Case No: 003417 of 2000
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF BANCO NACIONAL DE CUBA
AND IN THE MATTER OF THE INSOLVENCY ACT 1986

Royal Courts of Justice
Strand, London, WC2A 2LL

Date:11th April 2001

B e f o r e :

THE HONOURABLE MR JUSTICE LIGHTMAN

----------------------------

BANCA CARIGE S.p.A. CASSA DI RISPARMIO DI GENOVA E IMPERIA
Applicant
and 

(1) BANCO NACIONAL DE CUBA
(2) BANCO CENTRAL DE CUBA
Respondents
----------------------------
----------------------------

Mr Robin Potts QC & Mr Philip Gillyon (instructed by Holman Fenwick & Willan, Marlow House, Lloyds Avenue, London EC3N 3AL for Banca Carige)
Mr Richard Sheldon QC & Mr William Trower (instructed by Slaughter and May, 35 Basinghall Street, London EC2V 5DB for Banco Nacional De Cuba)
Mr William Blair QC (instructed by Herbert Smith, Exchange House, Primrose Street, London EC2A 2HS for Banco Central De Cuba)
----------------------------

Hearing: 27th-28th March 2001
Judgment: 11th April 2001 

JUDGMENT
Mr Justice Lightman:

INTRODUCTION

1.	In form I have applications made before me by the respondents Banco Nacional de Cuba (“BNC”) and Banco Central de Cuba (“BCC”) for the discharge: (a) of an order by Mr Registrar Buckley made on the 6th June 2000 declaring that the applicant Banca Carige S.p.A. Di Risparmio Di Genova E Imperia (“Carige”) did not need leave to serve its claim against them out of the jurisdiction; and (b) of the directions which he gave on the 12th June 2000 as to the manner of service.  But in substance I have an application by Carige for permission to serve its claim against them out of the jurisdiction.  The proceedings centre on an agreement dated the 16th June 1997 (“the Agreement”) for the sale by BNC to BCC of shares (“the Shares”) in Havana International Bank Limited (“HIB”), a company incorporated in this country.  The Agreement was completed by the transfer of the Shares on the 25th February 1998 and payment of the purchase price on the 3rd April 1998.  In the proceedings Carige, which is a creditor of BNC in the sum of some £13 million, claims that the transfer of the Shares was at an under-value and made for the purpose of putting them beyond the reach of Carige and other creditors of BNC, and seeks under section 423 of the Insolvency Act 1986 (“section 423”) an order for payment of monetary compensation by BCC.  The question raised is whether the court should give the necessary permission to serve abroad so as to allow this action to proceed.  There are raised important questions as to the meaning of the provisions of CPR 6.20(10), the application of the doctrine of sovereign immunity and the approach to be adopted on applications for permission to serve out of the jurisdiction proceedings under section 423.

FACTS

2.	Carige was established in 1870 with a registered office in Genoa Italy.  BNC was established by a Cuban Decree (Law 13 of 1948) on the 23rd December 1948 and was until the 28th May 1997 the central bank of the Republic of Cuba and a commercial bank.  On the 13th October 1960 the Cuban banking sector was nationalised and from the 23rd February 1961 by law 930 of 1961 BNC was transformed into the only bank in Cuba.  Its functions included the granting of credit and the incurring of obligations in relation to Cuban State trading activities. By letters dated the 25th February and the 20th March 1987 Carige and NBC entered into an agreement under which, to further trade between Italy and Cuba, Carige agreed to provide to BNC a line of credit equivalent to 20 milliards of Italian Lira to finance the export of certain Italian goods to Cuba.  The purpose of Carige in granting the facility was to make a significant contribution towards the improvement of economic relations between Italy and Cuba.  The currency for each transaction was German marks.  By late 1988 BNC was experiencing difficulty in making repayment under the facility.  As at the 31st March 1993 BNC’s debt (including interest) stood at DM38,521,427 (about £12 million).  In March 1993 to enforce payment Carige took proceedings in the three countries namely Italy, Spain and the United Kingdom, where there could be found assets of BNC or Cuba or Cuban State entities. In Genoa it obtained “conservative attachment” of assets of the Cuban State and Cuban State entities; in Spain it obtained orders of “Exequatur” (enforcement) and attached 2 apartments in Madrid and accounts at Spanish banks of BNC; and in the United Kingdom (where BNC held the Shares and was owed a debt by HIB) on the 14th July 1993 Carige served a statutory demand on BNC.  On the 5th August 1993, BNC and Carige entered into a settlement agreement (“the Settlement”)(to which the Cuban Government and a Cuban State owned entity called Cubaniquel were also parties) which provided for rescheduling repayment by BNC and the discontinuance of the attachment in Genoa and Madrid and the proceedings there.  The Settlement made the debt repayable by six equal instalments between the 30th June 1997 and the 31st December 1999. At a later date BNC disposed of its assets in Spain and as regards its assets in the United Kingdom reduced to practically nil the debt owed by HIB and (what is critical in this action) sold the Shares to BCC.  The evidence of Mr de Cossio Rodriguez, the secretary of BNC, (“Mr Rodriguez”) is to the effect that these disposals were wholly unconnected with the Settlement of any possible claims that might be made against BNC or the Shares.

3.	There was announced in 1994 a complete reorganisation of the Cuban banking system.  This was gradually implemented.  The most significant aspect of this reorganisation was the division of the functions of BNC as central bank and commercial bank. On the 28th May 1997 by Decree Law 172 BCC was created, and the role of central bank was transferred to BCC. BCC was granted organic autonomy, independent legal personality and its own patrimony.  BNC was left with the single role of commercial bank.  As such it remained the owner of the assets acquired and subject to the liabilities incurred as commercial bank totalling at least £6 billion.  These liabilities included the debt to Carige.

4.	HIB is an authorised institution under the Banking Act 1987. To obtain such authorisation the Bank of England required and obtained a letter of comfort from its then shareholder controller BNC. In March 1997 HIB met with and informed the Bank of England of the reorganisation and of the proposed transfer of its ownership to BCC.  The requirements for continued authorisation after this transfer were subsequently discussed in correspondence.  Most particularly BCC was required to give, as the new shareholder controller, a letter of comfort and this it provided on the 15th October 1997.

