Trinity
Term
[2018] UKSC 34
On appeal from: [2016] EWCA Civ 1092
JUDGMENT
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Goldman
Sachs International (Appellant) v Novo Banco SA (Respondent)
Guardians of New Zealand Superannuation Fund and others (Appellants) v
Novo Banco SA (Respondent)
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before
Lord Mance
Lord Sumption
Lord Hodge
Lady Black
Lord Lloyd-Jones
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JUDGMENT GIVEN ON
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4 July 2018
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Heard on 17 and 18 April 2018
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Appellant (1)
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Respondent
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Tim Lord QC
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Richard Salter QC
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Thomas Plewman QC
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Jonathan Mark
Phillips
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Max Schaefer
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(Instructed by Cadwalader,
Wickersham & Taft LLP)
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(Instructed by Pinsent
Masons LLP (London))
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Appellants (2)
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Laurence Rabinowitz
QC
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David Caplan
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Niranjan Venkatesan
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(Instructed by Quinn
Emanuel Urquhart & Sullivan LLP)
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Intervener
(Banco de
Portugal)
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Mark Howard QC
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Oliver Jones
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(Instructed by Enyo
Law LLP)
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Appellants
(1) Goldman Sachs International
(2) Guardians of New Zealand Superannuation Fund and others
LORD SUMPTION: (with whom
Lord Mance, Lord Hodge, Lady Black and Lord Lloyd-Jones agree)
1.
The financial crisis of 2007-2008 revealed systemic weaknesses in the
European banking system and the lack of an adequate legal framework for rescuing
failing banks in some member states of the European Union. The result, after a
long period of deliberation, was the European Bank Recovery and Resolution
Directive 2014/59/EU (or “EBRRD”). The directive required member states to
confer on their domestic “Resolution Authorities” (usually the Central Bank)
certain minimum powers (or “tools”) for reconstructing the businesses of
failing credit institutions and investment firms. One of the “tools” was the
“bridge institution tool”, which is dealt with in section 3 (articles 40-41) of
the EBRRD. This required designated national Resolution Authorities to have the
power to transfer to a “bridge institution” any assets, rights or liabilities of
a failing credit institution.
2.
The present appeal is about the recognition in the United Kingdom of measures
by a foreign Resolution Authority in accordance with its own national
legislation implementing the EBRRD. Any pan-European scheme for dealing with
the systemic risks of bank failures must depend for its efficacy on the widest
possible recognition of a home state’s measures in other jurisdictions where
banks in the course of reorganisation may have interests or assets or under
whose laws it may have contracted. The EBRRD dealt with this issue mainly by
amending the earlier Directive 2001/24/EC on the Reorganisation and Winding up
of Credit Institutions (which I shall call the “Reorganisation Directive”). The
Reorganisation Directive applied to credit institutions in the course of reorganisation
or winding up in a member state. It provided for their assets and liabilities
to be dealt with in a single process under the law of the home member state,
and for the legal consequences to be recognised in all other member states,
irrespective of any other relevant law. The EBRRD amended the Reorganisation
Directive so that it applied to measures taken in accordance with the new
“tools” with which member states were required to equip themselves. In
addition, the EBRRD made supplementary provision for co-operation among member
states in giving effect to those measures.
Oak Finance and Banco Espírito Santo SA
3.
The appellants sue as the assignees of the rights of Oak Finance
Luxembourg SA. On 30 June 2014, Oak entered into a facility agreement with a
Portuguese commercial bank, Banco Espírito Santo SA (“BES”), through the
latter’s Luxembourg branch, under which it agreed to lend it about $835m. The
facility agreement was governed by English law and provided for the English
courts to have exclusive jurisdiction in respect of “any dispute arising out of
or in connection with this Agreement”. The entire facility was drawn down on 3
July 2014. The first scheduled repayment, amounting to $52,860,814.22, was due
on 29 December 2014. It shortly became clear, however, that BES was in serious
financial difficulties. On 30 July 2014, BES reported losses for the first half
of 2014 exceeding $3.5 billion, and on the following day applied to Banco de
Portugal, the Central Bank of Portugal, for emergency liquidity assistance.
