Re AY Bank Ltd [England, High Court, Chancery Division]
| Jurisdiction | England & Wales |
| Judgment Date | 12 April 2006 |
| Date | 12 April 2006 |
| Court | Chancery Division |
England, High Court, Chancery Division
(Sir Andrew Morritt C)
Relationship of international law and municipal law Treaties State succession Non-justiciability Transactions between foreign States Treaty between foreign States not incorporated into English law Socialist Federal Republic of Yugoslavia Dissolution Succession to assets Agreement on Succession Issues Bank incorporated in the United Kingdom Accounts in the name of central bank of Socialist Federal Republic of Yugoslavia Whether application to determine to whom funds to be paid justiciable
State succession Dissolution of State Socialist Federal Republic of Yugoslavia Succession to property located outside Yugoslavia Succession and continuity The law of England
Summary:2The facts:Serbia and Montenegro (the applicant) issued an application for an order that issues raised in the application of the joint liquidators of AY Bank Ltd (the Bank), which sought directions from the Court as to the identity of the persons to whom payment of dividends was due and in what proportions, were non-justiciable. The Bank had been incorporated in the United Kingdom in order to encourage trade, finance and engagement in associated banking activities with the Socialist Federal Republic of Yugoslavia (SFRY). The SFRY's central bank was the National Bank of Yugoslavia (NBY).
Until 1991, the SFRY had consisted of six republics (Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia). Between 25 June
1991 and 5 April 1992 four of these republics declared their independence. On 27 April 1992, the two remaining republics of Serbia and Montenegro formed the Federal Republic of Yugoslavia (FRY), later known as Serbia and MontenegroInitially Serbia and Montenegro claimed that it was the continuation under international law of the SFRY and therefore entitled to the property of the SFRY. However, it was later accepted that the SFRY underwent a process of dissolution, meaning that all of the former republics constituting the SFRY were successors to its property. Following a number of international conferences, the Agreement on Succession Issues (ASI) was concluded between the five successor States of the SFRY. Annex C thereto set out financial assets and responsibilities.
During the 1990s, sanctions were imposed on the SFRY by the United Nations, the United States of America and the European Union which had the effect of freezing the Bank's assets, following which the Bank was put into voluntary liquidation and joint liquidators were appointed. At all material times, there were a number of accounts with the Bank, including accounts in the name of NBY. Pursuant to a resolution by the Distribution Committee, established under the ASI, proofs of debt were submitted by the successor States. It was revealed inter alia that two set-offs had been made on the NBY accounts after the dissolution.
The applicant contended that the matters raised by the Bank were non-justiciable before the English courts because the ASI was a treaty concluded between foreign sovereign States and had not been incorporated into English domestic law. It maintained that issues which arose in the liquidation of the Bank necessarily involved the interpretation and enforcement of the ASI. The Republic of Croatia submitted that the dispute involved private rights and that the principle of non-justiciability was subject to an exception in respect of international obligations imposed by a resolution of the United Nations Security Council under Chapter VII of the United Nations Charter. In this case, although Security Council Resolution 1022 of 22 November 1995 did not impose an obligation on the United Kingdom, the application of the non-justiciability principle was not inconsistent with the encouragement of the United Kingdom amongst other States to make provision for competing claims.
Held:The application was dismissed.
(1) The non-justiciability principle prevented the English courts from adjudicating upon the transactions of foreign sovereign States and from interpreting or enforcing treaties between foreign sovereign States which had not been incorporated into English law. Such treaties were governed by public international law which, alone, determined their validity, interpretation and enforcement (paras. 323).
(2) Resolution 1022 could not of itself provide an exception to the non-justiciability principle as it imposed no obligation and was, to some extent, superseded by the ASI. However, it could still form part of the context and as such was a clear invitation to domestic courts of all States to make provision under their domestic law for resolving competing claims arising from the SFRY's dismemberment (para. 48).
(3) While the submission of proofs of debt was not of itself sufficient to exclude the principle of non-justiciability, such conduct could also form part of the context. The ASI could not have been intended to have effect only in international law, since Annex C was an essential element in a successor State's proof of title in domestic law to the percentage of a foreign exchange account in the name of NBY. The domestic court could not be hampered in its ability to deal with disputes arising out of the proofs of debt (para. 50).
(4) The issues affecting the amount of debt owed by the Bank to NBY were of a private law nature. The relationship between the Bank and NBY was that of banker and customer. The balances standing to the credit of the NBY accounts were debts due by the Bank to NBY payable in accordance with the terms of the various accounts which were situated in England. The right to prove in the liquidation of the Bank arose under English law and was situated in England (para. 52).
(5) The English court was entitled and bound to determine when the dismemberment of the SFRY was effective. This was necessary in order to terminate the authority of those who had formerly been entitled to operate the accounts and to ascertain the initial amount of the debt due by the Bank to NBY and whether subsequent transactions on the NBY accounts were effected with the authority of the customer. The resolution of the amount of the debt due by the Bank to NBY had nothing to do with the ASI and concerned not only the successor States but also other creditors. This was so because the amount of debt due by the Bank to NBY affected the amount of the dividend payable to other creditors (paras. 52, 53 and 57).
(6) The conclusion of the ASI resolved the issue of the proportions in which the successor States were entitled to share in the debt due by the Bank to the former NBY. The resolution of the remaining issues involved the recognition and implementation of the ASI, as envisaged by the ASI itself and as encouraged by the Resolution; it did not involve the interpretation and enforcement of the ASI (para. 54).
The following is the text of the judgment of the Court:
1. On 5 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 25 June 1991 and 5 April 1992 each republic, except those of Serbia and Montenegro, declared its independence from SFRY. On 27 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).
2. On 30 May 1992, 9 June 1998 and 19 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 25 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) of the Insolvency Act 1986 but to no avail. On 23 September 2003 Hart J discharged the administration order on condition that the bank was put into creditors' voluntary liquidation. On 26 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.
3. 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 5 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...
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