Enforcement of arbitral awards against States under Sanctions: a new challenge

In addition to the classic difficulties relating to immunity, the enforcement of arbitral awards against certain States faces an additional obstacle following a ruling by the CJUE on November 11, 2021: the freezing of assets subject to sanctions.

Tunisian company Siba Plast carried out several attachments on various assets of the Libyan National Transitional Council (LNTC) on the basis of an arbitration award dated November 28, 2014, which had been enforced in France. These attachments included the Libyan Investment Authority’s (LIA) partnership rights in Compagnie des Exploitations Réunies (CER) and BIA bank’s claims for payment against companies CER and FCER.

CER and FCER applied for a release of the attachments and the enforcement judge of the Paris Court of First Instance rejected the application and confirmed the attachments.

CER and FCER appealed this judgment.

In a decision dated January 26, 2023, the Paris Court of Appeal reversed the December 17, 2021 judgment and ordered the release of the enforcement measures.

On immunity from execution, and the characterization of the companies subject to the execution measures as organs of the State, the Court of Appeal ruled that “[f]or execution measures to be put in place against a company that is considered an organ of the State, two conditions must be fulfilled: on the one hand, at a functional level, a real engagement in the form of a permanent power of direction and control, and, on the other hand, on the financial level, the indistinguishability of the State’s assets and the assets of the entity“.

On the first criterion, the Court noted that it is not disputed that Lafico, the sole shareholder of FCER, itself the sole shareholder of CER, is wholly owned by the LIA, created by the Libyan State in 1981 to “grow the funds allocated by the general people’s committee“. It is a public entity affiliated with the committee and its employees are public officials. In addition, the Court of Appeal previously identified the LIA and Lafico as organs of the state in a judgment dated September 5, 2019 (not reversed on this issue).

As regards the appellant companies, the Libyan Court of Auditors recommended that they be dissolved, on a finding that their existence was of no value, as these companies had no business other than the ownership of the building operated by Fnac in Paris.

The first criterion of permanent power of control is therefore met.

On the second criterion, the Court noted that:

  • the building located in Paris is owned by CER, a wholly-owned subsidiary of FCER, which is itself directly owned by Lafico, a Libyan sovereign fund, which ultimately receives the rent in the form of dividends;
  • BIA bank is held by the Libyan State and by the Algerian State;
  • the companies in question are tax exempt;
  • the fact that the Libyan State holds 100% of the share capital of the LIA, which in turn holds all of the capital of Lafico, which in turn holds the full capital of FCER, and so on up to CER, “constitutes additional proof of the intermingling of the assets of these different legal entities, even if their statutes are different“.

The second criterion relating to the indistinguishability of assets is therefore also met.

In addition to confirming the now classic case law on the definition of organs of the State that may be liable for the State’s debts, the judgment put forward the conditions under which enforcement measures may be taken against the assets of an entity under sanctions.

The Paris Court of Appeal noted that Article 5 of EU Regulation 2016/44 dated January 18, 2016 ordered a freeze on the assets of the Libyan state, that CER and FCER are “totally dependent” on the LIA, which is itself under sanction, and that the CJUE rightly ruled on November 11, 2021 “that a freezing mechanism prohibits any action on frozen funds without authorization from the competent national authority.

In this case, the challenged enforcement measures were carried out on frozen assets without the authorization of the competent authority in France; the Paris Court of Appeal therefore ordered their release.

Source: CA Paris, pole 1 ch. 10, January 26, 2023, n° 21-22374.




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