Citibank N.A. v Rafidian Bank & Anor

This is the hearing of an application by the Second Defendant (‘Rasheed’) made by notice filed on 13 June 2003, under CPR Part 3.1.2(a) and 52.6, to vary the time limit for filing a notice of appeal from the order of Master Leslie dated 1 May 2001. Rasheed is an Iraqi state owned Bank. The Master ordered that the judgment as against Rasheed dated 27 September 2000 of the President of the District Court in Amsterdam be registered in this court pursuant to the Civil Jurisdiction and Judgments Act 1982.

That judgment was in respect of a debt alleged to be due to the Claimants (‘Citibank’) arising out of various documentary credits issued in 1989 by one or other of the Defendants (both of which are Iraqi state banks having their principal place of business in Baghdad). The credits related to the export of goods from Turkey to Iraq in 1989 and 1990. The proceedings had commenced on 23^rd May 2000, and the judgment entered was in the sum of US$11,431,893.85 plus costs. According to Citibank’s claim, the two banks have common capital and they were apparently treated as one entity by the Dutch court.

In the evidence before me Mr Al-Ameer, the Chief Legal Adviser of Rasheed is cited as saying that although both Defendants are owned by the Iraqi government, under Iraqi law they are separate corporate legal entities and one bank is not liable for the debt of the other. Other defences which, it is submitted, were available in the Dutch proceedings, but not taken, were a limitation defence, an argument that the proper claimant was not Citibank but its customer, a frustration defence (arising out of the first Gulf war) and a part payment for which no credit has been given by Citibank. The reasons why none of these defences were raised, it is said, is that the effect of sanctions on Rasheed’s ability to fund legal representation deprived it of access to justice and other fair trial rights guaranteed by Art 6 of the European Convention on Human Rights, and that it was not served with the Dutch proceedings far enough in advance of the application for the default judgment to allow it to mount any defence to Citibank’s application.

The Master further ordered that Rasheed should have liberty within one month of service on it of notice of registration of the judgment to appeal against such registration and that execution should not issue to enforce the judgment until after the expiry of that period or until such appeal has been determined. In fact this part of the order was explanatory only. Rasheed did not require permission to appeal, and the period for appealing was two months, not one: Rules of the Supreme Court Order 71 rule 33(1)(a).

The application is made in an Appellant’s Notice, and the time limit for appealing is agreed to have expired on 21 May 2002. The reason why that time does not begin to run until so long after the Master’s order relates to the time taken for service, which was ultimately effected on Messrs Zaiwalla & Co (“the solicitors”), who had instructions to accept service in March 2002. It is now accepted that service was effected on 21 March 2002.

The grounds relied on, both for this application, and for the appeal if an extension of time is granted, are that the Defendants were effectively denied access to legal representation, and so to justice, by the sanctions that have been imposed since 1990. They rely on Art 6 of the European Convention of Human Rights.

The military annexation by Iraq of Kuwait on 2^nd August 1990 led the United Nations Security Council to adopt on the same day Resolution 661 (1990). By article 4 States were required not to make available to the Government of Iraq or to any commercial undertaking in Iraq any funds or any other financial or economic resources except payments exclusively for strictly medical or humanitarian purposes. This was implemented in this jurisdiction and in other States of the European Community by Regulations and other provisions the details of which I do not need to set out, save to say that they applied to Rasheed. Sanctions were brought to an end here on 21 May 2003 by the United Nations Sanctions (Amendment) Order 2003 SI 2003 No 1342.

It is submitted by Mr Lyon QC on behalf of Rasheed that it has been unable to appeal, or apply for an extension of time to appeal, due to the sanctions which, it is submitted, are circumstances beyond its control. It is said that the effect of the sanctions is that it was denied representation to defend the proceedings in the Netherlands and to defend its interests in the recognition and enforcement proceedings in this jurisdiction.