5.	On the 14th June 1997 the Board of BCC resolved to acquire the Shares.  On the 16th June 1997 in Cuba BCC and BNC entered into the Agreement.  The Agreement, which was governed by Cuban law, was for the sale of the Shares to BCC for a sum equal to the par value of the issued share capital, namely £12,999,500.  The Agreement was conditional on the absence of objection by the Bank of England.  The price was not designed to reflect the true value of HIB: its asset value exceeded £15 million and its group profits for the year to 31 December 1996 were £852,363 and for the year ending 31 December 1997 were £1,660,099. Under and by reason of Cuban law, the payment of the purchase price had to be made in Cuban pesos at the official rate of exchange. This rate of exchange was less than 5% of the commercial rate of exchange. Under Cuban law BCC could have granted permission for payment in sterling or at a different rate of exchange, but this permission was neither sought nor granted, and the grant of such permission would have been remarkable in a  transaction between two State entities.  The Bank of England gave approval on the 16th February 1998; the transfer of Shares was executed by BNC on the 19th February 1998; BCC was registered as holder of the Shares on the 25th February 1998; and the purchase price was paid in Cuban pesos with a commercial value of some £500,000 on the 3rd April 1998.

6.	So long as it remained the Cuban Central Bank, under United Kingdom law BNC was immune from process of execution of any judgment on any of its assets within the United Kingdom.  The Shares were accordingly so immune until the transfer of this role to BCC.  During the brief interval between the transfer of roles (28th May 1997) and the transfer of the Shares to BCC (25th February 1998), which I shall refer to as “the Period of Exposure”, the Shares were vulnerable, but that vulnerability ceased when the transfer was completed.

7.	Mr Rodriguez in his evidence explains the entry into the Agreement as an arrangement forming part of the restructuring of the Cuban banking system.  It was not an attempt to ring fence the Shares from creditors.  He says:

	“26.	HIB is a company incorporated in England.  HIB’s principal role has always been so serve the interests of Cuba’s central bank by the provision of trade finance for trade with Cuba, foreign exchange dealings on behalf of Cuba and the maintenance of current and deposit accounts on behalf of Cuban state-owned entities....

	27. 	Until 16 June 1997, HIB’s £13 million issued share capital was owned by BNC. That share capital was divided into 130,000 shares of £100 each, 129,995 of which were held by BNC.  BNC held the shares in HIB in its capacity as the central bank of the republic of Cuba ...

28	When Cuba took steps in 1997 to reorganise its banking sector, including the transfer from BNC to BCC of BNC’s functions as a central bank, steps were taken to transfer the HIB shares to the newly-constituted central bank (BCC)....

29	Banca Carige alleges that BNC was attempting to ring fence its assets at the time of the Transfer.  As I have mentioned above, this is wrong.  Although regarded as only a small part of the reorganisation of the Cuban banking sector, it was very much part of that process.  The shares had always been held by the entity exercising the Cuban central bank function and there was no reason for this to change: in making the transfer BNC and BCC regarded the status quo as regards HIB as being maintained”.

8.	The Agreement, as  I said, was dated the 16th June 1997.  The first instalment under the Settlement became due on the 30th June 1997.  BNC was unable to pay the instalments in full or on the due dates, but BNC did pay DM7,015,167 on the 15th September 1997 and DM897,750 on the 31st December 1997.  The continuing default by BNC gave rise to lengthy correspondence between Carige and BNC.  Carige showed remarkable patience, but increasingly pressed as a condition for sympathetic consideration of the difficulties facing BNC that the parties to the Settlement should agree to lift their immunity to suit.  No specific reference to immunity under any particular legal system was referred to and in particular no reference was made to immunity under English law.  As I have already said immunity from process of execution under English law had already expired.  Eventually on the 3rd February 1998 BNC and Cubaniquel executed waivers of immunity. BNC sent the waivers to Carige on the 18th February 1998. On the 5th March 1998 Carige requested a waiver of immunity from BCC.  On the 20th May 1998 BNC executed a waiver on behalf of the Cuban Government.  By letter dated the 25th November 1998, Carige gave the first indication that in requesting the lifting of immunity it had had in mind execution on assets of BNC in the UK, for it stated that, having learnt of the sale by BNC of its assets in the United Kingdom and Spain, it now required the agreement of BCC to waive its immunity. BCC refused to provide such a waiver on the reasonable ground that to do so would be incompatible with fulfilling its functions as a central bank.  BNC made further payments to Carige of EUR915,723 on the 12th April 1999, EUR861,509 on the 12th January 2000 and EUR2,502,710 on the 25th September 2000.

9.	On the 7th April 1998 another creditor of BNC, Cosmos Trading Corp (“Cosmos”), obtained leave to present and presented a petition to wind up BNC.  BNC had no assets within the jurisdiction, but the purpose of presenting a petition and of obtaining an order was to enable the liquidator to invoke section 238 of the Insolvency Act 1986 (“transactions at an undervalue”) or section 423 and recover monetary compensation from BCC for the benefit of creditors of BNC. Any relief had to be limited to a judgment for recovery of compensation since sovereign immunity protected BCC from any order for retransfer of the Shares or the enforcement of any judgment for payment in this country. Neuberger J and (on appeal) the Court of Appeal expressed the view that the transaction was at an undervalue and that it was not a commercial transaction, but part of the reorganisation of the banking arrangements of the Cuban State.  Neuberger J expressed the view that nonetheless claims by the liquidator under both sections 238 and 423 of the Insolvency Act 1986 would have a reasonable prospect of success.  Neuberger J gave his reasons as follows:

	“First the contract for the sale of the shares was expressed to be for the payment of the value of the shares at par in sterling, and there is no explanation as to why, when the contract was completed, it was decided that it should be in Cuba and in pesos at the artificial official rate.  I note in particular that while the contract expressed in sterling was entered into when it might have been assumed that Cosmos was not pursuing its claim, completion in pesos at the official rate was after Cosmos had revived its claim.

