NOTES OF CASES

Date01 March 1958
DOIhttp://doi.org/10.1111/j.1468-2230.1958.tb00468.x
Published date01 March 1958
NOTES
OF
CASES
SOVEREIGN
IMMUNITY
THE
decision of the House of Lords in
Rahimtoola
v.
The
Nizam
of
Hyderabad’
renders
it
necessary to resume the series of Notes
which in the course of the last few years have appeared in these
pages under the above heading.a There exists now, however, a
ray
of
hope that a subject which must have become tedious
to
many readers will at not too distant a date lose its pressing character,
for it would seem to
be
clear that reform
in
this field,
so
often
advocated by
so
many, cannot be any longer delayed. This is
so
for two reasons.
In
the first place the opinions delivered by
Lords Simonds, Reid, Cohen and Somervell involve
so
pregnant an
extension of the doctrine of sovereign immunity that no legislator
can be expected to stand by and allow the law, in the words of
Lord DenningPJ
.to
become even
more enmeshed in its own net.”
Sccondly, Lord Denning, though he reached the same result as
the majority, not only dissented on many points of detail, but
also outlined an acceptable solution of the problems with such
persuasiveness that his voice cannot be ignored.
It
may
be
a
matter for regret that the intervention of the legislator is required
in a branch of the law which, on many grounds, is peculiarly
in
need of that degree of flexibility which used
to
be
proclaimed (and
practised) as one
of
the virtues of judicial legislation, but which
a
statute probably cannot preserve. In the present state of affairs,
however, this is a reflection expressing sentimentality rather than
realism.
In
1048,
when Hyderabad was threatened by the invasion
of
Indian troops, the Finance Minister of Hyderabad, acting with
ostensible, but without actual, authority, transferred a large
sum
of
money, standing
to
the credit of his sovereign, the Nizam, with
a
London bank,
to
an account with the same bank, which had
bcen opened for the purpose by the then High Commissioner for
Pakistan, the appellant, and which was entitled
To Habib Ibrahim
Rahimtoola (High Commissioner for Pakistan
in
London).” When
the Nizam brought proceedings against the appellant and the bank
to recover the money, the court was moved by the appellant to
set aside the proceedings on the ground that they impleaded the
State of Pakistan. This application succeeded before Upjohn
J.,‘
I
[I9571 3
All
E.R.
441;
also
reported
in
[lo571
3
W.L.R.
884.
2
See
(1957)
20
M.L.R.
273
with
further references.
8
p. 464.
4
[1957]
Ch.
185,
201.
11
16s
THE
MODERN
LAW
REVIEW
VOL.
21
it failed in the Court
of
Appeul,J but the House of Lords restored
the order of IJpjohn
J.
The principle which the majority of the House of Lords estab-
lished may be stated as follows: English courts have no jurisdiction
in respect of an action against either the agent of a foreign sovereign
State or an English bank for the recovery of money received by
the agent in trust for the plaintiff and paid by the agent into his
account with the defendant bank, if the agent accepted the money
in
his capacity as agent of the foreign sovereign State and the Intter,
as disclosed
or
undisclosed principal, has the legal title to, though
no bencficinl interest in, the bank account standing in its agent’s
name, it being irrelevant that the payment to the agent was made
under
a
mistake of fact
or
in consequence of a wrongful act.
In
the last resort this rule was derived by the majority from
Lord Atkin’s proposition‘ that a foreign sovereign, even
if
he
is
not
a
party
.to
the Imceedings, is impleaded where the action
concerns “property which is his
or
of which he is in possession
or
control.”
It
is too late to ask whether this proposition, which
has come to be regarded as having almost stntutory force, required
application and extension, for the first time, to the case of a debt
where,
so
it was thought,
there can
be
no question of possession
or
control
)’
‘;
the Court of Appeal as well as Lord Denning have
shown how the House,
if
it
had wished
so
to
do,
could have pre-
vented the further growth of thc doctrine of sovereign immunity.
It
is also futile to point
.to
the fact that the order made by the
House creates, as Lord Reid a deadlock
in
that the
bank cannot safely pay the money to anyone, unless Pakistan sues
it and thus invokes the very jurisdiction which was denied to the
Nizam; this is a consequence brought about by the earlier decision
of the House of Lords in
United States
of
America and
Republic
of
France
v.