It is submitted by Mr Stephen Phillips QC for Citibank, who are the Claimants in the action and in the enforcement proceedings, and the Respondent to this application, that this court has no jurisdiction to grant the extension of time, or, if it has, that such extension should be refused as a matter of discretion.

On 25^th March 2003 Citibank was granted a third party debt order in respect of assets held by Rasheed at Deutsche Bank in London. The hearing of the application to make that order final was listed before Master Foster on 29^th July 2003, together with applications by two other creditors, who are not parties to the proceedings before me.

On 4 July 2003 Rasheed’s application was refused by the single judge on paper, on the basis that there was no jurisdiction to grant the extension of time requested. He also expressed the view that there was nothing to prevent an application being lodged on the basis of the difficulties created by the imposition of sanctions within the two months. He noted that there does not seem to have been any material change in the funding problems when this application was lodged. Rasheed Bank have applied for an oral hearing. The matter came before me on 28 July 2003. Because my decision might affect the proceedings listed on 29 July, I indicated at the end of the hearing that I refused the application in the exercise of my discretion, and would give my reasons later. This I now do.

It is submitted by Mr Phillips QC on behalf of Citibank that there is no jurisdiction under the applicable statutory provisions and rules of court.

The parties agree that the relevant statutory provisions are those in the Brussels Convention 1982 (‘the Convention’) which is set out in the Civil Jurisdiction and Judgments Act 1982. This has been replaced by the Judgment Regulation (Council Regulation (EC) No. 44/2001 of 22^nd December 2000) with effect from 1 March 2002, but there is no difference in wording material to the present case.

The Convention includes the following:

The rules governing such procedure in this jurisdiction are those set out now in the CPR Parts 52 and 74. Part 74 was added by the Civil Procedure (Amendment) Rules 2002 SI 2002 No 2058 with effect from 2 December 2002. The rules applicable before that date were the Rules of the Supreme Court Order 71. While there is some difference in wording, the substance is the same. This application was made after Part 74 came into force, and it relates to an appeal against the granting of registration under the 1982 Act. It appears to me that it is the provisions of CPR Part 74 that apply. Having been shown the provisions of the RSC, I can see no reason why a different result should follow if (contrary to my view) I ought to have regard to those provisions.

CPR Part 74.8 provides:

CPR Part 3.1 provides as follows:

CPR Part 52.6 provides as follows:

Mr Phillips QC submits that the power to extend time under Part 74.8 is conditional on an application being made within the time period stipulated. For the purposes of CPR Part 3.1 it is a case where the rules ‘provide otherwise’. In support of his submission he refers to the notes in the White Book which are now to be found at 74.11.37 as follows:

Mr Lyon QC submits that the requirement in Part 74.8(4) that the appellant’s notice ‘must be served’ within the one or two month period there specified is not sufficient to ‘provide otherwise’, that is to exclude the application of Part 3.1(2)(a). He notes that if an application is made under Part 74.8(3) within the two months applicable to a judgment debtor not domiciled within a Contracting State, the court may extend the period for filing an appellant’s notice (although not on grounds of distance). He submits that this rule is drafted on the understanding that Article 36 of the Convention does permit an extension of time, and that this power is implicit in the final sentence of the article: ‘No extension of time may be granted on account of distance’. He notes that there is no reference to a power to extend time (whether subject to conditions or at all) in relation to a judgment debtor who is domiciled within a Contracting or Regulation State, and so that there are no words in the rule which could be construed as excluding the power to extend time under Part 3.1(2)(a) in relation to them.

Mr Lyon QC also points out that the word ‘must’ is also used in Part 52.4(2) in relation to the time for filing an appeal notice, but that is subject to the provision in Part 52.6 for extension of time. So the word ‘must’ there is expressly not a provision excluding Rule 3.1(2)(a). To exclude Rule 3.1(2)(a) he says that clearer words are required, such as appear in Part 7.6(3): ‘If the claimant applies for an order to extend the time for service of the claim form after the end of the period specified by rule 7.5 … the court may make such an order only if …’ (and conditions are specified).