4.
Banco de Portugal is the designated Resolution Authority for Portugal
for the purpose of the EBRRD. The relevant terms of the EBRRD had been
incorporated into Portuguese law by various provisions added by amendment to
the Banking Law (Regime Geral das Instituições de Crédito e Sociedades
Financeiras). Articles 145-G, 145-H and 145-I of the Banking Law (as
amended) implemented the provisions concerning the bridge institution tool.
5.
On 3 August 2014, the Central Bank decided to invoke these provisions in
order to protect depositors’ funds. By a “Deliberation” published on that date
it incorporated Novo Banco SA to serve as the bridge institution, and
transferred to it the assets and liabilities of BES specified in Annexes 2 and
2A. Annex 2 specified all assets and liabilities recorded in its accounts with
certain exceptions. Under article 145-H(2) of the Banking Law, no liability
could be transferred to a bridge institution if it was owed to an entity
holding more than 2% of the original credit institution’s share capital. An
exception to that effect was accordingly included as paragraph (b)(i)(a) of
Annex 2 of the Central Bank’s decision. Annex 2A was the balance sheet of BES
as at 30 June 2014 adjusted to the time of transfer to show what was then
understood to be the value of the transferred assets and liabilities. The Oak
liability was not mentioned there by name, but it was included in the totals
for liabilities.
6.
There followed a number of further decisions of the Central Bank
adjusting the transfer of both assets and liabilities as investigation of BES’s
affairs proceeded. One of these concerned the Oak liability. On 22 December
2014, a week before the due date of the first scheduled repayment of the Oak
loan, an internal memorandum addressed to the Board of the Central Bank
recorded that although it had originally been thought that the Oak liability
was eligible for transfer to Novo Banco, subsequent investigations suggested
(i) that Oak had entered into the facility agreement on behalf of Goldman
Sachs, and (ii) that Goldman Sachs held more than 2% of BES’s share capital. In
these circumstances, the Board of the Central Bank reached a decision later
that day. The document recording the decision recites that:
“there are serious and grounded
reasons to justify the understanding that Oak Finance, in granting this loan,
acted on account of Goldman Sachs International, an entity in relation to which
serious and grounded reasons also exist to consider that it falls under
paragraph a) of no 2 of article 145-H of the [Banking Law].”
The operative part of the decision, which follows, is in
these terms:
“(a) Banco Espírito Santo’s
liability towards Oak Finance pursuant to the loan agreement of 30 June 2014
was not transferred to Novo Banco;
(b) This decision is
effective as of 3 August 2014;
(c) Novo Banco and Banco
Espírito Santo must adapt their accounting records to the present decision and
act in accordance with it.”
Goldman Sachs objected. They contended that while they
had arranged the facility agreement they were not the true lenders. Nor were
they holders of more than 2% of BES’s share capital. The Central Bank did not
accept either point. On 11 February 2015, its Board resolved to maintain its
decision of 22 December 2014. The minutes record Goldman Sachs’ objection and
the Central Bank’s view that it disclosed no grounds for departing from the
decision. But it recites that any issue as to the eligibility of the Oak loan
for transfer to Novo Banco would ultimately have to be resolved by a court of
law.
7.
There are current administrative law proceedings in Portugal in which
the appellants challenge the Central Bank’s decision of 22 December 2014. These
have not yet been resolved.
The present proceedings
8.
On 26 February 2015, the appellants commenced the present actions
against Novo Banco in the High Court in England for sums due in respect of the
Oak loan. The basis of their claims was that liability on the Oak facility had
been transferred to Novo Banco by the Central Bank’s decision of 3 August 2014.
