Introduction
Facts
Decision
Comment


Introduction

Until recently, the French courts applied a rather lenient test to waivers of immunity from execution. While French law required waivers to be specific and unequivocal, the courts allowed immunity from execution to be waived implicitly. For example, in Creighton v Qatar the Supreme Court took the view that an arbitration agreement to which a state was party, referring to the International Chamber of Commerce (ICC) rules, constituted not only a waiver of immunity from jurisdiction, but also a waiver of immunity from execution.(1) Once a state had waived its immunity from execution, the view was that it had opened itself up to enforcement against its assets, with diplomatic immunity being the ultimate limit. Where the assets served a sovereign state's diplomatic mission, they could be attached only if the state's waiver expressly and specifically targeted diplomatic assets. This was the outcome in Noga: the Paris Court of Appeal upheld the Russian Embassy's defence on grounds of immunity from execution because the language contained in the waiver could not amount to a waiver of diplomatic immunity.(2)

On March 28 2013, in three simultaneous decisions involving interim measures in pursuit of enforcement of a foreign court judgment, the Supreme Court applied a stricter test to waivers of sovereign immunity from execution. All three cases dealt with the same issue arising out of attachments made by NML Capital Ltd on debts owed, respectively, by BNP Paribas, Air France and Total Austral to Argentina: should these enforcement measures be released on the grounds of Argentina's immunity from execution? The court's ruling began with an orthodox reminder that states can waive, by written contract, their immunity from execution against assets or categories of asset used or destined to be used for public purposes. However, the court went on to declare that such waivers can be effective only if made in an express and specific manner, thus requiring that the assets or the category of assets over which the waiver is granted be specifically identified.

Facts

On October 19 1994 Argentina entered into a fiscal agency agreement with Banker Trust Company, a banking institution, for the issuance of bonds. A bond contract template, which contained a pro forma waiver of Argentina's immunity from execution, was annexed to the agreement as a "Form of Registered Security".

Following the economic crisis in 1998, Argentina concluded two bond loans with Banker Trust Company on July 3 and 21 2000, both of which partly restated the pro forma waiver of Argentina's immunity from execution annexed to the agreement. The waiver read as follows:

"To the extent that the Republic or any of its… assets… shall be entitled… to any immunity from… jurisdiction... from attachment prior judgment, from attachment in aid of execution of judgment, from execution of a judgment… the Republic has irrevocably agreed not to claim and has irrevocably waived such immunity to the fullest extent permitted by the laws of such jurisdiction."

NML, a company incorporated under the laws of the Cayman Islands and owned by the hedge fund Elliot International LLP, purchased some of these bonds on the New York Stock Exchange between 2001 and 2003.

In 2001 Argentina defaulted on its debt. As the bonds contracts contained a jurisdiction clause in favour of the New York courts, NML sought reimbursement of the bonds contracts before the US District Court for the Southern District of New York. On May 10 2006 that court found in favour of NML for an amount of approximately $284 million.(3)

Following the New York judgment, NML launched a vast international enforcement campaign against Argentinean state assets, targeting, for instance, accounts held by Banco Central de la Republica Argentina at the Federal Reserve Bank of New York,(4) as well as military training ships located in Ghana.(5)

Part of NML's enforcement campaign also extended to France. Before filing its request for leave to enforce the New York judgment in France, in 2009 NML started to attach various French bank accounts held by Argentine state institutions. However, on September 28 2011 the French Supreme Court approved the decisions of both the enforcement judge and the appeal court which ordered the release of the attachments on the grounds that Argentina's waiver did not cover diplomatic assets.(6) The Supreme Court restated its previous case law that waivers had to be both express and specific to be effective, and held that despite its broad language, Argentina's waiver could not operate as a valid renunciation of diplomatic immunity.(7)

In the meantime, NML had also performed attachments against the assets of Air France, BNP Paribas and Total Austral for moneys owed by their Argentine branches to Argentina regarding tax and social security claims and oil royalties. Similar to the first conservatory measures, Argentina initiated proceedings against NML before the enforcement judge, requesting both the release of the attachments made against these assets and adequate compensation for the damages suffered.

Both the first instance court and the appeal court ordered and confirmed the release of the attachments.(8) The appeal court first considered that attachments of the assets could be made in France. Because the Argentine branches did not constitute legal entities in and of themselves, the court took the view that their assets were, for the purpose of attachment, those of the parent company, and as such fell within France's territorial scope. However, the appeal court held that since Argentina's waiver did not unequivocally and specifically identify tax, social and oil royalty claims as being covered by the waiver, such claims remained covered by Argentina's immunity from execution.

NML appealed to the Supreme Court, contending that Argentina had expressly waived its immunity against enforcement of any judgment arising out of the bonds contracts.

