Wight and Others v Eckhardt Marine GmbH
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hoffmann |
| Judgment Date | 14 May 2003 |
| Neutral Citation | [2003] UKPC 37 |
| Court | Privy Council |
| Docket Number | Appeal No. 13 of 2002 |
| Date | 14 May 2003 |
[2003] UKPC 37
Present at the hearing:-
Lord Hoffmann
Lord Nolan
Lord Hobhouse of Woodborough
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Privy Council
[Delivered by Lord Hoffmann]
Eckhardt Marine GmbH ("Eckhardt") is a well-known shipping company based in Hamburg. On 4 April 1991 it agreed to sell an old motor tanker Min Hai You No 12 to SL Steels Ltd ("the buyer") of Chittagong, Bangladesh, for scrapping. The price of US$2,275,602 was to be paid by a letter of credit opened 10 days before the arrival of the vessel. The memorandum of agreement also provided that the buyer should provide a deposit in the form of a guarantee issued by a bank in Chittagong for 10% of the purchase price in local currency (Tk 83 lacs 38,611.78), payable if it failed to open the letter of credit. The buyer duly procured the issue of a letter of guarantee in those terms by the Chittagong branch of Bank of Credit and Commerce International (Overseas) Ltd ("BCCI(O)"), a bank incorporated in the Cayman Islands. As security for the bank, the buyer deposited an equivalent amount.
On 5 July 1991 Eckhardt telexed BCCI(O) in Chittagong giving notice that the vessel would arrive on 18 July and asking that the letter of credit be established by 8 July at the latest. But, on the same day, banking regulators around the world closed down BCCI(O) and its associated companies. Unsurprisingly, no letter of credit was opened. On 8 July 1991, Eckhardt made a call on the guarantee. No payment was made.
In the Cayman Islands, a petition to wind up BCCI(O) was presented on 22 July 1991, which eventually led to a winding up order being made on 14 January 1992. In Bangladesh, on 20 August 1991, the government exercised its powers under the Banking Ordinance to impose a moratorium which stayed all proceedings against the BCCI(O) in Bangladesh. The provisional liquidators appointed in the Cayman Islands tried to negotiate a scheme by which all creditors of BCCI(O) could share all the available assets but the Bangladesh government preferred to go its own way. On 19 August 1992 the Bangladesh Bank, in the exercise of statutory powers (section 77(4) of the Bank Company Act 1991) made a scheme for the reconstruction of "all business activities of [BCCI(O)] in Bangladesh, hereinafter called BCCI".
The scheme established a new bank, called the Eastern Bank Ltd and referred to in the scheme as "the Bank", with capital subscribed, as to 20% by the government, as to 40% by various financial institutions and as to 40% by those depositors who elected to convert their deposits into equity. Clause 6 dealt with the assets of BCCI as defined, that is to say, the assets of BCCI(O)'s business in Bangladesh:
"6.(1) On the establishment of the Bank, the entire business, assets, cash and liabilities of BCCI, as they stand after reduction or adjustment in accordance with the provisions of the Scheme or order of the Government, shall vest in the Bank.
(2) Subject to the provisions of the Scheme and conditions imposed by the Bangladesh Bank, all contracts, bonds, powers of attorney, and similar other legal instruments subsisting or having effect immediately before the establishment of the Bank and to which BCCI is a party or which were in favour of BCCI shall be deemed to be the contracts, bonds, powers of attorney or other legal instruments of the Bank as if the Bank had been a party thereto or as if they had been issued in favour of the Bank."
Clause 7 dealt with legal proceedings:
"(1) All suits, appeals or other legal proceedings of whatever nature pending on the date of establishment of the Bank by or against BCCI shall be deemed to be suits, appeals and other legal proceedings pending by or against the Bank.
(2) The Bank shall have authority to prosecute and make any claims, compensation or assets against any liquidator of the Bank of Credit and Commerce International Ltd or, as the case may be, against its majority shareholders and to compromise or relinquish such claims if it is considered desirable in the interest of the creditors of BCCI in Bangladesh."
Although clause 6 contains a reference to the vesting of the liabilities of BCCI in the Bank, the subject of liabilities was more fully dealt with in clause 11:
"(1) Subject to the other provisions of the Scheme, the liabilities as recorded in the books of accounts of BCCI shall, after adjustment as per the provisions in the Scheme, be the liabilities of the Bank from the appointed day."
