In the recent UK Supreme Court case of SerVaas Incorporate v Rafidain Bank & Ors. [2012] UKSC 40, the Supreme Court considered the scope of a government's immunity from the enforcement of a judgment against it.  The doctrine of sovereign immunity (as codified in the UK by the State Immunity Act 1978 (Act)) in the first instance precluded the property of a foreign state from being subject to any enforcement process.  SerVaas had obtained judgment against the Iraqi government and sought to enforce that judgment in England and Wales by applying for a third-party debt order against Rafidain Bank.  The Bank was due to pay a significant amount of money to the Iraqi government as part of a restructuring of its debts.  As part of the restructure, the debts had been transferred to the Iraqi government and had originally arisen from transactions between the Bank and its commercial creditors.

SerVaas sought to rely on an exclusion in the Act whereby if the property in question was in use (or intended for use) for commercial purposes, sovereign immunity would not apply.  SerVaas argued that as the origin of the debts was commercial in nature, in that it was between the Bank and its commercial creditors, it was entitled to rely on this exclusion and enforce its judgment against the debts.  The Supreme Court disagreed with SerVaas and held that how the debts originated was irrelevant in deciding whether they were used for commercial purposes.  What mattered was the use in which the government in question had chosen to put the debts.  As the Iraqi government had certified that the debts would be put towards non-commercial purposes, sovereign immunity applied and SerVaas was unable to enforce their judgment against the debts.

In New Zealand the doctrine of sovereign immunity is not codified and exists as part of the common law.  It is a somewhat untested area of law and the New Zealand Courts will likely look overseas for guidance.  New Zealand companies that conduct commercial transactions with foreign governments should be aware of this doctrine and should be mindful that they may face potential difficulties in enforcing a judgment obtained against a foreign government.

See court decision here