British Arab Commercial Bank Plc v The National Transitional Council of the State of Libya

The issue in this case concerns the control of the accounts of the Libyan embassy in London held with the claimant, British Arab Commercial Bank Plc. The defendant is the National Transitional Council of the State of Libya, which on 27 July 2011 was recognised by Her Majesty’s Government as the “sole governmental authority in Libya”. The Foreign & Commonwealth Office has been represented at the hearing. The legal representatives of the government which was previously recognised have been given the opportunity to attend, and the hearing was adjourned to enable them to do so. However they have notified the court that they have been unable to obtain instructions, and do not intend to appear. In short, the issue arises because the Bank has received conflicting instructions as to the operation of the accounts. It brings these proceedings for declaratory relief under Part 8 CPR. The matter is urgent because several thousand Libyan students are studying in this country, and are dependent on support by way of payments from the accounts in question.

The evidence (which is not controverted) shows the following. Until 27 July 2011, the recognised government of Libya was that led by Muammar Muhammad al-Qadhafi. The Libyan embassy in London was known as the “People’s Bureau of the Great Socialist People’s Libyan Arab Jamahiriya” (it is referred to at the present time simply as the Libyan embassy). The Bank (formerly UBAF Bank Limited) operates from London providing various banking services in the Middle East North Africa region. The Bureau was a long standing client of the Bank, having held accounts there since before 1991. On 29 October 2010, Libyan Foreign Bank, a Libyan state-owned institution, became its majority shareholder.

From the money in the accounts, the Bureau in the normal way met its running costs, and various officials of the Bureau had signing authority in relation to the accounts from time to time. A particularly large item of expenditure relates to student grants. This is shown by the fact that over the last 12 months, the Bank has received monthly instructions to pay between £2.5m and £3.5m to meet the expenses of Libyan students studying in this country. These appear to have been paid largely from an account entitled “Libyan Cultural Affairs Office – Education Affairs” with the Bank. The evidence is to the effect that this account was controlled and operated by the Bureau, being one of nine such accounts which are the subject of this action. As at the present time, there is a substantial balance in the accounts, the largest sum being in the Education Affairs account.

Following disturbances in Libya in February 2011, sanctions were imposed on that country by the UN, EU and UK among others, the details of which are not presently relevant. The Bank is of course required to observe the sanctions, but is permitted to operate as a “non-Libyan financial institution” by license issued by HM Treasury on 3 March 2011. The Bank’s regulator, the Financial Services Authority, has required it to carry out “enhanced due diligence” in relation to payments it makes.

From February 2011, relations between the UK and Libya deteriorated, and various diplomats at the Bureau were expelled. In May, the Bank sought guidance from the UK government as to who could operate the mandate over the accounts. It is clear from the evidence that this has been a matter of considerable concern to the Bank. On 5 May 2011, it was informed by the Foreign & Commonwealth Office 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 as the sole governmental authority in Libya. The Bank explained the “need for clear authorisation from the FCO for the incoming head of mission to establish mandates”.

On 27 July 2011, the Foreign Secretary made the announcement I mentioned above to the effect that “…the United Kingdom recognises and will deal with the National Transitional Council as the sole governmental authority in Libya”. The Foreign Secretary stated that the remaining diplomats from the previously recognised regime had to leave the UK, being no longer recognised as the representatives of the Libyan government. The NTC was being invited, he said, to appoint a new Libyan diplomatic envoy to take over the Libyan embassy in London. It is relevant for present purposes to note that he also said: “I am conscious that the Libyan students in the UK whose expenses have been paid by the Libyan People’s Bureau will be concerned about what this decision means for them. I want to reassure them that we are working closely with the NTC and the relevant banks and will do all we can to make sure that they and their families will continue to receive the funds to which they are entitled”.

That day, a meeting took place between officers of the Bank and UK government representatives, who said that they would provide a certificate confirming the new NTC ambassador and his authority to establish new signature mandates for the embassy accounts. In the interim, the 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. (The Bank continued to do this for the next two weeks or so.)