Common to all three cases was the issue of whether the attachments made by NML on the debts owed by BNP Paribas, Air France and Total Austral to Argentina should be released on the basis of Argentina's waiver. In other words, could Argentina rely on non-asset specific waivers of immunity from execution to prevent NML from making conservatory attachments on moneys owed by third parties?

Decision

In two of the three decisions, the Supreme Court first clarified that both Total Austral and Air France, which acted as co-plaintiffs with Argentina in these proceedings, had standing to claim the release of the attachments, even though they were Argentina's debtors rather than NML's.(9) This is an unsurprising decision in view of classic French doctrine on third-party debtors' rights, which generally recognises legal standing in similar circumstances no matter whether a state is involved.(10)

On the issue of Argentina's waiver, the Supreme Court then held that:(11)

"according to customary international law, as reflected by the United Nations Convention of 2 December 2004 on the Jurisdictional Immunities of States and their Property, while States can waive, by written contract, their immunity from execution against assets or categories of assets used or destined to be used for public purposes, they can only do so in an express and specific manner, mentioning the assets or the category of assets over which the waiver is granted."

The Supreme Court then confirmed the appeal court's decision to release the attachments on the grounds that:

  • the disputed attachments concerned public assets necessarily used by the state to exercise certain prerogatives relating to its sovereignty (ie, tax, social security and oil royalty claims); and
  • the bond contracts did not expressly and specifically waive Argentina's immunity from execution in regard to those precise public assets.

In two of the three decisions, in what appears to be obiter dictum, the Supreme Court added that sovereign immunities limit rather than violate the right to a fair trial under Article 6-1 of the European Convention on Human Rights, to the extent that they do not deviate from the relevant rules commonly recognised in international law.(12)

Comment

In the NML v Argentina decisions the Supreme Court considerably tightened the conditions applied to waivers of sovereign immunity from execution.

It has been questioned whether the test applied in NML v Argentina actually represents the new standard against which waivers of sovereign immunity from execution will be assessed or whether these holdings echoed political considerations.(13) Only time will tell.

One thing is certain: the Supreme Court's proposition that states can waive their immunity from execution over public assets only by expressly and specifically identifying the assets or category of assets over which the waiver is granted contradicts previous French case law on the matter. In addition, such proposition is not supported by the text of the UN Convention on the Jurisdictional Immunities of States and their Property (December 2 2004) which, in the court's view, reflects customary international law.

Tightening previous test
In deciding NML's appeal, the Supreme Court adopted a two-step reasoning:

  • It proceeded to determine whether the attached assets served a public or a commercial purpose.
  • Having determined that the assets served a public purpose, the court moved on to assess whether Argentina had effectively waived its immunity from execution.

Nature of the attached assets
When dealing with the nature of the attached assets, the court dutifully applied the principle laid down in Eurodif v The Islamic Republic of Iran (1984), in which it had held that immunity from execution does not apply "where the attached assets are used for a commercial or economic activity in relation to which the dispute arose".(14) In all three cases, the court found the attached third-party debts to be necessarily interlaced with Argentina's exercise of its sovereign prerogatives as they related to tax, social security and oil royalty claims owed by Air France, BNP Paribas and Total Austral's Argentine branches to Argentina. Having found that the assets in question were covered by immunity from execution, the court thus moved on to the next question: did Argentina effectively waive its immunity from execution?

Waiver
On the issue of renunciation, before NML v Argentina French law required only that waivers of immunity from execution be specific and unequivocal.(15) 'Specific' was understood as clearly referring to a state's immunity from execution as opposed to its immunity from jurisdiction. Indeed, the courts consistently held that waivers of jurisdictional immunity – or waivers of sovereign immunity that did not specifically refer to execution immunity – did not imply a waiver of immunity from execution.(16) The Supreme Court found a waiver to be specific enough where the state had contractually and unequivocally waived all immunity from notification, jurisdiction and execution in relation to the enforcement of a judgment.(17) The French courts tended to recognise implicit waivers, where it resulted with sufficient clarity from the circumstances that such had been the state's intention. For example, they accepted that an arbitration agreement referring to the ICC rules, which contain an undertaking of the parties to enforce the arbitral award,(18) constituted an implicit waiver by the state of its immunity from execution.(19) Diplomatic immunity was the limit. As established by Noga, in light of the protections and guarantees contained in the 1961 Vienna Convention on Diplomatic Relations, waivers of diplomatic immunity from execution had to be 'specific', which meant that general waivers of immunity from execution did not provide a sufficient basis to seek the attachment of diplomatic assets.(20)

In NML v Argentina the Supreme Court applied a far more restrictive definition of the specificity test, requiring the waiver of immunity from execution on public assets to be granted "in an express and specific manner", "mentioning the assets or the category of assets over which the waiver is granted".

