National Bank of Kazakhstan v The Bank of New York Mellon SA/NV, London Branch
| Jurisdiction | England & Wales |
| Judge | Lord Justice Hamblen,Lord Justice Patten,Lord Justice Flaux |
| Judgment Date | 19 June 2018 |
| Neutral Citation | [2018] EWCA Civ 1390 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2018/0082 |
| Date | 19 June 2018 |
[2018] EWCA Civ 1390
Lord Justice Patten
Lord Justice Hamblen
and
Lord Justice Flaux
Case No: A3/2018/0082
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
FINANCIAL LIST (COMMERCIAL COURT)
THE HON. MR JUSTICE POPPLEWELL
[2018] EWHC 300 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL
Ali Malek QC, David Quest QC and William Edwards (instructed by Stewarts Law LLP) for the Claimants/Appellants
Richard Handyside QC and Rupert Allen (instructed by Linklaters LLP) for the Defendant/Respondent
Hearing date: 22 May 2018
Judgment Approved
Introduction
The appellants appeal against the decision of Popplewell J dismissing their claim for declaratory relief as to the effect of orders made by the Dutch and Belgian courts on their banking relationship with the respondent.
The respondent's position, as upheld by the judge, is that the effect of the court orders is that it is required to freeze all assets which it holds under a Global Custody Agreement (“the GCA”) with the first appellant and that it is entitled so to do under clause 16(i) of the GCA.
This is disputed by the appellants who seek declaratory relief that the respondent is not entitled to freeze the assets and is obliged to hold and deal with them pursuant to the terms of the GCA and as instructed by the first appellant.
The factual background
This is set out at [4] to [36] of the judgment and is not disputed. These paragraphs are to be treated as being incorporated into this judgment and are summarised (with judgment references) below.
The second appellant is the Republic of Kazakhstan (“ROK”). The first appellant is the National Bank of Kazakhstan (“NBK”). The respondent is a bank incorporated in Belgium with a branch in London. Through its London branch it provides banking and custody services to NBK in respect of the National Fund of Kazakhstan (“the National Fund”), pursuant to the GCA [2].
The National Fund is a fund of assets held with the aims of securing the stable social and economic development of Kazakhstan, accumulating financial assets for future generations and reducing the dependence of the Kazakhstan economy on unfavourable external factors, and under Kazakh law it constitutes state property [5]. The assets in the National Fund are managed by NBK pursuant to a Trust Management Agreement, dated 11 June 2001 [6].
The respondent (“BNYM”) is a limited liability company incorporated in Belgium with its registered office in Brussels. It is ultimately wholly owned by The Bank of New York Mellon Corporation, a United States entity. It has branches in a number of places, including in London. These branches are not separate legal entities with a distinct legal personality from the Belgium incorporated entity [8].
BNYM provides banking and custodian services to NBK in respect of the National Fund pursuant to and upon the terms of the GCA. As of 31 October 2017, the total value of the assets held by BNYM pursuant to the GCA was a little in excess of US$ 22.6 billion. The assets fell broadly within four classes: (i) cash and cash equivalents; (ii) equities; (iii) fixed income and; (iv) preferred securities [14].
The GCA was originally entered into on 24 December 2001 between NBK and (i) Boston Safe Deposit and Trust Company, (“Boston Safe”) and (ii) Mellon Bank NA (London Branch). Boston Safe was a corporation established under the laws of Massachusetts USA. Mellon Bank NA was a US entity with a London branch. The GCA expressed itself to be with the London branch of Mellon Bank NA [10].
Clause 19 of the GCA provided that, in the event of a merger or reorganisation, Boston Safe and/or Mellon Bank NA could assign their respective rights, duties or obligations to any affiliated company of Mellon Bank NA or a successor in title to either company. This is what occurred by a deed of assignment, dated 25 January 2003, whereby the rights, title and interest in the GCA were assigned to ABN Amro Mellon Global Securities Services BV (London branch) (“AAMGS”), which is BNYM, by a subsequent name change. The assignment was expressed to be to the London branch of AAMGS, i.e., to BNYM (London branch) [11].
