“This is the first case where the English courts have been asked to consider how they should interpret decisions made by another member state's resolution authority exercising the powers granted by the Bank Recovery and Resolution Directive,” said Stuart McNeill, a partner at Pinsent Masons representing Novo Banco in the case.
“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,” he added.
“The Court of Appeal's judgment highlights the obvious danger (indeed potential chaos) of different courts interpreting the same decision of a single resolution authority in different ways. This decision will be warmly welcomed by resolution authorities across Europe and support their attempts to preserve financial stability while rescuing institutions.”
McNeill was assisted by Pinsent Masons Associate Caroline Hearn.
Novo Banco was created by the Bank of Portugal, the country’s central bank, using its resolution powers under the EU Bank Recovery and Resolution Directive in August 2014 following the collapse of Banco Espírito Santo (BES).
The thrust of the dispute was determining whether 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 Directive, and therefore the decisions of the Bank of Portugal, should be construed, Pinsent Masons said. Goldman Sachs and the investors won at first instance but that decision was unanimously overturned by three Court of Appeal judges.
Lord Justice Moore-Bick, Lady Justice Gloster and Lord Justice Sales found that Goldman Sachs and the investors did not have the better of the argument that Novo Banco was party to the facility agreement.
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. To do otherwise Lord Justice Moore-Bick said “would undermine the scheme of universal recognition of measures taken by the home Member State to deal with failing institutions which is fundamental to the scheme of European Law in this field.”
Last week, the Bank of Portugal said that it has received five offers either to buy Novo Banco outright or become an investor though a market sale, a report from The Wall Street Journal
revealed. Last year, Portugal’s central bank tried but failed to sell Novo Banco saying bids were too low.
According to Bloomberg, private equity outfit Lone Star Funds plans to make a binding offer for the lender. The Bank of Portugal is said to be eying “cornerstone investors” which would become Novo Banco stakeholders.
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Pinsent Masons, acting on behalf of Novo Banco, has successfully challenged an US$850 million (about $1.12 billion) claim brought by Goldman Sachs International and a group of investors in the English courts.