By requiring that public assets or categories of asset be specifically identified in writing in order to be susceptible to enforcement measures, the Supreme Court has created an additional condition for waiving sovereign immunity from execution in France. These decisions may be seen as the logical continuation of the Noga case law, where a stricter test was already applied for diplomatic assets. Alternatively, the decisions may be seen as a sign of a more state-friendly policy of the Supreme Court in the context of enforcement efforts carried out by speculative investors. Argentina's waiver contained a clear and unequivocal renunciation to immunity from execution. In any event, the new requirement will in effect deprive many waivers of execution of their practical intents and purposes. Requiring states to list each and every asset or category of assets for the purposes of enforcement in France will also be considered impractical by practitioners.

UN convention
In support of its decisions, the Supreme Court referred to the UN Convention on the Jurisdictional Immunities of States and their Property, although it has not yet entered into force.(21) Article 30(1) of the convention provides that the convention shall enter into force only "on the thirtieth day following the date of deposit of the thirtieth instrument of ratification". At present, only 13 countries have ratified it (including France), and the convention contains no provision contemplating its provisional application pending its entry into force.(22)

At least two reasons may explain the Supreme Court's reference to the convention, in spite of its non-binding nature. First, pursuant to Article 18 of the 1969 Vienna Convention on the Law of Treaties, France must refrain from taking action which would defeat the object and purpose of a treaty when it has expressed its consent to be bound by such treaty, pending its entry into force.(23) Second, the Supreme Court may have been influenced by:

  • other national courts which found that the UN convention reflects an international consensus on state immunity;(24) and
  • the European Court of Human Rights' recent decision in Sabeh El Leil v France, where it was decided that it is a well-established principle of international law that a treaty provision may be binding on states that have not ratified it insofar as such provision reflects customary international law.(25)

However, the reference by the Supreme Court to the UN convention as authority for its far-reaching proposition that a waiver can be effective only if it specifies the public assets or category of assets against which the execution may occur is questionable. No provision of that convention supports the court's suggestion. Indeed, neither Article 18(a) on state immunity from pre-judgment measures of constraint nor Article 19(a) on state immunity from post-judgment measures of constraint – which provide that a state may consent to the taking of such measures – require that any such waiver specify the assets or category of assets to which it applies. On the other hand, Articles 18(b) and 19(b) refer to the situation of earmarking where "the State has allocated or earmarked property for the satisfaction of the claim which is the object of the proceeding". Yet this second exception to immunity should not be confused with the waiver itself or as being a sub-condition of the waiver of Articles 18(a) and 19(a).(26) The use of the conjunction 'or' (instead of 'and') between Articles 18(a) and 19(a) and Articles 18(b) and 19(b) indicates that the two exceptions to immunity were to be considered as alternatives, rather than cumulative requirements.

Consequently, regardless of which article of the UN convention it applied – given that the court did not explain which of the two provisions it relied on – it can be concluded that the Supreme Courts proposition that customary international law, as reflected by the UN convention, requires that waivers of immunity from execution expressly and specifically mention the public assets or category of public assets susceptible of attachment, is open to criticism. No such requirement actually exists in the UN convention.

For further information on this topic please contact Elie Kleiman or Julie Spinelli at Freshfields Bruckhaus Deringer LLP by telephone (+33 1 44 56 44 56), fax (+33 1 44 56 44 00) or email (elie.kleiman@freshfields.com or julie.spinelli@freshfields.com).

Endnotes

(1) Cass civ 1, July 6 2000, Creighton v Qatar No 98-19068 [2001] Rev Arb 114, note P Leboulanger; [2001] RTD Com 409, note E Loquin.

(2) CA Paris, August 10 2000, Compagnie Noga d'importation et d'exportation v Embassy of the Russian Federation, No [XP100800X] [2001] D 2157, note E Fongaro.

(3) NML v Republic of Argentina, No 05 Civ 2434, 2006 WL 1294853 (SDNY, May 10 2006).

(4) EM Ltd v Republic of Argentina, 473 F 3d 463 (2nd Cir 2007), cert denied, 552 US 818 (2007).

(5) NML Capital Limited v The Republic of Argentina, Accra High Court Commercial Division, October 11 2012, suit No RPC/343/12, available at www.creditslips.org/creditslips/Ruling%2011-Oct-12%201%20(3).pdf.

(6) Cass civ 1, September 28 2011, Sté NML Capital Ltd v République d'Argentine, No 09-72.057 ; CA Paris, October 1 2009, Sté NML Capital Ltd v République d'Argentine, 09/14114.

(7) Cass civ 1, September 28 2011, Sté NML Capital Ltd v République d'Argentine, No 09-72.057, G Cuniberti [2012] JDI 668, para 5.

(8) CA Versailles, September 9 2010, Sté NML Capital Ltd v République d'Argentine, SA Total Austral, 09/09640; CA Paris, December 9 2010, Sté NML Capital Ltd v République d'Argentine, 10/00390.