	Secondly the contract was entered into in the context of the restructuring of the Cuban financial system which was apparently necessitated by the major adverse effect on the Cuban economy resulting from the collapse of the former Soviet Union.  In such circumstances the aim of restructuring might not merely have been to put things on a better footing, but also to rearrange matters in such a way as to improve Cuba’s position with regard to its creditors and, therefore, perhaps almost inevitably, to the disadvantage of those creditors.  Accordingly, it may well be that it could be shown that the agreement to transfer the shares (and/or its completion) was part of the restructuring exercise which had as one of its significant purposes the financial benefit of the Cuban State and its banks to the prejudice of their creditors.”

10.	Sir Richard Scott V-C (with whom two other members of the Court of Appeal agreed) did not think it necessary to express any conclusion one way or the other whether there was made out a case of a purpose to defeat creditors (see [2000] 1 BCLC 813). Both Neuberger J and Sir Richard Scott held that the petition had no sufficient connection with the jurisdiction and that the liquidation of BNC would secure no benefits to creditors: it was unrealistic to think that the English appointed liquidator would be able to extract any sum awarded him against BCC from BCC and it was inconceivable that the English court would enforce any award against BCC by winding it up, for such an order would interfere with the functions of a central bank in the exercise of its sovereign authority.

11.	Following the failure of that petition, Carige commenced these proceedings.  By an Originating Application dated the 2nd June 2000 to which BNC and BCC were the respondents, Carige sought: (i) a declaration that the transfer by BNC to BCC of the Shares constituted a transaction at an undervalue within the meaning of section 423; (ii) a declaration that the transfer was entered into for the purposes of putting assets beyond the reach of Carige and of the creditors of BNC and/or otherwise prejudicing the interests of Carige and of the other creditors; and (iii) an order that BCC pay to BNC or alternatively to Carige for the benefit of all persons on whose behalf the application was to be treated as made, the value of the Shares at the date of the transfer to be assessed less the sum paid by BCC to BNC in consideration of the transfer.  The only relief sought is accordingly against BCC: BNC is joined merely as a necessary party to the proceedings. The claim is made under section 423 alone because relief under that section (unlike relief under section 238) is available to a creditor outside a liquidation, administration or receivership.

12.	On the 6th June 2000 Carige applied to Registrar Buckley for an order that pursuant to CPR rule 6.19(2) the Application could be served on BCC and BNC without the permission of the court and the Registrar made such an order.  On an application dated the 12th June 2000 Registrar Buckley gave further directions as to service.

13.	On the 20th November 2000, BNC and BCC made separate applications for orders: (i) that the court had no jurisdiction to try the claims made by Carige; (ii) alternatively that the court should not exercise any jurisdiction which it might have to try the claims by Carige; and (iii) that the order and directions given by Registrar Buckley be discharged and/or set aside. In addition BCC also applied for an order that the court had no jurisdiction over BCC on the ground that it is immune from the jurisdiction of the courts of the United Kingdom as respects these proceedings.  These are the applications which are now before me.

14.	It is perhaps useful at this stage to summarise the connection of the parties, the Agreement and the Shares with the United Kingdom.  BNC and BCC are both Cuban Government owned entities established by Cuban law, and neither have any presence in the United Kingdom. BNC’s only foreign representative offices are in Madrid and Beijing. The proper law of the Agreement is that of Cuba and it was made and completed there.  The Agreement was connected with the internal reorganisation of the Cuban banking sector.  Carige has no presence within the United Kingdom.  The only connection of any sort with the United Kingdom is the presence here of the Shares, being shares in a United Kingdom company whose share register is here.

SECTION 423

15.	The relevant provisions of sections 423-5 read as follows:

	“423	Transactions defrauding creditors

	(1)	This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if-

	...

	(c) he enters into a transaction with the other for a consideration the value of which, in money or money’s worthy, is significantly less than the value, in money or money’s worth, of the consideration provided by himself.

	(2)	Where as person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for-

	(a) restoring the position to what it would have been if the transaction had not been entered into, and

	(b) protecting the interests of persons who are victims of the transaction.

	(3)	In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose-

	(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

	(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.

	...

	(5)	In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as ‘the debtor’.

	...

	424	Those who apply for an order under s 423

	(1)	An application for an order under section 423 shall not be made in relation to a transaction except -

	...
	(c) in any other case, by a victim of the transaction.

	(2)	An application made under any of the paragraphs of subsection (1) is to be treated as made on behalf of every victim of the transaction.

	....

	425	Provision which may be made by order under s 423

	(1)	Without prejudice to the generality of section 423, an order made under that section with respect to a transaction may (subject as follows)-

(a)	require any property transferred as part of the transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application for the order is treated as made;

....

(d)	require any person to pay to any other person in respect of benefits received from the debtor such sums as the court may direct;”

APPLICATION OR CLAIM FORM

16.	The applications have raised a whole series of issues to which it is now necessary to turn.  The first is purely procedural.  Carige’s originating process is an Originating Application, a form of process issued out of the Companies Court for which provision is made by Rules 7.2 and 7.3 of the Insolvency Rules 1986 (“the Rules”). These Rules were contained in Chapter 1 Part 7 of the Rules.  The Rules are made under rule making powers for which provision is made by section 411 and 412 of the Insolvency Act 1986.  These powers however do not extend to giving effect to Part XVI of the Insolvency Act 1986 in which section 423 appears.  (Section 423 is not exclusively an insolvency provision: it operates outside insolvency proceedings even as it is sought to be applied in this case where there are no insolvency proceedings).  This is now well established: see TSB v. Katz [1997] BPIR 147 and Jyske Bank v. Spjeldnaes unreported 5.10.98 referred to at [1999] 2 BCLC 101 at 124a.  Accordingly Carige adopted the wrong form of originating process.  But despite this procedural defect, I have power to treat the Originating Application as a claim form, and I think it proper to do so.

