French court confirms administrative authorisation critical for enforcing arbitral awards against frozen Iraqi state assets

The case related to the enforcement of two ICC arbitral awards issued in 1996 and 2003, in which the Iraqi Ministry of Defence and other Iraqi public entities were ordered to pay Dutch company Instrubel a total amount of €16.7 million.

Instrubel obtained an enforcement order in France. It then sought conservatory seizure and attachment of various assets belonging to Montana Management, a company incorporated under the laws of Panama.

This company, which had been created to allow the Iraqi state to invest in a French media group and was managed by individuals close to the Iraqi regime, is listed as an entity dealing with Iraq's funds or other financial asset under UN Security Council resolution 1518 (2003). Its assets are, therefore, frozen in anticipation of their transfer to the Development Fund for Iraq held by the Central Bank of Iraq, and its successors.

Montana Management acted in turn and sought the annulment of the conservative seizures.

The first issue before the court was to determine whether Montana’s frozen assets could be seized as part of an enforcement against Iraq. Under French law, a party can seize assets which are owned or controlled by an entity that is “an emanation of the state”. The term means the entity, regardless of its corporate structure, is not functionally independent from the state as to be considered autonomous from the state, and the assets of this entity are not distinct from that of the state.

In its ruling, the court has confirmed that Montana Management was an emanation of Iraq, so its assets could be considered as belonging to the Iraqi government and could thus be seized in the context of the enforcement of the two ICC arbitral awards in favour of Instrubel NV against Iraq.

The interpretation of what is considered ‘an emanation of the state’ is thus crucial in the context of enforcement measures, as it determines whether an entity's assets can be seized to satisfy a claim against a state, said international arbitration and enforcement expert  of Pinsent Masons.

The court gave two main reasons behind its decision. First, as Montana Management was listed among entities whose funds and economic resources were frozen under United Nations Security Council resolutions in 2003, and up until the day of the enforcement measures, it created a presumption that it was an emanation of the Iraqi state. The court also considered that no argument could lead to this presumption being reversed. Furthermore, this presumption does not reverse the burden of proof. To the contrary, the evidence provided by Instrubel demonstrated its lack of functional independence from the Iraqi state.

However, on the second argument, the court annulled the seizure of the frozen assets by Instrubel for lack of prior administrative authorisation from the appropriate French authority, the Directorate General of the Treasury. The court said the seizure was in breach of articles  4.1 and 2 of EU Regulation 1210/2003 of 7 July 2003 related to sanctions against Iraq. It confirmed that the claimant must first obtain administrative authorisation from the Treasury Department before they can apply to courts for authorising the protective or enforcement measure against frozen assets. This mechanism ensures that frozen assets cannot be used to satisfy creditors' claims without prior authorisation from the relevant national authority – in France, the Treasury Department – at the expense of Development Fund for Iraq and its successors.

The court cited a preliminary ruling by the Court of Justice of the European Union (CJEU) of 11 November 2021, known as Bank Sepah, which established that no seizure of frozen assets can be made for the benefit of a creditor without prior authorisation from a competent national authority in the context of sanctions against Iran. This judgment expands this ruling to the seizure of assets frozen in the context of sanctions against Iraq. It noted that the Cour de Cassation, the French Supreme Court, already did the same with the sanctions against Libya in a ruling dated on 7 September 2022. It also aligns this regime with that applicable to the frozen of the assets in an earlier CJEU preliminary ruling involving Instrubel and Montana Management.

Brillat-Capello said: “This decision highlights the complexities of seizing frozen assets, requiring compliance with both the administrative requirements set forth under EU Law (originating from international law) and domestic legal criteria under French civil procedure applicable to enforcement of arbitral awards.”