IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
| Royal Courts of Justice Strand, London, WC2A 2LL |
| 20/10/2005 |
Between:
| AIG Capital Partners, Inc CJSC Tema Real Estate Company Limited |
Claimants |
|
| – and – |
||
| The Republic of Kazakhstan |
Defendant |
|
| ABN AMRO Mellon Global Securities Services B.V. ABN AMRO Bank N.V. |
Third Parties |
|
| The National Bank of Kazakhstan |
Intervener |
____________________
Mr R Salter QC, Mr D Lloyd Jones QC and Mr Paul Key (instructed by Holman Fenwick Willan, Solicitors, London) for the Claimants
Mr A Malek QC and Mr D Quest (instructed by Richards Butler, Solicitors, London) for the Defendants
Hearing dates: 26th and 27th July 2005
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HTML VERSION OF JUDGMENT)
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Crown Copyright ©
Mr Justice Aikens :
A. The Main Issue
B. The Facts giving rise to the Main Issue
In 1999 and 2000 the First Claimant (“AIG”) became involved in a project to develop a residential housing complex called “Crystal Village” in Almaty, in the RoK. This project was a joint venture between AIG and a Kazakhstan company called LLP Tema, which was owned and controlled by Kazakhstani principals. Those two companies together formed a joint venture company, CJSC Tema Real Estate Company, the Second Claimant. Property was purchased for the project; contracts for the construction were signed and the work begun. Then the government of the RoK announced that the project was to be cancelled because the land concerned was required for a national arboretum. In March 2000 the Almaty Oblast issued a resolution ordering the transfer of the project property to the City of Almaty, without compensation to the joint venture.[9] On 15 May 2000 the joint venture attempted to resume construction work on the site, but the City Authorities, accompanied by the police, expelled the joint venture’s contractors from the property. In February 2001 the City of Almaty physically seized the project property. The ICSID Arbitration Award recorded that these actions amounted to expropriation, were arbitrary, in wilful disregard of the due process of law and “were shocking to “all sense of juridical propriety”…”.[10]
“Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or any foreign State from execution”.
“…shall, as respect the pecuniary obligations which it imposes, be of the same force and effect for the purposes of execution as if it had been a judgment of the High Court given when the award was rendered pursuant to the Convention and entered on the date or registration under this Act, and, so far as relates to such pecuniary obligations –
(a) proceedings may be taken on the award,
(b) the sum for which the award is registered shall carry interest,
(c) the High Court shall have the same control over the execution of the award,
as if the award had been such a judgment of the High Court.”
As referred to above, AAMGS’ predecessors had agreed with the RoK to hold cash and securities of the National Fund of the RoK, “as custodian and banker”[14] pursuant to a Global Custody Agreement (“GCA”) dated 24 December 2001. AAMGS is now the Global custodian of cash and securities of the National Fund of the RoK. The Claimants wish to enforce the judgment against these assets insofar as they are held by AAMGS in the jurisdiction.
The Deputy Director of the Monetary Operations Department of the NBK, Mr Gerasimenko, describes the National Bank in his statement as “the central bank of Kazakhstan“.[16] The NBK carries out its activities under the Law on Banks and Banking Activity of 31 August 1995 and the law on the National Bank of the Republic of Kazakhstan dated 30 March 1995. Article 1 of the latter law provides that the NBK shall be the central bank of the RoK. Article 6 states that NBK will be a distinct legal entity, with a single structure that has branch offices, representative offices and organisations. Article 7 of the same law sets out the responsibilities of the NBK. These include: the development and pursuit of the credit and monetary policy of the RoK; ensuring that payment systems function properly; currency regulation and control; and assisting towards the stability of the financial system of the RoK.[17]
Kazakhstan has large oil resources. In common with other states which are rich in natural resources like oil and natural gas, (such as Norway, Venezuela and Canada), Kazakhstan has set up a “national resources fund”. The object of such funds is to “help stabilise fiscal policy and save a portion of oil and gas revenues“.[18] As described by Miss Tsalik in Caspian Oil Windfalls, natural resources funds are established to deal with the principal challenge that faces a country whose state revenues are mainly dependent on the export of natural resources such as oil and gas. This challenge arises from the volatility of commodity prices. When prices are high, there is a temptation to spend all the revenues obtained from the production and export of the commodities, without retaining some for times when prices, and so state revenues, are low. Natural resources funds can be used as “stabilisation funds” or “saving funds” or a combination of both. Stabilisation funds smooth out government spending by transferring excess revenues to the stabilisation fund when commodity prices are high and then transferring funds for government spending when prices are low. Saving funds “act as a kind of “rainy day” fund, storing up wealth for future generations”.[19]
“[To ensure] stable social and economic development of the country, accumulation of financial resources for future generations, [and] reduction of the vulnerability of the economy to the influence of unfavourable external factors”.[20]
The management of the National Fund is governed by “Rules for the Formation and Use of the National Fund“, which were promulgated by Presidential Decree No 543 of 29 January 2001 and also by the Budget Code of the Republic of Kazakhstan.[21] The latter is now the governing code. Paragraph 2 of Article 11 of the Code describes the object of the National Fund in similar terms to those set out in the Presidential Decree. Paragraph 3 of Article 11 describes its two functions as being to run savings and stabilisation functions with aims as follows:
“….Savings function provides for the accumulation of financial assets and other property….Stabilisation function is purposed for the reduction of the Republican budget from the influence of world prices for raw materials”.
