Creditors likely to find it more difficult to enforce against foreign state assets in France

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​The ability to attach assets of foreign States in France is the subject of a new Bill. A proposed requirement for judicial authorisation for attaching such assets and more severe rules on specific assets are likely to make it more difficult to enforce judgments against foreign State assets in France. Banks will need to be aware of the proposed changes because, if they come into effect, they will be affected both as creditors and also when freezing bank accounts.

In the last edition of the European Finance Litigation Review (EFLR), we considered a new Bill initiated by the French Minister of Finance relating to transparency, the fight against corruption and the modernisation of economic life, known as the “Sapin II” Bill. This Bill, which was adopted by the French National Assembly at first reading on 14 June 2016, also contains new provisions regarding immunity from enforcement of foreign States.

The Bill proposes three new articles in French Civil Enforcement Procedures Code (Code des procedures civiles d’exécution) which currently only states in this regard “enforcement and pre judgment measures are not applicable to people who benefit from immunities from enforcement”.1 Therefore, foreign States’ immunity from enforcement is currently regulated by French Supreme Court precedent. According to the Bill’s impact study, the main goal is to codify these precedents, and clarify the ambit of protection granted to a foreign State (in accordance with international law) whilst also protecting the ability of a creditor to obtain enforcement of a ruling against a foreign State by attaching its properties when there is no immunity from enforcement.

Some parliamentary members have criticised this new provision and requested its withdrawal. Moreover, several NGOs and lawyers consider it is a political gesture to some foreign States following recent unfavourable rulings.

Requirements to waive foreign State immunities

First, Article 24 of the Bill aims at introducing a new Article L. 111-1-1 into the French Civil Enforcement Procedures Code.

This draft article reads as follows: “Pre-judgment measures and enforcement measures shall only be taken against a property belonging to a foreign State if one of the following requirements is met:

  1. this State has expressly consented to the enforcement of such a measure;
  2. this State has allocated or earmarked property for the satisfaction of the claim which is the object of that proceeding;
  3. A ruling or an arbitral award has been rendered against this State and the property in question is specifically in use or intended for use by the State for other than government non-commercial purposes and has a connection with the entity against which the proceeding has been initiated.

For the application of 3, the following property is in particular considered to be specifically in use or intended for use by the State for non-commercial public purposes:

a) property, including bank accounts, in use or intended for use in the exercise of the State’s diplomatic mission or its consular posts, special missions, missions with international organisations or its delegations in the bodies of international organisations or international conferences;

b) property of a military nature or property in use or intended for use in the exercise of military functions;

c) property which is part of the State’s cultural heritage or its archives, which is not put on sale or is not intended to be;

d) property which is part of an exhibition of objects of a scientific, cultural or historic interest, which is not put on sale or is not intended to be;

e) tax or social receivables of the State” (Unofficial translation).

Codifying customary international law

Article 24 aims to implement customary international law on sovereign immunity from execution into French law. It codifies Articles 18 and 19 of the 2004 United Nations Convention on Jurisdictional Immunities of States and their Property, which has been ratified by France but has not yet entered into force.

Codifying the French Supreme Court’s precedents

The new provision codifies French Supreme Court precedent which states that sovereign immunity from execution is absolute but may be waived. In Eurodif/Iran,2 the Court decided that sovereign immunity may be waived if: (i) the attached property is allocated for a private law economic or business activity; and (ii) this activity gives rise to the proceedings. This principle was further developed by the French Supreme Court, which ruled that sovereign immunity may be waived if the attached property “is not linked to a sovereign activity but to an economic, business or civil operation relating to private law which gives rise to the proceedings”.3

Therefore, the draft Article L. 111-1-1 does not appear to modify the rules applicable to enforcement measures against foreign States. This being said, it should be noted that Article 24 does not codify the precedents applicable to attachments on foreign public bodies which are subject to different and less strict rules than the ones applicable to attachments of foreign States’ assets.4 Moreover, foreign public bodies’ assets also seem to be excluded from the judicial authorisation set out by the current drafting of Article L. 111-1-3.

