Crane Bank Ltd v DFCU Bank Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Phillips,Lord Justice Popplewell,Sir Julian Flaux |
| Judgment Date | 26 July 2023 |
| Neutral Citation | [2023] EWCA Civ 886 |
| Year | 2023 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-002042 |
[2023] EWCA Civ 886
Sir Julian Flaux, CHANCELLOR OF THE HIGH COURT
Lord Justice Popplewell
and
Lord Justice Phillips
Case No: CA-2022-002042
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
HIS HONOUR JUDGE PELLING KC
[2022] EWHC 2266 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Pannick KC, Hannah Brown KC, David Caplan and Ben Lewy (instructed by Greenberg Traurig LLP) for the Appellants
Joe Smouha KC, Jackie McArthur and Sean Aughey (instructed by Freshfields Bruckhaus Deringer LLP) for the First and Second Respondents
Georges Chalfoun (instructed by Jenner & Block London LLP) for the Third, Fourth and Fifth Respondents
Hearing dates: 3, 4 & 5 April 2023
Approved Judgment
This judgment was handed down remotely at 11.00am on Wednesday 26 July 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives
This appeal raises issues as to the scope and application of the foreign act of state rule and of the limitations and exceptions to which it is subject.
The first appellant, Crane Bank Limited (“CBL”), was formerly a major commercial bank in Uganda. The second to seventh appellants are shareholders in CBL. In these proceedings the appellants assert that from about Spring 2016 senior Ugandan government officials and officials of the Bank of Uganda (“the BoU”) engaged in a corrupt scheme to take control of CBL, making improper use of statutory and regulatory powers to do so, and then to sell its assets for the benefit of the parties to the scheme. The appellants allege that the first respondent (“DFCU Bank”), another Ugandan commercial bank, joined the corrupt scheme as purchaser of CBL's assets from the BoU (acting as receiver of CBL), that purchase being at a gross undervalue. DFCU Bank's holding company (the second respondent) and certain current and former executives and directors of DFCU Bank (the third to fifth respondents) are also alleged to have joined the scheme. 1
As a consequence, the appellants claim damages in excess of £170 million for conspiracy to injure by unlawful means and/or an account of profits alleged to have been made by the respondents (and all other defendants) by their dishonest assistance of the corrupt scheme or equitable compensation. The appellants further claim that DFCU Bank is liable to account for sums received on the basis of knowing receipt of assets transferred in breach of fiduciary duty. It is common ground that all these claims are governed by Ugandan law.
On 19 October 2022, on the respondents' application under CPR Part 11 on the ground that there was no serious issue to be tried, HH Judge Pelling KC (“the Judge”) made an order declaring that the Court has no jurisdiction to try the appellants' claims against the respondents and setting aside service of the Claim Form on them. That order gave effect to a reserved judgment handed down by the Judge on 7 October 2022 in which the Judge held that, as the appellants' claims would require the Court to adjudicate on the lawfulness of executive acts of a foreign state (Uganda), under the laws of that state and performed within its territory, the claims fell within the foreign act of state rule and that the Court, accordingly, had no jurisdiction to try them. The Judge rejected the appellants' arguments that their claims, or some of them, fell (or arguably fell) within one or more of the exceptions to the foreign act of state rule.
The appellants appeal that decision with permission granted by Males LJ, contending that the Judge should have found that there was at least a serious issue to be tried (for the purpose of founding jurisdiction) that:
i) the sale by the BoU (as receiver) to DFCU Bank was commercial rather than sovereign in character, therefore falling outside the foreign act of state rule (“the Commercial Activity Exception”); and/or
ii) all of the executive acts in question engaged the English public policy of combatting and not giving legal protection to bribery and corruption, therefore falling outside the foreign act of state rule (“the Public Policy Exception”); and/or
iii) investigating the acts of bribery and corruption alleged against DFCU Bank in paragraph 69(m) of the Amended Particulars of Claim (“the APoC”) did not require the Court to inquire into or adjudicate on the legality of executive acts of the Ugandan state, and so would not infringe the foreign act of state rule (“the Kirkpatrick Exception”); and/or
iv) the application of the foreign act of state rule in this case would be incompatible with Article 6 of the European Convention on Human Rights and therefore contrary to s.6 of the Human Rights Act 1998 (“the Article 6 issue”).