It is also to be noted that there is a difference in the structure of Art 36 compared with Part 74. Art 36 refers to only two classes of party against whom enforcement is sought. There are those domiciled within a Contracting State other than that in which the decision authorising enforcement was given, for whom the time for appealing is two months. And there are all others, for whom the period for appealing is one month. But all the others will include those who are domiciled in a non-Contracting State (which by definition will be a state other than that in which the decision authorising enforcement was given). It is not clear why they should have less than two months. It is for those parties that provision is made in CPR Part 74.8(3). Rasheed is such a party, that is, it is domiciled in a non-Contracting State. If the Convention were to be construed so strictly that the national rules governing procedure permitted no extension of time to be granted after the two month period granted by Part 74.8(3), it would also be for consideration whether Part 74.8(3) were not itself outside what is authorised by Art 36. Art 36 does not contemplate that such parties should have two months in the first place. The CPR give a general extension of one month to such parties.

In my judgment Art 36 does permit an extension of time to be granted (otherwise than on account of distance), and there is nothing in Art 36 or Part 74.8 which provides otherwise than Part 3.1(2)(a). Accordingly I conclude that I have jurisdiction under Part 3.1(2)(a) to extend the time notwithstanding that the application is made after the time for compliance has expired.

Mr Lyon QC invites me to approach the question whether or not to accede to the application having regard to the overriding objective and to CPR Part 3.9 which reads:

The evidence relied on (as required by Part 3.9(2)) is the second witness statement of Mr Sarosh Zaiwalla, the senior partner of the solicitors, dated 12 June 2003. He says his firm was first instructed by Rasheed in around August 2001.

In his witness statement Mr Zaiwalla says:

Mr Zaiwalla also states that there are the defences outlined above on the merits to the claim brought in the Dutch court. He also takes a point that service was not effected as required by Art 27(2). However, the evidence for this is uncertain. He says: ‘I am told by Mr Maarten Haak of Houthoff Buruma that it is almost certain that the Dutch Department of Foreign Affairs did not serve the legal documents regarding Citibank’s claim against Rasheed Bank in the Netherlands through the appropriate diplomatic channels… The Bank was sent the Petition [ie commencing the Dutch proceedings] under cover of a letter of 6^th June 2000, although it is unclear when that letter reached Baghdad’.

The point that Mr Zaiwalla takes under Art 27(1) is that there were breaches of the requirements of Art 6 of the ECHR, in that Rasheed was unrepresented by no fault of its own, being deprived by the sanctions of access to the frozen funds, both here and in Amsterdam.

Mr Zaiwalla also states that the main cause of the delay in making this application has been Rasheed’s inability to instruct and pay for lawyers to mount any timely appeal. He quotes extensively from correspondence over the twelve months from August 2001 which he has exchanged with the Treasury Solicitor and HM Treasury in which he attempted to secure the release of funds for Rasheed’s defence. That was an application for the release of frozen funds under art 5 of the Iraq (United Nations Sanctions) Order 2000, SI 2000 No 3241). The application was rejected by letter dated 4^th September 2001, and again on 19 June 2002.

On 12^th September 2001 the solicitors wrote to HM Treasury indicating that their clients were minded to make an application for judicial review of the Ministerial Decision not to release funds. They argued that the policy was incompatible with Articles 6 of the European Convention on Human Rights, and with Article 1 of the First Protocol.

On 6^th November 2001 HM Treasury reminded the solicitors that the exception provided for in Resolution 661 was confined to payments for medical or humanitarian purposes, and did not extend to payment of legal fees. The letter went on to say that as a matter of discretion, the Treasury had allowed the release of frozen assets for legal fees in some cases, and continued: ‘Following complaints raised about the UK’s position on this issue in the context of cases being heard before the UN Compensation Committee, in 1998 the Treasury and Foreign and Commonwealth Office Ministers agreed to bring the regime implemented in the UK into line with Resolution 661 by amending the policy to the end that frozen funds may be released to cover legal fees in relation to cases which commenced prior to 27 October 1997’.

