Novo Banco was created in August 2014 in the wake of the collapse of Banco Espirito Santo (BES). In the first rescue of its kind in Europe, the Portuguese Central Bank, the Bank of Portugal, acting as resolution authority, exercised its powers under the EU Bank Recovery and Resolution Directive (‘BRRD’) to create Novo Banco as a new bridge bank.
The dispute centred on whether the obligations of BES under a facility agreement – which included an English jurisdiction clause – had transferred to Novo Banco or remained with BES, following various decisions by the Bank of Portugal. The Bank of Portugal had repeatedly determined that the liabilities had not transferred and accordingly remained with BES.
The English Courts were asked to rule on how the BRRD (including its relation to Directive 2001/24/EC on the Reorganisation and Winding up of Credit Institutions), and therefore the decisions of the Bank of Portugal, should be construed. Goldman Sachs and the investors also sought a reference to the ECJ in the Supreme Court hearing.
Goldman Sachs and the investors won at first instance, but that decision was unanimously overturned by three Court of Appeal judges and was upheld today by the Supreme Court. Lord Sumption (with whom Lord Mance, Lord Hodge, Lady Black and Lord Lloyd-Jones agreed) ruled that Goldman Sachs and the investors did not have the better of the argument that Novo Banco was party to the facility agreement. Lord Sumption also stated there was “no proper basis for a reference”.
The Court agreed that the decisions of the Bank of Portugal should be given the effect they have under Portuguese law, and that the correct place to challenge those decisions was in Portugal. Echoing the comments in the Court of Appeal, Lord Sumption stated that “[t]he scheme of the Directives would be undermined if the acts of a designated national Resolution Authority were open to challenge in every other member state simply because they were open to challenge in the home state.”
Stuart McNeill, a partner at Pinsent Masons representing Novo Banco in the case, said:
"This is the first case where the English courts were asked to consider how decisions made by another member state's resolution authority under the BRRD should be interpreted. The Directive is intended to provide a pan-European approach to rescuing banks and other financial institutions in difficulty, requiring member states to respect the decisions of the resolution authorities, many of which are central banks. The Supreme Court’s judgment has ramifications for other cases across Europe, and highlights the obvious danger (indeed potential chaos) of different courts interpreting the same decision of a single resolution authority in different ways.”
Pinsent Masons’ team was led by Stuart McNeill, with assistance from associate Caroline Hearn.