By letter of 28 July 2011, the Bureau 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^th August 2011, which are still being processed after this date”. The letter said that there were to be no further withdrawals after 10 August 2011, after which time the accounts were to be held to the order of the “General People’s Committee for Foreign Liaison and International Co-operation (“the Libyan Foreign Office”)”. The letter added that its solicitor, Mr Shaun Murphy of Edwards Duthie Solicitors had been instructed as the Bureau’s agent, and the Bank was instructed to deal with him in respect of all matters arising from the management of the accounts. The letter was countersigned by the authorised signatories (being diplomats from the previously recognised regime). Mr Murphy did thereafter approach the Bank, which however advised him that it had concerns over the validity of the instruction.

By letter of 29 July 2011, the Bureau 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 United Kingdom. The Bank did not act on this instruction. By email of 29 July 2011, the Bank was requested to pay student grants for the months of September, October, November and December 2011. These instructions were confirmed by fax from the Bureau, but again have not been acted on.

On 8 August 2011, the Foreign & Commonwealth Office sent the Bank a letter as follows:

“I can confirm that, as announced by the Foreign Secretary on 27 July, The UK recognises and is now dealing with the National Transitional Council (NTC) as the sole governmental authority in Libya. We therefore no longer have diplomatic relations with the Qadhafi regime, nor do we accept that they have the authority to accredit diplomatic representatives of Libya to the UK. On 4 August 2011 the Government accepted the nomination of Mr Mahmud Nacua as the Libyan Chargé d’Affaires ad interim, and will accredit him accordingly.”

These matters are confirmed in a witness statement dated 23 August 2011 from Mr Nacua himself, who adds that he was appointed Chargé d’Affaires by Dr Mahmood Jibreel, Chairman of the NTC Executive Office and Head of Foreign Relations by letter to the Foreign Secretary of 27 July 2011. He states that he took up office officially on 9 August 2011 at a ceremony “attended by, among other dignitaries, the British Ambassador to Libya (in exile), H.E. Sir Richard Northern”, and has since met regularly with senior figures from the FCO who have dealt with him as the official representative of the NTC.

Over the next few days, the Bank tried to persuade the FCO to send it a letter to the effect that it “must” accept instructions from Mr Nacua. In fact, the FCO would go no further than to say it had “no objection” to the Bank accepting instructions from him on behalf of the mission.

On 11 August 2001, the Bank met with Mr Nacua to discuss the operation of the accounts. However later that day, it received a SWIFT message from Libyan Foreign Bank (which it will be recalled is the majority shareholder in the Bank) as follows:

“PLS BE INFORMED THAT UPON REQUEST TO OUR CLIENT MINISTRY FOREIGN AFFAIRS.

KINDLY REQUESTED TO FROZEN ALL ACCOUNT’S HELD WITH YOU, FOR PEPOLE’S OFFICE P.L.A.S.J. AS PER REQUEST OF MINISTRY FOREIGN AFFAIRS – TRIPOLI.

REGRDS

LIBYAN FOREIGN BANK”

Having been asked by the Bank for appropriate directions in the light of that message, on 12 August 2011 the Foreign & Commonwealth Office sent it a letter signed by the Head of the Libya Unit in the same terms as that of 8 August which I have set out above, but adding:

“Further, the Foreign and Commonwealth office can confirm that Mr Mahmud Nacua is at liberty to assign roles within the mission as he sees fit. As Chargé, he has oversight of the Embassy and Cultural Affairs section, and the FCO has no objection to British Arab Commercial Bank Plc accepting instructions from him on behalf of the mission.

HMG considers the sole legitimate governing authority of Libya to be the National Transitional Council of Libya, and not the illegitimate Qadhafi regime. HMG considers that only the legitimate governing authority of Libya or persons so authorised by that authority are entitled to give instructions in relation to the Libyan Embassy’s bank account in the UK.”

So far as the Bank is concerned, matters appear finally to have come to a head when it received a letter from Mr Murphy of Edwards Duthie Solicitors of 15 August 2011 referring to three cheques recently presented for payment by his firm “received from our clients, the Libyan Government”. According to a witness statement made by Mr Gary Bishop (Head of Operations at the Bank) on 19 August 2011, the Bank now wishes to be sure that compliance with instructions from those acting on behalf of NTC in respect of the accounts is lawful.