LEAVE TO SERVE OUT OF THE JURISDICTION

17.	BCC and BNC seek to set aside the order of Registrar Buckley to the effect that leave was not required.  The basis on which this order was sought and made was CPR 6.19(2) which authorises service of a claim form on a defendant out of the jurisdiction.

	“Where each claim included in the claim form against the defendant to be served is a claim which under any other enactment the Court has power to determine”.

18.	The claimant maintained before the Registrar that the claim under section 423 answered this description, for (read literally) it is a claim against BNC and BCC under an enactment which the court has power to try.  There is an obiter dictum of Evans-Lombe J to this effect in Jyske Bank v. Spjeldnaes [1999] 2 BLC 101 at 123.  But the meaning of RSC Order 11 r.1(2)(d), the predecessor of Rule 6.19(2) was authoritatively stated by Dillon LJ (with whom the other members of the Court of Appeal agreed on this question) in Re Harrods (Buenos Aires) Ltd [1992] Ch 72 at 116 B-C:

	“But in my judgment to be within Ord. 11, r.1(2)(b) an enactment must, if it does not use the precise wording in the rule, at least indicate on its face that it is expressly contemplating proceedings against persons who are not within the jurisdiction of the court, or where the wrongful act, neglect or default giving rise to the claim did not take place within the jurisdiction.  It is not enough, in my judgment, that the enactment, like the Companies Act 1985, gives a remedy in general cases - against ‘other members of the company’ - without any express contemplation of a foreign element.”

19.	Unfortunately neither Evans-Lombe J in Jynske Bank nor Registrar Buckley in this case was referred to this authority.  It is quite clear that a claim under section 423 does not fall within CPR6.19(2), and accordingly leave was required.  I accordingly discharge Registrar Buckley’s order and his consequent directions.  I may add that I entirely agree with the submissions on behalf of BNC and BCC that, when leave is not required, the court retains a discretion to decline jurisdiction and accordingly, even if (contrary to my view) an application under section 423 fell within the order, a challenge to the exercise of jurisdiction could be maintained: see Kuwait Asia Bank EC v. National Mutual Life Nominees Ltd [1991] 1 AC 187 at 212.

APPLICATION FOR PERMISSION

20.	In the light of the matters I have referred to, the practical course was to treat as before me an application by Carige for permission to serve out of the jurisdiction.  In its skeleton argument Carige made it clear that the ground on which the application was founded was CPR 6.20(10), which reads as follows:

	“Claims about property within the jurisdiction.

	10.	the whole subject matter of a claim relates to property located within the jurisdiction.”

	This application itself raises a series of issues, each of which must again be considered in turn.

SOVEREIGN IMMUNITY: JURISDICTION

21.	Questions of sovereign immunity are capable of arising in respect of jurisdiction and enforcement.  Where (as in this case) a question of immunity of  a State-owned entity under the State Immunity Act 1978 (“SIA”) is raised, it must be determined before the substantive action can proceed and accordingly I should decide this question first on this application. On this part of the case I am indebted to Mr Blair for his valuable assistance.  The English common law adopted the “restrictive” theory of sovereign immunity, in respect of which the authoritative statement of principle is that of Lord Wilberforce in I Congresso del Partido [1983] 1 AC 244 at 267:

	“The conclusion which emerges is that in considering, under the ‘restrictive’ theory whether state immunity should be granted or not, the court must consider the whole context in which the claim against the state is made, with a view to deciding whether the relevant act(s) upon which the claim is based, should, in that context, be considered as fairly within an area of activity, trading or commercial, or otherwise of a private law character, in which the state has chosen to engage, or whether the relevant act(s) should be considered as having been done outside that area, and within the sphere of governmental or sovereign activity.”

22.	The common law principles (subject to one important gloss) were given statutory effect by the SIA.  The gloss is the conferment on central banks of immunity of all of its property from execution.  The relevant sections of SIA (so far as material) read as follows:

	“GENERAL IMMUNITY FROM JURISDICTION

	1.	(1)	A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.

	...

	2.	SUBMISSION TO JURISDICTION

	(1)	A State is not immune as respects proceedings in respect of which it has submitted to the jurisdiction of the courts of the United Kingdom.

	...

	3.	COMMERCIAL TRANSACTIONS AND CONTRACTS TO BE PERFORMED IN UNITED KINGDOM

	(1)	A State is not immune as respects proceedings relating to-

	(a)	a commercial transaction, entered into by the State; or

	(b)	an obligation of the State which by virtue of a contract (whether a commercial transaction or not) falls to be performed wholly or partly in the United Kingdom.

	...

	(3)	In this section ‘commercial transaction’ means -

	(a)	any contract for the supply of goods or services;

	(b)	any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation; and

	(c)	any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority;

	...

	13.	OTHER PROCEDURAL PRIVILEGES

	(1)	No penalty by way of committal or fine shall be imposed in respect of any failure or refusal by or on behalf of a State to disclose or produce any document or other information for the purposes of proceedings to which it is a party

	(2)	Subject to subsections (3) and (4) below-

	(a)	relief shall not be given against a State by way of injunction or order for specific performance or for the recovery of land or other property; and

	(b)	the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale.

	(3)	Subsection (2) above does not prevent the giving of any relief or the issue of any process with the written consent of the State concerned; and any such consent (which may be contained in a prior agreement) may be expressed so as to apply to a limited extent or generally; but a provision merely submitting to the jurisdiction of the courts is not to be regarded as a consent for the purposes of this subsection.

	....

	14.	STATES ENTITLED TO IMMUNITIES AND PRIVILEGES

	(1)	The immunities and privileges conferred by this Part of this Act apply to any foreign or commonwealth State other than the United Kingdom; and references to a State include references to-

	...

	(b)	the government of that State; and

	(c)	any department of that government,

	but not to any entity (hereafter referred to as a ‘separate entity’) which is distinct from the executive organs of the government of the State and capable of suing or being sued.

