In this issue: Welcome to our latest finance litigation update, in which we summarise some of the most significant cases and other developments relevant to banks and other financial institutions over the last six months or so, as follows: Requests for disclosure from foreign courts: a question of compliance 2 Judging the EU sanctions Blocking Regulation: Bank Melli v Telekom Deutschland 4 Limitation on summary determination: Libyan Investment Authority v Credit Suisse & Ors 7 Choice of law in consumer banking contracts: Bilal Khalifeh v Blom Bank SAL 10 The English courts' approach to foreign law: Cassini v Emerald Pasture and Byers v Saudi National Bank 14 Knowing retention not knowing receipt 17 Key changes to UK sanctions regime - The Economic Crime (Transparency and Enforcement) Act 2022 18 Philipp v Barclays: the careful calibration of the Quincecare duty 20 Contractual termination: Avoiding problems 22 EU sanctions: application of trusts measures outside the private trusts sphere 25 A bank's duty of (Quince)care stops with its customer: RBS v JP SPC 4 26 The meaning of a "person discharging managerial responsibilities" in securities fraud litigation 28 Losing the keys to the (bitcoin) kingdom: Tulip Trading v Bitcoin 30 EU sanctions: tweaking sanctions against trusts 33 UK and EU sanctions: recent developments 35 EU sanctions: European Commission guidance on trusts measures 37 Quincecare: duty, trigger and breach Nigeria v JP Morgan Chase Bank 39 Please click here to view all of our articles on our finance litigation hub, where you can also register to receive updates. Finance Litigation Update – July 2022
FINANCE LITIGATION UPDATE – JULY 2022 2 Requests for disclosure from foreign courts: a question of compliance In Sakab Saudi Holding Co v Al Jabri & Ors, Re: HSBC & Ors  EWHC 3390 (QB), the High Court acceded to a letter of request from a Canadian court requesting the production of documents by HSBC UK Bank plc, Arab National Bank and Royal Bank of Scotland plc (the "Banks") for use in relation to ongoing civil proceedings in Canada. The judgment provides a useful overview of the approach of the English courts to foreign judicial requests for assistance. In this update we examine the decision in Sakab and highlight some key practical takeaways for parties notified of, or seeking, such requests. Background A number of companies incorporated in the Kingdom of Saudi Arabia (the "Applicants"), issued proceedings in Canada alleging that a former highranking government minister in the KSA, Dr Saad Al Jabri, and others orchestrated an international scheme to defraud the Applicants of at least SAR 13 billion (US$3.47 billion). As part of those proceedings, the Canadian court granted a worldwide freezing order against Dr Al Jabri's assets and a "Norwich Pharmacal" order against various third parties (including the Banks and Farrer and Co LLP, collectively, the "Respondents") for the disclosure of certain categories of documents (the "NPO"). Although the NPO requested the judicial assistance of the English courts, it was not directly enforceable outside of Canada. As the Respondents would not provide the disclosure voluntarily, the Applicants applied for the 1 Galas v. Alere Inc  EWHC 2366 (QB) issue of a letter of request from the Canadian court to the English court to give effect to the NPO in this jurisdiction (the "LOR"). Pursuant to the LOR, the Applicants applied to the English courts seeking an order for disclosure from the Respondents. Decision None of the Respondents opposed the LOR, although Farrer & Co raised 'serious concerns' about the scope of the draft order. However, the order was opposed by Dr Al Jabri on the grounds of relevance. He argued the LOR was a 'fishing expedition' for documents for investigatory purposes rather than to address issues in dispute at trial. Although questions of relevance are normally the domain of the requesting court, the receiving court can consider relevance if: (a) the requesting court has "plainly not considered the question of relevance"; or (b) it is clear to the English court, even on a broad examination, that the evidence is not relevant1. The court considered Dr Al Jabri's objections (as more fully described below) but ordered that the Banks produce the documents requested under the LOR. The Applicants had recognised that the documents sought under the NPO would not be granted under the LOR regime because some documents were sought for investigatory purposes. The Applicants therefore narrowed their request and ensured that the only documents sought from the Banks under the LOR were documents relevant to issues in dispute at trial. As the court was satisfied that the Canadian court had considered the question of relevance in relation to the NPO, it granted the disclosure sought. However, the documents requested from Farrer & Co under the LOR were entirely differently described and broader than the documents ordered to be disclosed in the NPO. On the evidence available to it, the court concluded that the Canadian court had not specifically considered the relevance of this broader class of documents because the difference between the scope of the two applications had not been made clear to it. Accordingly, the English court deemed it appropriate to conduct its own relevance assessment based on its knowledge of the Canadian civil proceedings. On the available evidence, the court concluded that the documents requested from Farrer & Co by the Applicants were not sufficiently relevant