These proceedings were issued by British Arab Commercial Bank Plc against the National Transitional Council of the State of Libya on 19 August 2011. The proceedings are issued under CPR Part 8, and the claim sets out an abbreviated version of the facts as set out above. It states that the Bank holds accounts on behalf of the Libyan embassy in London, formerly known as the People’s Bureau of the Great Socialist People’s Libyan Arab Jamahiriya. It states that, “The Claimant needs urgent resolution as to its position … in particular because uncertainty will hold up payments on behalf of some two thousand Libyan students studying in this country”. It seeks a declaration that it is 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 Bureau. The declaration in the Claim form as issued is stated to be subject to any person applying within a time limit (the date 29 August appears in square brackets) to show cause why the Bank may not act on the instructions of the embassy. That was however predicated on the hearing being without notice. Since it is now on notice, having been adjourned from 23 August 2011 at the request of Edwards Duthie Solicitors, it was made clear in a letter to that firm from the Bank’s solicitors dated 22 August, and in its skeleton argument dated 23 August 2012, that the Bank would seek a final order at the hearing (as it has).

A witness statement of Ms Rabia Younus of Stephenson Harwood, the Bank’s solicitors, sets out the various steps that were taken to effect service, including on the representatives in the UK and Libya of the previous Libyan government. At the hearing on 25 August 2011, the Bank, the NTC and the Foreign & Commonwealth Office were all represented.

The Court received a letter from Mr Murphy of Edwards Duthie Solicitors dated 24 August 2011 as follows:

Something now needs to be said about the position of the defendant. If the National Transitional Council of the State of Libya is (as the parties contend) the government of that state, it is entitled to the immunities and privileges conferred by the State Immunity Act 1978 (see s. 14(1)). It was stated at the hearing and confirmed by letter to the court from Clyde & Co LLP of 25 August 2011 on behalf of the NTC, that the firm was instructed on behalf of the NTC which would acknowledge service, which supported the Bank’s application for declaratory relief, which submitted to the court’s jurisdiction, and which did not intend to raise any issue of state immunity.

The parties have emphasised the urgency of the matter. This is partly because almost a month has elapsed since the Foreign Secretary’s announcement on 27 July 2011, and it is plainly not desirable to leave matters in limbo for longer than necessary. However the specific reason for urgency put forward in support of the application relates to the position of Libyan students studying in this country. The Bank has produced in evidence copies of the records of the Bureau/Bank as to what was paid out in July 2011. The records relate to over 2000 students (their names, universities, course titles, etc, have been redacted). The last instruction from the Bureau to the Bank dated 20 July 2011 is in the sum of £2,631,310.28, which gives a good idea of the amounts in question.  Because of the sanctions imposed on Libya the Bank is required, as I have said, to carry out “enhanced due diligence” in relation to each of the payments. On 17 August 2011 the newly appointed Chargé d’Affaires, Mr Nacua, instructed the Bank to make the payments due before the end of the month. According to the evidence, it will however take about ten working days to process these instructions. Mr Bishop deposes to the fact that the students concerned are financially reliant on the grants, and that the Bank has received some nine hundred email inquiries over the past four months. He believes that these individuals may face serious inconvenience, hardship and disruption to their studies if the necessary payments are not made by the beginning of September 2011. These matters were specifically referred to in the Foreign Secretary’s statement of 27 July 2011, and as the Bank puts it, have been a recurring theme since. I am satisfied from the evidence that I have seen that these concerns are real and immediate, and that the matter is indeed urgent.

Mr Andrew Fletcher QC for the Bank has conveniently summarised the points to be decided under five questions:

I should make one point plain at the outset. The Bank invited me to indicate that the court would be assisted by a certificate from the Foreign & Commonwealth Office. It also submitted however that absent such certificate, the court should nevertheless investigate the factual position for itself. This would have involved consideration of issues such as whether the NTC is the constitutional government of Libya, the degree, nature and stability of administrative control that it of itself exercises over the territory of the state, whether HMG has any dealings with it and, if so, what is the nature of those dealings, and the extent of international recognition that it has as the government of the state. Reliance was placed on the approach taken by Hobhouse J in Republic of Somalia v Woodhouse & Carey (Suisse) S.A. [1993] QB 54, and adopted by Cresswell J in Sierra Leone Telecommunications Co Ltd v Barclays Bank plc [1998] All ER 821. That might be a difficult exercise given the conditions that appear to prevail in Libya at the time of this judgment (26 August 2011).

