In its judgment of 30 September 2016, the Dutch Supreme Court ruled that assets of foreign states cannot be subject to attachment and enforcement in The Netherlands, unless those assets are used for non-governmental purposes.
In its judgments of 14 October 2016, the Dutch Supreme Court confirmed this general presumption of sovereign immunity from enforcement of judgments and arbitral awards against a foreign state’s assets.
The sovereign immunity defence - customary international law
The doctrine of state immunity under Dutch law has been primarily shaped by case law and international conventions. The Dutch Supreme Court ruled that the three exceptions to sovereign immunity of a foreign state‘s assets listed in Article 19 of the United Nations Convention on Jurisdictional Immunities of States and Their Property (“UN Convention”) are applicable under Dutch law. In summary, this means that assets of a foreign state may only be attached:
with the express consent of the state;
if the state has allocated or earmarked property for the satisfaction of the claim; or
where 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.
Presumption of immunity
The presumption of immunity as confirmed by the 2016 Dutch Supreme Court decisions puts creditors to the challenge of proving that the state’s targeted assets are intended to be used for non-governmental purposes. Creditors should not expect to receive any assistance from the Dutch courts in meeting this challenge. The Dutch Supreme Court has held that the state party is under no obligation to disclose any information regarding its assets, nor is it required to appear in the proceedings and put forward a sovereign immunity defence.
Pre-attachment judicial review
The Dutch Ministry of Justice has the power to prevent the attachment of assets, or render an attachment which has already been levied null and void, until the creditor has demonstrated in court proceedings initiated against the Dutch State that the relevant assets are not covered by sovereign immunity. As a result of the confirmed presumption of immunity, the Dutch Ministry of Justice may be inclined to challenge virtually any attachment intended to be levied against a foreign state’s assets.
No distinction between conservatory and executorial measures
Article 18 of the UN Convention rules out the possibility of levying conservatory attachments on a state’s assets without the state’s prior express consent. The Dutch Supreme Court has expressed the view that the distinction made between conservatory and executorial measures in the UN Convention does not reflect international customary law and consequently does not apply under Dutch law. Provided that a creditor succeeds in proving that the state’s targeted assets in The Netherlands are intended to be used for commercial purposes, the Dutch courts will permit conservatory attachment of those assets.
No implied waivers
An exception to the presumption of sovereign immunity exists if the investor can demonstrate that the state has waived its right to invoke such defence. In accordance with the UN Convention, the Dutch Supreme Court found in one of its 14 October 2016 rulings that express consent from the state is required for a waiver of immunity to be effective. A waiver of state immunity cannot be implied from the general provisions contained in bilateral or multilateral arbitration agreements between state parties.
It will be challenging for creditors to prove that the state’s assets it wishes to attach serve commercial rather than governmental purposes, especially because states have no obligation to assist in adducing any evidence in that respect. An upside for creditors seeking enforcement in The Netherlands is that – contrary to some other jurisdictions – the commercial purposes exception also applies to conservatory attachments.
Investors are advised to seek a waiver of immunity from enforcement when contracting with states. It is important to ensure that the waiver is express and specific, and that it is effective not only under the domestic laws of the state party involved before the court or tribunal in which the dispute will be adjudicated, but also under the laws of jurisdictions in which enforcement proceedings may be pursued.
This article was first published on Kluwer Arbitration Blog.