FINANCE LITIGATION UPDATE – JULY 2022 3 and suggested an 'impermissible investigatory purpose' on the part of the Applicants. As such, the court refused to grant the order. Key issues The power of the English courts to make an order pursuant to a letter of request from a foreign court derives from sections 1 and 2 of the Evidence (Proceedings in other Jurisdictions) Act 1975 ("the 1975 Act") and CPR 34.17. Pursuant to section 1 of the 1975 Act, the courts may only make such an order if satisfied that: 1. the application is made in pursuance of a request issued by and on behalf of the requesting court; and 2. the evidence to which the application relates is to be obtained for the purposes of civil proceedings instituted before the requesting court.2 Provided that the above conditions are satisfied, the courts have a discretion as to whether (and on what terms) to make an order under section 2 of the 1975 Act giving effect to a letter of request, including, under s. 2(2)(b), an order for the production of documents. In coming to its judgment in this case, the court restated a number of principles which guide the approach of the English courts to requests for judicial assistance from the courts of foreign jurisdictions. We highlight below an overview of the key issues. Relevance The courts will strive to give effect to the request of a foreign court, particularly in the context of matters concerning international fraud3. On questions of relevance, the courts will generally defer to the requesting court (as the court seised of proceedings4), and the burden of establishing that a foreign court did not consider relevance will lie with the party opposing the application5. While Farrer & Co did not actively oppose the LOR, by bringing the issue of the broader scope of the LOR to the court's attention, the LOR was successfully challenged. 2 Sections 1(a)-(b), the 1975 Act. 3 First American Corp.v Zayed 1 WLR 1154 4 Rio Tinto Zinc Corporation v Westinghouse Electric Corp.  AC 547 5 Galas v. Alere Inc  EWHC 2366 (QB) Standing Another reason for the successful challenge in this case was Dr Al Jabri's involvement in the hearing. A non-respondent who is party to the underlying civil proceedings before the requesting court has locus standi to apply to set aside an order obtained ex parte under the 1975 Act6. In this case, although Dr Al Jabri was not a respondent to the LOR, the court considered that there was no reason why he should not make submissions in relation to the Applicants' application. Oppression In exercising its discretion, the court must consider the need to protect intended witnesses from oppressive requests. There is a balance to be struck between the interests of the requesting court and the burden placed on the witness to be examined7. If the court considers that the request is irrelevant, or fishing, or speculative, or oppressive, it should refuse it8. In Sakab, none of the Respondents objected to the granting of the requested order under the 1975 Act. Only Dr Al Jabri argued that the request was oppressive in nature. Dismissing Dr Al Jabri's objections on that basis, the court affirmed the decision of the Honourable Mr Justice Treacy in Land Rover North America Inc. v. Windh9; namely that where witnesses subject to a request do not object to it, considerations of oppressive burdens on witnesses do not arise. Commentary The letter of request regime is a stringent one. It is essential to ensure not only that any request meets the requirements of the requesting court but also that it complies with the law and practice of the receiving court. While the English courts will always aim to give effect to the request of a foreign court, where requests are framed too broadly, or where it appears that the requesting court has not considered the relevance of the documents sought, there is a significant risk that the request will be refused. Edward Davis, Ciaran Fitzpatrick and Harriet Campbell 6 Boeing Company v. PPG Industries Inc.  3 All E.R. 839 7 The State of Minnesota v Philip Morris  ILP 170 8 Senior v Holdsworth, ex-parte Independent Television News Ltd  QB 23, 30 5A 9 Land Rover North America Inc. v. Windh  EWHC 432 (QB)
