Attaching sovereign wealth fund assets: does state immunity apply?

Sovereign wealth funds (SWFs) currently have more than 10 trillion USD in assets under management. The sheer size of these assets obviously makes them an attractive target for international creditors who have obtained a favorable arbitral award in a dispute with the state controlling the SWF. However, when executing the award against assets of a SWF in foreign jurisdictions, creditors have to contend with the doctrine of state immunity from execution. Pursuant to this doctrine, measures of constraint cannot be taken against foreign state property used for government non-commercial purposes. The question then arises whether (a) SWF is state property in the first place; and (b) whether SWF property serves a commercial or sovereign purpose. In this blogpost, I explain that domestic courts in various jurisdictions have answered  this question differently. I also make the normative proposition that SWF property is state property that tends to be used for commercial purposes, and should thus be amenable to attachment.

The Dutch position 

The position of Dutch courts, as enunciated in a recent decision of the Hague Court of Appeal (June 2022), in a case remanded by the Dutch Supreme Court (2020), is (a) that SWF property is state property insofar as it is controlled by the state, and (2) that such property is presumed to be immune from enforcement as it serves a public purpose, namely to increase the national welfare of the state.

The Dutch case concerned enforcement proceedings against Samruk, an SWF of Kazakhstan. In 2013, Kazakhstan had lost an international arbitration case against commercial parties whose investments in oil fields in Kazakhstan had been adversely affected by decisions of the government. After Kazakhstan failed to pay the compensation that was due on the basis of the arbitral award, the creditors moved to attach various properties of Kazakhstan in foreign jurisdictions. This included stock held by the SWF in a Dutch company. Lower Dutch courts had initially allowed attachment, until the Supreme Court ruled that the immediate commercial purpose of the property – making a profit from investment in the stock market – is not decisive. Instead, according to the Supreme Court, stock proceeds are used to improve Kazakhstan’s national welfare, which is a public purpose that is duly covered by state immunity. On remand, the Hague Court of Appeal confirmed. It held that, even if the SWF manages its investments in stock in a commercial manner and these investments are aimed at long-term value maximization, the aim of the SWF is, in any event, also to contribute to the economic development of Kazakhstan and to improve that country’s national welfare (para. 3.14). 

SWF property as state property

In international law, states enjoy immunity from execution or enforcement. This means that courts cannot take measures of constraint against foreign state property. Still, if state property is‘specifically in use or intended for use by the State for other than government noncommercial purposes’, immunity does not apply, pursuant to Article 19(c) of the 2004 UN Convention on Jurisdictional Immunities of States and their Property, the essence of which is recognized as customary international law (ICJ, Jurisdictional Immunities, para. 118).

In the case of an SWF, however, the complication is that such an entity is separately incorporated, and operates, prima facie at least, at arm’s length from the state itself. Yet on closer inspection, SWFs tend to be fully controlled by the state, as the state is its only shareholder and is in control of decision-making through government appointees. For instance, the Libyan Investment Authority, Libya’s SWF and Africa’s largest, is fully owned by the state, its board of trustees is appointed by the Council of Ministers (3/6 of board members are ministers themselves), and all decisions to increase or diminish the SWF’s capital are taken by the Council of Ministers.

This should have two consequences. First, debts owed by the state can be recovered from assets managed by SWFs, which qualify as property of the state. Second, precisely because they are state property, they are in principle covered by immunity from execution in proceedings brought in foreign jurisdictions.

Thus, applying this logic, the Court of Appeal, on remand, decided that Kazakhstan controlled the property formally belonging to its SWF, on the grounds that Kazakhstan exercises ultimate control over its SWF, being its sole shareholder and having the power to appoint and discharge its directors (para. 3.8). I take no issue with this determination, as under the most conventional interpretations of international law, the concept of state property should indeed be interpreted widely, as including ‘property in its possession or control’, regardless of corporate formalities. Admittedly, there may be a certain tension between the Court of Appeal’s decision and a 2021 decision of the Dutch Supreme Court, which espoused a rather narrow interpretation of the concept of ‘state property’, excluding a commercial bank’s property shipped by a foreign state’s central bank. But both cases can eventually be distinguished on the basis that SWFs are controlled by the state, and commercial banks are not.