On that footing, Novo Banco was bound by the jurisdiction clause in the
facility agreement. Novo Banco countered by applying to set aside service of
the claim forms in both actions for want of jurisdiction, on the ground that it
had not been transferred, principally because the decision of 22 December 2014
conclusively determined that that was so.
9.
This is, accordingly, a case in which the fact on which jurisdiction
depends is also likely to be decisive of the action itself if it proceeds. For
the purpose of determining an issue about jurisdiction, the traditional test
has been whether the claimant had “the better of the argument” on the facts
going to jurisdiction. In Brownlie v Four Seasons Holdings Inc [2018] 1 WLR 192, para 7, this court reformulated the effect of that test as follows:
“… (i) that the claimant must
supply a plausible evidential basis for the application of a relevant
jurisdictional gateway; (ii) that if there is an issue of fact about it, or
some other reason for doubting whether it applies, the court must take a view
on the material available if it can reliably do so; but (iii) the nature of the
issue and the limitations of the material available at the interlocutory stage
may be such that no reliable assessment can be made, in which case there is a
good arguable case for the application of the gateway if there is a plausible
(albeit contested) evidential basis for it.”
It is common ground that the test must be satisfied on
the evidence relating to the position as at the date when the proceedings were
commenced.
Portuguese law
10.
There is, at least for the purposes of the jurisdiction issue, a large
measure of common ground about the powers of the Central Bank and the legal
status of its successive decisions as a matter of Portuguese law. The decisions
of 3 August and 22 December 2014 were administrative acts governed by rules of
administrative law which, as in other civil law systems, are distinct from the
rules which govern civil matters. It is agreed that both decisions were valid acts
establishing legal rights and obligations of third parties in accordance with
their terms. It is agreed that a public authority may amend its own
administrative act prospectively or interpret it with effect from the time it
was made. It is agreed that a public authority may by a subsequent decision
implement its own administrative act or apply it to a particular case. Finally,
it is agreed that administrative acts are reviewable by the courts of Portugal,
which may annul them on the ground that they were based on an erroneous factual
assumption or on an error of law. But unless and until they are annulled, they
remain binding and directly effective as a matter of law.
11.
The parties are not agreed about the meaning of the December decision.
They are, however, agreed that it took effect according to its terms from 3
August 2014 and that subject to annulment by a Portuguese court it conclusively
determined as a matter of Portuguese law that the Oak liability was not
transferred to Novo Banco. The appellants’ case is that while the legal effect
of the August decision in Portugal falls to be recognised in England, the legal
effect of the December decision does not.
Recognition: the Directives
12.
The rescue of failing financial institutions commonly involves measures
affecting the rights of their creditors and other third parties. Depending on
the law under which the rescue is being carried out, these measures may include
the suspension of payments, the writing down of liabilities, moratoria on their
enforcement, and transfers of assets and liabilities to other institutions. At
common law measures of this kind taken under a foreign law have only limited
effect on contractual liabilities governed by English law. This is because the
discharge or modification of a contractual liability is treated in English law as
being governed only by its proper law, so that measures taken under another
law, such as that of a contracting party’s domicile, are normally disregarded: Adams
v National Bank of Greece SA [1961] AC 255. By way of exception, however, the
assumption of contractual liabilities by another entity by way of universal
succession may be recognised in England: National Bank of Greece &
Athens SA v Metliss [1958] AC 509.
13.
The National Bank of Greece litigation arose out of the reconstruction
under Greek law of the liabilities of an insolvent Greek bank which had issued
bonds governed by English law, a context very similar to that of the present
appeal. As regards banks, however, the law declared in those two decisions of
the House of Lords was superseded by the Credit Institutions (Reorganisation
and Winding Up) Regulations (SI 2004/1045), which gave effect in English law to
the Reorganisation Directive, and by the Bank Recovery and Resolution (No 2) Order
(SI 2014/3348) which amended the 2004 order to reflect the changes made to the
Reorganisation Directive by the EBRRD.
