Introduction

The case of Crane Bank Ltd & Ors v DFCU Bank Ltd & Ors ([2023] EWCA Civ 886) heard by the England and Wales Court of Appeal (Civil Division) on July 26, 2023, marks a significant development in the application of the Foreign Act of State rule within English jurisprudence. This complex litigation involves allegations of a corrupt scheme orchestrated by Ugandan government officials and the Bank of Uganda (BoU) to unjustly seize control of Crane Bank Limited (CBL), culminating in the undervalued sale of its assets to DFCU Bank Ltd ("DFCU Bank"), another Ugandan commercial entity.

The appellants, stakeholders of CBL, seek substantial damages exceeding £170 million, citing conspiracy to injure by unlawful means, dishonest assistance, and equitable compensation. They contend that the defendants facilitated the corrupt scheme to the detriment of CBL’s shareholders, employing statutory and regulatory powers abusively. Central to the appellants' argument is the challenge to the lower court's application of the Foreign Act of State rule, which the appellants argue unjustly precludes their claims from being heard in English courts.

Summary of the Judgment

In the initial proceedings, the High Court Judge Pelling KC determined that the English courts lacked jurisdiction to adjudicate the appellants' claims under the Foreign Act of State rule. This rule traditionally prevents courts from evaluating the lawfulness of executive acts conducted by foreign states within their own territories. The appellants, dissatisfied with this decision, sought to appeal, arguing that exceptions to this rule—specifically the Commercial Activity Exception and the Public Policy Exception—should apply to their case.

The Court of Appeal, upon reviewing the arguments, concluded that serious issues indeed exist regarding whether the exceptions apply. The appellate judges allowed the appeal on the grounds of the Commercial Activity and Public Policy Exceptions, thereby permitting the plaintiffs' claims to proceed. However, the court dismissed concerns related to the Kirkpatrick Exception and the application of Article 6 of the European Convention on Human Rights (ECHR), maintaining that the latter does not impinge upon the procedural fairness in this context.

Analysis

Precedents Cited

The judgment extensively references foundational cases that delineate the boundaries of the Foreign Act of State rule and its exceptions:

• The Playa Larga (1983): Established criteria for distinguishing between commercial and sovereign acts.
• Kuwait Airways Corp v Iraqi Airways Co: Affirmed the narrow scope of the Public Policy Exception, emphasizing that only grave breaches of international law warrant exclusion from the Foreign Act of State rule.
• Kirkpatrick (1990): Introduced the Kirkpatrick Exception, stating that the rule does not apply when actions do not require adjudication on the legality of an act.
• Belhaj v Straw (2017) and Maduro Board (2023): Expanded the understanding of the Public Policy Exception, integrating considerations of international treaties like the UN Convention Against Torture and the UNCAC.
• Altimo Holdings and Investments Ltd v Kyrgyz Mobil Tel Ltd (2011): Emphasized that the scope of limitations and exceptions is a developing area, warranting careful judicial consideration.

Legal Reasoning

The Court of Appeal delved into the intricate interplay between statutory mandates, common law principles, and international obligations. Key points include:

• Commercial Activity Exception: The court scrutinized the nature of the BoU’s sale of CBL's assets, determining that despite being an executive act within a broader corrupt scheme, the final transaction possessed a commercial character. This aligns with precedents where the character of specific acts is paramount, irrespective of overall sovereign motives.
• Public Policy Exception: Recognizing the evolving stance on combating corruption, the court acknowledged that English public policy strongly disfavors corrupt practices. The alignment with the United Nations Convention Against Corruption (UNCAC) buttressed the argument that engaging in or facilitating corruption contravenes English public policy, thereby warranting the exception to the Foreign Act of State rule.
• Kirkpatrick Exception and Article 6: The court maintained that the Kirkpatrick Exception does not apply here as the core allegations necessitate adjudication on the lawfulness of the BoU’s actions. Regarding Article 6 of the ECHR, the court upheld that the Foreign Act of State rule operates as a substantive defense, not affecting the procedural fairness guarantees of Article 6.

Impact

This judgment has profound implications for future litigation involving foreign state actions, particularly in contexts where corruption is alleged:

• Broadening Judicial Access: By affirming the Commercial Activity and Public Policy Exceptions, English courts are now more accessible for claims against foreign entities engaged in commercial transactions intertwined with corrupt practices.
• Encouraging Accountability: The ruling underscores the judiciary’s role in upholding international anti-corruption standards, aligning domestic law with global conventions like the UNCAC.
• Refining Legal Boundaries: The decision clarifies the limits of the Foreign Act of State rule, distinguishing between purely sovereign acts and those with a commercial dimension or those undermining public policy.
• Guiding Future Litigation: Lawyers and claimants can reference this case when arguing for exceptions to jurisdictional bars, especially in complex cases involving international corruption.

Complex Concepts Simplified

Foreign Act of State Rule

This legal doctrine prevents courts from evaluating the legality of acts performed by a foreign government within its own territory. It emphasizes respecting the sovereignty and independence of foreign states, avoiding judicial interference in their internal affairs.

Commercial Activity Exception

An exception to the Foreign Act of State rule where government actions are deemed commercial rather than sovereign. If a state or its agents engage in typical business transactions, such acts may be subject to legal scrutiny in domestic courts.

Public Policy Exception

This exception allows courts to bypass the Foreign Act of State rule when foreign actions egregiously violate fundamental principles of international or domestic public policy, such as extreme corruption or human rights abuses.

Kirkpatrick Exception

Stemming from the Kirkpatrick case, this exception applies when the lawsuit does not require the court to assess the legality of a foreign act, focusing instead on factual determinations that don't involve sovereign questions.

Article 6 of the European Convention on Human Rights

Guarantees the right to a fair and public hearing within a reasonable time by an independent and impartial tribunal. In this context, the appellants argued that the Foreign Act of State rule infringes upon their Article 6 rights by denying them a hearing.

Conclusion

The Court of Appeal's decision in Crane Bank Ltd & Ors v DFCU Bank Ltd & Ors represents a pivotal moment in English law, particularly concerning the Foreign Act of State rule and its exceptions. By recognizing the applicability of the Commercial Activity and Public Policy Exceptions, the court has opened avenues for redress in cases where state actions, though executed under sovereign capacity, intersect with commercial transactions and breaches of public policy such as corruption.

This judgment reinforces the commitment of English courts to uphold international anti-corruption standards and ensures that entities cannot shield wrongdoing behind the veil of state sovereignty. It sets a precedent that balances the principles of state sovereignty with the imperative of justice and accountability, especially in an increasingly globalized legal landscape.

As international interactions become ever more complex, this ruling provides clarity and direction for future cases involving foreign states and their agents, ensuring that justice transcends sovereign boundaries where fundamental public policies are at stake.