SWF assets serving a public or commercial purpose?

While I am in agreement with the Court of Appeal’s decision that SWF property is state property, I do take issue with the decisions of the Court of Appeal and the Supreme Court that SWF assets, as assets of the state, serve a public, non-commercial purpose, and thus enjoy immunity. In an earlier publication (TCR 2017), I had already argued that courts may want to apply an immediate purpose standard to state assets, since applying a general purpose standard would in practice mean that creditors can almost never attach state assets. Indeed, the state can always argue that, ultimately, somewhen in the future, proceeds of state assets are likely to serve a public purpose. Instead, it is preferable for the court to consider what immediate purpose these assets are used for. This position is desirable from a policy perspective, as it recognizes that SWFs may participate in the market just like any other commercial party and should therefore not claim any privileged treatment. Also, it does justice to the legitimate financial interests of creditors who have obtained a favorable arbitral award. Thus, where the state, through its SWF, aims to maximize profits by commercially investing in capital markets, the assets used for such investments (e.g., stock), can be attached.

I concede that the Dutch Supreme Court has not followed my view in the Kazakhstan case, but I still wonder whether the Court’s position reflects customary international law. In fact, there is sizable international case-law that supports the ‘immediate purpose’ standard which I have earlier advocated. I cited some non-SWF-relevant case-law in my 2017 publication, but ever since, multiple domestic courts in foreign jurisdictions have applied precisely that standard in immunity cases involving SWF. Most notably, in 2021, the Swedish Supreme Court held, also in a case involving an SWF of Kazakhstan, that a ‘long-term state saving for future needs – not yet defined – in itself cannot be regarded a sovereign activity’, and that instead the state’s ‘primary motivation for exposing itself to such [commercial] risks can typically be assumed to be the same as those of other equity investors’ (English excerpts of the decision are available here). The Court thus held the immediate – commercial – purpose of the assets managed by the SWF to be decisive, and on that ground rejected Kazakhstan’s immunity. Similarly, in 2021, the Court of Appeal of Brussels rejected Kazakhstan’s immunity in relation to an SWF, the main objective of which was ‘to accumulate and preserve funds by selling non-renewable energy for future generations in order to ensure long-term returns with an appropriate level of risk’ (para. 268). According to the Court, this purpose is of a commercial nature, as the SWF’s asset ‘are invested solely with a view to maximising long-term returns’ (para. 269). Furthermore, in 2019, the Paris Court of Appeal held that commercial investments by Libyan SWFs in, inter alia, financial instruments and real estate in France, are not specifically used or intended to be used for governmental non-commercial purposes, and are accordingly amenable to attachment. The French position has admittedly not fully crystallized, as the rival Versailles Court of Appeal, also in 2019, took the position that SWF investments have a non-commercial purpose. In September 2022, the French Court of Cassation decided that, in the specific case of Libya, the assets of its SWFs cannot be attached, since they are frozen pursuant to international sanctions imposed by the UN Security Council (as implemented by the EU), but it conspicuously refrained from addressing the question whether SWF assets serve sovereign or commercial purposes.

Concluding observations

This snapshot of international case-law shows that, unlike Dutch courts, higher courts in other jurisdictions are at times willing to attach SWF assets on the ground that these serve an immediate commercial purpose. It appears to me that, given the variety in approaches, the issue of SWF immunity from execution has not fully crystallized yet in international law. Instead, it may mainly be governed by judges’ own legal intuition. The Brussels Court of Appeal was quite honest in this regard: observing that there is no uniform approach, it held that ‘it is therefore up to this court to judge how this condition should be applied here, taking into account all the concrete circumstances of the case’ (para. 265). If anything, for SWFs, this means that, if they want to obtain legal certainty, they will need to ascertain the legal intuition of the courts in each jurisdiction in which they have assets.