As a separate ground of appeal, the appellants contended that, contrary to the Judge's finding, the scope of the limitations of and exceptions to the foreign act of state doctrine is not settled, but is a controversial question in a developing area, and accordingly was not suitable for determination on a summary basis: see Altimo Holdings and Investments Ltd v Kyrgyz Mobil Tel Ltd [2011] UKPC 7; [2012] 1 WLR 1804 per Lord Collins at [84]. At the hearing of the appeal Lord Pannick KC, for the appellants, advanced that contention only in relation to the Public Policy Exception.
The factual background
It was common ground that the Judge was right to determine the respondents' application on the basis of the APoC, even though the amendment post-dated the grant of permission to serve out of the jurisdiction, and on the basis that the appellants' factual case set out in the APoC should be treated as correct.
That factual case can be summarised as follows.
i) Until 2016 CBL was Uganda's largest locally owned bank and its fourth largest lender, licensed under the Ugandan Financial Institutions Act 2004 (“the FIA”). At the end of 2015 it had a strong balance sheet, showing total equity of about US$83m and was highly profitable, with net operating income of about US$43m. Its financial statements were audited by KPMG and approved by the BoU as CBL's regulator.
ii) In Spring 2016 senior government officials, including officials at the BoU, formulated a corrupt scheme to seize control of a major Ugandan bank and to sell it or its assets for their personal benefit. This initially involved a Chinese diplomat, Dr Patrick Ho, who sought preferential access for CEFC China Energy (“CEFC”) in Uganda by bribing various government officials, including the Foreign Minister and the Deputy Governor of the BoU, in respect of which Dr Ho was subsequently convicted by the US District Court, Southern District of New York, a conviction upheld on appeal in 2020.
iii) Dr Ho identified to the Foreign Minister that acquisition of a local bank in Uganda was CEFC's top priority. In or about June or July 2016 CBL was identified as the target.
iv) Pursuant to the corrupt scheme, and notwithstanding its previous approval of CBL's audited accounts, on 1 July 2016 the BoU adjusted CBL's capital position by about US$76.5m and ordered CBL to raise additional capital of about US$46.4m by 31 July 2016. Further, the BoU withdrew CBL's authorisation to conduct most financial business and placed a lien over about US$50m of Treasury Bills held by CBL, seriously inhibiting CBL's ability to raise the additional capital. In August 2016 the BoU ordered CBL to raise further capital in the sum of about US$26m.
v) On 18 September 2016 the Governor of the BoU issued a press statement falsely blaming CBL's problems on weak loan performance and depositor flight. This triggered a run on CBL.
vi) Between July and September 2016 CBL's shareholders raised about US$8.2m to recapitalise CBL, but the BoU refused to allow that sum to be injected and required that it be held on deposit at the BoU. The BoU also took steps to thwart investment in CBL by independent financial institutions.
vii) On 13 October 2016 the Deputy Governor of the BoU, through the Foreign Minister's wife, privately informed Dr Ho of the possible acquisition of CBL. At their request the next day CEFC sent an email to the Deputy Governor's private email expressing such interest.
viii) On 16 October 2016 CBL requested emergency liquidity assistance from the BoU in the sum of US$115m, offering prime real estate held by a company owned by the second appellant, worth more than US$115m, as collateral. The BoU refused the request, offering only US$22.8m on terms which were impossible for CBL to meet.
ix) On 20 October 2016 the BoU placed CBL into statutory management under provisions of the FIA.
x) Between 21 October 2016 and 9 January 2017 the BoU purported to inject about US$135m into CBL by way of liquidity support, for which CBL is purportedly liable, but the use of about US$79.5m of that sum is unaccounted for by the BoU.
xi) CEFC's interest in acquiring CBL ceased in late October 2016. In November 2016 at the latest the BoU privately approached DFCU Bank with a proposal to acquire CBL as a going concern, but the transaction then transformed into an acquisition of CBL's assets, subject to its liabilities.
xii) On 9 December 2016 the BoU sent invitations to 13 parties to bid for CBL's assets and liabilities, but had given DFCU Bank preferential terms and early access to...
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