However it is clear that the Somalia and Sierra Leone cases are different, because the issue did not concern the position of a government recognised by Her Majesty’s Government as the government of the state in question. In any event, in the present case this submission has been overtaken by events. I indicated that the court would be assisted by a certificate as to the recognition status of the NTC and the Qadhafi regimes, and at the hearing counsel for the FCO produced a certificate dated 24 August 2011 signed by the Foreign Secretary as follows:

In the present case, there has been no investigation of the factual position in Libya as in the Somalia or Sierra Leone cases, or indeed any factual investigation other than as set out in this judgment. I should however note that the witness statement of Mr Nacua is to the effect that since the creation of the NTC, a growing number of states have recognised it as the legitimate government of Libya, and this is made out clearly in the evidence. However, for present purposes, the important point is that the government of the United Kingdom recognises it as the legitimate government of Libya. I now come to the questions for decision.

Is the court satisfied that the NTC is, and the Qadhafi regime is not, the Government of Libya?

There can only be an affirmative answer to this question. In so far as it goes, the Foreign Secretary’s certificate of 24 August 2011 is conclusive, because in the field of foreign relations, the Crown in its executive and judicial functions speak with one voice (see e.g. Gur Corporation v Trust Bank of Africa Ltd [1987] 1 QB 599 at 604H, Steyn J, on appeal at 625G, Nourse LJ). As Lord Atkin put it in a well known passage in The Arantzazu Mendi [1939] AC 256 (at page 264), “Our State cannot speak with two voices on such a matter, the judiciary saying one thing, the executive another. Our Sovereign has to decide whom he will recognise as a fellow sovereign in the family of States …” (for a recent application of this principle see The Queen on the Application of HRH Sultan of Pahang v Secretary of State for the Home Department [2011] EWCA Civ 616 at [14] and following, Maurice Kay LJ, and [30], Moore-Bick LJ).

Does the Libyan embassy and its Chargé d’Affaires Mr Mahmud Nacua constitute the accredited diplomatic mission of Libya to the United Kingdom?

This is not a question which is directly addressed in the certificate. It is however directly and unambiguously addressed in the letters from the Foreign & Commonwealth Office to the Bank which I have quoted above, and in much other evidence before the court. See for example the letters of 8 and 12 August 2011: “The UK recognises and is now dealing with the National Transitional Council (NTC) as the sole governmental authority in Libya. We therefore no longer have diplomatic relations with the Qadhafi regime, nor do we accept that they have the authority to accredit diplomatic representatives of Libya to the UK. On 4 August 2011 the Government accepted the nomination of Mr Mahmud Nacua as the Libyan Chargé d’Affaires ad interim, and will accredit him accordingly”. In his oral submissions for the Foreign & Commonwealth Office, Mr David Perry QC said (correctly in my view) that the position is entirely clear, and (importantly) confirmed the factual accuracy of the material before the court. In Khurts Bat v The Investigating Judge of the German Federal Court [2011] EWHC 2029 Moses LJ (with whom Foskett J agreed on this point) said at [33] that, “The acceptance of accreditation to a permanent diplomatic mission is a matter within the discretion of the Executive, or, more accurately, the Royal Prerogative”. This is a so-called fact of state, being “facts which the court accepts, not so much because they are within the exclusive knowledge of the UK Government, but because they represent matters which are exclusively for decision by the Government and not for the courts” ([34]). There was a certificate in Khurts Bat, but in the circumstances of the present case in which the decision is manifest on the evidence and confirmed by counsel for the Foreign & Commonwealth Office at the hearing, it appears to me that the absence of a certificate expressly dealing with the point is not material. In the Somalia case (ibid) at p.66C, it was said that “… 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 Her Majesty’s Government”. The second question must therefore also be answered affirmatively.

Can the embassy give instructions to the Bank in relation to the accounts?

