This blog is by Megan Griffiths.

It is rare that a trial of preliminary issues in the Commercial Court attracts as much mainstream media attention as Deutsche Bank v Receivers / Central Bank of Venezuela v Bank of England [2020] EWHC 1721 (Comm). But the issues determined in the judgment handed down by Mr Justice Teare earlier this month make it unsurprising that it has: access to a billion dollars in gold is at stake, a political rivalry is centre stage, and the court had the delicate task of adjudicating foreign affairs of state. The judgment looks at the delicate interplay between the courts, our government, and foreign states. This not only makes for a fascinating set of facts but also a judgment that has implications for international relations well beyond the Commercial Court.

What was the political backdrop to the case and who were the key players?

Mr Maduro was elected president of Venezuela in 2013. He swore himself in for a second term after an election in 2018. However, there were widespread concerns that the election process was flawed and invalid. Several EU countries, including the UK, gave Mr Maduro 8 days to hold re-elections in early 2019, or they would recognise Mr Guaido as the interim President. Mr Guaido was the President of the National Assembly and, in the absence of a validly elected president, he would be the one to step in as the interim President.

Mr Maduro did not hold those elections and, on 4 Feburary 2019, our foreign secretary released a statement that said that the UK government recognised Mr Guaido as the interim President from that day forward [10 to 11].

Why was our Commercial Court involved?

The Venezuelan had government stored $1 billion worth of assets in gold at the Bank of England, thereby bringing our jurisdiction into the picture. Mr Maduro said that he wanted to repatriate the assets, claiming that he needed them to fight Covid-19. Mr Guaido wanted them to stay put.

In order to release the funds, the Bank of England needed authority from the Board of the Central Bank of Venezuela which was appointed by the president. Both Mr Maduro and Mr Guaido said that they had appointed the relevant board [3]. Mr Maduro’s was “the Board of the Central Bank of Venezuela” which he said he was entitled to appoint as president. Mr Guaido’s was an “ad hoc Administrative Board of the Central Bank of Venezuela”, which he said he was entitled to appoint as interim President.

The uncertainty over who was the legitimate leader of the state (and therefore who had appointed the relevant board that could give authority for the movement of the funds), meant that the Bank of England did not know whose authority to act upon. Therefore, our courts were asked to provide it with an answer.

What were the legal proceedings behind the trial of the preliminary issues?

There were two sets of substantive proceedings behind the preliminary issue trial: an action brought in 2019 concerning the control of $120 million held by Deutsche Bank following a gold swap, and an action brought in 2020 about the conflicting instructions on the release/retention of the assets in the Bank of England. The trial of the preliminary issues was ordered as being relevant to both sets of substantive proceedings [24]. It was heard remotely in June 2020.

What were the two preliminary issues and what did the court decide?

  • The “recognition issue” [7]

Issue: Had our government made a statement that unequivocally accepted Mr Guaido as the presidential head of state?

Because of the doctrine that says the courts and the executive should speak with “one voice”, if we had, then the content of that statement would be conclusive and the court would be bound by it.

Finding: Yes [42]. Our Foreign Secretary’s statement on 4 February 2019 unequivocally recognised Mr Guaido as the interim President. Therefore it was Mr Guaido’s ad hoc Board that had authority over the assets held at the Bank of England.

  • The “justiciability issue” [8]

Issue: Was it open to our courts to query or challenge the lawfulness of decisions made by Mr Guaido as Interim President, specifically his appointment of his Board (according to Venezuelan law)?

Finding: No [93]. The effect of foreign legislation by a foreign state in that foreign state is not something that we are entitled to interfere with: it is protected by subject matter immunity and we must therefore recognise and not question its effect. This principle was set out by our Supreme Court in Belhaj v Straw [2017] UKSC 3.  

Mr Justice Teare made a finding on an issue that the Supreme Court in Belhaj had not expressly considered: did subject matter immunity only apply to valid exercises of state power? In finding that the answer was “no”, Mr Justice Teare referred to Lord Sumption’s obiter comments in paragraph 230 of Belhaj to find that the lawfulness or otherwise of that exercise was not something that we could or should interfere with [88].

What next?

The preliminary issue judgment deals with a high stakes political question that has been unresolved for some years, without becoming politically involved itself. The combined impact of the foreign secretary’s political statement in 2019, and this judicial decision in 2020, has provided the Bank of England with much needed instructions as to who to look to for the green light. 

The two substantive actions will now proceed towards their respective trials. The speed with which that happens may be impacted by whether or not there is an appeal of the preliminary issue judgment.

If there is, it is likely that a focal point will be whether our courts are entitled to challenge the validity of potentially unlawful exercises of state power. Given that this was not determined in the ratio of the Belhaj judgment, there will be some appetite for higher judicial authority on the point, though whether there is appetite to appeal in this particular case is yet to be seen.

James Beeton Cross-Border

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