Foreign States’ waiver of their immunity over diplomatic property and bank accounts

Article 24 provides that “Pre-judgment measures and enforcement measures shall only be taken against properties, including bank accounts, in use or intended for use in the exercise of foreign States diplomatic missions or consular posts, special missions, missions with international organisations in the event of express and specific waiver of these States” (unofficial translation).5

Overturning recent French case law

The main objective of this new provision is to reverse a recent decision of the French Supreme Court regarding attachments on property and assets used for diplomatic activities.6 Previously, the French Supreme Court’s position was that a waiver of immunity from execution did not encompass property and assets used for diplomatic activities, unless the waiver expressly and specifically said so.7 However, in 2015, the Court ruled that “customary international law only requires an express waiver of immunity from enforcement”. In other words, there did not have to be specific waiver of immunity over diplomatic assets – a general waiver was sufficient.8

According to the new provision, the attachment of a diplomatic property will be impossible without the State’s express and specific consent. This new provision has been criticised by parliamentary members and practitioners on the basis that it could limit asset recovery by creditors, which may be former employees of Embassies or claimants in anti-corruption proceedings against foreign States initiated in France.

This amendment goes beyond what is required by international law – Articles 18 and 19 of the 2004 United Nations convention simply require that “the State has expressly consented to the taking of such measures”. However, a specific and express waiver is promoted by the French Minister of Finance as an efficient tool to impede so-called “Vulture Funds” starting legal proceedings in France in order to target diplomatic assets here. Other European states have already introduced such a double requirement – specific and express waiver – to seize foreign diplomatic assets (eg Germany, Belgium).9

New judicial authorisation requirement

Finally Article 24 provides that “In the cases set out in Articles L. 111-1-1 and L. 111-1-2, pre-judgment measures and enforcement measures shall only be taken upon prior authorisation of a judge by an order issued upon request, in the conditions set out by a Decree of the Council of State” (unofficial translation).10

This is the most important new provision. Currently, a judicial authorisation is not required in order to attach a foreign State’s assets except if the creditor is seeking pre-judgment measures and has no enforcement title.11 Judicial authorisation is however already required to seize foreign central bank’s assets.12

The Bill’s impact study acknowledges that this provision is not required by International Conventions to which France is a signatory, but is nonetheless necessary given the checks to be carried out in order to assess whether a foreign State’s assets may be attached.

This new provision would involve increased cost and delay for claimants to seize foreign assets since an inter partes application would be required. Additionally, France would appear to be isolated from other European countries which do not require judicial authorisation in such a case. The impact study suggests that the new measure will benefit French diplomatic relationships and will impede strategic actions by creditors.

Potential impact on financial institutions

The impact of Article 24 of the Sapin II Bill may be significant for financial institutions. First, the embassy and diplomatic bank accounts held by financial institutions in France will be as protected as they used to be before the French Supreme Court’s departure from its previous case law. The new provision may encourage foreign States to allocate any accounts held in France to a diplomatic mission, even when they are unrelated, so as to impede any attachment of these assets.

Attachments of bank accounts are fairly common in France since they are a very effective means to compel a debtor to pay and may be quickly and efficiently converted to definitive measures. However, the new provision means that such a bank account may not be attached unless: (i) there is a judicial authorisation and; (ii) they are not related to diplomatic activities or the State has expressly and specifically waived its immunity. These are higher hurdles than before. France might become a less attractive jurisdiction for “Vulture Funds” seeking the recovery of State debts.

We will closely monitor the Bill, and will provide further updates. At present the earliest that the new provisions are likely to become law is at the beginning of autumn.

Footnotes

1Article L. 111-1 paragraph 3 of the French Civil Enforcement Procedures Code.

2French Supreme Court, First Civil Chamber, 14 March 1984, No 82-12462, Eurodif / Iran.

3French Supreme Court, First Civil Chamber, 19 November 2008, No 07-10570.

4Please see French Supreme Court, First Civil Chamber, 1st October 1985, Sonatrach, No 84-13605.

5Draft Article L. 111-1-2 of the French Civil Enforcement Procedures Code.

6French Supreme Court, First Civil Chamber, 13 May 2015, No 13-17751, Comissimpex v. Congo.

7For instance, French Supreme Court, First Civil Chamber, 28 September 2011, No 09-72057.

8French Supreme Court, First Civil Chamber, 13 May 2015, No 13-17751, Comissimpex / Congo.

9As outlined by the Bill’s impact study, this double requirement has not to be met under UK laws which only require a written waiver.

10Draft Article L. 111-1-3 of the French Civil Enforcement Procedures Code.

11Please see Articles L. 511-1 et seq. of the French Civil Enforcement Procedures Code. Pursuant to article L. 111-3 of the French Civil Enforcement Procedures Code, are enforcement titles: a French ruling, a foreign ruling or a arbitral sentence which have been granted the exequatur by a final decision, an extract of conciliation minutes in matter of divorce, notarial acts, the title delivered by a bailiff in the event of non-payment of a cheque, specific titles delivered by public bodies.

12Article L. 153-1 of the French Monetary and Financial Code.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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