Banking

Account - Account held by foreign state - Claimant bank operating nine bank accounts held by Libyan government

British Arab Commercial Bank plc v National Transitional Council of the State of Libya: Queen's Bench Division, Commercial Court (Mr Justice Blair): 26 August 2011

The claimant bank (the bank) operated from London providing various banking services in the Middle East North Africa region.

The Libyan embassy (the embassy) in London (led by the Gaddafi regime) was a long-standing client of the bank, having held nine accounts there since before 1991. On 29 October 2010, Libyan Foreign Bank (LBF), a Libyan state-owned institution, became the bank's majority shareholder.

From the money in the accounts, the embassy in the normal way met its running costs, and various officials of the embassy had signing authority in relation to the accounts from time-to-time. A particularly large item of expenditure related to student grants, which appeared to have been paid largely from an account entitled 'Libyan Cultural Affairs Office - Education Affairs', controlled and operated by the embassy.

Following disturbances in Libya in February 2011, sanctions were imposed on that country by the United Nations, the European Union and the United Kingdom, among others. The bank’s regulator, the Financial Services Authority, required it to carry out 'enhanced due diligence' in relation to payments it made. From February 2011, relations between the UK and Libya deteriorated, and various diplomats at the embassy were expelled.

In May, the bank sought guidance from the UK government as to who could operate the mandate over the accounts. On 5 May, the bank was informed by the Foreign & Commonwealth Office (the FCO) that it could accept instructions from the then Chargé d’Affaires following the departure of the ambassador. Later, the bank was forewarned that the UK government was about to recognise the National Transitional Council of the State of Libya (the NTC) as the sole governmental authority in Libya.

On 27 July, the Foreign Secretary announced that the government of the UK recognised the NTC as the sole governmental authority in Libya. On that same day, officers of the bank and UK government representatives decided to provide a certificate confirming the new NTC ambassador and his authority to establish new signature mandates for the embassy accounts. In the interim, the UK government was happy for the bank to continue to process transactions, subject to compliance with the mandate, satisfactory due diligence, and the transactions being in line with normal activity.

By letter dated 27 July to the foreign secretary, the Chairman of the NTC Executive Office and Head of Foreign Relations appointed N to the position of Charge d'Affaires. By letter of 28 July 2011, the embassy wrote to the bank instructing it that there were to be no further withdrawals on seven of the nine accounts (the Education Affairs account was not one of those listed), save for 'any instructions, cheques or other mandates' issued before the 10 August 2011, which were still being processed after that date.

By letter of 29 July, the embassy wrote to the bank asking it to accept an alternative signature in relation to the accounts since one of the existing signatories had been asked to leave the UK. The bank did not act on that instruction. By email of 29 July, the bank was requested to pay student grants for the months of September, October, November and December 2011.

Those instructions were confirmed by fax from the embassy but again were not acted on. On 8 August, the FCO sent the bank a letter to the effect that it recognised and was dealing with the NTC as the sole governmental authority in Libya. On 11 August, the bank met with N to discuss the operation of the accounts. However, later that day, the bank received a SWIFT message from the LBF requesting that the bank freeze all Libyan funds held with it.

Having been asked by the bank for appropriate directions in the light of that message, on 12 August, the FCO sent the bank a letter repeating what it had stated in its letter of 8 August about recognising the NTC as the sole governmental authority in Libya. The letter further confirmed, inter alia, that it had no objection to the bank accepting instructions from N on behalf of the embassy. Following the presentation of three cheques for payment by a solicitors' firm which had received them from 'our clients, the Libyan government', the bank sought a final declaration that it was entitled to act on the instructions of the embassy established by the NTC on behalf of the state of Libya in respect of the nine accounts it held for the embassy.

In the claim form, the bank stated that urgent resolution was needed on the matter in particular because uncertainty would hold up payments on behalf of some 2,000 Libyan students studying in the UK. On 24 August, the Secretary of State for Foreign and Commonwealth Affairs issued a certificate stating that the government of the UK recognised the NTC as the government of Libya and stating that it did not recognise any other government in Libya: in particular, it no longer recognised the former Gaddafi regime as the government of any part of Libya.

