Goldman Sachs International v Novo Banco SA

Further to our previous article, the Supreme Court has dismissed the appeal of Goldman Sachs and Guardians of New Zealand Superannuation Fund and has upheld the Court of Appeal's decision that a liability of $835m was not transferred out of the failed Banco Espirito Santo.

In June 2014, Oak Finance Luxembourg SA entered a facility agreement with Portuguese bank Banco Espirito Santo ("BES") to lend approximately $835million ("the Oak liability"), and the agreement contained English law and jurisdiction clauses. The entire loan was advanced in July 2014.

Following the collapse of BES in 2014, various assets and liabilities (subject to specified exclusions) were transferred to a new financial institution, Novo Banco. Initially, the Oak liability was said to have been transferred to Novo Banco ("the August decision"). Under Article 145-H(2) of the Portuguese Banking Law, no liability can be transferred to a bridge institution if it is owed to an entity holding more than 2% of the original credit institution's share capital. Subsequent investigations had suggested that Oak had entered into the facility agreement on behalf of Goldman Sachs, and that Goldman Sachs held more than 2% of BES' share capital. As a result, a further resolution ("the December decision") determined that the Oak liability had never been transferred to Novo Banco.

Goldman Sachs contended that they had arranged the facility agreement but were not the true lenders, and further claimed that they did not hold more than 2% of BES' share capital.

In 2015, Goldman Sachs issued proceedings against Novo Banco in England on the basis that the liability had been transferred and that they were bound by the English law and jurisdiction clauses of the facility agreement. Novo Banco challenged the Court's jurisdiction to hear the matter, claiming that the liability had not been transferred. At the First Instance, it was held that the liability had been transferred to Novo Banco.

In the Court of Appeal proceedings, Novo Banco drew attention to the relationship between Directive 2001/24/EC which concerns the reorganisation and winding up of credit institutions ("the Reorganisation Directive") and Directive 2014/59/EU which is concerned with establishing a framework for the recovery and resolution of failing credit institutions and investment firms ("the EBRRD"). The Court of Appeal allowed Novo Banco's appeal, relying on the Reorganisation Directive, and also held that the English Court was bound to recognise the effect of the December decision as a matter of Portuguese law.

In the Supreme Court, Goldman Sachs and Guardians of New Zealand Superannuation Fund argued that whilst the August decision was a reorganisation measure made under the EBRRD and was afforded automatic pan-European recognition, the December decision was not a reorganisation measure and therefore could not be afforded automatic recognition. The Supreme Court held that it was unnecessary to determine if it was a reorganisation measure, having determined that the issues in dispute were a matter of Portuguese law. As such, the decisions were afforded pan-European recognition unless set aside by the Portuguese Courts. Therefore the liability remained with BES and Oak could not seek to recover funds from Novo Banco. The Supreme Court held that the liability had never been transferred and therefore Novo Banco was never party to the jurisdiction clause.

There are current administrative law proceedings in Portugal challenging the December decision, which have not yet been resolved, however it currently stands that as a matter of Portuguese law, the December decision was effective. Until proceedings in Portugal are concluded, Goldman Sachs and Guardians of New Zealand Superannuation Fund have no further remedies available in England.

For more information, please contact Olivia Reader in our Restructuring & Insolvency team.