AY Bank Ltd v Bosnia and Herzegovina and Others
| Jurisdiction | England & Wales |
| Judge | The Chancellor |
| Judgment Date | 12 April 2006 |
| Neutral Citation | [2006] EWHC 830 (Ch) |
| Date | 12 April 2006 |
| Court | Chancery Division |
| Docket Number | Case No: No.73 of 2006 |
[2006] EWHC 830 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Chancellor of the High Court
In The Matter of ay Bank Limited (in Liquidation) and
In the Matter of the Insolvency Act 1986
Case No: No.73 of 2006
Miss Sonia Tolaney (instructed by Lovells) for the Applicant (by its Joint Liquidators)
Mr Richard Hacker QC (instructed by Latham & Watkins) for the 2nd Respondents
Dr Claudia Annacker (Austrian Rechtsanwalt) and Mr Adam Goodison (instructed by Clyde & Co.) for the 4th Respondents
Mr Malcolm Shaw QC and Mr David Alexander (instructed by Clifford Chance) for the 5th, 6th and 7th Respondents
Hearing dates: 4 th and 5 th April 2006
udgment
The Chancellor:
Introduction
On 5 th March 1980 AY Bank Ltd ("the Bank") was incorporated in England under the Companies Acts 1948 to 1976 for the purpose of encouraging trade, finance and engaging in associated banking activities with the Socialist Federal Republic of Yugoslavia ("SFRY"). SFRY comprised six republics namely the republics of Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia. The central bank of SFRY was the National Bank of Yugoslavia ("NBY"). On various dates between 25th June 1991 and 5th April 1992 each republic, except those of Serbia and Montenegro, declared its independence from SFRY. On 27th April 1992 the Republics of Serbia and Montenegro together formed the Federal Republic of Yugoslavia ("FRY"). FRY set up its own central bank, originally also called the National Bank of Yugoslavia, now called the National Bank of Serbia ("NBS").
On 30th May 1992, 9th June 1998 and 19th June 1999 various sanctions were imposed on SFRY and its nationals by the United Nations, the United States of America and the European Union. The effect of such sanctions was to freeze assets of the Bank. On 25th June 1999 an administration order in respect of the Bank was made by Lloyd J for all four of the purposes prescribed by s.8(3) Insolvency Act 1986 but to no avail. On 23rd September 2003 Hart J discharged the administration order on condition that the Bank was put into creditors' voluntary liquidation. On 26th September 2003 the members of the Bank resolved that the Bank be wound up voluntarily on the ground that it could not by reason of its liabilities continue its business. Joint Liquidators were duly appointed.
At all material times there were a number of accounts with the Bank (a) in the name of 'the National Bank of Yugoslavia' ("the NBY Accounts"), (b) in the name of 'the Yugoslavian Embassy' ("the Embassy Accounts") and (c) a suspense account to which had been credited a number of sums in the name of the National Bank of Yugoslavia ("the Suspense Account"). At the commencement of the winding up of the Bank the aggregate credit balances, duly converted into sterling at the rates then prevailing, amounted to £9,491,018 in the case of the NBY Accounts, £933,525 in the case of the Embassy Accounts and £104,537 in the case of the Suspense Account. On 5th January 2006 the Joint Liquidators issued the originating application now before me seeking the directions of the court as to the identity of the persons to whom to pay dividends in respect of those accounts and in what proportions. The originating application was subsequently amended to seek directions regarding certain dealings on the NBY Accounts referred to as the 1993 and 1994 Set-Offs. To explain the need for these directions, the other applications now before me and the claims and contentions of the various parties it is necessary to consider a number of earlier events in some detail. They arise under the general headings of succession to the property of SFRY, transactions on the NBY Accounts, the claims of the parties and the further applications.
Succession to the property of SFRY
As I have already indicated in paragraph 1 above four of the six republics which made up SFRY declared their independence in the period 25th June 1991 to 5th April 1992. Initially the remaining two republics, namely those of Serbia and Montenegro, claimed that they were the successors under International Law to the property of SFRY, in effect, as the survivors of the six constituent republics. In due course that view was modified. It is now common ground that SFRY underwent a process known to Public International Lawyers as a dismembratio (or dismemberment, see Oppenheim International Law 9th Ed Vol. 1 pp 219–222) the consequence of which is that the former republics constituting SFRY are jointly the successors to its property.