FINANCE LITIGATION UPDATE – JULY 2022 4 Judging the EU Sanctions Blocking Regulation: Bank Melli v Telekom Deutschland Following Advocate General Hogan's opinion in Bank Melli Iran v Telekom Deutschland GmBH10 (on which we reported here), the Court of Justice of the European Union ("CJEU") gave its judgment. While the CJEU adopted much of the AG's analysis, there is a significant divergence in the interpretation of Article 5 of the EU Blocking Regulation11. Many EU businesses will be relieved by the CJEU's conclusion that (contrary to AG Hogan's Opinion) Article 5 does not require member state courts to compel parties to maintain contractual relationships where termination of that contract would otherwise give effect to extra-territorial "secondary" sanctions. This decision was based on the principle of proportionality. Whether or not it would be proportionate to force the parties to remain in business together (given the potential economic losses for Telekom Deutschland GmbH ("Telekom") in this case) was remitted to the German higher regional court. Background The background to the case is summarised in our earlier article. In brief, the EU Blocking Regulation prohibits EU entities from directly or indirectly complying with certain foreign extra-territorial sanctions. Its operation has been under increased scrutiny recently because of the US decision to reimpose "secondary" sanctions (targeted primarily at non-US based individuals and entities dealing with Iran and Iranian counterparties) that had been removed pursuant to the Joint Comprehensive Plan of Action. Bank Melli Iran (an Iranian bank with a branch in Hamburg), commenced proceedings in the German courts after the defendant, Telekom, gave notice of its decision to terminate the contract between the parties with immediate effect. Telekom also sent identical notices of termination to at least four other clients with Iranian connections. Telekom's notices of termination were sent shortly after the re-imposition of secondary sanctions on Iran by the US. No reason 10 Case C-124/20 for termination was provided. The decisions of the German courts At first instance, the Landgericht Hamburg held that Telekom had not infringed Article 5 of the EU Blocking Regulation but granted an interim injunction ordering Telekom to perform its contractual obligations until the end of the notice period for ordinary termination. Bank Melli appealed, arguing that termination was in breach of Article 5 and therefore ineffective. Telekom submitted (referencing the Commission Guidance Note on the EU Blocking Regulation) that Article 5 does not change a party's right to lawfully terminate a contract. Neither the contract nor German law required the disclosure of reasons for a decision to lawfully terminate. The Hanseatic Higher Regional Court referred four questions to the CJEU for a preliminary ruling. The CJEU's judgment on these questions is summarised below. The CJEU decision Question 1: Does the first paragraph of Article 5 of the EU Blocking Regulation only apply where the acting EU entity (in this case, Telekom) is issued (directly or indirectly) with an official order by the US, or is it sufficient for the EU entity to only be seeking to comply with secondary sanctions? The CJEU agreed with the AG's view that EU entities complying with secondary sanctions covered by the EU Blocking Regulation are caught by Article 5, 11 Regulation No 2271/96
FINANCE LITIGATION UPDATE – JULY 2022 5 whether compliance has been directly compelled by the state imposing those secondary sanctions or not. Article 5 therefore applied despite Telekom not having been expressly ordered to terminate its contract with Bank Melli. Question 2: Does the first paragraph of Article 5 override a national (German) law which permits the termination of a continuing contractual obligation without the provision of reasons? Adopting a somewhat differing interpretation to the AG, the CJEU determined that Article 5 does not override a national law allowing for obligations to be terminated without providing reasons. However, it held that where all the evidence in civil proceedings before a national court "tends to indicate prima facie" that a party has complied with the relevant secondary sanctions legislation without authorisation, the burden of proof shifts to that party to prove to the requisite legal standard that it did not act in breach of Article 5. The Court considered that requiring the party alleging a breach of Article 5 to prove its case to a higher standard would be impossible or excessively difficult and so would not ensure that Article 5 is fully effective. Question 3: Must ordinary termination in breach of Article 5 be deemed ineffective, or can an alternative penalty be imposed? and Question 4: Given Articles 16 and 52 of the Charter of Fundamental Rights of the European Union, and the possibility of an exemption being authorised under the