“2. The [National Fund] shall be placed in authorised financial assets and other property….in order to secure:
(1) Maintenance of the [National Fund];
(2) Support of the sufficient level of liquidity of the [National Fund];
(3) High Profitability level of the [National Fund] in the long term outlook at the reasonable risk level;
(4) Gaining of investment income.”
The GCA (as novated) appointed AAMGS to act as custodian and to provide custodian services to the NBK, as “the Client”, on the terms set out in the GCA.[32] The GCA is governed by English law. It expressly provides that the Agreement is not enforceable by third parties under the Contracts (Rights of Third Parties) Act 1999.[33] Recital A of the GCA states that the NBK is carrying out “certain trust management services with respect to the (sic) certain securities of the Republic of Kazakhstan (the “National Fund”) in accordance with the Trust Management Agreement by and between the Government of [the RoK] and [the NBK]…”. Under the terms of the GCA, AAMGS was appointed as banker to the NBK.[34] AAMGS agreed to open Cash Accounts to hold cash of the NBK received by AAMGS.[35] Clause 16(j) confirms the general position in English law that cash of the NBK in the Cash Account constitutes “a debt owed by [AAMGS] to [the NBK]”. In respect of securities, AAMGS agreed to open securities accounts for them.[36] The securities were (unless special arrangements were agreed) to be registered in the name of a nominee of AAMGS.[37] However AAMGS agreed that it would hold the securities in safekeeping for the account of the NBK.[38] The ownership of securities held in the securities account would be “clearly recorded on [AAMGS’s] books as belonging to [the NBK]”.[39]
C. The English legislation
The court’s jurisdiction to make a Third Party Debt Order (“TPDO”) is found in the CPR Part 72.2. That provides:
“(1) Upon the application of a judgment creditor, the court may make an order (a “final third party debt order”) requiring a third party to pay to the judgment creditor –
(a) the amount of any debt due or accruing due to the judgment debtor from the third party; or
(b) so much of that debt as is sufficient to satisfy the judgment debt and the judgment creditor’s costs of the application”.
The court’s jurisdiction and powers in respect of Charging Orders are set out in sections 1 and 2 of the Charging Orders Act 1979. These provide:
“1 Charging Orders
(1) Where, under a judgment or order of the High Court or a county court, a person (the “debtor”) is required to pay a sum of money to another person (the “creditor”) then, for the purpose of enforcing that judgment or order, the appropriate court may make an order in accordance with the provisions of this Act imposing on any such property of the debtor as may be specified in the order a charge for securing the payment of any money due or to become due under the judgment or order.
………
(3) An order under subsection (1) above is referred to in this Act as a “charging order”.
(4) Where a person applies to the High Court for a charging order to enforce more than one judgment or order, that court shall be the appropriate court in relation to the application if it would be the appropriate court, apart from this subsection, on an application relating to one or more of the judgments or orders concerned.
(5) In deciding whether to make a charging order the court shall consider all the circumstances of the case and, in particular, any evidence before it as to –
(a) the personal circumstances of the debtor, and
(b) whether any other creditor of the debtor would be likely to be unduly prejudiced by the making of the order.
2 Property which may be charged
(1) Subject to subsection (3) below, a charge may be imposed by a charging order only on –
(a) any interest held by the debtor beneficially-
(i) in any asset of a kind mentioned in subsection (2) below, or
(ii) under any trust; or
(b) any interest held by a person as trustee of a trust (“the trust”), if the interest is in such an asset or is an interest under another trust and-
(i) the judgment or order in respect of which a charge is to be imposed was made against that person as a trustee of the trust, or
(ii) the whole beneficial interest under the trust is held by the debtor unencumbered and for his own benefit, or
(iii) in a case where there are two or more debtors all of whom are liable to the creditor for the same debt, they together hold the whole beneficial interest under the trust unencumbered and for their own benefit.
(2) The assets referred to in subsection (1) above are-
(a) land,
(b) securities of any of the following kinds –
(i) government stock,
(ii) stock of any body (other than a building society) incorporated within England and Wales,
(iii) stock of any body incorporated outside England and Wales or of any state or territory outside the United Kingdom, being stock registered in a register kept at any place within England and Wales,
(iv) units of any unit trust in respect of which a register of the unit holders is kept at any place within England and Wales, or
(c) funds in court.
(3) In any case where a charge is imposed by a charging order on any interest in an asset of a kind mentioned in paragraph (b) or (c) of subsection (2) above, the court making the order may provide for the charge to extend to any interest or dividend payable in respect of the asset.
………..”
The law relating to the immunity of sovereign States and their property in respect of proceedings in the courts of the United Kingdom is set out in the State Immunity Act 1978 (“SIA”). The Act replaced and codified the English common law on the topic. The common law had developed swiftly over the previous decade, from a rule that sovereign States had absolute immunity from suit, (in the absence of consent by a foreign sovereign State) to a rule that States had more restricted immunity. This development gave effect to what had become widely recognised, viz. that the English common law rules as to state immunity, as had been stated in the courts, were out of step with the law in most countries outside the Commonwealth, where a more restricted theory of state immunity was applied. The SIA also gave effect in English law to the European Convention on State Immunity 1972, to which the UK had become a party in May 1972. That Convention provides that a State should be immune from the jurisdiction of a Contracting State’s courts subject to various exceptions.
