The English court has jurisdiction to hear a conspiracy claim against a foreign state’s central bank, state officials and several other alleged co-conspirators

Summary

The Court of Appeal has unanimously dismissed a jurisdictional challenge in relation to a claim brought by a commercial bank in Uganda, Crane Bank Limited (“CBL”), and its shareholders against another Ugandan commercial bank, DFCU Bank Limited (“DFCU”), its holding company (DFCU Limited) as well as various current and former directors of DFCU and DFCU Limited and a number of investors in DFCU Limited.

The claim concerns the defendants’ alleged involvement in a corrupt scheme orchestrated by officials of the Ugandan government and the central bank of Uganda.   An interesting feature of this case is that, at first sight, the facts seem more obviously connected with another jurisdiction, namely Uganda.  However, it appears that as one of the defendants was a British investor, the English court granted permission to serve the claim outside the jurisdiction based on one or more of the jurisdictional gateways under Practice Direction 6B, paragraph 3.1.

The jurisdictional challenge focused on the application and scope of the foreign act of state rule, which the defendants sought to rely on.   Reversing part of the lower court’s judgment, the Court of Appeal (“CoA”) held that there were serious issues to be tried concerning whether the claims fell within the commercial activity and/or public policy exception to the foreign act of state rule and this should not be dealt with as a preliminary matter.

Factual and procedural background

Historically, CBL was a large commercial bank in Uganda, licensed under the Ugandan Financial Institutions Act 2004 (the “FIA”) and regulated by Uganda’s central bank, the Bank of Uganda (“BoU”). The relevant facts are as follows:

1. Until 2016, CBL was Uganda’s largest locally owned bank and its fourth largest lender, licensed under the FIA. By the end of 2015, CBL had a strong balance sheet, showing total equity of about US$83m, with net operating income of about US$43m.
2. Starting in 2016, the BoU assumed control of CBL using its statutory and regulatory powers.
3. By January 2017, CBL had been placed into receivership under the FIA with the BoU appointed as the receiver.
4. The following day after its appointment, the BoU sold certain of CBL's assets and liabilities to DFCU.

In December 2020, CBL and its shareholders commenced proceedings against DFCU, certain of DFCU’s current and former officers, DFCU’s holding company and several British and European investors in DFCU Limited.  The CoA’s judgment records that there was no dispute that the claims fell within one or more of the gateways under Practice Direction 6B, paragraph 3.1 for service out and that England and Wales would be the proper place to try the claims. 

The claimants alleged that senior Ugandan government officials, including officials of the BoU had formulated and engaged in a corrupt scheme to assume control of CBL for their personal benefit, by abusing their statutory and regulatory powers.  The claimants alleged that the sale was at a gross undervalue and that DFCU and the other defendants had participated in the corrupt scheme. The claims were framed as an unlawful means conspiracy, dishonest assistance and unconscionable receipt, with the claimants claiming damages exceeding £170 million. 

DFCU (together with some of the other defendants) challenged the jurisdiction of the English courts on the basis that the claims were barred by the foreign act of state rule. At first instance, the lower court declared it had no jurisdiction to try the claims by reason of that rule because the claims would require the court to adjudicate on the lawfulness of the executive acts of the Ugandan state, under Ugandan law and performed within that state’s territory.  The claimants were granted permission to appeal that judgment to the CoA.

The legal issues

The foreign act of state rule

The foreign act of state rule provides that English courts will not adjudicate, or sit in judgment, on the lawfulness or validity under its own law of an executive act of a foreign state, carried out within the territory of that state.  The rule has a sound basis linked to the sovereignty and independence of foreign states and the rule is rooted in promoting comity in inter-state relations. There are various limitations and exceptions to the foreign act of state rule, which the CoA addressed in its judgment.

The legal issues before the CoA

The CoA considered whether there was, at least, a serious issue to be tried (for the purposes of establishing jurisdiction) that:

1. The conduct of the foreign state was of a commercial character, as opposed to sovereign in character and, therefore, fell outside the foreign act of state rule (the “Commercial Activity Exception”);
2. The foreign act of state rule should be disapplied because the only issue is whether certain executive acts have occurred, as opposed to the court inquiring into those acts for the purpose of adjudicating on their legal effectiveness (the “Kirkpatrick Exception”);
3. The relevant executive acts were a breach of clearly and established rules of international law, or are contrary to English principles of public policy, as well as whether there has been a grave infringement of human rights and, therefore, outside the foreign act of state rule (the “Public Policy Exception”). For the purposes of the present case, the relevant public policy was of combatting, and not affording legal protection to, bribery and/or corruption; and/or
4. The application of the foreign act of state rule was incompatible with article 6, European Convention on Human Rights and, as such, inconsistent with s. 6 of the Human Rights Act 1998 (the “Article 6 issue”).

The Commercial Activity Exception

The claimants argued that the final and indeed most crucial unlawful act in carrying out the alleged conspiracy was the BoU’s commercial act of selling CBL’s assets in its capacity as receiver.   The claimants alleged that DFCU procured that commercial act by bribing the BoU and/or its officials to effect the sale, and at a gross undervalue. The claimants argued that irrespective of the position in relation to the earlier stages of the alleged corrupt scheme, the final acts of that scheme fell within the Commercial Activity Exception.