14.
The purpose of the Reorganisation Directive is apparent from its
recitals. Recitals (6), (7) and (16) are in the following terms:
“(6) The administrative or
judicial authorities of the home member state must have sole power to decide
upon and to implement the reorganisation measures provided for in the law and
practices in force in that member state. Owing to the difficulty of harmonising
member states’ laws and practices, it is necessary to establish mutual recognition
by the member states of the measures taken by each of them to restore to
viability the credit institutions which it has authorised.
(7) It is essential to
guarantee that the reorganisation measures adopted by the administrative or
judicial authorities of the home member state and the measures adopted by
persons or bodies appointed by those authorities to administer those
reorganisation measures, including measures involving the possibility of a
suspension of payments, suspension of enforcement measures or reduction of
claims and any other measure which could affect third parties’ existing rights,
are effective in all member states.
…
(16) Equal treatment of
creditors requires that the credit institution is wound up according to the
principles of unity and universality, which require the administrative or
judicial authorities of the home member state to have sole jurisdiction and
their decisions to be recognised and to be capable of producing in all the
other member states, without any formality, the effects ascribed to them by the
law of the home member state, except where this Directive provides otherwise.”
15.
The relevant substantive provision is article 3, which provides:
“Article
3
Adoption
of reorganisation measures - applicable law
1. The administrative or
judicial authorities of the home member state shall alone be empowered to
decide on the implementation of one or more reorganisation measures in a credit
institution, including branches established in other member states.
2. The reorganisation
measures shall be applied in accordance with the laws, regulations and
procedures applicable in the home member state, unless otherwise provided in
this Directive.
They shall be fully effective in
accordance with the legislation of that member state throughout the Community
without any further formalities, including as against third parties in other
member states, even where the rules of the host member state applicable to them
do not provide for such measures or make their implementation subject to
conditions which are not fulfilled.
The reorganisation measures shall
be effective throughout the Community once they become effective in the member
state where they have been taken.”
Article 3 governs the recognition of “reorganisation
measures”. Article 2, as amended by article 117(2) of the EBRRD, defines these
as follows:
“‘reorganisation measures’ shall
mean measures which are intended to preserve or restore the financial situation
of a credit institution or an investment firm as defined in article 4(1), point
(2) of Regulation (EU) No 575/2013 and which could affect third parties’
pre-existing rights, including measures involving the possibility of a
suspension of payments, suspension of enforcement measures or reduction of
claims; those measures include the application of the resolution tools and the
exercise of resolution powers provided for in Directive 2014/59/EU.”
16.
Since it is not disputed that Banco de Portugal had power under
Portuguese law to employ the bridge institution tool as it did, it is
unnecessary to examine the detailed provisions of the EBRRD relating to the
reconstruction of bank liabilities. For present purposes, the relevant
provisions are those dealing with mutual recognition of the legal effects of
measures taken in accordance with the “tools” and the provisions dealing with
challenges to those measures in the courts of the home member state.
17.
As far as mutual recognition is concerned, recital (119) recites:
“(119) Directive
2001/24/EC of the European Parliament and of the Council provides for the
mutual recognition and enforcement in all member states of decisions concerning
the reorganisation or winding up of institutions having branches in member states
other than those in which they have their head offices. That Directive ensures
that all assets and liabilities of the institution, regardless of the country
in which they are situated, are dealt with in a single process in the home
member state and that creditors in the host member states are treated in the
same way as creditors in the home member state. In order to achieve an
effective resolution, Directive 2001/24/EC should apply in the event of use of
the resolution tools both when those instruments are applied to institutions
and when they are applied to other entities covered by the resolution regime.
Directive 2001/24/EC should therefore be amended accordingly.”
Article 66 is a supplementary recognition provision
dealing with (among other things) dispositions of assets and liabilities in the
course of a reorganisation of a credit institution in its home state. It
provides:
“Article
66
Power
to enforce crisis management measures or crisis prevention measures by other member
states.
