Goldman Sachs International v Novo Banco SA

The court decided applications by Novo Banco to set aside or stay two English proceedings brought by successors to Oak Finance's rights under a US dollar facility made to Banco Espírito Santo (BES). The central legal questions concerned (i) whether the English court had jurisdiction under the Judgments Regulation (Recast) including Article 25 (jurisdiction agreements), and (ii) whether measures or decisions of the Portuguese resolution authority (Bank of Portugal) fell to be recognised in English law under the Bank Recovery and Resolution regime (notably Article 66 of the Bank Recovery and Resolution Directive and the implementing UK regulations).

The judge held that the Claimants' debt claims under the Facility Agreement are civil and commercial matters and fall within the material scope of the Judgments Regulation. On the facts available the Claimants had the better argument that the August 2014 Bank of Portugal decision effected a transfer of liabilities to Novo Banco, so that Novo Banco became party to the Facility Agreement and to the agreed English jurisdiction clause. The later December 2014 decision of the Bank of Portugal (purporting to say the relevant liability had not been transferred) did not defeat English jurisdiction: it was not a transfer within Article 66, did not amount to an exercise of a listed resolution power in the Directive, and in any event its effect is a matter for English law to determine in proceedings under the jurisdiction clause. The court therefore dismissed Novo Banco's jurisdictional application and refused a case management stay; non-justiciability and act of state grounds were not made out.

Background and parties:

• The Facility Agreement was entered into on 30 June 2014 between Banco Espírito Santo (BES) and Oak Finance Luxembourg S.A.; a drawdown was made on 3 July 2014.
• Oak's loan rights were later assigned to Goldman Sachs International (GSI) and the New Zealand Claimants. The Claimants sued Novo Banco (NB) in England for repayment and interest, contending NB replaced BES as borrower by virtue of a statutory transfer effected by the Bank of Portugal's August 2014 decision.
• NB contested jurisdiction and sought dismissal or a stay, relying on Portuguese administrative decisions (including a December 2014 ruling that the Oak liability had not been transferred) and on recognition obligations under EU resolution law.

Nature of the application and relief sought: NB applied to set aside both sets of English proceedings for lack of jurisdiction or, alternatively, for a stay of the proceedings.

Issues framed by the court:

1. Whether the claims fall within the material scope of the Judgments Regulation and, if so, whether the English court has jurisdiction (notably under Article 25 by reason of the English jurisdiction clause in the Facility Agreement).
2. Whether, even if the court has jurisdiction, it should decline to exercise it (non-justiciability/act of state/comity).
3. Whether the court should grant a case management stay pending the outcome of Portuguese administrative proceedings.

Court's reasoning and findings:

• The claims are debt claims founded on a private law agreement and therefore fall within the Judgments Regulation; references to Portuguese administrative acts form background only and do not mean the claims are excluded as "administrative matters".
• On English choice of law the question whether NB succeeded to BES's contractual rights is governed by English law. Applying the correct test at the jurisdictional stage (relative plausibility/better argument on the material), the Claimants had the better argument that the August 2014 decision effected a transfer of liabilities (excluding the specified "Excluded Liabilities") and that the Oak liability was not an Excluded Liability. Accordingly NB became a party to the jurisdiction clause for the purposes of Article 25.
• The December 2014 decision, which declared there had been no transfer in respect of the Oak liability, was not a "transfer" within Article 66 and did not involve the exercise of any specific resolution power in the Directive that required recognition in English law. The Claimants therefore had the better of the competing arguments on the relevance and effect of the December decision for English law purposes.
• Doctrines of non-justiciability or act of state did not require the court to decline jurisdiction; the EBRRD scheme itself regulates recognition of resolution authority acts and the bank had not shown that adjudication would require improper review of sovereign acts.
• The court refused a case management stay. There was no power to stay under the Judgments Regulation and the inherent jurisdiction to stay is only to be exercised in rare and compelling circumstances; the judge found none and noted the Portuguese administrative litigation could take years while NB was being sold.

Procedural and evidential points: Expert Portuguese law evidence was heard for all parties and the court assumed, for present purposes, certain Portuguese law consequences; but it emphasised the decisive questions were their effect in English law and the proper interpretation of the EBRRD and implementing UK measures.

The court dismissed NB's applications. It held that the Claimants' debt claims fall within the Judgments Regulation and that, on the material available, the Claimants had the better argument that the August 2014 Bank of Portugal decision transferred BES's liability under the Facility Agreement to Novo Banco, thereby making Novo Banco party to the English jurisdiction clause (Article 25). The December 2014 ruling did not oust English jurisdiction: it was not a transfer within Article 66 nor an exercise of an EBRRD resolution power requiring recognition in England. The doctrines of non-justiciability or act of state did not require dismissal and no case management stay should be granted.