second paragraph of Article 5, does that apply even where maintaining the business relationship with the sanctioned contracting party (here, Bank Melli) would cause the EU operator (here, Telekom) to suffer considerable economic losses on the US market? The CJEU answered Questions 3 and 4 together. It held that the combined effect of Articles 5 and 9 of the EU Blocking Regulation and Articles 16 and 52 of the Charter of Fundamental Rights of the European Union did not preclude the annulment of contractual termination in breach of the EU Blocking Regulation but only insofar as "that annulment does not entail disproportionate effects for that person having regard to the objectives of that regulation consisting in the protection of the established legal order and the interests of the European Union in general." This reference to the need to consider proportionality is a significant departure from the AG's Opinion, who saw no role for the principle given his interpretation of the relevant EU law. The CJEU's decision confirms that national courts have the power to annul a contractual termination where it is in breach of Article 5, provided that doing so would not expose the party that sought termination to disproportionate effects such as economic loss. This proportionality assessment requires the national court to strike a balance between the effects on the party that sought termination if that termination is annulled and the objectives of the EU Blocking Regulation, namely the protection of the established legal order and the interests of the EU in general to achieve the objective of free movement of capital between EU Member States and third countries. In undertaking that proportionality assessment, the CJEU held that a failure of the party that sought termination to seek prior authorisation from the European Commission (as is provided for in Article 5) would be a relevant factor. However, the CJEU did not go as far as indicating this would be determinative. It is worth noting that Member States may impose a fine on a party that has sought to terminate a contract in breach of Article 5, and without seeking prior authorisation from the European Commission, even if a mandatory injunction to continue the contract would have disproportionately adverse economic consequences. Commentary This decision emphasises the importance of parties ensuring that they have a full understanding of the risks of laws with extraterritorial effect, and particularly of the difficult interaction of US secondary sanctions with the EU Blocking Regulation. While the CJEU has potentially offered businesses caught in the crossfire between US and EU legislation a lifeline, it remains to be seen how national courts will assess the principle of proportionality. It is also worth noting that the CJEU highlighted the ability of parties at risk of breaching Article 5 to apply for an exemption from
FINANCE LITIGATION UPDATE – JULY 2022 6 the European Commission, and its observation that this was not a route Telekom had taken in this case. We may see some divergence amongst national courts, when making their assessment of proportionality, as to how much weight they place on whether EU operators have first sought authorisation before seeking to terminate a contract. This case is also notable because of the suggestion that the services provided by Telekom are "essential" to Bank Melli's internal and external communication in Germany. The CJEU was not asked to consider any arguments in relation to Bank Melli's fundamental rights and so it remains to be seen whether these are considered by national courts Pending clear decisions from national courts within the EU, there remains a risk that the EU Blocking Regulation (and any subsequent UK legislation) may require the continuation of contractual arrangements in breach of US secondary sanctions unless a party seeks and is granted prior authorisation from the European Commission. Application of the EU Blocking Regulation in the UK The EU Blocking Regulation has been retained in UK law post-Brexit by The Protecting against the Effects of the Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2020. These regulations amended the EU Blocking Regulation and the related Implementing Regulation (Commission Implementing Regulation (EU) 2018/1101) to take account of the UK's departure from the EU. The retained EU regulations and the domestic implementing legislation, as amended, together form the UK Blocking Regulations. The ultimate power to apply and interpret the UK Blocking Regulations now lies with the UK courts. While not bound by the CJEU's decision in this case, the UK courts may have regard to it. In this regard, it is worth noting that the CJEU decided that a proportionality assessment was required by reference to the EU Charter of Fundamental Rights, Article 16 (freedom to conduct business) and