	(2)	A separate entity is immune from the jurisdiction of the courts of the United Kingdom if, and only if -

	(a)	the proceedings relate to anything done by it in the exercise of sovereign authority; and

	(b)	the circumstances are such that a State (or, in the case of proceedings to which section 10 above applies, a State which is not a party to the Brussels Convention) would have been so immune.

	(3)	If a separate entity (not being a State’s central bank or other money authority) submits to the jurisdiction in respect of proceedings in the case of which it is entitled to immunity by virtue of subsection (2) above, subsections (1) to (4) of section 13 above shall apply to it in respect of those proceedings as if references  to a State were references to that entity.

	(4)	Property of a State’s central bank or other monetary authority shall not be regarded for the purposes of subsection (4) of section 13 above as in use or intended for use for commercial purposes; and where any such bank or authority is a separate entity subsections (1) to (3) of that section shall apply to it as if references to a State were references to the bank or authority.”

23.	BCC is for the purposes of the SIA (as is typical of modern central banks) a separate entity from the State.  The decree which set it up explicitly provides that it has independent legal status and is not responsible for the obligations of the State.  The jurisdictional rule applicable to such entities under the SIA are as follows:

i)	the immunity and privileges conferred by Part I of the SIA on States do not apply to separate entities (section 14(1));

ii)	a separate entity is immune from the jurisdiction of the UK courts if, and only if: (a) the proceedings relate to anything done by it in the exercise of sovereign authority; and (b) the circumstances are such that a State would have been so immune (section 14(2));

iii)	sections 3-11 set out a number of situations in which a State (and therefore a separate entity such as a central bank) is not immune.  Section 3(1)(a) provides that a State is not immune as respects proceedings relating to commercial transactions entered into by it;

iv)	a central bank, if a separate entity, differs from other such entities in two respects: (a) even if not immune from suit, its property will normally be immune from execution because its property is not regarded as in use or intended for use for commercial purposes; and (b) it is specifically provided that such a separate entity is entitled to immunity from injunctive relief and execution as if it were a State. Accordingly (as stated in Dicey & Morris, 13th ed. para 10-013) the property of a central bank will only be liable to process of execution if it has waived in writing its immunity from execution.

24.	The critical distinction under the statutory scheme is between what is or is not for the purposes of section 3(1)(a) a commercial transaction and what is or is not for the purposes of section 14(2)(a) an exercise of sovereign authority. The distinction lies (as found by the majority of the House of Lords in Kuwait Airways Corp. v. Iraqi Airways Co [1995] 1 WLR 1147) in the distinction between “acta jure gestionis” (i.e. commercial acts) and “acta jure imperii” (i.e. governmental acts), and the test for this distinction was stated as follows:

	“...The ultimate test of what constitutes an act jure imperii is whether the act in question is of its own character a governmental act, as opposed to an act which any private citizen can perform.  It follows that, in the case of acts done by a separate entity, it is not enough that the entity should have acted on the directions of the State, because such an act need not possess the character of a governmental act.  To attract immunity under s.14(2), therefore, what is done by the separate entity must be something which possesses that character... But where an act done by a separate entity of the State on the directions of the State does not possess the character of a governmental act, the entity will not be entitled to State immunity ...  Likewise, in the absence of such character, the mere fact that the purpose or motive of the act was to serve the purposes of the State will not be sufficient to enable the separate entity to claim immunity under s.14(2) of the Act” (p. 1160(a)-(f)).

25.	On the authorities, it is clear that:

(a)	it is first necessary to consider what is the relevant act of the separate entity which forms the basis of the claim to immunity;

(b)	to qualify for immunity, the act must be governmental rather than commercial in character;

(c)	this is a question  of the analysis of the particular facts against the whole context in which they have occurred;

(d)	if the action in question is not governmental, the mere fact that the purpose or motive of the act was to serve the purposes of the State will not be sufficient to enable the separate entity to claim immunity;

26.	In categorising the acts of a central bank, as in other contexts, it may be difficult to draw the line between governmental and commercial acts, since the role of a central bank is necessarily to exercise a role over financial and economic activity. The authorities (both before and after the SIA) have held that:

(1)	the issue of a letter of credit by a central bank is a commercial act: Trendtex Trading Corp v. Central Bank of Nigeria [1977] QB 529; Hispano Americana Mercantile SA v. Central Bank of Nigeria [1979] 2 Lloyds Rep 277.

(2)	the issue of bank notes is governmental: Camdex International Limited v. Bank of Zambia (No. 2) [1997] 1 All ER 728 at 732h.

(3)	the regulation and supervision of a nation’s foreign exchange reserves is an aspect of a government’s sovereign function of regulating the monetary system and is governmental: Crescent Oil v. Banco Nacional de Angola (unreported), 28 May 1999, Com Ct, Cresswell J applying De Sanchez v. Banco Central de Nicaragua (1985) 770 F.2d 1385.

(4)	the issue of a promissory note by a central bank is a commercial activity: Cardinal Financial Investment Corp v. Central Bank of Yemen, (unreported), 12 April 2000, Com Ct, affmd 23 October 2000, CA.

27.	As regards BCC, the relevant act is its entry into and completion of the Agreement.  BCC and BNC contend that it was not a commercial transaction, but was part of the reorganisation of Cuba’s central bank and as such a governmental act; and that it would be superficial to characterise the act was “commercial” merely because private individuals constantly buy and sell shares.  It is well established that the context in which what would otherwise be private acts are done may bring them within the area of immunity: see e.g. Littrell v. USA [1995] 1 WLR 82 and Holland v. Lampen-Wolfe [2000] 1 WLR 1573.  The context they rely on includes the following:

	(1)	BNC previously held the HIB shares in its capacity as the central bank of Cuba;

	(2)	HIB’s principal role was, and is, to serve the interests of Cuba’s central bank.  Effecting functions that need to be carried out in the London financial market through a separately incorporated local subsidiary under the control and ownership of the central bank in the case of an economy such as that of Cuba is an orthodox procedure;

	(3)	the reorganisation of the Cuban banking system was itself clearly a sovereign activity;

	(4)	the Shares were a central bank asset both before and after the transfer, and the transfer merely maintained its status as such.