In considering the bank's application, it fell to be determined whether: (i) the court was satisfied that the NTC was, and the Gaddafi regime was not, the government of Libya; (ii) the Libyan embassy and N constituted the accredited diplomatic mission of Libya to the UK; (iii) the embassy could give instructions to the bank in relation to the accounts; (iv) whether it was appropriate to grant the bank the declaration sought; and (v) the hearing should be adjourned to enable the Gaddafi regime to be present.

The declaration would be granted. (1) It was well established that in the field of foreign relations, the Crown in its executive and judicial functions spoke with one voice (see [25] of the judgment). In the instant case, the foreign secretary's certificate of 24 August was conclusive (see 25] of the judgment).

The NTC was, and the Gaddafi regime was not, the government of Libya (see [25] of the judgment). GUR Corpn v Trust Bank of Africa Ltd [1986] 3 All ER 449 applied; R (on the application of HRH Sultan of Pahang) v Secretary of State for the Home Department [2011] All ER (D) 243 (May) applied; Somalia (Republic of) v Woodhouse Drake & Carey (Suisse) SA, The Mary [1993] 1 All ER 371 distinguished; Sierra Leone Telecommunications Co Ltd v Barclays Bank plc [1998] 2 All ER 821 distinguished.

(2) It was well established that the acceptance of accreditation to a permanent diplomatic mission was a matter within the discretion of the executive, or, more accurately, the royal prerogative. Further, it would be contrary to public policy for the court not to recognise as a qualified representative of the head of state of the foreign state, the diplomatic representative recognised by the UK government (see [26] of the judgment).

In the instant case, the letters of 8 and 12 August had directly and unambiguously addressed the issue of N's accreditation. By those letters, the UK government had accepted N's appointment and had accredited him accordingly (see [26] of the judgment). The Libyan embassy and N constituted the accredited diplomatic mission of Libya to the UK (see [26] of the judgment). Bat v Investigating Judge of the German Federal Court [2011] All ER (D) 293 (Jul) applied.

(3) It was settled law that a state and its entities might hold bank accounts in numerous different capacities, but whether particular accounts were the accounts of a diplomatic mission were a question of fact. Further, as a matter of principle, such accounts should be operated in accordance with the instructions of those accredited to the mission. Once that changed, then (in principle) the accounts should be operated in accordance with the instructions of those newly accredited to the mission (see [27], [28] of the judgment).

In the instant case, on the evidence, all nine accounts were accounts which had been held with the bank in accordance with the instructions of those who had then been accredited to the diplomatic mission of Libya to the UK Accreditation was a matter for the government of the UK. That government no longer recognised the former Gaddafi regime as the government of any part of Libya. 

The NTC had been recognised as the sole governmental authority in Libya, and N had been accredited as the Libyan Chargé d’Affaires. It followed that (in principle) he could give instructions to the bank in relation to the embassy accounts. The court could go no further than to express that proposition in principle. Accordingly, on the basis that a bank executed payment instructions as agent for its customer and had to do so according to a properly given mandate, it would be for the bank in the instant case, to satisfy itself that it had a properly given mandate, and to act in accordance with it (see [27], [28] of the judgment). Alcom Ltd v Republic of Colombia [1984] 2 All ER 6 applied.

(4) Pursuant to CPR 40.20, the court could make binding declarations whether or not any other remedy was claimed, though claims for declarations alone were unusual. It was also unusual for a court to grant a declaration as to the scope of a bank’s mandate (see [29] of the judgment). Having regard to the reasons for the declaration and the urgency of the matter, the instant case was a proper case for final declaratory relief (see [29] of the judgment). The declaratory relief sought would be granted (see [30] of the judgment).

(5) The proposition that the hearing should be postponed to enable the Gaddafi regime to be present would be rejected on discretionary grounds, in particular because of the urgency of the matter. Further, on the basis that it was settled law that an unrecognised state could not sue or be sued in an English court and that an unrecognised government had no locus standi in the English courts, there would be no purpose in adjourning the hearing (see [31], [32] of the judgment). Berne City v Bank of England 9 Ves 347 applied.

Andrew Fletcher QC (instructed by Stephenson Harwood) for the bank. Richard Perkoff (instructed by Clyde & Co LLP) for the NTC. David Perry QC and Christopher Staker (instructed by the Treasury Solicitor) for the FCO.