The CoA was in no doubt that the sale of assets to a commercial third party – and by a receiver of a company - is a commercial act, and could be performed by any private person appointed as a receiver.  Here, whilst the receiver was the central bank of Uganda, the CoA held that the BoU had been acting in respect of the sale of CBL in its capacity as a receiver and it owed common law and equitable duties to CBL in that capacity, including to act in good faith and to obtain a proper price for the property under the receivership.  Further, the CoA noted that the relevant sale and purchase agreement was a straightforward commercial transaction and it was concluded on standard commercial terms and, indeed, the agreement expressly stated this to be the position.

Having analysed relevant authorities, and applying the principles derived from those cases, the CoA stated that:

1. Whilst the overall character of the alleged corrupt scheme was the wrongful exercise of executive powers, it is necessary to consider the character of the specific act of selling CBL’s assets in an arm’s length sale.  The fact that assets have been seized as part of an act of sovereign authority is not determinative of whether the subsequent use of those assets (in the present case the sale of the assets) is sovereign in nature.
2. The fact that the sale by the BoU as receiver was the culmination of an alleged corrupt scheme, which was essentially sovereign in character, did not mean that the sale was not a commercial transaction.
3. There was some strength in the defendants’ arguments that the sale by the BoU was itself a sovereign act and it was performed in the interest of the Ugandan public and financial system.  However, the CoA did not regard that argument as decisive.
4. Therefore, it was arguable that the claim is not barred by the foreign act of state rule, and the jurisdictional challenge should therefore have been dismissed by the lower court.

The Kirkpatrick Exception

In reliance on the Kirkpatrick Exception, the claimants asserted that their allegations, particularly their claim that DFCU had bribed the BoU and/or its officials, could be determined as a matter of fact and without determining the effect of the alleged bribery on the executive acts of the Ugandan officials. 

Upholding the decision of the lower court, the CoA categorically rejected the claimants’ arguments on this issue. The CoA concluded that there was no merit whatsoever in respect of that ground of appeal.  The CoA held that there was simply “no part of the claim” which did not require the court to determine the validity and lawfulness –under Ugandan law – of the acts of the BoU and its officials.  Therefore, the Kirkpatrick Exception did not apply.

The Public Policy Exception

The claimants argued that the lower court had failed to have regard to various material that demonstrated the existence, or at least the arguable emergence, of an English public policy requiring the courts to combat corruption.

On this issue, the CoA held that:

1. The precise public policies which might qualify for the Public Policy Exception are imprecise and this is an open-textured issue, noting that the authorities provide general guidance and some examples only of what might fall within this exception.
2. The authorities are clear that the Public Policy Exception applies where the relevant foreign act of state is contrary to English principles on public policy, but it is not limited to situations where the courts are constitutionally required to determine the legality of the foreign act.
3. The Public Policy Exception is narrow, but it is flexible and open to development.

The CoA appeared to express sympathy for the defendants’ argument that an exception based on a policy of combatting corruption might open the door to an ever-widening range of arguments under the Public Policy Exception, however, the CoA said that such “floodgates” arguments should be treated with a degree of circumspection.

The CoA held that it is at least arguable that corruption of foreign public officials is contrary to English public policy or that such a policy was developing.  The CoA’s judgment discussed whether the corruption in question would need to be of a particularly egregious nature to disapply the foreign act of state rule, or a central or important feature of the illegality alleged in relation to the act of state, and the CoA stated that these matters were all for trial, and they were not suitable for determination on a summary basis. Accordingly, the CoA allowed the appeal on the ground of the Public Policy Exception.

Alleged interference with the claimants’ Article 6 rights

The CoA squarely rejected the claimants’ assertion that there should be an Article 6 proportionality test in the application of the foreign act of state rule. If the claimants’ position were correct, the CoA said that it would have a major impact on the rule and its application. 

Comment

This case perfectly exemplifies the English courts’ willingness to hear claims that might, at first glance, appear more closely connected to another jurisdiction.  This appears to be part of a growing trend and we refer you to our earlier article on the UK Supreme Court’s (“UKSC”) judgment in The Law Debenture Trust Corporation plc v Ukraine [2023] UKSC 11 which discussed the court’s approach to issues of, and the boundaries relating to, non-justiciability before the English courts. Our earlier article is available here.

The CoA’s judgment in this case provides a clear and concise analysis of the scope and application of the foreign act of state rule, its limits and exceptions. The judgment provides useful insight into the arguments that might prevail on a jurisdictional challenge in which the foreign act of state rule is relied upon by a defendant.  Of particular note is the CoA’s arguably expansive approach to the Public Policy Exception.  The CoA has left the door open for the English courts to decide whether the alleged corruption of foreign public officials is contrary to English public policy and therefore an exception to the foreign act of state rule.

We understand that the respondents may have sought permission to appeal to the UKSC.  Subject to any such application being granted, the case will now proceed to trial. Considering the CoA’s judgment that the application of the Commercial Activity Exception and the Public Policy Exception to the present case are at least arguable, those matters are for determination at trial because (and as argued by the claimants) these are “controversial question[s] in a developing area” and, therefore, they are not suitable for determination on a summary basis. 

A copy of the full judgment in Crane Bank Limited & Ors v DFCU Bank Limited & Ors is available here: Court of Appeal Judgment Template (bailii.org)

The authors would like to thank Ross Ritchie, CMS Solicitor Apprentice, for co-authoring this article.