(9) Cass civ 1, March 28 2013, Sté NML Capital Ltd v République d'Argentine et Air France, No 11-13-323; Cass civ 1, March 28 2013, Sté NML Capital Ltd v République d'Argentine et Total Austral, No 10-25938. See also V Avena-Robardet, "Les règles de l'immunité d'exécution des Etats étrangers" [2013] Dalloz, April 16 2013.

(10) V Avena-Robardet "Les règles de l'immunité d'exécution des Etats étrangers" Dalloz 2013; Cass civ 2, October 12 2006, Sté Motokov, No 04-19062.

(11) The original French reads:

"Attendu que, selon le droit international coutumier, tel que reflété par la Convention des Nations Unies, du 2 décembre 2004, sur l'immunité juridictionnelle des Etats et de leurs biens, si les Etats peuvent renoncer, par contrat écrit, à leur immunité d'exécution sur des biens ou des catégories de biens utilisés ou destinés à être utilisés à des fins publiques, il ne peut y être renoncé que de manière expresse et spéciale, en mentionnant les biens ou la catégorie de biens pour lesquels la renonciation est consentie."

(12) Cass civ 1, March 28 2013, Sté NML Capital Ltd v République d'Argentine et Air France, No 11-13-323; Cass civ 1, March 28 2013, Sté NML Capital Ltd v République d'Argentine, No 11-10-450.

(13) M Audit, "La Cour de cassation française au secours de l'Argentine" [2013] Blogs, LesEchos.fr, April 5 2013, available at http://blogs.lesechos.fr/market-makers/la-cour-de-cassation-francaise-au-secours-de-l-argentine-a12761.html.

(14) Cass civ 1, March 14 1984, Eurodif v République Islamique d'Iran [1984] JDI 508, note B Oppetit; [1984] JCP G II, 20205, note H Synvet. Confirmed by CA Paris, June 11 1998, Creighton v Qatar, 97/07089; Cass civ 1, 25 January 2005, Sainte Rose, No 03-18176; Cass civ 1, 19 November 2008, No 07-10570. See also CA Paris, 12 December 2001, Creighton v Qatar [2003] Rev Arb 417, note Leboulanger; C Kessedjian, Immunité d'exécution, Dalloz, para 112.

(15) CA Paris, June 27 1997, Sté Qwinzy v Republic of Congo, 96/80066; CA Paris, December 12 2001, Creighton v Qatar [2003] Rev Arb 417, note Leboulanger; C Kessedjian, Immunité d'exécution, Dalloz, para 129.

(16) C Kessedjian, Immunité d'exécution, Dalloz, para 110.

(17) Cass civ 1, February 6 2007, Sté Connecticut v Republic of Congo, No 04-13.108.

(18) Article 34.6 of the 2012 ICC rules (previously Article 28.6 of the 1998 ICC rules) which provides as follows:

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

(19) Cass civ 1, July 6 2000, Creighton v Qatar No 98-19068 [2001] Rev Arb 114, note P Leboulanger; [2001] RTD Com. 409, note E Loquin.

(20) CA Paris, August 10 2000, Compagnie Noga d'importation et d'exportation v Embassy of the Russian Federation, No [XP100800X] [2001] D 2157, note E Fongaro.

(21) Article 30(1) of the UN convention.

(22) For the existing status of the ratification process, see http://treaties.un.org/Pages/ViewDetails.aspx?mtdsg_no=III-13&chapter=3&lang=en. See RE Dalton, "Provisional Application of Treaties" in DB Hollis (ed), The Oxford Guide to Treaties (2012) 221.

(23) Article 18 of the Vienna Convention. See generally CA Bradley, "Treaty Signature" in DB Hollis (ed), The Oxford Guide to Treaties (2012) 208, p 212; L Boisson de Chazournes, A-M La Rosa et al, "Article 18: Convention of 1969" in O Corten, P Klein (eds), The Vienna Convention on The Law of Treaties: A Commentary, Volume I (2011) pp 372-383.

(24) J Crawford, Brownlie's Principles of International Public Law (8th edn) 490 citing AIG Capital Partners Inc v Republic of Kazakhstan [2006] 1 WLR 1420, 1446; Fang v Jiang Zemin (2006) 141 ILR 702, 717; Jones v Saudi Arabia [2007] 1 AC 270, 280, 289, 293; Svenksa Petroleum Exploration AB v Government of the Republic of Lithuania (No 2) [2007] QB 886, 929). See also R O'Keefe, CJ Tams, The United Nations Convention on Jurisdictional Immunities of States and Their Property: A Commentary (2013) 306.

(25) Sabeh El Leil v France (App No 34869/0529) ECHR 29 June 2011, para 54.

(26) B Juratowitch, "Enforcement of Arbitral Awards Against States" (forthcoming).

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