In SerVaas Incorporated v. Rafidain Bank and others [2012] 3 WLR 545, the UK Supreme Court considered the scope of a state’s immunity from execution of a judgment and provided helpful guidance in relation to the “commercial purpose” exception provided for in section 13(4) of the State Immunity Act 1978 (“the Act”).

SerVaas sought enforcement of a judgment by applying for a Third Party Debt Order in relation to dividends payable to Iraq by Rafidain under a Scheme of Arrangement. Iraq resisted this on the grounds that the money due to the state was immune from execution by virtue of section 13(4) of the Act as the funds were not property “for the time being in use or intended for use for commercial purposes”. The application was dismissed at first instance and an appeal by SerVaas was also dismissed by the Court of Appeal. Undeterred, SerVaas then mounted a further appeal to the Supreme Court.

The Supreme Court unanimously dismissed the appeal and confirmed that the nature of the property against which execution was sought was irrelevant to the “commercial purpose” analysis. Parliament did not intend a retrospective analysis of all the circumstances which gave rise to the property, but an assessment of the use to which the state had chosen to put the property. Unhelpfully for SerVaas, a certificate was signed by the Iraqi Ambassador in London stating the dividend payments would not be used for any commercial purpose. The Supreme Court noted that this certificate created a presumption that SerVaas had no real prospect of rebutting.

This decision demonstrates the considerable limitations of the “commercial purpose” exception. This development may create challenges in enforcing judgments against states in the United Kingdom and, therefore, any party contracting with a state should carefully consider insisting upon an express waiver of immunity from execution when drafting contractual dispute resolution clauses.