“(1) A State is not immune as respects proceedings relating to –
(a) a commercial transaction, entered into by the State;….
……
(3) In this section “commercial transaction” means –
(a) any contract for the supply of goods or services;
(b) any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation; and
(c) any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority; ….”
” ……….
(2) Subject to subsections (3) and (4) below –
(a) relief shall not be given against a State by way of injunction or order for specific performance or for the recovery of land or other property; and
(b) the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award, or in an action in rem, for its arrest, detention or sale.
(3) Subsection (2) above does not prevent the giving of any relief or the issue of any process with the written consent of the State concerned; and any such consent (which may be contained in a prior agreement) may be expressed so as to apply to a limited extent or generally; but a provision merely submitting to the jurisdiction of the courts is not to be regarded as a consent for the purposes of this subsection.
(4) Subsection (2)(b) above does not prevent the issue of any process in respect of property which is for the time being in use or intended for use for commercial purposes; but, in the case not falling within section (1) above, this subsection applies to property of a State party to the European Convention on State Immunity only if:-
………”
“The National Fund is designed to ensure economic stability of Kazakhstan and to accumulate funds for future generations by way of investment in securities. In this connection, the assets held in custody in NBK’s accounts with AAMGS have never been used for commercial purposes since they were opened in 2001, and they are not intended to be used for such purposes”.
“14 States entitled to immunities and privileges
………
(1) The immunities and privileges conferred by this Part of this Act apply to any foreign or commonwealth State other than the United Kingdom; and references to a State include references to
(a) the sovereign or other head of that State in his public capacity;
(b) the government of that State; and
(c) any department of that government,
but not to any entity (hereafter referred to as a “separate entity”) which is distinct from the executive organs of the government of the State and capable of suing or being sued.
(2) A separate entity is immune from the jurisdiction of the courts of the United Kingdom if, and only if-
(a) the proceedings relate to anything done by it in the exercise of sovereign authority; and
(b) the circumstances are such that a State (or, in the case of proceedings to which section 10 above applies, a State which is not a party to the Brussels Convention) would have been so immune.
(3) If a separate entity (not being a State’s central bank, or other monetary authority) submits to the jurisdiction in respect of proceedings in the case of which it is entitled immunity by virtue of subsection (2) above, subsections (1) to (4) of section 13 above shall apply to it in respect of those proceedings as if references to a State were references to that entity.”
(4) Property of a State’s central bank or monetary
authority shall not be regarded for the purposes of subsection (4) of section 13 above as in use or intended for use for commercial purposes; and where any such bank or authority is a separate entity subsections (1) to (3) of that section shall apply to it as if references to a State were references to the bank or authority
…………….”.
D. The arguments of the parties in outline
Mr Salter QC, on behalf of the Claimants, submitted as follows:
(1) The RoK is the beneficial owner of all the London assets held by AAMGS, because those assets are part of the National Fund. As the RoK has an equitable proprietary right in the Cash Accounts held by AAMGS, the cash constitutes “debts due or accruing due” to the RoK, within the meaning of CPR Pt 72.2. Therefore, subject to the issues of immunity, which are the same in relation to both the TPD Order and the Charging Order, the Claimants are entitled to a final TPD Order to the extent of the cash held by AAMGS in the UK on behalf of the RoK.
(2) Subject to the question of immunity, the Claimants would be entitled to a Charging Order against the Security Accounts held by AAMGS in London so as to discharge the judgment debt of the RoK.[45]
(3) The Claimants accept that the NBK is the central bank of Kazakhstan and that it is to be treated as a separate entity from the Republic of Kazakhstan for the purposes of section 14(4) of the SIA. However, the London assets held by AAMGS, which are held ultimately for the beneficial ownership of the RoK, do not constitute “property of a State’s central bank or other monetary authority” within section 14(4). If that section is properly construed, then on the facts: (a) the London Assets are not “property” of the NBK, but the RoK; and/or (b) the words only apply to property that is held by a central bank (or other monetary authority) in its capacity as such, ie. when it is acting as in the exercise of sovereign authority and not for commercial purposes.
(4) This constitutes the proper construction of section 14(4) as a matter of common law canons of construction. But if the “common law construction” is otherwise, then section 14(4) must be read in accordance with section 3(1) of the Human Rights Act 1998. Section 14(4) of the SIA must be construed in a way that makes it compatible with the Claimants’ rights of access to the adjudicative and enforcement jurisdiction of the court under Article 6 of the ECHR, or with the Claimants’ rights (under Article 1 of the Protocol 1 of the ECHR), to the peaceful enjoyment of their possessions, ie. the ICSID Arbitration Award that they have obtained. The only way to make section 14(4) “Convention compliant” is to read it so as to grant a narrower immunity in respect of property held by central banks; the immunity can only apply to property that is held by a central bank (or other monetary authority) in its capacity as such.
(5) Those parts of the London Assets not in cash, which are held by AAMGS on behalf of the National Fund, are invested in securities that are actively traded so as to produce a high level of investment income, as is required by paragraph 24 of the Budget Code of the RoK.
(6) This has two consequences. First, those assets do not fall within the term “property of a State’s central bank or other monetary authority” within section 14(4) of the SIA.
(7) Secondly, those assets are, in fact, the property of RoK, which are “for the time being,[46] in use or intended for use for commercial purposes”, within section 13(4) of the SIA. Therefore those assets can be the subject of a Charging Order, which is a “process for the enforcement of a judgment” within section 13(2)(b) of the SIA.
