Lonrho Exports Ltd v Export Credits Guarantee Department [England, High Court, Chancery Division.]
| Jurisdiction | England & Wales |
| Judgment Date | 30 July 1996 |
| Date | 30 July 1996 |
| Court | Chancery Division |
(Lightman J)
Claims Diplomatic protection Claim by State on behalf of creditors affected by exchange control restrictions imposed by debtor State Whether claimant State acting as agent for creditors or pursuing own claim
Economics, trade and finance External debts Rescheduling agreements concluded through the Paris Club State facing critical shortage of foreign exchange Paris Club multilateral agreement Bilateral agreements between debtor State and creditor State Nature of agreements
Relationship of international law and municipal law Conduct of foreign relations United Kingdom Crown conducting foreign relations by exercise of royal prerogative Crown espousing claims of citizens Whether acting as their agent Presumption against trustee or agency relationship Treaties Effect in English law Whether capable of conferring rights or imposing obligations Money received by Crown under treaty Whether held on trust Relationship between Executive and courts in matters of foreign relations Court required to be circumspect in matters of foreign affairs
Treaties Effect in municipal law United Kingdom Treaties not incorporated into English law Whether courts permitted to interpret such treaties Whether unincorporated treaties creating rights or duties The law of England
Summary: The facts:The plaintiff company, Lonhro Exports Limited (LEL), exported goods to buyers in Zambia. In 1975 LEL entered into two contracts of insurance (the guarantees) with the Export Credits Guarantee Department (ECGD). ECGD was a department of the United Kingdom Government which, at the relevant time, operated under the terms of the Export Guarantees and Overseas Investment Act 1978 (the 1978 Act) under which it was given power to give guarantees in connection with the export of goods and services. Under the terms of the guarantees concluded with LEL, ECGD agreed, in return for the payment of a premium, to guarantee 95 per cent of the amount of any loss arising in respect of each of LEL's export contracts as a result of political events, or economic difficulties which prevent or delay the transfer of payments or deposits made in respect of the contract. ECGD was entitled to recover outstanding debts from the foreign debtors and was required under the guarantees to pay LEL a part of any sums thus recovered in proportion to the uninsured loss.
By 1980 LEL was owed substantial sums of money in United States dollars and Deutschmarks by purchasers in Zambia under contracts covered by the guarantees. The Zambian Government, faced with a critical shortage of foreign exchange, imposed exchange controls which prevented payment in these currencies. This loss was covered by the guarantees and ECGD accordingly paid 95 per cent of the amount of the loss to LEL. Zambia entered into negotiations with a group of creditor States through the medium of the Paris Club of creditor countries. These negotiations resulted in the conclusion, on 16 May 1983, of an agreement between Zambia and twelve creditor States for the rescheduling of Zambia's external debt (the multilateral agreement). The multilateral agreement envisaged the conclusion of bilateral treaties between Zambia and each of the creditor States. ECGD then wrote to exporters whose debts it had insured inviting them to complete a mandate to allow ECGD to act on their behalf in recovering insured unpaid debt and requesting a list of each company's Zambian debts. LEL completed this mandate.
On 30 December 1983, the United Kingdom and Zambia concluded a treaty which provided for the phased payment by Zambia of debts guaranteed by ECGD (the bilateral agreement). Although much of the negotiations were conducted by ECGD, the bilateral agreement was a treaty concluded for the United Kingdom by the Crown, acting through the Foreign and Commonwealth Office. Article 4 of the bilateral agreement provided that Zambia would ensure that funds were transferred to ECGD on behalf of creditors in the United Kingdom in the currency of the debt. Under Schedule 2 to the bilateral agreement, the terms of which formed an integral part of that agreement, the Bank of Zambia and ECGD were to agree a list of debts falling within the scope of the agreement.1
On 24 January 1984, the Bank of Zambia made a payment to ECGD of 5,881,221.20, which ECGD paid into the United Kingdom Consolidated Fund, as required by the 1978 Act. This was the only payment ever made under the terms of the bilateral agreement. Despite several years of negotiations, the Bank of Zambia and ECGD failed to agree upon a list of debts as required by the Schedule to the bilateral agreement until, in 1990, ECGD sent a telex to the Bank stating that, unless the Bank objected within 24 hours, ECGD would treat the latest version of the list of debts which it, ECGD, had drawn up as having been agreed and would disburse the 1984 payment accordingly. ECGD then distributed that part of the 1984 payment which it regarded as attributable to the uninsured portion of LEL's debts on this basis in the first six months of 1991.