Article 52 (the principle of proportionality). However, the UK decided not to incorporate the Charter into UK law when the UK left the EU. There is no express equivalent to Article 16 of the Charter in the European Convention on Human Rights (the "ECHR", to which the UK remains a party), even though the European Court of Human Rights has recognised elements of the right in the ECHR, in particular, in the freedom to enjoy the right to property (Article 1 of Protocol 1 to the ECHR) and freedom of expression (Article 10 of the ECHR, freedom of 'commercial' expression). It is therefore uncertain whether UK courts will interpret the UK Blocking Regulation in the same way as the CJEU has now interpreted the EU Blocking Regulation. More to come Finally, following the AG's expressed hope that the EU legislature would "ponder and consider" the implications of the EU Blocking Regulation, we expect the European Commission to publish a proposed revision of the legislation in the second quarter of 2022. Having at long last obtained some clarity from the CJEU on the EU Blocking Regulation, the ground may be about to shift beneath the feet of EU businesses. Sue Millar, Stephen Ashley, Harriet Campbell and Alexander Goodman
FINANCE LITIGATION UPDATE – JULY 2022 7 Limitation on summary determination: Libyan Investment Authority v Credit Suisse & Ors In Libyan Investment Authority ("LIA") v Credit Suisse International ("Credit Suisse") & Ors12 the court considered the scope of s32 of the Limitation Act 1980 (the "Act") and the suitability of disputed issues of actual or constructive knowledge for summary determination. In particular, the court considered when the LIA (acting with reasonable diligence) would have been "triggered" to investigate matters and what a reasonably diligent investigation would have revealed. In yet another judgment in a recent run of cases on this complex area of law, the court in this case concluded that, had the LIA acted with reasonable diligence, it could have brought its claim within the primary limitation period. On that basis, it awarded summary judgment in favour of Credit Suisse and GLG Partners Asset Management Ltd (the second defendant) ("GLGP") and set aside the orders permitting service out of the jurisdiction in respect of the other defendants. Background The LIA's claims related to its investment, in June 2008, in US$200 million of notes issued by Credit Suisse. The notes had 90% capital protection upon maturity and their return tracked the performance of a fund managed by GLGP. Credit Suisse paid GLGP US$6 million shortly after the notes were issued, and GLGP then made a payment in the same amount to Lands Company Limited ("LCL"). 12  EWHC 2684 (Comm) The notes were restructured in June 2009, linking them to the performance of different funds, including funds managed by Frontier Investment Management Partners Ltd ("FIMP") whilst removing their 90% capital protection. Credit Suisse paid US$6 million to FIMP shortly after the restructuring, and the LIA alleged that FIMP then made a payment in the same amount to Walid Al-Giahmi (who was said to control and/or be the ultimate beneficial owner of LCL). The LIA alleged that the payments made to LCL and to Mr Al-Giahmi were in return for fraudulent and corrupt services provided by Mr Al-Giahmi to Credit Suisse and/or GPLG in respect of the original notes, and to Credit Suisse and FIMP in respect of the restructured notes. Those alleged services included the bribing or intimidating of at least three LIA officials. The LIA claimed that the notes were voidable (for breach of fiduciary duty and/or undue influence) and/or unenforceable (for illegality). The litigation follows proceedings brought by the LIA against other banks in relation to its international investments, with two of such proceedings - against Société Générale and JP Morgan Chase - involving similar allegations against Mr Al-Giahmi. The claim against Société Générale settled prior to trial in 2017. In the JP Morgan proceedings, the claims against LCL and Mr Al-Giahmi were held to be statute barred, and the claim against JP Morgan later settled. The judgment handed down by HHJ Pelling QC on 3 December 2021 relates to applications by Credit Suisse and GLGP for summary judgment against the LIA, with both of those parties arguing that the LIA's claim had no real prospect of success because it was statute barred. The judgment also deals with applications by the third to fifth defendants to set aside orders (i) extending the validity of the Claim Form and (ii) granting permission for the proceedings to be served out of the jurisdiction. Limitation principles Where a limitation defence is raised in support of an application to set aside service out of the jurisdiction, the test is the same as the summary judgment test itself. All of the applications therefore faced the same hurdles.