(8) The same arguments apply in relation to the Cash Accounts held by AAMGS in London.
(9) Therefore neither the NBK nor the RoK can claim that the London assets are immune from the enforcement process of the English Court. So, the TPD Order and the Charging Order should be made Final.
Mr Malek QC, on behalf of the RoK and NBK, submitted as follows:
(1) The Cash Accounts held by AAMGS within the jurisdiction represent a debt due by AAMGS to the NBK, because the relationship created by the GCA is between AAMGS and the NBK. They do not constitute a “debt due or accruing due to”[47] the judgment debtor, ie. the RoK. There is no relationship of creditor and debtor between AAMGS and the RoK. Therefore the court has no jurisdiction under CPR Pt 72.2 to make a TPD Order in respect of the Cash Accounts held within the jurisdiction. So the Interim TPD Order must be discharged.
(2) It is accepted that the RoK has a beneficial interest in the London Assets held by AAMGS. It is therefore accepted that, subject to the issue of State immunity, a charging order could be made on those securities held by AAMGS which compromise UK government stock or UK listed companies, (“the UK Securities”), although not other securities.[48]
(3) However, the UK Securities do constitute “property” of the NBK, within the meaning of section 14(4) of the SIA. As the NBK is the central bank of the RoK, then, in accordance with section 14(4), the UK Securities held by AAMGS, being property of a State’s central bank, “…shall not be regarded fur the purposes of sub – section (4) of section 13 [of the SIA] as in use or intended for use for commercial purposes”. That provision is clear and conclusive.
(4) The fact that NBK is a separate legal entity from the Republic of Kazakhstan makes no difference. By virtue of the wording of the last sentence of section 14(4) of the SIA,[49] the provisions of section 13(4) of the SIA will still apply to the property of the NBK as a separate legal entity.
(5) Therefore the London Assets held by AAMGS as custodian for the NBK cannot be regarded as being in use or intended for use “for commercial purposes” within section 13(4) of the SIA. Thus they are immune from any process for the enforcement of a judgment, by virtue of section 13(2) of the SIA, because the London Assets are in the same position as “the property of a State”, within the meaning of that subsection.
(6) As to the Claimants’ argument that section 14(4) of the SIA must be construed to be consistent with the Claimants’ rights under Article 6 of the ECHR, that Article has no application to the present case, because the Claimants never had any right to a hearing or determination in the UK or before a UK court of their rights against the RoK. Article 1 of the Protocol is also irrelevant to the present case, because the SIA, in particular section 14(4), does not infringe the Claimants’ peaceful enjoyment of their ICSID Award or the judgment obtained. Even if Article 6 or Protocol rights are involved, the grant of immunity to assets of foreign central banks is proportionate and in pursuit of a legitimate aim of the State, i.e. the UK. Therefore the construction of the section should not be altered, pursuant to section 3(1) of the HRA 1998.
(7) Even if, as the Claimants argue, the London Assets are not “property of a State’s central bank or other monetary authority” within the meaning of section 14(4), nonetheless the London Assets are the “property” of the RoK. As the certificate of the Ambassador of the RoK has certified, those assets in the hands of AAMGS are not and never have been used or intended for use for commercial purposes.
(8) On the contrary, it is clear on the facts that those assets, being part of the National Fund, are being used and always have been used in the exercise of sovereign authority. Therefore the London Assets are immune from being subject to any process for the enforcement of the judgment obtained by the Claimants, pursuant to section 13(2) of the SIA. Therefore the Interim Charging Order must be discharged.
(9) The same arguments as to immunity apply to the Cash Accounts relating to money held by AAMGS for the account of the NBK, if the argument at (1) above is not accepted. Therefore the TPD Order must be discharged on the ground of immunity in any event.
E. The Issues to be determined
(1) The Third Party Debt Order. The question is whether, in relation to the Cash Accounts held by AAMGS (within the jurisdiction), they constitute a “debt due or accruing due to the judgment debtor [ie. the RoK] from the third party [ie. AAMGS]”, within the terms of CPR Pt 72.2(1)(a). If they do not constitute such a debt, then the Interim TPD Order must be discharged. If they do, then the same issues as to immunity arise as with the Securities Accounts.
(2) The construction of section 14(4) of the State Immunity Act: using common law principles of construction. There are two question to be decided. First, what is the scope of the word “property” in that section? In particular, what is the position if one entity has legal ownership or some other interest in assets and another entity has a beneficial interest or some other interest?. Secondly, do the words “property of a State’s central bank or other monetary authority” mean any property that is allocated to or held in the name of a central bank, irrespective of the capacity in which or the purpose for which that property is held (as RoK and NBK contend); or is the scope of the words restricted to property held by a central bank (or other monetary authority) as such, as the Claimants contend?
(3) Does section 14(4): (a) potentially have an impact on the Claimants’ right of access to the adjudicative and enforcement jurisdiction of the UK courts; alternatively (b) does it potentially affect their rights to peaceful enjoyment of their possessions – ie. the ICSID Award and the judgment derived from it?
(4) If the answer to either question in (3) above is “yes”, is it possible to alter the construction to be given to section 14(4) of the SIA and, if so, should that be done in the manner proposed by the Claimants?