1. Member states shall
ensure that, where a transfer of shares, other instruments of ownership, or
assets, rights or liabilities includes assets that are located in a member
state other than the state of the resolution authority or rights or liabilities
under the law of a member state other than the State of the resolution
authority, the transfer has effect in or under the law of that other member state.
…
3. Member states shall
ensure that shareholders, creditors and third parties that are affected by the
transfer of shares, other instruments of ownership, assets, rights or
liabilities referred to in paragraph 1 are not entitled to prevent, challenge,
or set aside the transfer under any provision of law of the member state where
the assets are located or of the law governing the shares, other instruments of
ownership, rights or liabilities.”
18.
Turning to proceedings to challenge measures taken in accordance with
the “tools”, recitals (88) and (89) of the EBRRD recite the need for the
decisions of a Resolution Authority to be subject to appeal to the courts on
the ground (among others) of insufficient factual basis. Recitals (90) and (91)
are in the following terms:
“(90) Since this Directive aims
to cover situations of extreme urgency, and since the suspension of any
decision of the resolution authorities might impede the continuity of critical
functions, it is necessary to provide that the lodging of any appeal should not
result in automatic suspension of the effects of the challenged decision and
that the decision of the resolution authority should be immediately enforceable
with a presumption that its suspension would be against the public interest.
(91) In addition, where
necessary in order to protect third parties who have acquired assets, rights
and liabilities of the institution under resolution in good faith by virtue of
the exercise of the resolution powers by the authorities and to ensure the
stability of the financial markets, a right of appeal should not affect any
subsequent administrative act or transaction concluded on the basis of an
annulled decision. In such cases, remedies for a wrongful decision should
therefore be limited to the award of compensation for the damages suffered by
the affected persons.”
The corresponding substantive provision is article 85,
which provides:
“Article
85
Ex-ante
judicial approval and rights to challenge decisions
1. Member states may
require that a decision to take a crisis prevention measure or a crisis
management measure is subject to ex-ante judicial approval, provided
that in respect of a decision to take a crisis management measure, according to
national law, the procedure relating to the application for approval and the
court’s consideration are expeditious. …
3. Member states shall
ensure that all persons affected by a decision to take a crisis management
measure, have the right to appeal against that decision. Member states shall
ensure that the review is expeditious and that national courts use the complex
economic assessments of the facts carried out by the resolution authority as a
basis for their own assessment.
4. The right to appeal
referred to in paragraph 3 shall be subject to the following provisions:
(a) the lodging of an
appeal shall not entail any automatic suspension of the effects of the
challenged decision;
(b) the decision of the
resolution authority shall be immediately enforceable and it shall give rise to
a rebuttable presumption that a suspension of its enforcement would be against
the public interest.”
In paragraphs 3 and 4, a “crisis management measure”
includes a “resolution action”: article 2(102). A “resolution action” includes
“the application of a resolution tool, or the exercise of one or more
resolution powers”: article 2(40). A “resolution power” refers to the powers
under national law which are required in order to apply the resolution “tools”:
articles 2(20) and 63.
The judgments below
19.
Before Hamblen J, Novo Banco’s case was that the effect of the December
decision fell to be recognised in an English court by virtue of article 66 of
the EBRRD. They did not rely on article 3 of the Reorganisation Directive. The judge
approached the question in two stages: [2015] EWHC 2371 (Comm). He held, first,
that it was sufficiently established for the purpose of jurisdiction (ie the claimants
had “the better of the argument”) that Goldman Sachs held less than 2% of the
share capital of BES and was not the real lender under the facility agreement.