28.	On the other hand BNC and BCC entered into what was in form a private law contract and completed it as such. There is no evidence that the sale was pursuant to any legislative or executive direction.  In this respect the Agreement is in a quite different position from the rest of the reorganisation which was effected by legislation.  In the language of Lord Wilberforce in I Congresso at p.263, everything was done as between vendor and purchaser: there was no exercise and no need for exercise of sovereign powers.  The private law character of the transaction is not discoloured by the context in which the Agreement was executed i.e. the fact that the parties to it regarded the transfer of the Shares to BCC as an obvious and necessary sequel to the statutory reorganisation.  Nor is its private law character controverted by the purpose or motive behind the transaction of serving the interests of the State in bringing to fruition the completion of the reorganisation of banking in the final form which it sought. I therefore hold that BCC’s entry into and completion of the Agreement were commercial rather than governmental (albeit the parties to the Agreement were both State owned entities) and that accordingly BCC enjoys no immunity in respect of the transaction in question.

JUDICIAL SELF RESTRAINT

29.	Distinct from the doctrine of sovereign immunity, three is a rule of law requiring municipal courts to exercise judicial restraint in the exercise of jurisdiction in respect of sovereign acts of a State or a separate entity of a State within a State’s own territory or outside it and which leads to a form of immunity “ratione materiae” i.e. by reason of the subject matter.  The rule may require the exercise of judicial restraint even in the case of a commercial transaction in respect of which the doctrine or sovereign immunity is inapplicable: see Kuwait Airways Corp v. Iraqi Airways [1995] 1 WLR 1147 at 1165 D-F.  It is far from being a principle of overwhelming applicability and is sensitive to the issues in a given case: see Kuwait Airways v. Iraqi Airways [2001] 1 Lloyd’s Rep 161 at para 336.  The latest guidance on this area of law is to be found in the decision of the Court of Appeal in Kuwait Airways v. Iraq Airways [2001] 1 Lloyds’ Rep 161 at p.214, where Brooke LJ said:

	“319.  The second insight, however, is that, whether the sovereign acts within his own territory or outside it, there is a certain class of sovereign act which calls for judicial restraint on the part of our municipal Courts.  This is the principle of non-justiciability.  It is or leads to a form of immunity ratione materiae.  It may not be easy to generalize about such acts, and the application of the principle may be fact sensitive. Guidance, however, is to be found in such consideration as whether there are ‘judicial or manageable standards’ by which to resolve the dispute, whether the Court would be in a ‘judicial no-man’s land’, or perhaps whether there would be embarrassment in our foreign relations, at any rate if that possibility was drawn to the Court’s attention by the executive.  Sensitive issues involving diplomacy between States, or uncertain or controversial issues of international law, may be other examples of situations calling for judicial restraint.  The distinction which has been developed in the analogous area of sovereign immunity between situations where the sovereign acts by way of sovereign authority (acta jure imperii) and where he acts in the commercial sphere (acta jure gestionis) may also be of some assistance, because with the development of the restrictive theory of sovereign immunity there has come the realization that it is not every impleading of a sovereign that requires judicial restraint or give rise to a legitimate fear of giving offence. In essence, the principle of non-justiciability seeks to distinguish disputes involving sovereign authority which can only be resolved on a State to State level from disputes which can be resolved by judicial means”.

30.	If it were material to investigate the motives behind the reorganisation of the banking system in Cuba (as was contemplated in the passage which I have quoted from the judgment of Neuberger J in Cosmos) and this was for any reason not covered by sovereign immunity, such an investigation would in my view squarely fall within this form of immunity. But it seems to me that the investigation of the motives for entry into the Agreement and most particularly for fixing the price payable is a judicially manageable exercise.  It has to be borne in mind that at least the primary focus is upon the state of mind of BNC when no longer the central bank, and not of BCC. Though the exercise might occasion a degree of embarrassment and give rise to a legitimate fear of giving some offence, it would not do so to a degree requiring the dispute to be resolved at State to State level rather than by judicial means. I do not think therefore that this doctrine affords a bar to the claim in this action.  But the political sensitivity of the issues raised is very much relevant to the exercise of discretion on the issues where such exercise is called for on the application before me.

RULE 6.20(10)

31.	Rule 6.20(10) is a wholly new formulation, which is not directly derived from the Rules of the Supreme Court and has yet to be the subject of judicial consideration. The claim made by Carige in this case relates to the character of the Agreement (whether a transaction at an undervalue) and the purpose for which it was entered into, and Carige seeks relief in the form, not of a proprietary nature, but of an award of compensation.  The question raised is as to the nature of the relationship required by the Rule of the claim to the property situate here. Carige says that it is sufficient that the claim relates to a transaction affecting such property. BCC and BNC however say that that is not enough and that it is necessary that the claim is to the property or some interest therein.  On this novel and important issue I must acknowledge my debt to Mr Potts and Mr Gillyon.

32.	RSC Order 11 rule 1 (the predecessor to CPR 6.20) provided (so far as material) as follows:

	(g)	the whole subject-matter of the action is land situate within the jurisdiction (with or without rents or profits) or the perpetuation of testimony relating to land so situate; 

	(h)	the claim is brought to construe, rectify, set aside or enforce an act, deed, will, contract, obligation or liability affecting land situate within the jurisdiction.

	(i)	the claim is made for a debt secured on immovable property or is made to assert, declare or determine proprietary or possessory rights, or rights of security, in or over movable property, or to obtain authority to dispose of movable property, situate within the jurisdiction;”

	The authorities on RSC Order 11 rule 1(g) established that (leaving aside the provision for perpetuation of testimony) an action only fell within the rule if the claim was confined to a claim to a proprietary or possessory interest in the land and that the rule did not extend to a claim for any other relief e.g. damages arising from a breach of contract or tort relating to the land: see Agnew v Usher (1884) 14 QBD 78 at 79 (affirmed (1884) 51 LT 724 and Slingsby v. Slingsby [1912] 2 Ch 21 at 24.  In the place of Order 11 rule 1(g), (h) and (i) is now to be found CPR 6.20(10) which reads:

	“the whole subject matter of a claim relates to property located within the jurisdiction.”