(5) What are the characteristics of the Cash Accounts and the Security Accounts held in London by AAMGS for the NBK? In particular are they: (a) “property of a State’s central bank” within section 14(4) of the SIA; (b) if not, are they “property [of a State] which is for the time being in use or intended for use for commercial purposes” within section 13(4) of the SIA? The second of these questions will only arise if the Claimants are correct in respect of either the first or second question that arises on the construction of section 14(4) of the SIA and I conclude, on the facts, that the London Assets do not constitute property held by the NBK (as the central bank of the RoK) in its capacity as a central bank.
F. First Issue: Is there a debt due or accruing due from AAMGS to the RoK, for the purposes of making a Third Party Debt Order?
G. Second Issue: What is the proper construction of section 14(4) of the State Immunity Act 1978 using common law principles of construction?
“…that the amendment ensures that a central bank or other monetary authority shall have the same immunity with regard to execution or in respect of relief by way of injunction or order for specific performance…as a State shall have, irrespective of whether the central bank is a separate entity or is acting in the exercise of sovereign authority”.[51]
In order to determine the scope of section 14(4), I must look at it in its context in the SIA as a whole. Section 1(1) sets out the general rule that a State is immune from the jurisdiction of the UK courts, unless the circumstances in which it is sued falls into one of the categories specified in Part 1 of the Act. In Alcom Ltd v Republic of Columbia[55] Lord Diplock described the method of draftsmanship of the succeeding sections as “a somewhat convoluted style”. I respectfully agree. The Act draws a distinction between what Lord Diplock called the “adjudicative” jurisdiction of the UK courts and the “enforcement” jurisdiction.[56] In the former category, as I have already noted, one of the most important exceptions from immunity of suit against a State is in respect of proceedings relating to “a commercial transaction entered into by the State”: section 3(1)(a). “Commercial transactions” are defined in section 3(3). “Commercial purposes” are defined in section 17(1) as being purposes of such transactions and activities as are mentioned in section 3(3).
(1) All “property” of a State’s central bank or other monetary authority is covered by section 14(4). The only question is whether the central bank (etc) has one of the types of interests in the property concerned, as I have described the interests above, so that the assets concerned can be described as the “property” of the central bank concerned.
(2) It does not matter whether the central bank is a department of the State or a separate entity. In all cases the central bank’s property “shall not be” regarded as in use or intended for use for commercial purposes “for the purposes of [section 13(4)]”.
(3) Given the wording of section 14(4), then the property of a State’s central bank (or other monetary authority) must enjoy complete immunity from the enforcement process in the UK courts.
(4) If the central bank (etc) has an interest in the property concerned, but the State of the central bank has another interest in the same property, then in my view the effect of section 14(4) is that the relevant property is immune from enforcement in respect of a judgment against that State, whether the property concerned is in use or intended for use for commercial purposes or not.
H. Issues Three and Four: (a) Does section 14(4) potentially have an impact on the Claimants’ right of access to the adjudicative and enforcement jurisdiction of the UK courts (Article 6(1) ECHR); and/or (b): does that section potentially affect their rights to the “peaceful enjoyment” of their possession: viz. the ICSID Award? If the answer to either (a) or (b) is “yes”, then would it alter the construction to be given to section 14(4) of the SIA?
The Claimants submit that, whatever the position may be using common law principles of construction, a construction that gives a narrower immunity must be given to section 14(4), by virtue of the Human Rights Act, section 3. Section 3 of the HRA requires that: “So far as it is possible to do so, primary legislation….must be read and given effect in a way which is compatible with Convention rights”. The section applies to all legislation, whenever enacted.[63] The Convention Rights granted by Article 6(1) include the right that:
“…In the determination of his civil rights and obligations…everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law…“
“No post – judgment measures of constraint, such as attachment, arrest or execution, against property of a State may be taken in connection with a proceeding before a court of another State unless and to the extent that:
…….
(c) it has been established that the property is specifically in use or intended for use by the State for other than government non – commercial purposes and is in the territory of the State of the forum…”
“1. The following categories, in particular, of property of a State shall not be considered as property specifically in use or intended for use by the State for other than government non – commercial purposes under Article 19, subparagraph (c):
……….
(c) property of the central bank or other monetary authority of the State;“
I accept Mr Salter’s submission that section 14(4) does impinge on the rights of access of parties to the enforcement jurisdiction of the UK courts and so Article 6(1) is involved. A restriction on the remedies available in particular types of case, if severe, can amount to a limitation of access to the court for a party. Therefore I accept that it is the court’s duty, under section 3(1) of the HRA, to ensure, so far as is possible, that section 14(4) is read and given effect in a way that is compatible with those Convention rights.
Article 1 of the First Protocol to the ECHR provides:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary in order to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties”.
For the reasons I have given, I have concluded that the proper construction of section 14(4) on common law principles is consistent with the Claimants’ ECHR rights under Article 6(1) and Article 1 of the Protocol. Therefore there is no need to “read down” section 14(4).
I. Issue Five: What are the characteristics of the Cash Accounts and the Securities Accounts held in London by AAMGS for the NBK; in particular are they (a) “property of a State’s central bank” within section 14(4) of the SIA; (b) if not, are they “property [of a State] which is for the time being in use or intended for use for commercial purposes” within section 13(4) of the SIA?
holds in the Securities Accounts: clause 5(b) of the GCA. On my construction of section 14(4) of the SIA, in particular the word “property”, that makes the London Assets the “property” of the NBK, which, everyone agrees, is the central bank of the RoK. Therefore all the London Assets are within section 14(4) and so cannot be the subject of enforcement processes by the UK courts at all.
