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Welcome / Blog Archive / English / 2023-11-doc1 Sovereign Wealth Fund shares – Immune from execution?

2023-11-doc1 Sovereign Wealth Fund shares – Immune from execution?

Under international law, a presumption of immunity applies to goods of a foreign state, which makes them untouchable by seizure. This rule has an exception in the event it has been established that the goods in question are being used by the foreign state, or are intended to be used, for purposes other than public ones. It is up to the creditors, or more specifically the attachment creditor, to provide sufficient information for a court to determine that the goods are destined for a non-public destination.

The case on which the Netherlands Supreme Court recently ruled concerns creditors of the Republic of Kazakhstan. More specifically, the plaintiffs were persons and companies from Moldova and Gibraltar who are the beneficiaries of an arbitral award issued in December 2013, in which Kazakhstan was ordered to pay almost US$500 million and more than €800,000. Kazakhstan has never complied with the arbitral award, so the creditors seized shares held by Samruk-Kazyna JSC – a Kazakh sovereign wealth fund established in Astana, of which the Kazakh state was the founder and sole shareholder. Kazakh Law stipulates that shares in Samruk are the exclusive property of Kazakhstan and cannot be alienated. But the shares in question that the creditors attached were shares that Samruk held in a Dutch company, KMG Kashagan BV (KMGK).

Samruk and Kazakhstan were both defendants in the cassation proceedings. Samruk immediately demanded the lifting of an attachment order obtained by the creditors on the basis that they had no claims against it, only against Kazakhstan, and there were no grounds to identify Samruk with Kazakhstan. To the extent that the creditors could take recourse against its assets, Samruk also claimed immunity from execution.

The Netherlands Supreme Court ruled on the latter point already in December 2020, considering a judgment from the Amsterdam Court of Appeal, which found creditors only had to demonstrate that the immediate destination, rather than the ultimate destination, of goods they were seeking to attach – in this case Samruk’s shares in the Dutch company – was a non-public destination. The Court of Appeal said any other interpretation of the exception would make it de facto impossible for attaching parties to assert their rights. In line with its decision, the Court of Appeal ruled that the creditors had made sufficiently plausible arguments Samruk’s shares in KMGK could be classed as going to a commercial destination.

However, the Supreme Court saw things differently. It said it would be more in keeping with the purpose of immunity from execution to stick by the principle that property of foreign states cannot be subject to seizure and execution, unless and insofar as it has been established that it is headed for a non-public destination. The Supreme Court said that interpretation was more in line with Article 19(c) of the United Nations Convention on Jurisdictional Immunities of States and Their Property (2004), which states that: “No post-judgment measures of constraint, such as attachment, arrest or execution, against property of a State may be taken in connection with a proceeding before a court of another State unless and except to the extent that… 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 and is in the territory of the State of the forum, provided that post-judgment measures of constraint may only be taken against property that has a connection with the entity against which the proceeding was directed.” The Supreme Court said Article 19(c) could be regarded as a rule of customary international law.

It also said it was in keeping with the scope of immunity from execution that foreign states are not obliged to provide information showing their property has a destination that precludes seizure and execution. The Supreme Court ultimately found the Amsterdam Court of Appeal’s ruling, that it was decisive whether the immediate destination of the seized goods was a non-public destination, did not correspond with the rules on immunity from execution and amounted to an error of law.

Finally, it also provided that it was unclear why it could be assumed that the shares Samruk held in KMGK had a destination other than a public destination. As a result of its findings, the Supreme Court quashed the Amsterdam court’s decision and referred the case to the Court of Appeal in The Hague for further consideration.  In the Netherlands after cassation, the Supreme Court refers the case to another Court of Appeal. This so-called referral judge (‘verwijzingsrechter’) then reconsiders the content of the case, taking into account the ruling of the Supreme Court, and makes a ruling.

In a brief decision in June 2022, The Hague Appeal court laid out the Supreme Court’s 2020 findings that goods that are “property” of a state (Kazakhstan) are subject to a presumption of immunity from execution, which is only waived if it can be established that the seized shares were used or intended to be used by Kazakhstan for purposes other than public purposes. It re-iterated that the rules of evidence required the party relying on the exception to immunity from execution to provide the information through which the exception could be established. In this case, it said, the plaintiffs failed to do so because they had not provided sufficient information in the proceedings to establish that Samruk’s shares in KMGK were intended for purposes other than public purposes.

The Appeal court in The Hague also made four other findings: (i) It was established that the participations held by Samruk, including its shares in KMGK, were managed by Samruk with the aim “to increase the national welfare of the Republic of Kazakhstan” and that Samruk did not own these shares in a way that may allow them to be alienated without the consent of Kazakhstan; (ii) Only Kazakhstan could exercise ultimate control over Samruk as the sole shareholder; (iii) Legal safeguards had been put in place to ensure that Kazakhstan (subject to any change in law to be implemented by the state) remained the sole shareholder of Samruk; (iv) Samruk’s corporate purpose was broader than just the proceeds from the shares in KMGK that could ultimately benefit Kazakhstan as a shareholder of Samruk. Samruk’s aim was, in particular, to contribute to the economic development of Kazakhstan and increase national prosperity through optimal management of its state holdings, The Hague court said.

The Hague Appeal court also rejected the plaintiffs’ objections that the proceeds from the shares in KMGK benefitted Samruk, which used them to realize a commercial activity; that Samruk managed its participations in a commercial manner; and that its participation in KMGK was focused on long-term value maximization. None of those arguments altered the fact that Samruk’s aim was to contribute to the economic development of Kazakhstan and to increase the national prosperity of that country, it said.

Over a year later, the case returned to the Supreme Court at the end of September 2023. Now that the court had ruled the plaintiffs provided insufficient information to establish that Samruk’s shares in KMGK were intended for purposes other than public purposes, the cards had been shuffled. The Supreme Court found that The Hague Appeal court had rightly taken the starting point that it was up to the plaintiffs to demonstrate the seized shares had a destination other than a public destination, and to provide sufficient information to that end.

Since, the plaintiffs had not done this sufficiently, the Supreme Court rejected the appeal in cassation.

Dutch Supreme Court case references:

HR 18 December 2020 ECLI:NL:HR:2020:2103

HR 22 September 2023, ECLI:NL:HR:2023:1281

This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication and the column appeared in GRR on 6 October 2023. See