33.	The critical differences between RSC Order 11 rule 1(g) and CPR 6.20(10) is the substitution for the words “is land situate within the jurisdiction” of the words “relates to property located within the jurisdiction”.  The implications are that: (1) the rule is no longer limited to land and now extends to personal property; and (2) instead of the whole claim having to be confined to a claim to a proprietary or possessory interest, it is sufficient that the whole claim relates to property. The evident purpose of the new rule is to lay down a single rule in place of the three earlier rules which embraces and extends beyond the contents of those rules.  It is to be noted that at p.128 of the Autumn 2000 Civil Procedure (“White Book”) the comment is made on CPR 6.20(10):

	“This wide and new provision is no longer confined to land and the old cases are redundant.”

	In my view on its proper construction the rule cannot be construed as confined to claims relating  to the ownership or possession of property.  It extends to any claim for relief (whether for damages or otherwise) so long as it is related to property located within the jurisdiction.  This construction vests in the court a wide jurisdiction, but since the jurisdiction is discretionary the court can and will in each case consider whether the character and closeness of the relationship is such that the exorbitant jurisdiction against foreigners abroad should properly be exercised.

34.	I am not deterred from reaching this conclusion by the authorities cited by Mr Blair.  The first was the decision of the Australian Federal Court in Bell Group Ltd v. Westpac Banking Corporation (1996) 20 ACSR 760. In that case consideration had to be given to Federal Court Rule Order 8 rule 1(h) which provided for service outside the jurisdiction:

	“where the subject matter of proceedings so far as concerns the person to be served is property in the Commonwealth.”

	Nicholson J held (citing earlier Australian authorities which support the proposition):

	“with respect to FCR.08r.1(h), for property to be the subject of the proceedings, what must be in issue is a right or interest in the property” (p.764).

	The language of the rule under consideration follows that in RSC Order 11 rule 1(g) and accords with the English authorities on the meaning of that rule.  It is of no assistance on the current rule.

35.	The second authority relied on was the judgment of Matheson J in Saltram Wine Estates Pty Ltd v. Independent Stave Co (1992) 57 SASR 156 at 160-2.  In that case he had to construe the rule in South Australia providing for the grant of leave:

	“Whenever the subject matter of the claim is or relates to: real or personal property situate within the jurisdiction.”

He identified as its predecessor a rule similar to RSC Order 11 rule 1(h) which reads:

	“any act, deed, will, contract, obligation or liability affecting land or hereditaments situate within the jurisdiction is sought to be construed, rectified, set aside or enforced in the action.”

	He referred to the Australian authorities which interpreted this earlier rule narrowly and required the action to have a direct effect on the property itself, its possession or title.  He then held that the change of word from “affecting” to “relates” was not intended to alter the established requirement for the action to have a direct effect on the property itself, its possession or title and accordingly that a claim for damages likewise did not fall within the new rule any more than it did within the old. I do not however think that the reasons which impelled Matheson J to give the word “relate” a restrictive meaning apply in respect of CPR 6.20(10).  (It is to be noted that the word “affect” only appeared in RSC Order 11 rule 1(d) and in that context was given a wide meaning: see e.g. Gulf Bank v. Mitsubishi [1994] 1 Lloyd’s Rep 323 at 327).  It would involve placing a gloss on the deliberately wide terms in which CPR 6.20(10) is drafted.

36.	In my view the test laid down by CPR 6.20(10) is satisfied.  The claim does relate to the Shares, which are property situate here, and the claim under section 423 relates to the Shares and most particularly the disposition of the Shares.  I therefore hold that Carige has satisfied the requirements of CPR 6.20(10), but such a decision leaves entirely open the question whether the nature of the claim is such that the courts’ discretion should be exercised in granting permission.

A SERIOUS ISSUE TO BE TRIED

37.	I must next examine whether Carige has raised a serous issue to be tried.  For this purpose it is necessary to show a serious issue on each of the four constituents of a successful claim, namely:

(a)	that the transaction was at an undervalue;

(b)	that the transaction was for the purpose of putting assets beyond the reach of existing or future claimants or prejudicing them in relation to their claims;

(c)	that Carige is a victim of the transaction; and

(d)	that the circumstances are such that the court would exercise its discretion to grant the relief sought.

38.	It is common ground that Carige can show a serious case to be tried whether the sale was at an undervalue: BNC as owner of the Shares was free as owner not to sell at all and was free to sell to a purchaser other than to BCC and at a price reflecting true (rather than par) value of the Shares and on terms that Cuba should not be the proper law of the Agreement (with the consequent requirement to complete in Cuban peso as the official rate).  I am satisfied that Carige can show a serious issue whether it is a victim of the transaction.  It is no answer, as suggested by BNC and BCC, that the Shares were immune from execution when in the hands of BNC so long as it remained the central bank and that the transaction merely continued such immunity by transferring them to BCC. That immunity could only last so long as  BNC was the central bank and (but for the transfer) the immunity would have expired and the full value of the Shares would have become available to its creditors of whom Carige was one.

39.	But I do not think that Carige can show a serious question to be tried that BNC had the purpose which Carige imputes to it when entering into and completing the Agreement of putting the Shares beyond the reach of creditors or prejudicing them.  There is some disarray in the authorities as to whether the iniquitous purpose must be a dominant or a substantial purpose. On balance the authorities and text books favour the former view.  But it is unnecessary to resolve this issue for the purpose of deciding this case, for Carige cannot show a serious case whichever test is applied. The uncontroverted evidence of BNC and BCC is to the effect that there was no intention to ring fence the Shares or prejudice creditors. Carige’s case essentially rests on the fact that the sale was at an undervalue.  There is nothing suspicious about the two Cuban State entities agreeing that the law of Cuba should be the proper law of the Agreement and once it is established (as it is on the evidence before me) that Cuban law as the proper law of the Agreement required payment in pesos at the official exchange rate, completion of the Agreement in pesos adds little or nothing.  (Neuberger J in Cosmos in the passage cited in paragraph 9 of this judgment for whatever reason did not have in mind this explanation of the completion of the Agreement in pesos at the official rate).  The existence of the undervalue is not in the context of the transaction in question indicative of an iniquitous intention: it is consistent with a view that the transfer was regarded by the parties to it as a formality consequent upon the replacement by BCC of BNC as the central bank.  The evidence before me establishes that the parties to the Agreement considered that the Shares should be vested in whatever company was the central bank and that was the reason for the transfer.  The price reflected the par value and accordingly the cost to BNC of capitalising HIB: BCC took over HIB on terms under which in fact BCC reimbursed BNC this capitalisation.