The GCA is governed by English law and provides for non-exclusive English jurisdiction. Clause 16 is headed “Scope of Responsibility”. Of particular importance is clause 16(i) which provides that:
“[BNYM London] shall [not] be liable for and no default shall be caused by any delay or failure on the part of [BNYM London] to perform any obligation which, in whole or in part, arises out of or is caused by circumstances beyond its direct and reasonable control including without limitation nationalisation, or enactment, promulgation, imposition or enforcement by any governmental authority of currency restrictions, exchange controls or other charges affecting the Assets, or acts of war, acts of God, terrorism, insurrection or revolution or breakdown, or failure or malfunction of any transmission or communications or computer facilities, or postal or other strikes or industrial action by any third party or the failure or disruption of any relevant stock exchange, clearing house, settlement system, Securities System or market or civil disturbance or riot or the act of any civil or military authority or any order, rule, regulation or requirement imposed by any government, judicial or regulatory authority or self-regulatory organisation.”
A dispute arose between Mr Anatolie Stati and others (“the Stati Parties”) and ROK out of projects for the exploration and extraction of hydrocarbons in Kazakhstan. By an award dated 19 December 2013, in arbitral proceedings seated in Sweden, ROK was ordered to pay damages to the Stati Parties in a sum of approximately US$ 497.7 million, together with costs of approximately US$ 8.9 million, and, by a subsequent award, to pay three quarters of the costs of the arbitration, in an amount of approximately €800,000 [20]. The award has been unsuccessfully challenged in the Swedish courts and is now final and unappealable [21].
The Stati Parties obtained an ex parte order to enforce the award as a judgment in this country but ROK has applied to set that order aside on the grounds that the award was obtained by fraud [22]. In a judgment dated 6 June 2017 Knowles J found that there was a prima facie case of fraud and directed that the issue should be tried for the purposes of determining the Stati Parties' entitlement to enforce the award. The trial of that issue has been set down for a hearing commencing on 31 October 2018 [23].
BNYM has a branch in Amsterdam. On 23 August 2017, the Stati Parties applied without notice to the Dutch interim relief court, seeking a number of pre-judgment attachments/garnishments as a prelude to seeking exequatur of the award and garnishment by way of execution [24].
In a judgment of 8 September 2017, the interim relief judge granted an attachment but stated that it would not apply to assets at branches of BNYM outside the Netherlands. Dutch garnishment writs dated 14 September 2017 were issued pursuant to that decision, but neither writ contained the limitation in the judge's decision, and on their face each writ extended to all debts owed by BNYM whether within or outside the Netherlands [25]. It is common ground that the garnishment attaches to assets or debts in an unlimited amount and is not confined to the amount of the debt owed by ROK to the Stati Parties under the award with interest, which is the amount in respect of exequatur which it is sought to enforce in the Netherlands [26].
BNYM was served with the garnishment on 14 September 2017. Under Dutch procedural law, the garnishee is obliged to issue a declaration as to the assets owing to or held on behalf of the debtor [27]. Having taken legal advice, BNYM took the view that it was arguable that the Dutch order, as a matter of Dutch law, effectively attached the whole of the National Fund, and accordingly made a further declaration on 1 November 2017, stating that, given the uncertainties regarding the legal relationship between NBK and ROK, it could not fully exclude that ROK had claims, or would have claims, on BNYM, or that BNYM held assets of, or for, ROK, including the National Fund, which were subject to the garnishment [28].
NBK applied to set aside the garnishment and the Dutch court orders were lifted following a hearing on 23 January 2018. The Stati Parties are appealing against that decision.
On 29 September 2017, the Stati Parties applied without notice in the Belgian courts for pre-judgment attachments/garnishments, again as a prelude to seeking exequatur of the award and garnishment by way of execution. On 11 October 2017, the Belgian judge granted the relief sought. As under Dutch procedural law, BNYM was obliged under Belgian procedural law to make a declaration as to the assets and debts garnished. On 30 or 31 October 2017, BNYM made a declaration in the same terms as it was to make in relation to the Dutch proceedings on 1 November 2017 [31].
ROK issued proceedings to set aside the Belgian garnishment. At the time of the appeal hearing that application has been heard but judgment had yet to be given. We have since been informed that judgment was given on 25 May 2018 and that the Belgian court decided to continue the conservatory attachment but reduced its amount to US$530 million. It did not decide whether BNYM had towards ROK an obligation capable of garnishment but ruled that this was a question for the English court, applying English law.
The procedural background
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