Sovereign immunity from enforcement is a major concern for investors. This international law principle implies that a State’s asset cannot be seized without its consent to enforce a judicial or arbitral decision, including international investment arbitration awards. Dispute resolution clauses in many contracts concluded with States contain therefore an express waiver of immunity from, among other things, enforcement. But this might not be sufficient: in NML Capital Ltd v Argentina the French Cassation Court has tightened the previous test for such waivers to be effective.
French case law has traditionally restricted the applicability of this immunity to public assets, as opposed to private assets, such as those allocated to commercial activities governed by private law. For public assets, which are in principle covered, immunity could be waived by the State whether expressly or implicitly. To be effective, such a waiver only needed to be unequivocal and refer specifically to immunity from execution rather than from jurisdiction. The only exception to this rather lenient test related to assets subject to diplomatic immunity (e.g. bank accounts of a foreign embassy) which, in light of the 1961 Vienna Convention on Diplomatic Relations, could only be effective if they expressly provided that diplomatic assets would be covered.
In NML Capital v Argentina (Cass civ 1, 28 March 2013), the Cassation Court endorsed the Court of Appeal’s decision to tighten this test. NML Capital, the owner of Argentinian bonds that had been defaulted upon, had obtained a judgement against Argentina before a US District Court for approximately US$284m. As part of its international enforcement campaign, NML Capital sought, and obtained, attachments in France against the assets of three French companies, in relation to moneys owed by them to Argentina through their local branches.
The Paris Court of Appeal ordered the release of these attachments, on the basis that the waiver of enforcement immunity given by Argentina did not specifically mention the categories of assets concerned, i.e. tax, social security and oil royalty claims. The Cassation Court, rejecting NML’s appeal, noted that the assets affected by the attachments were “resources necessarily connected to the exercise by the State of prerogatives linked to its sovereignty”. As such, they would have been susceptible to enforcement measures only if the relevant assets or categories thereof had been specifically identified in the waiver.
It remains to be seen whether there are any categories of assets which, albeit ‘public’ (and therefore covered by immunity from enforcement) are not ‘necessarily connected to the exercise by the State of its sovereign prerogatives’. If so, generic waivers could still be sufficient to allow investors to seek enforcement over such assets, provided they are unequivocal. In the meantime, States and investors wishing to clarify their position in respect of immunity from enforcement should ensure that the categories of public assets intended to be covered by the waiver are specifically mentioned in the relevant agreement.