Dana Feinsohn, trainee solicitor in the litigation and arbitration team at CMS, comments on the decision handed down by the UK Supreme Court in the matter of Goldman Sachs International v Novo Banco S.A. [2018] UKSC 34:

On 4 July 2018, the UK Supreme Court handed down its decision in Goldman Sachs International’s (“Goldman Sachs”) appeal against the Court of Appeal’s decision of 4 November 2016, which had held that a liability under a facility agreement containing an English law and jurisdiction clause had been re-transferred to Novo Banco S.A. (“Novo Banco”) by virtue of a resolution from Banco de Portugal (“BdP”), the Portuguese Central Bank. The UK Supreme Court unanimously dismissed the appeal, with Lord Sumption writing the sole judgment, with which the rest of the Court agreed.


This case has its origin in the collapse in 2014 of the Portuguese bank Banco Espírito Santo (“BES”). In June 2014, due to financial difficulties, BES entered into a facility agreement (the “Facility Agreement”) with Oak Finance Luxembourg S.A. (“Oak”) for a loan of $835 million, reduced to $784 million on 3 July 2014 (the “Loan”). This Facility Agreement contained an express choice of English law and English jurisdiction clause.

In August 2014, BES was still in financial difficulties and in order to save the bank and avoid a major financial crisis, BdP issued a resolution measure exercising powers conferred under Directive 2001/24/EC on the reorganisation and winding up of credit institutions (the “Reorganisation Directive”) and Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (the “EBRRD”). Acting under its authority, by a decision on 3 August 2014 (the “August Decision”), BdP created a “bridge institution”, Novo Banco. (A bridge institution is a tool created by the EBRRD which enables national resolution authorities to transfer the sound assets and liabilities of a failing bank to a so called “bridge institution”, and to leave the problematic assets and liabilities behind in the old failing bank.) In its August Decision, BdP provided that certain, but not all, liabilities of BES would be transferred to the newly created bank, Novo Banco. BdP issued a further decision on 22 December 2014 (the “December Decision”) declaring that the Oak liability had not been transferred to Novo Banco, which had the effect of re-transferring it back to BES.

Seeking to obtain capital and interest repayment of the Loan, the claimant, Goldman Sachs, relying on the English jurisdiction clause, issued proceedings in England under the Facility Agreement as assignees of Oak. They also initiated proceedings against BdP in Portugal to suspend the effect of the December Decision and for a judicial review of the same. Novo Banco on the other hand, applied for the English proceedings to be set aside or stayed pending the Portuguese proceedings, on the grounds that the High Court had no jurisdiction following the BdP’s August and December Decisions, as Novo Banco were not party to the Facility Agreement in relation to the Oak liability, which meant that the jurisdiction clause did not apply to them.

Earlier Decisions

High Court

The High Court had to decide whether it had jurisdiction to entertain the claim under Council Regulation 1215/2012 (the “Judgments Regulation”), if so, whether it should decline to exercise that jurisdiction on the ground that the status or validity of the decisions of the BdP was non-justiciable, and if it did not decline to exercise that jurisdiction, whether it should grant a stay of the proceedings pending the Portuguese proceedings.

Taking a private law approach, the court decided that this claim was a debt claim which fell within the material scope of the Judgments Regulation as a civil and commercial matter, and not an administrative matter nor an act or omission in the exercise of state authority, since the August and December Decisions did not form part of the debt claim. The court ignored the principle of mutual recognition of transfer resolution decisions under the EBRRD and the Reorganisation Directive and decided that the August and December Decisions did not have the effect of re-transferring the Oak Liability back to BES. Citing Canada Trust v Stolzenberg (No 2) [1998] 1 W.L.R. 658 and Bols Distrilleries v Superior Yacht Services [2006] UKPC 56, [2007] 1 W.L.R. 12, the court found in favour of the claimant and decided that the Oak Liability had been transferred to Novo Banco, which had thereby become bound by the English jurisdiction clause in the Facility Agreement and as a result, the English courts had jurisdiction under article 25 of the Judgments Regulation to entertain this claim.

The High Court also rejected Novo Banco’s contention that the court should decline jurisdiction by reason of the doctrine of “non-justiciability” or “act of state”, and refused to stay the proceedings as it was not satisfied that there were any “rare and compelling” circumstances and the scope of exercising such power was “extremely limited” as set out in Mazur Media Ltd v Mazur Media GmbH [2004] EWHC 1566 (Ch), [2004] All ER (D) 110 (Jul).

The High Court decided in favour of the claimant and rejected the defendant’s application.

Court of Appeal

Novo Banco appealed the High Court’s decision. BdP intervened during the proceedings as the issues to be decided hinged upon the efficacy of the measures taken by BdP as a resolution authority and the mutual recognition of its acts by other Member States of the European Union. By a decision of 4 November 2016, the Court of Appeal overturned the High Court’s decision therefore reinstating the principle of mutual recognition set out in the EBRRD and Reorganisation Directive.

The Court of Appeal decided that the August and December Decisions were reorganisation measures which should be given effect under the Reorganisation Directive, and pursuant to article 3, must be recognised and applied by all other Member States. The court cited the case of Kotnik v Drzavni zbor Republike Slovenije (C-526/14) EU:C:2016:570, [2017] 1 C.M.L.R. 26. to stress that the principle of mutual recognition was fundamental to the EU’s scheme for dealing with the widespread consequences of the failure of a major financial institution.

Since it was the December Decision which retransferred the Oak Liability back to BES, Goldman Sachs tried to argue that this decision was not a reorganisation measure which bound the Member States and that Novo Banco was bound by the Oak Liability. On this point, the Court of Appeal pointed out that the December Decision “purported to clarify the effect of the August decision and was therefore very closely connected to it. In those circumstances […] the December decision is to be regarded as, or as part of, a reorganization measure and is entitled to universal recognition under the Reorganization Directive”.

Goldman Sachs appealed the Court of Appeal’s decision and the Supreme Court heard the parties’ oral submissions on 17 and 18 April 2018.

Issues decided by the UK Supreme Court

The Supreme Court had to decide what was the legal effect in Portuguese law of the December Decision on the Oak Liability. It was not contested that Novo Banco replaced BES as party to the Facility Agreement in August 2014 and remained party thereafter; rather, the issue lied in whether the Oak Liability became an excluded liability following the December Decision or whether it had been transferred to Novo Banco.

The UK Supreme Court unanimously agreed with the Court of Appeal. The August and December Decisions were both valid administrative acts that had effect in Portuguese law, and as such, should be recognised by the English courts in the UK. This therefore meant that the effect of the December Decision was to retrospectively cancel the transfer of the Oak Liability to Novo Banco. The Court held that Novo Banco was therefore never party to the jurisdiction clause in the facility agreement.


Lord Sumption, giving the judgment of the Court, held that the Reorganisation Directive’s purpose was to ensure that all assets and liabilities of an institution, regardless of the country in which they are situated, are dealt with in a single process in the home member state. To do so, it required to be “fully effective”, so it could not make sense for other provisions to affect its operation.

The Court also held that there was no basis for referral to the Court of Justice of the European Union, as the relevant provisions of EU law were beyond serious argument. Accordingly, Goldman Sachs’ appeal was refused.

The decision is significant and will have been keenly awaited by those with interests in Portuguese bond debt. Although the circumstances giving rise to this appeal are unlikely to arise again, a number of other interested parties have attempted to mount challenges before the Courts concerning similar decisions by BdP in 2015 not to transfer liabilities to Novo Banco and the decision, in that regard, may now set a precedent. The law has been clearly and firmly stated: the exercise of state power trumps private law rights, in these particular circumstances.