On 25^th February 2002 HM Treasury informed the solicitors that Government policy on the release of frozen assets was as stated in answer to a Parliamentary Question on 18 June 1998: ‘Since 29 October 1997, any application for Iraqi frozen assets to be released to cover legal fees had to be considered by Ministers. In the taking of decisions, there is a presumption against the release of assets’.

On 19^th June 2002 HM Treasury wrote a three page letter concluding: ‘In summary, Rasheed Bank is owned and controlled by the Government of Iraq, which has access to funds in hard currency that can be used to pay the legal fees in this case. Refusing to grant a licence for the release of frozen funds to pay for legal fees therefore does not deny Rasheed Bank a fair hearing, equality of arms or access to justice’.

Commenting on this Mr Zaiwalla says ‘I have never seen any evidence at all for the assertion that Rasheed Bank has some source of non-frozen funds available for its defence’. If he sought Rasheed’s instructions as to whether they had such funds, or what answer he should give to HM Treasury, he does not say so in his witness statement.

In a letter of 18^th July 2002 HM Treasury explained their position. They said that the fact that Rasheed is a state owned entity suggests that it ‘has access to funds via the Iraqi regime, which was able to obtain up to $3 billion of non-UN authorized revenue in 2001’. This figure was derived from details which the Foreign Office provided to HM Treasury regarding the extent to which the Iraqi regime was then able to raise hard currency in breach of UN sanctions.

In a letter dated 19^th July 2002 the solicitors informed HM Treasury that if the Minister did not reconsider the request for release of funds ‘then a judicial review application to the High Court of HM Treasury’s decision is likely to follow’.

Mr Zaiwalla also states that ‘what resources I was able to commit to helping the Bank was thus channelled towards writing to the Treasury to try to ensure that my firm’s fees would be met for the work already done and the work which needed to be done in the future.’

On 20 December 2002 the Treasury Solicitor wrote to the solicitors rejecting a request for the release of frozen assets to pay legal fees for an application for judicial review of the decision not to release such funds for the Citibank case. The letter goes on to say that ‘Non-frozen Iraqi funds paid direct into your office account as payment to you for services you have already rendered would not be subject to the need for a licence. This is because the services have been provided and once in your account such funds are your property and not the property of your client… Non-frozen funds paid on account of future legal work would however be frozen on receipt and you would need a licence to use such funds’. The letter suggests that, without prejudging any decision, since such funds would have been non-frozen immediately before release, a licence might be granted subject to conditions, for example the submission of proper invoices.

Other correspondence submitted to me includes the solicitors’ communications with the Coalition Partners Authority (“CPA”) for Iraq. That is the body that now administers Iraq. In an e-mail message from Mr Pendleton dated 14^th July 2003 he describes himself as the ‘US Treasury Advisor to Rasheed Bank’ and states: ‘This will confirm that the Board of Directors of Rasheed Bank would like your firm to continue to represent Rasheed Bank in the matter of Citibank NA v Rafidian Bank and Rasheed Bank’. On 22^nd July Mr Pendleton speaks of the difficulties still encountered in communications and adds: ‘If you can be paid from our account there, then your recommendations are accepted. That is to hire the legal specialist that you recommend’. The solicitors’ letter to him of 7^th July had set out advice, and stated that the firm could not continue to act without funds.

Correspondence between the parties was also submitted to me in a bundle with a Skeleton Argument for Citibank. On 12 March 2002 the solicitors had told Citibank’s solicitors that they had ‘today received instructions from Rasheed Bank to accept service’ of the Notice of Registration of the Dutch judgment. There then follow nearly thirty pages of correspondence in which the solicitors were saying, amongst other things, that service had not been validly effected (a point abandoned by the time the present application was made). On 6^th June 2002 they said: ‘Our instructions have been to apply to set aside the default judgment against our clients, once the service has been properly effected on us’.