LEL brought proceedings against ECGD claiming that ECGD had received this money in 1984 and held it until 1991 on trust for LEL and that LEL was therefore entitled to payment of interest on the money for this period. Alternatively, LEL claimed that there was an implied term in the guarantees that a proportion of any sum recovered from a foreign government would be paid to LEL on receipt and that interest was therefore payable.
Held:LEL's action was dismissed.
(1) In principle, where an insurer exercised his right to be subrogated for the insured and recovered from a third party sums in excess of the total amount insured, the insurer held the balance on trust for the insured and was therefore required to account for it and to pay interest in respect of the period during which it held the money. Accordingly, if LEL could establish that the 1984 payment included recoveries of the debts owed to it within the meaning of the guarantees, ECGD would have held that sum on trust for LEL (pp. 60910).
(2) It was impossible, however, to overlook the fact that, in the present case, the 1984 payment had been made pursuant to treaties, the multilateral agreement and the bilateral agreement, the conclusion of which was a sovereign act carried out by the Crown in the exercise of the royal prerogative. In taking up a claim on behalf of one of its citizens and in concluding a treaty, a State was maintaining its own right under international law. When the Crown acted in this way, it did not do so as a trustee or agent for its subjects in the absence of a very clear indication to the contrary, since there was a strong presumption against the Crown fettering its freedom to conduct foreign relations in the interests of the nation as a whole. The treaties concluded by the Crown in respect of its citizens' claims were not part of English law and did not confer rights upon individuals or impose obligations upon the Crown which the English courts could enforce (pp. 61113).
(3) In general the interpretation of treaties which had not been incorporated into English law was a matter for the Crown, not the courts. The courts should speak with the same voice as the Executive in matters of foreign affairs and should be extremely circumspect in all matters of foreign relations (p. 613).
(4) In the present case, the Crown had not acted as a trustee or agent for LEL in concluding the multilateral and bilateral agreements. Although the Crown had espoused the claims of LEL and other creditors, that was only one part of the national interest and international considerations with which it had been concerned. It had been for the Crown alone to determine what was required by the bilateral agreement and the Court had to accept the Crown's position that it had not been until December 1990 that the agreement of the Bank of Zambia regarding the list of debts and their payment had been obtained. It followed that the Crown had received the 1984 payment in a sovereign capacity and was not liable for interest in respect of the period from January 1984 to the disbursement in 1991 (pp. 61314).
(5) If the Court had held that the 1984 payment had been a recovery within the meaning of the guarantees and had thus been held on trust, ECGD would not have been able to comply with the international law obligations imposed upon the United Kingdom under the bilateral agreement. That consideration had to militate against analysing the 1984 payment as a recovery (pp. 61819).
(6) Since the Crown had been absolutely entitled to the 1984 payment from the date of its receipt until it was distributed in 1991, the claim for breach of contract also failed (p. 620).
The following is the text of the judgment of the Court:
The Export Credits Guarantee Department (the ECGD) guarantees the payment of a percentage (normally 90% to 95%) of certain debts due from foreign debtors owed to United Kingdom exporters. These debts may be short term (payable in less than one year) or medium or long term (payable in a longer period). Sometimes before, and sometimes after, the ECGD has paid up under these guarantees, the ECGD makes recoveries from the foreign debtors and part of these recoveries (representing the uninsured part of the debts) is payable over by the ECGD to the exporters. This is a test case which raises three questions. The first is what the ECGD describe in an internal memorandum as the hoary old chestnut whether the exporters are entitled to interest on their share of the recoveries in respect of the period between receipt and disbursement of them by the ECGD. This depends on the as yet undecided question whether an insurer, who recovers a sum in excess of that which he is entitled to retain in recoupment of his payment to the insured, holds the balance as trustee for the insured. The ECGD have adopted what the...
To continue reading
Request your trial