There followed a number of international conferences which culminated in the Agreement on Succession Issues ("the ASI"). The ASI was concluded on 29th June 2001 between the five successor states of SFRY, namely Bosnia and Herzegovina, the republics of Croatia, Macedonia and Slovenia and FRY. The ASI was registered with the United Nations on 2nd June 2004 and came into force on that date. By then the constituent republics of FRY, namely, Serbia and Montenegro had united to form a single state of that name.
The ASI recognises that the five parties thereto "being in sovereign equality [are] the five successor states to the former" SFRY. It recites the need to resolve questions of state succession arising from the break-up of SFRY, the various negotiations which had taken place and the agreement reached on 10th April 2001 at a meeting held at the Bank for International Settlements concerning the distribution of the assets of the former SFRY. By article 1 SFRY was defined as "the former Socialist Federal Republic of Yugoslavia". Article 3 contains a list of Annexes in which the subject matter of each annex is settled, Annex C being financial assets and liabilities. Articles 4, 5, 7 and 8 are, so far as relevant, in the following terms:
" Article 4
(1) A Standing Joint Committee of senior representatives of each successor state, who may be assisted by experts, is hereby established.
(2) This Committee shall have as its principal tasks the monitoring of the effective implementation of this Agreement and serving as a forum in which issues arising in the course of its implementation may be discussed. The Committee may as necessary make appropriate recommendations to the Governments of the successor states.
[(3) – (4)]
Article 5
(1) Differences which may arise over the interpretation and application of this Agreement shall, in the first place, be resolved in discussion among the States concerned.
(2) If the differences cannot be resolved in such discussions within one month of the first communication in the discussion the States concerned shall either
(a) refer the matter to an independent person of their choice, with a view to obtaining a speedy and authoritative determination of the matter which shall be respected and which may, as appropriate, indicate specific time limits for actions to be taken; or
(b) refer the matter to the Standing Joint Committee established by Article 4 of this Agreement for resolution.
[(3) – (5)]
Article 7
This Agreement, together with any subsequent agreements called for in implementation of the Annexes to this Agreement, finally settles the mutual rights and obligations of the successor States in respect of succession issues covered by this Agreement. The fact that it does not deal with certain other non-succession matters is without prejudice to the rights and obligations of the States parties to this Agreement in relation to those other matters.
Article 8
Each successor State, on the basis of reciprocity, shall take the necessary measures in accordance with its internal law to ensure that the provisions of this Agreement are recognised and effective in its courts, administrative tribunals and agencies, and that the other successor States and their nationals have access to those courts, tribunals and agencies to secure the implementation of this Agreement."
Annex C is headed "Financial Assets and Liabilities". Article 1 states that the financial assets of SFRY comprise all its financial assets including in particular
"(b) accounts and other financial assets in the name of the National Bank of Yugoslavia;"
Article 5, so far as material, is in the following terms:
"(1) Foreign financial assets….whether held by SFRY or the National Bank of Yugoslavia directly or with foreign banks, Yugoslav joint venture banks and agencies of Yugoslav Banks abroad include the following:
[(i)]
(ii) foreign exchange accounts held at foreign commercial banks and valued on 31 March 2001 at $307.61 million;
(iii) foreign exchange accounts held at SFRY joint venture banks abroad and valued on 31 March 2001 at $645.55 million; and
[(iv)]
(2) The available foreign financial assets identified in paragraph (1) of this article shall be distributed according to the following proportions, which shall be applied to items (i), (ii), (iii) and (iv) separately:
Bosnia and Herzegovina
%
Croatia
%
Macedonia
%
Slovenia
%
Federal Republic of Yugoslavia
%"
Article 6 constituted a committee for the distribution of the financial assets and liabilities of the former SFRY with a representative of each successor State. Such committee ("the Distribution Committee") was to arrange initial distributions. Its objective was to effect distributions as quickly as possible. It was required, among other functions, to "verify, settle and effect distributions under Article 4 of this Annex". Article 9 of and Appendix 1 to Annex C contained a Disclosure...
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