Goldman Sachs International v Novo Banco SA

Article 3 of the Directive 2001/24/EC on the Reorganisation and Winding up of Credit Institutions requires every member state to recognise the entire legal effect which the home state’s law gives to a bank reorganisation measure. Recognition extends to binding administrative acts and other home-state rules affecting the measure’s operation, whether or not those acts are themselves reorganisation measures.

A host-state court must therefore give effect to a resolution authority’s decision while it remains binding in the home state. The possibility of review does not make the decision provisional or permit the host court to reconsider its factual basis. Challenges belong before the home-state courts and do not automatically suspend the decision. Article 66 of the bank resolution directive supplements that regime by addressing enforcement and preventing host-state challenges to transfers.

The appellants were assignees of rights under an English-law facility agreement made between Oak Finance Luxembourg SA and Banco Espírito Santo SA. After the Portuguese bank entered financial difficulty, Banco de Portugal established Novo Banco SA as a bridge institution. An initial decision transferred specified liabilities, but a later decision conclusively determined under Portuguese law that the Oak liability had never transferred.

The appellants brought English proceedings against Novo Banco under the facility agreement’s jurisdiction clause. Hamblen J held that the claimants had the better of the argument that the liability had transferred and that Novo Banco was bound by the clause: [2015] EWHC 2371 (Comm). The Court of Appeal allowed Novo Banco’s appeal because the entire Portuguese reorganisation process, including the later decision, had to be recognised: [2016] EWCA Civ 1092; [2017] 2 BCLC 277.

The central issue in the conjoined appeals was whether an English court had to recognise the later Portuguese decision and consequently treat Novo Banco as never having assumed the Oak liability or become party to the jurisdiction clause.

Lord Sumption delivered the sole judgment, with which Lord Mance, Lord Hodge, Lady Black and Lord Lloyd-Jones agreed. The appeals were dismissed unanimously.

1. Article 3 of the Directive 2001/24/EC on the Reorganisation and Winding up of Credit Institutions determined the applicable law governing recognition. Its purpose was to ensure that all assets and liabilities were dealt with in one process in the home member state and that the process produced throughout the Union the effects attributed to it by home-state law. A host-state court could not recognise an initial reorganisation measure while disregarding a later binding administrative act that determined how that measure operated: paras 21–28.

2. Article 3 required the process to be taken as a whole. It made no difference whether the December decision was an interpretation, amendment, retransfer or separate reorganisation measure. Because Portuguese law treated that decision as conclusively establishing, unless annulled, that the Oak liability had never transferred, the English court had to give it the same effect: paras 24–29.

3. Article 66 of the European Bank Recovery and Resolution Directive 2014/59/EU was a more specific enforcement provision. Its principal functions were to require other member states to take active steps to enforce transfers and to prevent challenges under host-state law. It did not displace the broader choice-of-law and recognition rule in article 3: para 22.

4. The December decision was final and operative, although reviewable. Its recitals described the Central Bank’s current factual assessment, but its operative part determined that the liability was not transferred and required the relevant accounting records to be altered. The mere availability of judicial review did not make the decision provisional: paras 30–31.

5. Guaranty Trust of New York v Hannay & Co [1918] 2 KB 623 concerned proof of the content of foreign law and did not govern recognition of an administrative act affecting contractual rights. The content of Portuguese law and the decision’s domestic status were agreed. Whether that act affected an English-law contract was a question of private international law, not fact: paras 32–33.

6. Challenges to resolution measures belonged to the home-state courts under article 85. An appeal did not automatically suspend the challenged decision. Allowing collateral challenges elsewhere would undermine a regime requiring urgent and effective action across member states: para 34. No reference to the Court of Justice was warranted because the relevant EU-law propositions were beyond serious argument: para 35.

7. Novo Banco had therefore never assumed the Oak liability and had never become party to the jurisdiction clause. The appeals were dismissed: paras 28 and 36.

1. United Kingdom Supreme Court: Dismissed the conjoined appeals unanimously and affirmed the Court of Appeal’s conclusion that the later Portuguese decision had to be recognised: [2018] UKSC 34.
2. Court of Appeal: Allowed Novo Banco’s appeal. It held that the entire Portuguese reorganisation process had to be recognised and that the later decision conclusively established that the liability had not transferred: [2016] EWCA Civ 1092; [2017] 2 BCLC 277.
3. High Court, Commercial Court: Hamblen J held that the claimants had the better of the argument that the liability had transferred and that Novo Banco was bound by the jurisdiction clause. He alternatively held that article 66 did not require recognition of the later decision because it was not itself a transfer: [2015] EWHC 2371 (Comm).