By letter dated 24^th June 2002, solicitors for Citibank record that on 21^st June 2002 the solicitors, by Ms Munshi, attended a hearing before Master Turner concerning Interim Third Party Debt Orders against HSBC, Lloyds and Barclays. The Master refused to adjourn the matter at the request of Ms Munshi, for a hearing to consider whether the Order dated May 2001 and the notice of registration of the Dutch judgment were properly served on Rasheed. Citibank’s solicitors indicated that Rasheed should issue the appropriate applications and serve supporting evidence if this point was to be pursued. The solicitors responded by letter 1^st July 2002: ‘Upon proper service of Master Rose’s Order we will arrange for a representative of this firm to travel to Baghdad with the Order and inform our client of the same. It is only after service of the Order is effected that they will obtain authority from their Board regarding the application to aside the registration’. It is clear that absence of funding was not the problem.

What has changed since May 2002 (the expiry of the time for appealing) is that sanctions have been lifted, and some indication has been given by the CPA that the solicitors may be put in funds. The solicitors have not yet been put in funds, but they have nevertheless now made this application.

The interests of the administration of justice is the first matter referred to in Part 3.9. Mr Lyon QC submits that it is important that Citibank’s requirement for speed should not prevail over the need to dispose of the matter justly. He says there are substantial points of law involved in the appeal and they would be frustrated were the matter to founder at the threshold presented by CPR Part 74.8(3).

I accept that Art 6 applies both to the proceedings in Amsterdam and to the enforcement proceedings in this jurisdiction. The requirements of Art 6 include the rights of Rasheed to be afforded a reasonable opportunity to present its case under conditions which do not place it at a substantial disadvantage vis a vis its opponent. They also include the independent right of Citibank and Rasheed to a determination of the proceedings within a reasonable time (see Porter v Magill [2001] UKHL 67; [2002] 2 AC [108]). This is the hearing of an application for an extension of time to appeal, not the appeal itself, and no cases on the content of Art 6 (as opposed to its applicability) were cited to me by either party.

I also accept that it is open to a judgment debtor to appeal against registration of a judgment under the Convention on the ground that the proceedings in which the judgment was given did not comply with Art 6: Maronier v Larmer [2002] EWCA Civ 774; [2002] 3 WLR 1060. On the other hand, it seems to me that the particular points proposed to be taken in the present case may well not be available in this jurisdiction by reason of Art 29 of the Brussels Convention, absent an explanation of what, if any, steps were taken to challenge the Dutch judgment by appeal in The Netherlands.

However, even assuming that the point is available to be taken in this jurisdiction, in so far as it is submitted that the sanctions themselves made the proceedings in Amsterdam, and in this jurisdiction, in breach of the requirements of a fair trial in Art 6, I do not consider that Rasheed’s case is strong. It is common for a defendant to lack money to pay for legal representation. In some cases that may give rise to non-compliance with Art 6, but only in exceptional cases. So far as there is evidence before me, it is to the effect cited above, namely that Rasheed did make, through Dutch lawyers ‘some (unsuccessful) efforts with the opponents to have the Dutch Judgment set aside, after the event’. No further explanation is given of what steps were taken, or why they were unsuccessful. And Mr Zaiwalla says that ‘When I met Ms Baida’a N. Hussein of Rasheed Bank in Baghdad in February 2002, I had enquired of her if any Dutch lawyers had tried to apply for release of the frozen funds to pay legal fees to defend the proceedings in Amsterdam. Ms Baida’s answer was in the negative…’. No explanation for the omission to apply for release of funds is given. On this evidence the case for saying that the Dutch judgment ought not be enforced under Art 27.1 on grounds of public policy seems weak.

Nor do I consider that the two month time limit under CPR Part 74.8 is unfair or not in compliance with Art 6. Time limits are necessary to protect the right to a hearing within a reasonable time.

