Bank resolution steps taken in Portugal under a European bank resolution directive should be recognised by the English court. Consequently the claimants were not entitled to recover, from a new “bridge bank”, a loan made under an English law governed facility agreement as the liability had​ to be treated as not having been transferred to the bridge bank: Guardians of New Zealand Superannuation Fund and others (Appellants) v Novo Banco SA; Goldman Sachs International v Novo Banco SA [2018] UKSC 34, 4 July 2018

Struggling Portuguese bank

In June 2014, Oak Finance Luxembourg, S.A. (Oak), as lender, entered into a facility agreement with Portuguese bank Banco Espirito Santo, S.A. (BES), with English governing law and an English jurisdiction clause. BES drew down approximately USD835 m. BES was facing financial difficulties, so the Portuguese central bank, Banco de Portugal (BdP), established Novo Banco, S.A. (Novo Banco) by resolution on 3 August 2014, and transferred to it some, but not all, of BES’s assets and liabilities. Liabilities to shareholders holding at least 2% of BES shares were excluded from the transfer.

Oak liability not transferred

In December 2014, BdP decided there were “serious and well-grounded reasons to believe” that Oak had acted on behalf of a bank (Bank) which held at least 2% of the share capital in BES at the time. On 22 December 2014, BdP resolved that, with effect from 3 August 2014, the Oak liability had not been transferred to Novo Banco. It also resolved that consequential amendments be made to the accounts of BES and Novo Banco. In February, September and December 2015, BdP purported to take further steps to affirm its December 2014 decision.

Appellant’s argue that Oak liability was transferred to Novo Banco

The appellants on the appeal are assignees of Oak’s rights under the facility agreement. They commenced proceedings in England against Novo Banco on 26 February 2015. Novo Banco challenged the jurisdiction of the English courts, saying that it was not bound by the facility agreement.

The key issue between the parties was whether the Oak liability had been transferred to Novo Banco in August 2014 and, if so, whether the transfer was reversed in December 2014. This involved a lot of argument about the status of the December decision and how the English court should treat it.

The appellants asserted that the liability had been transferred to Novo Banco as a result of the August decision and consequently Novo Banco was bound by the English jurisdiction clause in the facility agreement. As a result of the transfer, they argued, it was not for the English court to simply recognise the December decision (which had purported to reverse the transfer) or not, but instead it was for the English court to determine the legal effect of the December decision in accordance with the English law governed facility agreement.

In the alternative, they argued that even if the December decision is otherwise entitled to recognition in England, it should be disregarded on the ground that it was a provisional decision pending the final decision of a Portuguese or administrative court on the question of whether the Bank was the true lender and a 2% shareholder in BES. They argued that an English court should look to what the Portuguese administrative court would decide about those questions and not what the central bank has actually decided.

Novo Banco argued that the Oak liability had never been transferred. This, it argued, was made clear in the wording of the December decision which stated it was to have effect from August with the balance sheet of Novo Banco being amended accordingly.

For the purpose of determining an issue about jurisdiction, the traditional test is whether the claimant had “the better of the argument.” It was common ground that the test must be satisfied on the evidence relating to the position as at the date when the proceedings were commenced.

Legislative framework for bank resolutions – a reminder

Both Directive 2001/24/EC concerning the reorganisation and winding-up of credit institutions (the Reorganisation Directive) and Directive 2014/59/EC, the European Recovery and Resolution Directive (EBRRD), are part of the domestic law of Portugal and the United Kingdom. In Portugal, the relevant legislation gave BdP power to transfer assets and liabilities from an institution under resolution (here, BES) to a bridge institution (here, Novo Banco).

The relevant United Kingdom legislation, in summary, recognises measures taken by a Member State in relation to any debt or liability of an EEA credit institution as if it were part of the general law of insolvency of the United Kingdom.

Supreme Court decision

The parties agreed that BdP’s decision in August 2014, which established Novo Banco as a bridge institution, involved the application of a resolution tool so should be recognised by the English court.

The Supreme Court therefore focused on the December decision. The court considered that where a Member State has used bank resolution tools, the process followed should be reviewed as a whole to ensure the fair and consistent treatment of all creditors. Further, the court decided that the August decision did not occur “in a legal vacuum” but, rather, was part of the context of reorganisation measures taken and the December decision itself was part of that context.

The Supreme Court therefore concluded that it was sufficient that at the time the proceedings were issued, as a matter of Portuguese law, the Oak liability was determined not to have been transferred until such time as annulled by a Portuguese administrative court.

It therefore followed that an English court must treat the Oak liability as never having been transferred to Novo Banco and Novo Banco was therefore never party to the jurisdiction clause in the facility agreement.

On the appellants’ alternative case that, even if the December decision was otherwise entitled to recognition in England, it should be disregarded on the ground that it was a provisional decision, the Supreme Court found against them as well. The December decision was not in terms a provisional decision and, further, it was binding in Portuguese law in any event until such time as set aside by a Portuguese court.


The Supreme Court’s decision supports the consistent application of pan-European tools for dealing with the systemic risk of bank failures and ensuring that all assets and liabilities of an institution – regardless of the country in which they are held – are dealt with in a consistent way as they would be in the home Member State.

The court confirmed that where a bank resolution step is taken that is valid under domestic law, it is likely to be recognised as a valid exercise of that domestic law in relation to foreign law obligations in England and Wales.

The ruling will be of interest to those parties who may have liabilities subject to bank resolution tools in Spain or the potential application of the resolution tools by other Member States whose banking systems appear to be struggling such as Italy or Greece.