply contract, the dividends were, it contended, to be used to obtain payment for or to complete that transaction or as part of the transaction by which Iraq acquired the claims from Rafidain. The UK Supreme Court agreed with the majority of the English Court of Appeal that the origin of the debts was irrelevant: SerVaas Inc v Rafidain Bank,  UKSC 40. The funds were not being used for the original commercial purpose of the supply contract, but instead for the sovereign purpose of restructuring Iraqi state debt. This conclusion was consistent with US (and Hong Kong) authority on analogous issues.
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