Central Bank Of Yemen v Cardinal Financial Investments Corporation

A promissory note is an independent contract. Liability on it attaches only to persons named on the instrument. State immunity concerns jurisdiction rather than substantive liability. Where a dispute concerns liability under promissory notes, the commercial-transaction exception in section 3(1) of the State Immunity Act 1978 applies according to the parties and obligations appearing in the notes, not the underlying transaction. Section 3(2) is irrelevant where the defendant is not a State. An overdue instrument is taken subject to defects of title, but the holder may sue in its own name without proving that it is a holder for value.

Cardinal Financial Investments Corporation sued the Central Bank of Yemen on 15 promissory notes payable in London. The notes were made by the Bank of Yemen, whose liabilities the Central Bank of Yemen later assumed, and were endorsed by Ceskoslovenska Obehodni Banka AS to Cardinal.

Longmore J dismissed the Central Bank’s application for a declaration that the English court lacked jurisdiction on grounds of sovereign immunity. The Central Bank appealed, arguing that the underlying transactions were between States, that overdue negotiation gave Cardinal no better title, and that the Central Bank was separately immune under section 14(2) of the State Immunity Act 1978.

1. The appeal was dismissed with costs. The promissory notes were independent contracts. The relevant rights and liabilities therefore arose under the notes, rather than under the underlying credit transactions. Only parties named on a negotiable instrument incur liability on it. The fact that the named maker may have acted for another party does not impose liability on that other party.
2. The dispute concerned liability under the notes. The parties to that dispute were Cardinal and the Central Bank, and the Central Bank was not a State for the purposes of the State Immunity Act 1978. The notes were accepted to be commercial transactions within section 3(1). Section 3(2), which excludes the section where the parties are States or have otherwise agreed in writing, was consequently irrelevant. The statutory language was clear and resort to Hansard was unavailable.
3. Section 36(2) of the Bills of Exchange Act 1882 did not assist the Central Bank. Yemen and the Czech Republic had never been parties to the notes, so no issue of State immunity arose between the original parties, CSOB and the Central Bank. The alternative argument that State immunity might constitute a defect in title was therefore not decided.
4. By way of explanation, an overdue instrument puts the transferee on inquiry because it may be subject to a defect of title existing at maturity. No such defect or equity was shown here. Cardinal could sue in its own name under section 38(1) without proving that it was a holder for value.
5. The Central Bank abandoned reliance on section 14(2) of the State Immunity Act 1978, because it could not satisfy the requirement concerning the circumstances in which a State would have been immune. No ruling on that argument was required.

• Court of Appeal (Civil Division): Appeal from Longmore J’s order in the Commercial Court dated 13 April 2000. Appeal dismissed with costs; £10,000 ordered on account.