It followed that for the purpose of jurisdiction, it must be assumed that the
Oak liability had been transferred to Novo Banco by the decision of 3 August
2014, there being (on that footing) no relevant exception covering it. That
being so, he considered, secondly, that Novo Banco became party to the
jurisdiction clause in the facility agreement on 3 August 2014. Novo Banco was
therefore bound to submit to the English court “any dispute arising out of or
in connection with this Agreement”, including the dispute about the effect of
the December decision. On that footing he did not need to decide what the
effect of the latter decision was, nor whether it fell to be recognised under
article 66 of the EBRRD. These would be matters for trial. But in case he was
wrong about that, he also held that article 66 did not require the recognition
of the December decision in England because, whatever else it was, the December
decision was not itself a “transfer” of assets.
20.
In the Court of Appeal the argument took a different turn as a result of
the intervention of Banco de Portugal. Mr Howard QC, who appeared for them both
in the Court of Appeal and before us, put at the forefront of his case on
recognition article 3 of the Reorganisation Directive, which had received
hardly any attention before Hamblen J. The significance of this is that article
3, unlike article 66 of the EBRRD, is not limited to requiring the mutual
recognition of “transfers”. Mr Howard’s primary submission was, in summary,
that the Directives required the recognition of the entire process of
reorganisation under the EBRRD and that it was in principle wrong to consider
the effect of the August decision independently of the December decision.
Whatever the correct legal analysis of the December decision, an English court
was bound to recognise its effect as a matter of Portuguese law, which was to
determine conclusively that the Oak liability had not been transferred. The
Court of Appeal allowed the appeal, substantially on that ground: [2016] EWCA Civ 1092; [2017] 2 BCLC 277.
Application of the recognition provisions of the
Directives
21.
The first thing that strikes one about the appellants’ submission is its
inherent implausibility. The appellants accept, indeed assert, (i) that the
August decision was a “reorganisation measure” entitled to recognition in
England under article 3 of the Reorganisation Directive and (ii) that it was a
“transfer” for the purpose of article 66 of the EBRRD. The result of separating
the August decision from the December decision and giving effect only to the
former is that in the eyes of an English court Portuguese law must be treated
as having transferred the Oak liability to Novo Banco although it would not be
so treated in the eyes of a Portuguese court. Since the ordinary purpose of any
choice of law rule is to ascertain which legal rules should be applied in the
relevant foreign jurisdiction, this is a paradoxical result.
22.
In assessing the appellants’ submission, the provision which is
primarily relevant is article 3 of the Reorganisation Directive, as amended by
the EBRRD to apply to “reorganisation measures” taken in the exercise of its
various “tools”. Article 3 of the Reorganisation Directive, as its title
declares, determines the applicable law to be applied to a “reorganisation
measure” in England. Article 66 of the EBRRD is a more specific provision.
Although its language may suggest some overlap with article 3 of the
Reorganisation Directive it is, as its title declares, about enforcement. Its
main purpose is to require other member states to take active steps to enforce
transfers of assets or liabilities made in the course of a reorganisation in
the home state and to prevent challenges to such transfers in their own
jurisdictions.
23.
Two points need to be made about the Reorganisation Directive, and in
particular about article 3.
24.
The first is that its purpose, as recital (119) of the EBRRD records, is
to ensure that “all assets and liabilities of the institution, regardless of
the country in which they are situated, are dealt with in a single process in
the home member state and that creditors in the host member states are treated
in the same way as creditors in the home member state.” This can be achieved
only by taking the process as a whole and applying the legal effects attaching
to it under the law of the home state in every other member state. It is not
consistent with either the language or the purpose of article 3 that an
administrative act such as the December decision, which affects the operation
of a “reorganisation measure” under the law of the home state, should have
legal consequences as regards a credit institution’s debts which are recognised
in the home state but not in other member states.
25.