Accordingly, while I assume for the purposes of this judgment (without deciding) that an appeal may have a realistic prospect of success, under either or both of Art 37.1 or 37.2, the interests of justice do not appear to me to weigh heavily in favour of granting an extension of time.

The next three topics I take together: whether the application for relief has been made promptly, whether the failure was intentional and whether there is a good explanation for the failure.

Clearly the application has not been made promptly.

As to whether the failure was intentional, or was that of the solicitors, the evidence is not satisfactory. The evidence does not appear to me to provide any express explanation for what Rasheed were intending in relation to these proceedings, nor any express explanation of why there were no non-frozen funds from which they could have paid for legal representation, had they so wished. HM Treasury took the view that there were such funds, and Mr Zaiwalla, while saying he did not understand where such funds might have been, was in no position to contradict HM Treasury.

Whether or not the solicitors were in funds, Rasheed could, in my judgment, have filed a timely appellant’s notice under Part 74.8. That required very little. Had they done so, the conduct of an appeal without legal representation might have presented problems, although for reasons given below, I do not think it would. If I am wrong about that, Rasheed could, by correspondence have told Citibank or the court of any difficulties they faced in obtaining funds for legal representation. Had they done so, there might, or might not, have been an adjournment of the appeal, whether by agreement or by order of the court.

There is no adequate explanation of the delay. There might have been, at any time up to the start of the second Gulf war, evidence from the officers of the Bank as to what they understood or intended. I am not told whether those individuals are still available to give evidence or not. It does appear from Mr Zaiwalla’s evidence, and from the correspondence, that he did a great deal of work, which included a visit to Baghdad, and sending Ms Munshi to attend at the hearing before the Master. I cannot accept that Rasheed were unable to file an appellant’s notice.

In the light of the evidence set out above, I infer that the decisions not to defend the Dutch proceedings, and not to file a timely notice of appeal against the registration of the Dutch judgment were intentional. Para 14 of Mr Zaiwalla’s witness statement shows that Ms Baida told him that no attempt was made to apply for the release of funds to pay legal fees in Amsterdam. The correspondence with HM Treasury and the Treasury Solicitor leads me to infer that Rasheed were using this litigation as a platform for a challenge to UN sanctions which they were contemplating making, based on Art 6 of the ECHR. And whether that be so or not, the letter from the Treasury Solicitor dated 20^th December 2002 demonstrates that, if the solicitors have not been paid for past work, that is not because of sanctions, but because Rasheed, or the Iraqi government, has chosen not to provide funds from non-frozen sources which, as I find on the material before me, they were always in a position to do. Once Citibank obtained their Interim Order, this delay could not continue, and these proceedings are now the occasion for raising the Art 6 point that was to have been raised in a judicial review.

The next question of significance to this case is the effect that the failure to comply and the grant of relief have had, and would have, on the parties. Mr Lyon QC points out that Citibank did not register the judgment in this jurisdiction until May 2001 and did not serve Notice of Registration until March 2002, and that they are secured by an Interim Third Party Debt Order over assets of Rasheed held by Deutsche Bank in London. He submits that granting relief will cause Citibank little inconvenience, but failure to grant relief will deprive Rasheed of the opportunity of ever challenging the judgment.

However, Citibank have not been idle. They have gone to trouble and expense in attempting to enforce the Dutch judgment. It is accepted that on 21^st December 2000 the court in Brussels authorised enforcement in Belgium of the Dutch judgment, and that the Belgian order was notified to Rasheed by a bailiff of the Belgian court on 29 March 2001. Mr Phillips QC relies on the fact that Citibank attempted to serve Rasheed under cover of a letter dated 22^nd May 2001 from their then solicitors.

There is force in these points made by Mr Lyon QC, but there must be finality in litigation, and it cannot suffice to extend time for appealing that that will cause little harm to Citibank. I must also have regard to the matters considered earlier, and in particular to what I regard as the lack of any adequate explanation for the omissions of Rasheed.

In all these circumstances, I declined to exercise my discretion in favour of granting the extension of time sought.