Guardians of New Zealand Superannuation Fund & Ors v Novo Banco, S.A. [2016] EWCA Civ 1092

Following the collapse of Banco Espirito Santo, the Court of Appeal held that a $835m loan had not been transferred to Novo Banco.  

This case concerns a Court of Appeal hearing following the 2014 collapse of substantial Portuguese bank Banco Espirito Santo ("BES").

In June 2014, Oak Finance Luxembourg SA ("Oak") entered a facility agreement with BES to lend approximately $835million. The agreement contained English law and jurisdiction clauses.

As BES' financial difficulties became clear, in August 2014 Banco de Portugal established a new financial institution, Novo Banco, to which most of BES's assets and liabilities were transferred. Oak's assignees maintained that the liability under the agreement was transferred to Novo Banco however Novo Banco denied this. The Oak assignees started proceedings in February 2015 to enforce their claim, relying on Article 25 of the Judgements Regulation (Regulation (EU) No. 1215/2012). Novo Banco relied on various decisions of Banco de Portugal made between 22-29 December 2015 declaring that the Oak liability was not transferred to Novo Banco but remained with BES or if necessary, should be transferred back to BES ("the December decision").

Novo Banco applied to set aside the proceedings on the grounds the court had no jurisdiction to entertain them or alternatively should be stayed pending a decision of the Portuguese administrative court in proceedings brought by the Oak assignees challenging Banco de Portugal's decision that the Oak liability had not been transferred to Novo Banco. 

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"). They submitted that this forms part of an integrated set of European rules for dealing with failing financial institutions, under which measures taken by a home Member State are to be given universal effect throughout the EU, even in relation to obligations governed by foreign law. Novo Banco submitted that the Directives should be given universal effect and that the decisions of Banco de Portugal were to be recognised and given effect in the UK under the Reorganisation Directive.

The Court of Appeal held that the December decision was a reorganisation measure and as such was entitled to universal recognition under the Reorganisation Directive. Moore-Bick LJ stated that to hold otherwise would undermine the scheme of universal recognition of measures taken by the home Member State to deal with failing financial institutions which is fundamental to the scheme of European law in this field.

The Court of Appeal allowed Novo Banco's appeal, rejecting Oak's argument that Novo Banco was a party to an agreement that should be determined by the English court. Gloster LJ agreed with Moore-Bick LJ and stated that the better argument was that there was no transfer of the liability at all. As such, Novo Banco were not liable for the Oak debt under the Facility Agreement. 

This article was written by Olivia Reader and Alan Bennett.

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