This was the basis of both of the decisions of the Court of Justice on
article 3 of the Reorganisation Directive. LBI hf v Kepler Capital Markets SA
(Case C-85/12) (Judgment delivered on 24 October 2013) arose out of proceedings
in France brought by a creditor of an insolvent Icelandic bank in the course of
winding up in Iceland to attach a debt owed to the bank by Kepler. One of the
questions referred to the CJEU was whether article 3 applied to an automatic
statutory moratorium retrospectively introduced under the transitional
provisions of an Icelandic statute, given that article 3 referred only to
decisions of the home state’s administrative or judicial authorities. The CJEU
answered that question by reference to the purpose of the Reorganisation
Directive. The Court described that purpose as follows at para 22:
“At the outset, it must be borne
in mind that, as is apparent from recital 6 in its preamble, Directive 2001/24
seeks to establish mutual recognition by the member states of the measures
taken by each of them to restore to viability the credit institutions which it
has authorised. That objective, and that of guaranteeing equal treatment of
creditors, laid down in recital 16 to that directive, require that the reorganisation
and winding-up measures taken by the authorities of the home member state have,
in all the other member states, the effects which the law of the home member state
confers on them.”
The court went on, at para 39, to describe the Directive
as establishing
“a system of mutual recognition of
national reorganisation and winding-up measures, without seeking to harmonise
national legislation on that subject.”
It answered the question in the affirmative, because the
effect of the transitional provisions was retrospectively to treat the judicial
declaration of insolvency as ordering the moratorium.
26.
Similarly, in Kotnik v Državni Zbor Republike Slovenije (Case C-526/14)
[2017] 1 CMLR 753, one of the issues concerned the application of article 3 to
a decision of the Slovenian central bank reconstructing the share and loan
capital of an insolvent commercial bank. After referring to its analysis of the
purpose of the Reorganisation Directive in LBI, the Court observed, at
para 105:
“That objective entails that the reorganisation
measures taken by the administrative or judicial authorities of the home member
state, that is, the member state in which a credit institution has been
authorised, must have, in all the other member states, the effects which the
law of the home member state confers on them (see, to that effect, LBI EU:C:2013:697
at para 22).”
27.
Secondly, an administrative act such as the August decision does not
occur in a legal vacuum. It occurs in the context of a broader framework of
public law. Article 3 does not only give effect to “reorganisation measures”
throughout the Union. It requires them to be “applied in accordance with the
laws, regulations and procedures applicable in the home member state, unless
otherwise provided in this Directive”, and to be “fully effective in accordance
with the legislation of that member state”. In this legal scheme, it cannot
make sense for the courts of another member state to give effect to a
“reorganisation measure” but not to other provisions of the law of the home state
affecting the operation of a “reorganisation measure”. That is so, whether or
not that other provision is itself a “reorganisation measure”.
28.
For these reasons I reject the proposition, which was fundamental to
both the Judge’s analysis and the appellants’ case, that the effect of the
August decision can be recognised without regard to the December decision. On
the face of it, the December decision was not an interpretation of the August
decision or an amendment of it, retrospective or otherwise. Nor was it a
retransfer of a liability previously transferred to Novo Banco. It was a ruling
that under the terms of article 145-H(2) of the Banking Law and paragraph
(b)(i)(a) of Annexe 2 of the August decision, the Oak liability had never been
transferred. But, like the courts below, I do not think that it matters what
the correct analysis of the December decision is, provided that it is accepted
(as it is) that as a matter of Portuguese law it is conclusive of that point
unless and until annulled by a Portuguese administrative court. It follows from
the agreed propositions of Portuguese law and from the requirement of article
3.2 of the Reorganisation Directive that an English court must treat the Oak
liability as never having been transferred to Novo Banco. It was therefore
never party to the jurisdiction clause.
29.
This makes it unnecessary to consider the alternative case advanced by
Banco de Portugal and Novo Banco to the effect that the December decision was
itself a “reorganisation measure” or an implied retransfer of the Oak liability
to BES.
A provisional decision?
30.