40.	It is clear that at the time of the internal reorganisation of the Cuban banking sector BNC was in serious financial difficulties with debts totalling some £6 billion and was unlikely to be able to repay its creditors, let alone on time, and this included Carige.  But it seems to me inherently improbable that BNC or BCC should enter into the Agreement for the dishonest purpose of putting the Shares (valued perhaps to £30 million) beyond the reach of creditors.  It is to be noted that BNC left itself vulnerable during the Period of Exposure.  There is no evidence of any sense of urgency on the part of BNC or BCC to limit or bring to its close this period of exposure.  An allegation of knowing participation in a dishonest transaction is a very serious allegation, and all the more serious if directed at a central bank. The allegation in this case can at its highest be described as speculative.  It lacks any evidential support.  The evidence filed goes only the other way.  Such a claim could only succeed if on disclosure material came to light which supported the thesis presented, but there is no reason to believe that there is any such material.  I find no support in the protracted correspondence (to which I have referred) in which Carige sought releases from sovereign immunity in turn from BNC and BCC.  This correspondence reveals only the degree of embarrassment of a State owned entity unable to meet its debts.  It is to be noted that BNC has adopted a consistent approach to all its foreign creditors treating them all equally, and that it has continued to make payments to them.  In my judgment there is no basis for even making the allegation of dishonesty, least of all against a central bank of a sovereign State.  In my view, permission to serve proceedings abroad should be refused on the ground that there is no serious issue to be tried whether BNC had the dishonest intention which is the essential ingredient of the claim under section 423.

41.	Likewise I do not think that there is a serious issue to be tried whether the court would grant Carige the relief which it seeks if Carige succeeded at a trial in establishing the other constituents of a claim under section 423 against BCC.  It is clearly established by the decision of the Court of Appeal in In re Paramount Airways Ltd [1993] Ch 223 at 239f-240c that the court has a discretion (analogous to that whether to make a winding up order) whether to grant relief under section 423 having regard in particular to the sufficiency of the connection of the claim to England.  I have summarised in paragraph 14 of this judgment the connection of the claim with this country. In my view it is tenuous, and it is fortuitous that by reason of that tenuous connection the English court can assert jurisdiction to try claims against BCC and BNC under section 423 and grant judgment against BCC for payment of a sum of money to be distributed amongst the victims.  Section 423 contemplates that the necessary machinery can be brought into play (e.g. by means of the appointment of a receiver) for distribution (a form of mini-winding up), but the exercise in respect of a State entity, formerly the central bank, and in respect of Cuba’s sovereign debt with creditors totalling some £6 billion is not merely daunting but invasive of the sovereign affairs of Cuba.  If there were to be any appropriate forum for such an exercise, it could only be Cuba itself.  I may add that any likely dividend to creditors would be unlikely to be sufficient to justify the exercise, having regard to the likely costs and the size of the total indebtedness, which dwarfs into insignificance the amount in issue.  But the consideration of the machinery of enforcement is academic, since BCC enjoys immunity from enforcement in this country.  The only evidence relating to  immunity of assets of central banks against enforcement abroad relates to Italy and the United States of America. In the first of these countries (though there is conflict between the expert evidence adduced by the parties) in my judgment the balance of the evidence favours the view that there is immunity as regards assets used for jure imperii functions; and in the second there is clearly like immunity in respect of enforcement to that enjoyed here.  The fact that the European Convention on State Immunity 1972 (Cmmd. 508) makes no provision for immunity of central banks from execution does not mean that under the law of the parties to the Convention there is no provision for such immunity: the Convention sets a floor and not a ceiling.  The fact that BCC enjoys immunity, not from suit, but only from enforcement, does not mean that an English court will refuse leave to commence proceedings here designed to obtain a  judgment to be enforced elsewhere where there is no immunity from enforcement, but the fact that there is immunity against enforcement here is a relevant factor in the exercise of a discretion whether to grant leave to serve abroad or whether to grant discretionary relief, and this factor may attract greater weight in a case where there is no evidence before the court that there is anything else where there is a gap in the immunity against execution and the judgment can be enforced. Unless there is such a gap the proceedings will be fruitless.  I think that it is clear that the fortuitous connection with the United Kingdom is an insufficient ground for granting the relief sought under section 423, even as the Court of Appeal in Cosmos held that it was an insufficient ground for granting a winding up order.

42.	Under CPR 6.20(10) the court has a residual discretion, even if the serious issue to be tried is established, whether to grant leave.  For the reasons given in the foregoing paragraph alone I would decline to exercise this discretion in favour of Carige.  I would be confirmed in this view by the consideration that, though the issue of iniquitous intention on the part of BNC is justiciable, and though the court is not precluded from examining and investigating the serious charge of dishonesty as the motivation for entry into the Agreement, it is an invasion into a sensitive area which the court should not lightly undertake; and the character and relationship of the claim to property situate in this country is not such as to give rise to any impelling reason why the court should assume jurisdiction; and the connections of the parties and their dealings with this country and the evidence relied on by Carige, and the value (other than in terms of public relations) to Carige of any judgment obtained are all too insubstantial to require or justify the court undertaking the exercise.

CONCLUSION

43.	For the above reasons I discharge the order and directions of the Registrar and refuse permission to Carige to serve its proceedings on BCC or BNC abroad.

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