A state and its entities may hold bank accounts in numerous different capacities, but whether particular accounts are the accounts of a diplomatic mission is a question of fact. In Alcom Ltd v Republic of Colombia [1984] AC 580 at 604, Lord Diplock referred to the “indivisible” nature of such accounts in the context of immunity from the enforcement jurisdiction of the court. In the present case, eight of the nine accounts are in the name of the “Libyan People’s Bureau”, in other words the then name of the Libyan embassy in London. Although one account is entitled “Libyan Cultural Affairs Office – Education Affairs” (being the account from which the student grants are paid) the evidence is clear that this was operated and treated for all relevant purposes as an account of the People’s Bureau. On the evidence, I am satisfied that all nine accounts are accounts which were held with the Bank in accordance with the instructions of those who were then accredited to the diplomatic mission of Libya to the United Kingdom.

In my view, as a matter of principle, such accounts must be operated in accordance with the instructions of those accredited to the mission. Once that changes, then (in principle) the accounts should be operated in accordance with the instructions of those newly accredited to the mission. Accreditation is a matter for Her Majesty’s Government. It no longer recognises the former Qadhafi regime as the government of any part of Libya. The NTC has been recognised as the sole governmental authority in Libya, and Mr Mahmud Nacua accredited as the Libyan Chargé d’Affaires. It follows that (in principle) he can give instructions to the Bank in relation to the embassy accounts. The court can go no further than to express that proposition in principle. Thus, a bank executes payment instructions as agent for its customer, and must do so according to a properly given mandate. It will be for the Bank to satisfy itself that it has a properly given mandate, and to act in accordance with it.

Is it appropriate to grant the Bank the declaration it seeks?

The court may make binding declarations whether or not any other remedy is claimed (CPR Part 40.20) though the text in the White Book says that claims for declarations alone are unusual. It is also unusual for a court to grant a declaration as to the scope of a bank’s mandate, though as Mr Perkoff (counsel for the NTC) pointed out, in the absence of a declaratory claim by the Bank, the NTC itself would assert that the Bank was failing to comply with its instructions in relation to the accounts. In any case, the facts are unusual, and I am satisfied that this is a proper case for declaratory relief.

The bank seeks a final (not an interim) declaration. It does so on the basis that the legal and factual position is clear following the certificate, that a declaration will enable the bank safely to act on the instructions of the new head of mission, and because of the urgency of the matter in relation to the payment of student grants which I have referred to in some detail above. Counsel for the claimant and defendant have both submitted that there are no procedural reasons why the declaration should not be granted in final form under CPR Part 8, and I accept their submissions.

Should the hearing be adjourned to enable the Qadhafi regime to be present?

I have explained that the hearing on 23 August 2011 was adjourned at the request of Edwards Duthie Solicitors “instructed by the Great Socialist People’s Libyan Arab Jamahiriya” to 25 August 2011, but that in the event, the firm was unable to obtain instructions and did not appear. However the question is formulated by the Bank in this way because of a statement in an earlier letter from the solicitors dated 21 August 2011. This referred to an intended application for judicial review which is said to stand adjourned until the first open date after 8 October 2011. The letter continues, “We would suggest that it would be appropriate for your proceedings to ultimately be dealt with in the same way”. In accordance with the submissions of the parties, I would reject this proposition on discretionary grounds, in particular because of the urgency of the matter as set out above.

Further, both parties submit that the matter is academic, since the formerly recognised Libyan Government would have no locus standi in the English courts to challenge the NTC’s claim as regards the accounts. The Bank points out, I think rightly, that such adverse claim as has been made in relation to these accounts has been made on the basis that the Qadhafi Government remains the lawful government of the state of Libya. Following the Foreign Secretary’s certificate, no such proposition can be advanced in the English courts. Thus, it is established that an unrecognised state cannot sue or be sued in an English court: City ofBerne v Bank of England (1804) 9 Ves. Jun. 346; GUR Corporation, ibid, at p.605D, Steyn J). As a general matter, an unrecognised government has no locus standi in the English courts (Halsbury’s Laws of England, Vol 61, 5^th edn, para 47). There would, therefore, be no purpose in adjourning the hearing.

For the reasons set out above, and to the extent set out above, I shall grant the Bank a declaration. The terms have been subject to some discussion at the hearing, and I shall hear further submissions as to the precise terms. The declaration is given on the basis of the current facts as set out above and in particular on the basis of the Foreign Secretary’s certificate of 24 August 2011. I hope that it will enable the present impasse as regards student grants to be resolved.