(1) The London Assets formed part of the National Fund. That Fund was, in my opinion, created to assist in the management of the economy and government revenues of the RoK, both in the short and long term. Management of a State’s economy and revenue must constitute a sovereign activity.
(2) The National Fund had to be managed by the NBK in accordance with the law set out in the Budget Code, in particular Article 24. That demanded that the National Fund be invested: Article 24 para 2. I accept that this required that investment had to be placed in authorised financial assets in order to secure, amongst other things, “high profitability levels of the [National Fund] in the long term outlook at reasonable risk levels”. I also accept the uncontroverted evidence that the Securities Accounts held by AAMGS on behalf of the NBK were actively traded at all times and that the NBK obtained from the RoK a commission on good results and paid a penalty for poor ones. But I cannot accept that this activity is inconsistent with the Stability and Savings Funds of the National Fund being used or intended for use for sovereign purposes. The aim of the exercise, at all times, was and is to enhance the National Fund. To do that the assets have to be put to use to obtain returns which are reinvested in the National Fund, ie. to assist the sovereign actions.
(3) Mr Salter relies on the definition of “commercial purposes” set out in section 17(1) of the SIA and points to the fact that “commercial purposes” means transactions and activities mentioned in section 3(3) of the Act. Those include “any transaction or activity (whether of a commercial…financial…or similar character) into which a State enters or in which it engages otherwise in the exercise of sovereign authority”. He says that the trading activities of the Securities Accounts by AAMGS are clearly financial transactions and their aim is to make profits. Therefore they could not be transactions “in the exercise of sovereign authority” within section 3(3). So, for the purposes of 13(4), at least the Securities Accounts of the London Assets constitute “property in use or intended for use for commercial purposes“. Again, I must disagree. The dealings of the Securities Accounts must, in my view, be set against the background of the purpose of the GCA. That was established to assist in running the National Fund. The Securities Accounts contain assets which are part of the National Fund. In my view the dealings are all part of the overall exercise of sovereign authority by the Republic of Kazakhstan.
(4) Last, but not least, there is the certificate of the Ambassador. That is clear and unambiguous. I have seen no evidence to contradict it other than the fact that the Securities Accounts are traded. For the reasons I have given, the trading of those accounts does not mean they were being used or were intended for use for commercial purposes.
My conclusion is that all the London Assets were, at all times, in use for sovereign purposes and pursuant to the exercise of sovereign authority of the RoK, acting through the National Bank and AAMGS as the Global Custodian of the National Fund. Therefore even if I had concluded that section 14(4) should be construed more narrowly and in the Claimants’ favour, I could not have avoided a conclusion that the London Assets constituted property held by the NBK in its capacity as such and it does not matter that it held them simply as trust manager for the RoK and had only a limited interest in those assets.
J. Overall Conclusions
(1) As to the Third Party Debt Order, the cash accounts held by AAMGS in London are in the name of the NBK. The cash accounts constitute a debt owed by AAMGS to the NBK, which is the account holder. The RoK has no contractual rights to that debt against AAMGS. Therefore there is no “debt due or accruing due” from AAMGS (the third party) to the judgment debtor. So the court has no power under CPR Pt 72.2(1)(a) to make a Third Party Debt Order in respect of the cash accounts. The Third Party Debt Order must be discharged on this ground.
(2) The meaning of section 14(4) of the SIA, using “common law” rules of construction, is clear. In particular:
(a) the word “property” must have the same meaning in section 14(4) as it does in section 13(2)(b) and 13(4).
(b) “Property” has a wide meaning. It will include all real and personal property and will embrace any right or interest, legal or equitable, or contractual, in assets that are held by or on behalf of a State or any “emanation of the State” or a central bank or other monetary authority that comes within sections 13 and 14 of the SIA.
(c) The words “property of a State’s central bank or other monetary authority” mean any asset in which the central bank has some kind of property interest as described above, which asset is allocated to or held in the name of the central bank, irrespective of the capacity in which the central bank holds the asset or the purpose for which the asset is held.
(3) The immunity created by section 14(4) does concern the rights of access to the court of a claimant who wishes to enforce against the assets of a central bank. In this case section 14(4) does affect the right of the Claimants to enforce an ICSID arbitration award that has been legitimately registered as a judgment under section 1 of the Arbitration (International Investment Disputes) Act 1966. Therefore section 14(4) does concern the right of a claimant to a civil right to have access to the courts, in accordance with Article 6(1) of the European Convention on Human Rights.
(4) However, that right is not absolute. The immunity granted to assets of central banks, as set out in section 14(4), is both legitimate and proportionate and is in accordance with the expectations of States. Therefore there is no violation of the Claimants’ rights under Article 6(1).
(5) Section 14(4) does not deprive the Claimants of their possession, ie. the ICSID Award or the judgment that has been registered. The Award was always subject to the restrictions on enforcement that existed at the time it was made. Those restrictions are clear from Article 55 of the Washington Convention which set up the ICSID arbitration procedure. Therefore there is no infringement of Article 1 to the Protocol to the European Convention on Human Rights.
(6) Accordingly, there is no requirement to modify the “common law” construction of section 14(4) of the SIA in order to give it effect in a way which is compatible with Convention Rights, because it is compatible anyway.