Dollfus
Mieg
et
Cie.
S.A.’
the remarkable implications
of which were vividly illustrated by Lord DenninR.lo Rather it
is necessary to emphasise the great significance of the fact that
the decision of the majority would seem to be based on the appellant’s
agency, pure and simple, as opposed to his official status when he
received the money,
or
the official character of the transaction
resulting in the transfer, for, while all the Law Lords recited the
official capacity in which the appellant accepted the trnnsfer, the
actual
ratio decidendi
is expressed in such language as to preclude
the suggestion that the House intended its reasons of principle
to
be limited to the case where the defendant agent is a government
6
[1957]
Ch.
185,
224.
7
Haile
Selassie
V.
Cable
d
Wireless,
Ltd.
[1938]
Ch.
839,
at
p.
847,
per
Sir
8
At
p.
462.
9
119523
A.C.
682.
The
Ckstino
[1938]
A.C.
485,
at
p.
490.
Wilfrid
Greene
M.R.
10
p.
462.
MARCIZ
1988
NOTES
OF
CASES 167
official acting as such. Accordingly, it must be feared that the
decision will come to be applied to much less unusual circumstances;
to
the case, for instance, in which
A,
the agent of a Liverpool
merchant, without his principal’s authority, pays money to
B,
the selling agent
of
a
foreign sovereign State, in respect of a
contemplatcd purchase of goods
:
if
the purchase falls through,
A’s
principal is unlikely to be able to recover the money from
B
or
B’s
bank. The gravity of this situation is such that traders can
no longer be left unprotected.
A
second point involved in the view of thc majority concerns
the banking world. The English banks have always been determined
to maintain that they have no contractual relationship with anyone
othcr than their immediate customer, that that relationship cannot
normally be affected by the doctrine of agency and that, accordingly,
no
thud party such as the immediate customer’s principal has any
contractual rights against thcm. In the past they have been
remarkably successful in defending this position,” although, of
course, there is no reason of principle why the general rules of
agency should not apply to bank accounts and although the equit-
able doctrine
of
tracing money has
for
many years been effective
against bankers. The House of Lords has now lilted the veil
of
the immediate Customer’s identity a little further in cases in which,
in opening the account, the immediate customer intended to act as
an
agent:
That the Government of Pakistan were the principals
(disclosed or undisclosed,
it
matters not) for whom the appel-
lant as agent held the account in question with the bank,
is
. .
.
established beyond doubt. They were, and are, in
a
position to sue the bank either in the name of their agent, the
appellant,
or,
if he were unwilling that his name should be used,
in their own name, adding him as a defendant. The bank could
not pay any othcr person without disregard of, and detriment
to, their interests.
For
the bank knows only the appellant and
knows him, as
I
think, though it does not matter, as the agent
of the Government.”
la
Pakistan, therefore, a ptison other than the customer, “has the
legal title
’)
13;
‘‘
the account is the account of the Government of
Pakistan in the name
of
its agent.”14
It
does not by any means
follow, however, that, where the bank account is opencd by the
immediate customer as principal and where it is only in paying
specific sums to the bank
for
the credit
of
the account that he
11
Aachkenasy
v.
hfidland
Bank
(1934)
51
T.L.R.
34;
Bunque
des Marchands
de
Moscou
v.
Tooarisheloo Manu/actur Rabciieck
[1949]
W.N.
388
(HJ).,
un-
fortunately
not
rltlewhere
reported);
Kahlcr
V.
Midland
Bank
[l950]
A.C.
2.1
and, in
particiilar,
in
thc
Court
of
Appeal
[lo481 1
All
E.R.
811;
and
Bee
Pinto
v.
Santos
(1814)
5
Taunt.
447;
Simq
v.
Bond
(1833)
5
B.
&
Ad.
383;
Socidtd Coloniale Anaeraoise
V.
London
ct
Brazilian Bank
[Nll]
2
K.B.
1024.
12
p.
446,
per
Lord
Simonds.
13
p.
446.
p.
448.

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