European Union: Constitutional Court Rules On State Immunity From Execution

Last Updated: 19 June 2017
Article by Catherine Longeval

Most Read Contributor in Belgium, December 2018

In a judgment dated 27 April 2017, the Constitutional Court (Grondwettelijk Hof / Cour Constitutionnelle) (the "Constitutional Court") largely confirmed the validity of the statutory provision governing State immunity from execution (Article 1412quinquies of the Belgian Judicial Code) which became law in September 2015.

As a general rule, Article 1412quinquies of the Belgian Judicial Code provides that assets located in Belgium that belong to a foreign State are immune from execution and cannot be subject to enforcement proceedings by creditors.

There are, however, exceptions to that rule under strict conditions: a party wishing to seize the assets belonging to a State needs to obtain a prior authorisation from a judge (Beslagrechter / Juge des saisies). This judge will only authorise the seizure if: (i) the foreign State has "expressly" and "specifically" consented to the seizure of the assets; (ii) the foreign State has specifically allocated those assets to the enforcement of the claim which gives rise to the seizure; or (iii) the assets are located in Belgium and were allocated to or are used for an economic or commercial activity while relating to the entity against which execution is sought.

Given the difficulty of meeting these requirements, two entities, NML Capital Limited ("NML"), an American hedge fund which holds debts securities against Argentina, and Yukos Universal Limited ("YUL"), an entity that had been granted a multi-billion arbitral award against Russia, had brought annulment proceedings before the Constitutional Court against Article 1412quinquies of the Belgian Judicial Code.

Their arguments centered around two questions.

Does Article 1412quinquies of Belgian Judicial Code Violate Principle of Equality and Non-discrimination?

Both NML and YUL argued that Article 1412quinquies of the Belgian Judicial Code violated Articles 10 and 11 of the Belgian Constitution (i.e., the provisions on equality and non-discrimination) since that provision prohibited a creditor of a foreign State from seizing the assets belonging to that State while such a prohibition does not apply to a creditor of any other person or entity.

In response, the Constitutional Court first relied on its long established case-law, according to which the principle of equality and non-discrimination does not preclude a difference in treatment, so long as this difference is based on objective criteria, is legitimate and is proportionate.

In applying these principles to the case at hand, the Constitutional Court first found that the distinction at hand relied on an objective criterion (i.e., the nature of the debtor – a foreign State).

Second, the Constitutional Court also found that the distinction was legitimate since it aimed to protect international comity, ensure good relationships between Belgium and foreign States and avert diplomatic incidents.

Third, with respect to the proportionality requirement, both NML and YUL argued that the requirements, laid down in Article 1412quinquies of the Belgian Judicial Code, to seize the assets of a foreign State were disproportionate and violated the European Convention of Human Rights since they precluded a creditor from enforcing a judgment or an award rendered against the foreign State. However, the Constitutional Court dismissed this argument and considered instead that the case-law of the European Court of Human Rights, the United Nations Convention on Jurisdictional Immunities of States and Their Property (which has not yet been ratified by Belgium) and customary international law allowed for limitations to the right to execution of court judgments and arbitral awards.

In the light of these requirements, the Constitutional Court found that Article 1412quinquies does not violate the principle of equality and non-discrimination.

Are Requirements Allowing Seizure Legal?

The Constitutional Court then moved to examine the three conditions that have to be satisfied pursuant to Article 1412quinquies of the Belgian Judicial Code in order to allow a seizure of a foreign State's assets.

The Constitutional Court was particularly critical of the first requirement according to which the foreign State must have "expressly" and "specifically" consented to the seizure of the assets.

In particular, the reference to the word "specifically" proved to be problematic since this word does not appear in the United Nations Convention on Jurisdictional Immunities of States and Their Property. The Constitutional Court also noted that the International Court of Justice never referred to this word within this context. On this basis, the Constitutional Court annulled the word "specifically" in Article 1412quinquies of the Belgian Judicial Code.

Ultimately, the Constitutional Court largely confirmed the validity of Article 1412quinquies of the Belgian Judicial Code (despite the annulment of the word "specifically"). As a result, the possibilities to enforce judgments and arbitral awards taken against sovereign States in Belgium are reduced.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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