(7) On the facts of this case, the London Assets, held by AAMGS on behalf of the NBK are “property of a central bank”, ie. the property of NBK, within the meaning of section 14(4). This is because NBK has an interest in that property within the definition of “property” that I have set out above. Therefore all the London Assets are immune from the enforcement jurisdiction of the UK courts.
(8) If, contrary to my view, the London Assets are not the property of NBK within the meaning of section 14(4), then, on the facts of this case, they constitute “the property of a State” within the meaning of section 13(2)(b) and 13(4) of the SIA. The London Assets were not at any time either in use or intended for use for “commercial purposes” within the meaning of section 13(4) of the SIA. Therefore they are immune from the enforcement jurisdiction of the UK court by virtue of section 13(2)(b) of the SIA.
(9) Accordingly, the court must discharge the Interim Charging Order. As the same reasoning applies to both the cash and securities accounts within the London Assets, even if the court had otherwise had jurisdiction to make the Third Party Debt Order, it would have to discharge it because the cash accounts are immune from enforcement proceedings for the reasons set out above.
Note 1 The Award was dated and published to the parties on 7 October 2003.
Note 2 Order of Langley J dated 2 July 2004.
Note 3 Originally the Global Custody Agreement was between the National Bank of Kazakhstan and Boston Safe Deposit and Trust Company and Mellon Bank NA, London Branch. In December 2002 a “dedicated new bank”, ABN AMRO Mellon Global Security Services BV (“AAMGS”), was set up to continue to provide the global custody services and there was a novation of the Agreement so as to be between the National Bank of Kazakhstan and AAMGS: see letter from AAMGS to the National Bank of Kazakhstan dated 27 December 2002: C/Tab 12/page 210.
Note 4 Orders of Master Fontayne dated 13 September 2004.
Note 5 Application dated 23 November 2004: the NBK had also asked to be joined as a party to the proceedings. On 25th November 2005, Master Miller ordered that NBK be joined.
Note 6 He also ordered that: (i) AAMGS need not take any further part in the proceedings on agreeing to be bound by the result; (ii) a Commercial Judge should determine the issue of whether Final Orders should be made.
Note 7 The principal statements were two by Mr Yuri Gerasimenko, a Deputy Director of the Monetary Operations Department of the NBK.
Note 8 Each side put in an expert’s report on the law of Kazakhstan relating to the NBK and the National Fund of the RoK: Professor AG Didenko for the Claimants; Professor MK Suleimenov for the RoK and NBK. The two experts prepared a Joint Protocol: A/Tab 23. The Protocol stated that the Experts’ opinions on the interpretation of the provisions of the legislation of Kazakhstan “are generally consistent with each other”: A/Tab 23/page 141.
Note 9 See: ICSID Award para 3.2. E/Tab 1/pages 12 – 13.
Note 10 See: ICSID Award para 10.5.2: E/Tab 1/page 199. The phrase in quotes “all sense of juridical propriety” refers to a decision of the International Court of Justice: Electronica Sicula (USA v Italy) (1989) ICJ Rep 15 at 76 para 128: “Arbitrariness…is a wilful disregard of due process of law, an act which shocks or at least surprises a sense of juridical propriety”.
Note 11 Both the USA and the RoK are parties to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which set up ICSID.
Note 12 ICSID Convention Art 54(1).
Note 14 GCA Recital C: C/Tab 2/page 12
Note 15 C/Tab 14/pages 231 – 2.
Note 16 Gerasimenko (1): paras 1 and 5: A/Tab 15/page 68; 69.
Note 17 Gerasimenko (1): paras 5 and 6: A/Tab 15/pages 69 – 70.
Note 18 As stated in “Caspian Oil Windfalls: Who will benefit?”, (C/Tab 15/page 261). This is a paper written by Svetlana Tsalik, the director of Caspian Revenue Watch, a project run by the Open Society Institute, which is a private and grant-making foundation based in New York, USA, whose aim is to promote “open society”. The paper was published in 2003. Chapter 6 of the Paper deals with the National Fund of the Republic of Kazakhstan and makes some criticisms of the management of the fund. Those are not relevant to the present matters. The paper was disclosed by the Claimants, but referred to by both sides at the hearing.
Note 20 Preamble to the Decree: B/Tab 9/page 325.
Note 21 Law No 548 of 24 April 2004.
Note 22 D1/Tab 13/pages 201 – 225.
Note 26 Clauses 2.1.3 and 2.1.4.
Note 27 Didenko report: paras 59; 60: A/Tab 19/page 102.
Note 28 Para 62: A/Tab 19/page 103.
Note 32 Clause 2(a): C/Tab 2/page 13
Note 33 Clauses 26 and 27 respectively.
Note 40 Letter from AAMGS to NBK dated 15 November 2004: C/Tab 12/page 213.
Note 41 See: E/Tab 4/pages 202 – 3 and Tab 5/page 215.
Note 42 All the trades were recorded electronically and the material was disclosed on a CD – Rom; it would have translated into 19,000 A4 pages so was not before the court in hard copy.
Note 43 Letter of AAMGS to NBK dated 18 January 2005: C/Tab 12/page 215.
