English High Court assesses validity of assignments to decide whether it has jurisdiction over sovereign debt claims

Last month the English High Court handed down a judgment considering the court’s jurisdiction in a sovereign debt claim. In a decision that is likely to be of significant interest to creditors of Cuba, the Court found it only had jurisdiction to hear the outstanding debt claim against one of the two defendants, as an invalid assignment caused the claim against Cuba to fall away. 

In CRF I Ltd v Banco Nacional de Cuba [2023] EWHC 774 (Comm),the Claimants, CRF I Limited (“CRF”) brought a debt claim against the Defendants for outstanding sovereign debt in the sum of approximately €70 million. The debts arose from two Agreements (the CL Agreement and the IBI Agreement) and one Guarantee (the IBI Guarantee) (together, the “Agreements”). Banco Nacional de Cuba (“BNC”) was the obligor of the two debts while the Republic of Cuba (“Cuba”) was the guarantor of one of the debts. 

CRF was not the original lender but was a company established to invest in defaulted Cuban debts. The two debts had been assigned numerous times since entry into the original Agreements. CRF alleged that the debts had been validly assigned to them and brought a claim for the outstanding amounts.

The defendants challenged the jurisdiction of the English Courts to hear the claim. This challenge was based on three separate grounds stemming from the defendant’s assertion that the Agreements were not validly assigned and thus CRF was not capable of accessing the benefits contained in the Agreements: 

  1. CRF did not have the benefit of the clauses in the Agreements which gave jurisdiction to the English Court;
  2. CRF could not take advantage of the contractual waivers of sovereign immunity and thus the Defendants were immune from the jurisdiction of the English courts pursuant to the State Immunity Act 1978; and
  3. CRF could not benefit from the relevant contractual provisions regarding service and thus the conditions for service of the Claim Form out of jurisdiction had not been complied with. 

A determination on each ground required the Court to first determine whether the Agreements were validly assigned to CRF. Assignment could not occur without “prior consent” which could not be unreasonably withheld. Although a number of subsidiary issues were considered, the key issues for determination were therefore whether “prior consent” had been given and whether BNC had capacity to consent on its own behalf and on behalf of Cuba [3-5].

Mrs Justice Cockerill concluded that consent had been given. Cockerill J considered the chain of events resulting from an email on 13 June 2019 from a representative of BNC in response to a request for consent from a representative at ICBC Standard Bank (the assignor). Despite arguments to the contrary from BNC, the Judge concluded that this email “was not a meaningless or facile response”, it was an answer to a request which occurred prior to the assignment, and it conformed to the procedures required by the BNC Rules and was therefore sufficient to constitute “prior consent” [230-232].

The next issue concerned whether BNC had capacity to provide this consent, on its own behalf, and on behalf of Cuba. Cockerill J reviewed the evolution of legislation regulating BNC to determine if statute had limited BNC’s authority. Both the Claimant and Defendants accepted that from 1976 onwards BNC was no longer authorised to create indebtedness on behalf of the Cuban State however, a question remained as to whether the current legislation extended to the handling of existing indebtedness. 

Cockerill J considered the various statutory provisions along with the trajectory of the legislation over time. The Judge considered that the “direction of travel [of]…these succeeding pieces of legislation” moved towards shifting BNC from complete alignment with the State. This was consistent with the view Cockerill J had formed based on the legislative evidence. Ultimately, it was held that BNC did not have capacity to consent to the assignment of the IBI Guarantee issued by Cuba in respect of the IBI Agreement [267]. 

Conversely, Cockerill J concluded that BNC did have capacity to consent to the assignments on its own behalf. In making this finding, Cockerill J heard expert evidence on foreign law in respect of Article 56, Decree Law 192/1999 (“On the State Financial Administration”) which provides that: No entity from the public sector may take any kind of step towards performing a public credit operation without the express authorization of the Ministry of Finance and Prices. 

Cockerill J evaluated the language of Article 56 and concluded that a “public credit operation” was one which resulted in indebtedness. As the obligation owed under the debts already existed, BNC’s consent to the assignment of the debts did not indebt the Cuban state any more than what it was already committed to. As such, BNC had capacity to consent and thus the CL and IBI Agreements were validly assigned [291-292, 296].  

Although BNC’s challenge to the jurisdiction of the English courts failed, Cuba’s challenge was successful. As noted above, Cockerill J found that BNC lacked capacity to consent on Cuba’s behalf and thus the IBI Guarantee was not validly assigned to CRF.  

These findings purely concerned jurisdiction and were not determinative of the debt claim. Although Cuba’s successful jurisdictional challenge eliminates them as a party to the proceedings, CRF’s case against BNC will likely continue, subject to any applications for permission to appeal. 

Due to the scale of the debt the Cuban government accrued in the late 20th century (some of which is canvassed in the judgment) this decision is likely to be of great significance for creditors invested in recovering sovereign debts from the state. 


Milly Murphy (Legal Advisor) and Rebecca Burton (Managing Associate) in London
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