A number of sub-clauses then made special provision for depositors, including reductions of up to 50% according to the amounts of the deposit. But there was no reduction of other debts, which were governed by clause 11(1).
Eckhardt tried to enforce payment of the forfeited deposit by action on two fronts. In February 1992 it commenced proceedings against BCCI(O) in the Commercial Court at Chittagong. After the scheme, the Eastern Bank was substituted as a defendant. And in May 1992 Eckardt lodged a proof with the joint liquidators of BCCI(O) in the Cayman Islands.
The proceedings in Bangladesh proceeded very slowly. Eventually on 27 January 2002 the claim was dismissed, apparently on the ground that the underlying contract had been frustrated by the inability of the buyers to provide a letter of credit. The judgment is under appeal and their Lordships find it unnecessary to comment. They are content to assume that Eckhardt are right in saying that they have a valid claim on the Eastern Bank under the law of Bangladesh.
In the Cayman Islands the liquidators, after first indicating that they would be receptive to a proof from Eckhardt, formally rejected it on 20 December 1995. The liquidators said that claims against the Bangladesh branches had been assumed by the Eastern Bank and, so far as they knew, had been satisfied. Eckhardt appealed to the judge (Murphy J). He dismissed the appeal on the ground that the proper law of the debt was the law of Bangladesh. By that law, the cause of action against BCCI(O) had been extinguished and a new claim created against Eastern Bank. Accordingly there was no debt which could be proved in the liquidation. The Court of Appeal (Zacca P, Georges and Rowe JJA) reversed this decision. They held that the validity of the debt was governed not by its proper law but by its situs. The situs of the debt had originally been Bangladesh. But on the making of the winding up order on 14 January 1992 it became a claim to participate in the distribution of assets by the liquidation in the Cayman Islands and the situs of that claim was the Cayman Islands. It could not be affected by the making of the scheme under Bangladesh law on 19 August 1992. The liquidators appeal to Her Majesty in Council.
In a system of conflict of laws which identifies the appropriate law by reference to a taxonomy of legal questions, it is necessary to characterise the question which arises in this case. The liquidators say that the question is whether the Bangladesh scheme had the effect of discharging the obligation of BCCI(O) to Eckhardt. It certainly had the effect of creating an obligation on the part of Eastern Bank, but from the point of view of the liquidators, that is of less interest than whether the obligation to BCCI(O) was discharged. The question of whether an obligation has been discharged is governed by its proper law (Dicey and Morris, The Conflict of Laws (13th edn) Rule 178, para 32-202, p.1266), which the liquidators say was the law of Bangladesh.
Mr Lowe, in his able argument on behalf of Eckhardt, said that characterisation should not be applied mechanistically. The purpose of the conflicts taxonomy is to identify the most appropriate law. This meant that one has to look at the substance of the issue rather than the formal clothes in which it may be dressed: see Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825, 840-841. Ordinarily, looking to the proper law on questions of discharge would give effect to the expectations of the parties. But discharge of a debt by governmental act is sometimes indistinguishable in effect from confiscation of property, where the principle of territoriality requires one to apply the lex situs of the debt: Dicey and Morris, op. cit. Rule 120 paras 25R-001-25-013, pp. 995-1004. This ambiguity is probably the reason for the somewhat unsatisfactory cases on the expropriation of Russian commercial banks by the Soviet government. Technically the Soviet legislation involved an extinguishment of the rights and obligations of the commercial banks and the creation of equivalent obligations on the part of a new State Bank: see In re Russian Bank for Foreign Trade [1933] Ch 745, Re Banque des Marchands de Moscou (Koupetschesky) [1952] 1 All ER 1269, In re Banque des Marchands de Moscou (Koupetschesky) (No 2) [1954] 1 WLR 1108. But in practice it amounted to expropriation of the creditors' claims. The Chancery judges who dealt with the cases treated the discharge of the obligations of the commercial banks as being governed by the lex situs of the debts, but in at least one case regarded this as equivalent to the proper law, there being on the facts no difference.
The question received a more sophisticated analysis from Jenkins LJ In re United Railways of the Havana and Regla Warehouses Ltd [1960] Ch 52, 84-88. This concerned a financing transaction by way of a lease by a Pennsylvania corporation, as trustee for foreign bondholders, to an English company carrying on business in Cuba, of assets in Cuba. By a Cuban decree the assets were transferred to the Cuban government and the company was put into liquidation in England. The liquidators rejected a proof by the...
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