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12 November 2018
Articles 59 and 60 of Law 2016-1691 (the Sapin II Law) on transparency, anti-corruption and the modernisation of economic life established a system of immunity from the execution of civil judgments on property in France which is owned by foreign states.
At the international level, the UN Convention on Jurisdictional Immunities of States and their Property, which was adopted in December 2004 and has since been ratified by France, provides for state immunity from restrictive measures affecting state property, as well as exceptions to such immunity in cases where:
In this respect, the convention incorporates the principles of customary international law. However, this convention is not in force internationally, as it has not yet been ratified by a sufficient number of countries.
Until the Sapin II Law came into effect, immunity from execution in France was left to the court's discretion. The Supreme Court ruled (in 2011 and again in 2013) that a state's immunity from execution could be waived if that state issued an express waiver regarding specified assets. However, the court then went on to reverse its jurisprudence by recognising that international law requires only that a waiver of immunity be express; there is no need for the waiver to relate to specified assets.
This change in approach, and the exequatur regime in France, led to an increase in the seizure of property belonging to foreign states. State-owned property has also been subject to attachments by creditors – in particular, hedge funds. Considering these types of seizure to be contrary to international law, the government sought, through the Sapin II Law, to provide better protection for states.
The Sapin II Law created:
The main purpose of this aspect of the Sapin II Law is to limit the risk of litigation arising from seizures or attachments of property belonging to foreign states. The regime affords greater protection against seizures of state property and ensures that international law on state immunity is upheld.
Protective and enforcement measures by a creditor against a state's property may no longer be taken without the prior authorisation of a court, pursuant to the procedure set out in Article L111-1-1-1 of the Civil Enforcement Procedure Code. This procedure filters out abusive or wrongful creditor actions.
The enforcement division of the Paris District Court is almost always the competent jurisdiction for such matters.
A court may authorise an enforcement measure against foreign state-owned property only if one of the following conditions listed in Article L111-1-2 of the Civil Enforcement Procedure Code is met:
The Sapin II Law sets out a list of the principal assets considered to be non-commercial for these purposes, including:
Article L111-1-2 largely reproduces Articles 19 and 20 of the UN convention.
Autonomous immunity from execution for diplomatic missions
For property used or intended to be used in exercising the diplomatic mission of a foreign state or its consular posts, the state must provide a special waiver of immunity from execution.
The Sapin II Law introduced special provisions to restrict attachments of state property in cases where a hedge fund holds against that state the debt securities and instruments referred to in Articles L213-1 A and L211-41 of the Monetary and Financial Code, making it more difficult for this type of creditor to seize property.
For such creditors, any interim protective or enforcement measure is subject to prior court authorisation. No such consent can be granted if the following cumulative conditions are met:
Article 59 of the Sapin II Law has been the subject of heated debate. For certain commentators, it penalises companies that have proper and regular contractual relations with foreign countries. Indeed, France has some of the strictest legislation in this area.
In addition, by allowing states to waive their immunity from execution by express or specific waiver, the Sapin II Law has had a significant impact on the wording of waiver clauses in contracts entered into with states. Creditors are now tailoring waiver clauses in light of the Sapin II Law so that states do not restrict the assets to which the waiver of immunity applies.
For further information on this topic please contact Rhidian David or Agnes Braka-Calas at Hughes Hubbard & Reed by telephone (+33 1 44 05 80 00) or email (email@example.com or firstname.lastname@example.org). The Hughes Hubbard & Reed website can be accessed at www.hugheshubbard.com).
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