The appellants have an alternative case that even if the December
decision is otherwise entitled to recognition in England, it should be
disregarded on the ground that it was a provisional decision pending the final
decision of a Portuguese administrative court on the questions whether Goldman
Sachs was the true lender or a 2% shareholder in BES. The argument is that an
English court should look to what the Portuguese administrative court would
decide about those questions and not what the Central Bank has actually
decided. Mr Rabinowitz QC, who appeared for Guardians of New Zealand
Superannuation Fund and others, submitted that the Judge’s finding that the appellants
had the better of the argument on those questions meant that we must assume
that a Portuguese administrative court would decide them in the appellants’
favour.
31.
The first point to be made is that the December decision was not in
terms a provisional decision. The Judge thought that Banco de Portugal had not
“stated or purported to find that the Oak liability is an Excluded Liability”.
He considered that the December decision “simply asserted that there are
‘serious and well-grounded reasons’ so to conclude, while recognising that that
was ultimately a matter for a court of law to determine.” I respectfully
disagree. He was referring to the recitals and not to the operative part of the
decision. The minutes recited the Central Bank’s reasons for the decision,
which were based on its current view of the facts. But the operative section
determined that the Oak liability “was not transferred to Novo Banco” and
directed that the accounting records of Novo Banco should be restated
accordingly. It follows that the Appellants’ submission must be based on the
mere fact that like any other administrative decision it was subject to review
by a Portuguese administrative court.
32.
The appellants’ submission to this effect is based on the decision of
the Court of Appeal in Guaranty Trust of New York v Hannay & Co
[1918] 2 KB 623. The question at issue in this case was whether as a matter of
New York law a particular bill of exchange was conditional. In previous
proceedings on the same issue between the same parties a New York judge had
held on demurrer that it was. Bailhache J and the Court of Appeal held that it
was not. The ground of the decision was that the judgment was no more than
evidence of New York law, and expert evidence put before the English courts
showed it to be mistaken. The point was put with characteristic clarity by
Scrutton LJ at p 667:
“Foreign law is a question of fact
to an English Court; the judgment of a foreign judge is not binding on an
English Court, but is the opinion of an expert on the fact, to be treated with
respect, but not necessarily conclusive.”
33.
In my opinion, this decision has no bearing on the present appeal. The
issue in Guaranty Trust was not about the legal status of the New York
judgment as a matter of New York law. The question was what the relevant rule
of New York law was. That was a question of fact. In the present case, there is
no issue about either the relevant content of Portuguese law or the status of
the December decision, because it is agreed that as a matter of Portuguese law
it determines creditors’ rights. The present issue is quite different, namely
whether that decision is to be recognised as affecting rights under an English
law contract. That is not a question of fact, but a question of private
international law. True it is that the December decision was based on a factual
premise which is being challenged in Portugal. But it does not matter for
present purposes whether its factual premise was right or wrong. It is binding
in Portuguese law in either case, unless and until it is set aside by a
Portuguese court.
34.
No other conclusion would, as it seems to me, be consistent with the
Directives. In the first place, it is not for an English court to decide what
would amount to an appeal from an administrative act of the Portuguese Central
Bank. Article 3(1) of the Reorganisation Directive provides that the
implementation of a reorganisation measure such as the August decision is a
matter for the administrative or judicial authorities of the home state alone.
Consistently with that approach, article 85 of the EBRRD assigns appeals to the
courts of the home state responsible for the reorganisation. Secondly, article
85(4) provides that an appeal is not to entail any automatic suspension of the
challenged decision. This is because a banking reconstruction under the EBRRD requires
decisive steps to be taken, often as a matter of urgency, which the authorities
in other member states can act on. The scheme of the Directives would be
undermined if the acts of a designated national Resolution Authority were open
to challenge in every other member state simply because they were open to
challenge in the home state.
Reference to the Court of Justice of the European Union
35.
The relevant propositions of EU law are to my mind beyond serious
argument. The decisive questions are questions of Portuguese domestic law, on
which the parties are agreed. There is therefore no proper basis for a
reference.
Disposal
36.
I would dismiss the appeal.