Note 45 This was not in dispute. The steps are: (a) the RoK has an interest in the Securities as the sole and unencumbered beneficiary under a trust of which the NBK is the bare trustee; therefore (b) either the RoK, as the judgment debtor, holds an interest beneficially in the securities (section 2(1)(a) of the Charging Act 1979), or (c) the RoK holds the whole beneficial interest, unencumbered and for its own benefit, in the securities under a trust of which the NBK is the trustee, so that the charging order can be made on the interest held by the person as trustee of the trust, ie. NBK; (d) AAMGS holds the securities on behalf of NBK: section 2(1)(b)(ii) of the Charging Act.
Note 46 That is at the time that the enforcing process was begun: Alcom Ltd v Republic of Columbia [1984] AC 580 at 604D-E per Lord Diplock.
Note 47 The wording of CPR Pt 72.2(1)(b).
Note 48 As the value of the UK Securities far exceeds the amount of the judgment debt, the status of non – UK Securities is irrelevant.
Note 49 “…where any such bank or authority [ie. central bank or other monetary authority]is a separate entity subsections (1) to (3) of [section 13 of the SIA] shall apply to it as if references to a State were references to the bank or authority”.
Note 51 HC Hansard 13 June 1978, Standing Committee D, vol 951 col 844, quoted in Fox, The Law of State Immunity at p 363 – 4.
Note 1 See: Fox: State Immunity at page 360; Blair: The Legal Status of Central Bank Investments Under English Law (1998) 57(2) CLJ 374 at 375; Statutes of the Bank of International Settlements: Art 56; Mann on the Legal Aspects of Money (6th Ed. 2004, by Charles Proctor LLD) Ch 21, pages 540 – 1.
Note 53 The suggested policy is referred to by Prof James Crawford (then an Australian Law Commissioner, now Whewell Professor of International Law at Cambridge University) in: International Law and Foreign Sovereigns: Distinguishing Immune Transactions (1983) The British Year Book of International Law (BYIL) page 75 at 117. The comment by Dr FA Mann is at: The State Immunity Act 1978; BYIL (1979) page 43 at 62: “Is it in the true interest of Britain and the City of London to assist Foreign States or their central banks in avoiding the discharge of their commercial debt?…..Does principle and financial and commercial probity no longer count?”
Note 54 Compare US Foreign Sovereign Immunities Act 1976: s.1611 (b): “….the property of a foreign state shall be immune from attachment and from execution, if – (1) the property is that of a foreign central bank or monetary authority held for its own account…”; The Canadian State Immunity Act 1982, which exempts only property of a central bank “that is held for its own account and is not used or intended for a commercial activity”: s.11(4). The Australian Foreign State Immunities Act 1985 s.32 provides that “commercial property of a State” is not immune from any process of enforcement. “Commercial property” is defined as “property, other than diplomatic property or military property, that is in use by the foreign State concerned substantially for commercial purposes…”.
Note 55 [1984] AC 580 at 600; hereafter “Alcom”.
Note 57 [1984] AC 580 at 602. The issue in that case was whether a commercial trader could obtain a “garnishee order” against the current account of the Embassy of the Republic of Columbia in respect of goods supplied to the Embassy. The HL, reversing the CA and restoring the judgment of Hobhouse J, held it could not.
Note 58 [2003] EWHC 1357 (QB) at para 47.
Note 59 The phrase used by Lord Diplock in Alcom at page 600.
Note 60 For example, compare the scope of a TPD Order in CPR Pt 72.2 and the property against which a Charging Order can be made under section 2 of the Charging Order Act 1979.
Note 61 See, respectively, clause 16(j) and clause 5(b) of the GCA.
Note 62 It follows that I also agree with the conclusion of Stanley Burnton J at para 47 of the AIC case, although I fear I have expressed my reasons at greater length.
Note 64 Golder v United Kingdom [1975] EHRR 528 at para 57.
Note 65 Hornsby v Greece [1997] 24 EHRR 250 at para 40.
Note 66 [2002] 34 ECHR 11, in particular paras 53 – 56. The principles were applied in Jones v Ministry of the Interior (The Kingdom of Saudi Arabia) [2005] 2 WLR 808 at para 82 per Mance LJ (as he then was).
Note 67 Under section 5 of the SIA, “A State is not immune as regards proceedings in respect of – (a) death or personal injury….. caused by an act or omission in the United Kingdom…”. Therefore, as the claimant alleged that the torture took place in Kuwait at the hands of State employees, the general Rule in section 1 of the SIA applied to give the State of Kuwait sovereign immunity from suit in the UK courts.
Note 72 He relied on the reasoning in Trendtex Trading Corporation v Central Bank of Nigeria [1977] QB 529, although that did not directly concern enforcement of a judgment debt of a State against the property of the Central Bank of Nigeria. However, the spirit of this landmark judgment is certainly consistent with Mr Salter’s submission.
Note 73 Ghaidan v Godin – Mendoza [2004] 2 AC 557 in particular at paras 30 to 33 per Lord Nicholls; paras 44 and 49 per Lord Steyn.
Note 75 The UN General Assembly resolved to refer the question of jurisdictional immunities of States and their property to the International Law Commission in December 1977. After it had reported the matter was taken up by a Working Group of the Sixth Committee of the General Assembly. Subsequently the Ad Hoc Committee reported. See the preamble to Resolution of 16 December 2004.
Note 76 He relies on Stran Greek Refineries v Greece [1994] 19 ECHRR 368, in particular paras 61 and 62, where the court held that an arbitration award against the State of Greece and in favour of Stran Greek Refineries was a “possession” within Article 1 of the Protocol.
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