National Bank of Kazakhstan the Republic of Kazakhstan v The Bank of New York Mellon SA/NV London & Ors

A debt owed by a bank under a custody agreement is owed to the contractual customer, even where the customer manages assets for another and that other person is beneficially entitled to the assets. An undisclosed principal must establish actual authority, an intention by the agent to contract on its behalf, and no contractual or contextual exclusion of that principal. Control, fiduciary features, payment and authority to manage property may be consistent with agency but do not necessarily establish it. Equitable trust remedies enable a beneficiary to enforce the trustee’s claim; they do not convert the underlying debt into a debt owed directly to the beneficiary.

The National Bank of Kazakhstan and the Republic of Kazakhstan sought declarations concerning cash held by the London branch of The Bank of New York Mellon under a Global Custody Agreement. The cash formed part of Kazakhstan’s National Fund and had been frozen following a Belgian garnishment order obtained by the Stati parties to enforce a Swedish arbitral award.

The Belgian court referred to the English court the question whether BNYM owed a debt to Kazakhstan. The claimants argued that the NBK had contracted as Kazakhstan’s agent, or that Kazakhstan could enforce the debt through trust or equitable principles. The court also considered the proper limits of its role in relation to the Belgian proceedings.

1. Declarations granted. The court declared that the contracting parties to the Global Custody Agreement were BNYM London and the NBK; that the obligations were owed solely to the NBK; that BNYM had no obligation to pay the relevant debt to Kazakhstan; and that Kazakhstan had no claims against BNYM in relation to the cash deposits. The court declined to determine the ultimate scope or outcome of the Belgian garnishment proceedings, which remained matters for the Belgian court.
2. Agency. The relevant agency question was governed by Kazakh law, while the effect of any agency on the GCA was governed by English law. The NBK had authority from Kazakhstan to manage and invest the National Fund, but that was authority in the sense of permission to deal with the property. It was not authority to bind Kazakhstan to contracts with third parties. The NBK was an independent central bank, acted in its own name in commercial relations, and the TMA did not manifest the necessary closeness of identity or actual authority. The agency case therefore failed.
3. Trust and equity. Even assuming an analogous trustee-beneficiary relationship, the debt remained legally owed by BNYM to the NBK. Equity could permit Kazakhstan to enforce the NBK’s claim in appropriate proceedings, including a derivative action in special circumstances, but it did not make the underlying debt payable directly to Kazakhstan.
4. Ownership. Kazakhstan’s ownership or beneficial entitlement to the National Fund did not give it the contractual right to demand payment from BNYM. The right to withdraw money from the account was governed by the English-law GCA and lay with the NBK.
5. Declarations. Declaratory relief was appropriate because there was a real and present dispute and the answer was required by the Belgian court. The requested fourth declaration was narrowed to avoid deciding questions of Belgian law or the scope of the Belgian order.