FINANCE LITIGATION UPDATE – JULY 2022 8 Whether or not disputes regarding actual or constructive knowledge under s32 of the Act can be decided on a summary basis, however, will always depend on the facts of the case1. In this case, the court concluded it was possible to do so. As the parties agreed that the LIA did not have actual knowledge of the alleged fraud prior to the limitation cut-off date, the question was whether it could, with reasonable diligence, have discovered it. This required the court to answer two questions: 1. whether (and if so when), the claimant (acting with reasonable diligence) would have been put on notice of the need to investigate (the "trigger issue"); and 2. what that reasonably diligent investigation would have revealed (and when). While the degree of diligence with which the claimant should have acted is to be judged objectively, it must also be judged "in the context in which the claimant finds itself"2. The court accepted that the LIA found itself in difficulties investigating corruption by those close to the Gaddafi regime prior to the revolution, and that it would not be suitable to determine that issue summarily. However, it did not accept that such constraints applied after the revolution (from at least May 2012 onwards). The court also found that the limitation clock should not start to run until the alleged fraud could be properly pleaded in a statement of case. It rejected Credit Suisse's argument that the less stringent formulation found in the Supreme Court's decision in the Franked Investment3 litigation was the appropriate test (that is, that time should begin to run as soon as the claimant could embark on the "preliminaries to the issue of proceedings"). Differentiating that decision (which related to mistake and not fraud), the court held that the stricter test of when a claimant was actually in a position to plead fraud was the appropriate one because: i) otherwise victims of fraud could too easily lose claims by effluxion of time; ii) pleading fraud on a speculative basis would become more common (which was to be discouraged); and iii) because it is unnecessary to be too sympathetic to defendants who have committed fraud. 1 Easy Air Ltd v Opal Telecom Ltd  EWHC 339 (Ch) 2 OT Computers Limited v Infineon Technologies AF  EWCA Civ 501 Corporate knowledge The judgment also considers the attribution of knowledge of directors and other senior officials to a corporate entity. Whilst the knowledge of, or ability to discover, the fraud could not be attributable to the LIA by reason of the knowledge of wrong-doers within the LIA, the court held there was no reason why the knowledge of non-wrong-doing directors or agents of the LIA should not be attributed to it. Those directors or agents, would, the court held, owe a duty (to the LIA) to report relevant knowledge about its affairs. The court went on to consider the consequences of those individuals whose knowledge was attributable either forgetting a fact or matter or leaving the entity concerned. The court made clear that this issue should not be confused or elided with attribution issues. The general proposition is that, for limitation purposes, a matter remains known even if forgotten4. There was no basis for distinguishing this principle simply because the knowledge concerned was that of a corporation rather than an individual5. Once knowledge was attributed to the LIA for limitation purposes, it was to be treated as remaining with the LIA, even if the relevant individual subsequently forgot or left the entity. In this case, this meant that knowledge acquired prior to the revolution was nonetheless knowledge of the LIA. 3 FII Group Litigation v. HMRC  UKSC 47 4 Ezekiel v. Lehrer  EWCA Civ 16 5 OT Computers Limited v Infineon Technologies AF
FINANCE LITIGATION UPDATE – JULY 2022 9 The decision On the facts, the court concluded that a party in the position of the LIA ought to have been on notice of the need to investigate the alleged fraud by the end of July 2012 at the latest. Amongst other things, the court noted that a report by KPMG in April 2010 had advised the LIA to initiate a forensic investigation within 3 months to decide "whether to pursue counterparties". As explained above, the court accepted a delay in investigating until May 2012 resulting from the revolution in Libya. However, the court rejected the suggestion that investigations could be further delayed because of the erroneous belief of the new chair of the LIA's board that the notes continued to have 90% capital protection. This was immaterial as personal attributes of the claimant and its agents "… bearing on the likelihood of the particular claimant discovering facts which a person in his position could reasonably be expected to discover, such as whether the claimant is slothful, naïve, shy, nervous, uncurious or ill informed, are not relevant" and in any event it simply demonstrated a deliberate decision not to investigate. The court concluded that had the LIA acted with reasonable diligence and carried out the investigations from and after May 2012, it would have been in a position to plead the alleged fraud. Those investigations should have included interviewing a former LIA official involved in the transaction in mid-2012 (rather than November 2013) and shortly thereafter making enquiries of Credit Suisse and GLGP. Had the LIA requested information from a regulated financial institution such as GLGP, the court held it was "unreal" to suggest it would not have been provided. 1  EWHC 2950 (Ch) Conclusion This judgment provides another instance in short succession of the court deliberating whether to summarily strike out a claim on the grounds of limitation where the application of s32 of the Limitation Act is in issue. Whereas in Allianz Global Investors v RSA Insurance Group Limited1 (see our article here) the court held that it could not decide the question of 'reasonable diligence' on a summary basis, in this case the court was content that it could decide, without a trial, when the LIA was put on enquiry and how the defendants would have responded to enquiries by the LIA. The decision provides an important reminder of the potentially devastating impact of not investigating suspicions of fraud promptly if you have the resources to do so. The court in this case was unimpressed by the explanation from the LIA that it delayed investigating the Credit Suisse notes because it was focussing on other, larger, trades. The LIA clearly had the resources to carry out the necessary investigation. Practitioners and parties to litigation should also take note of the judgment's postscript, which contains a stinging criticism of the time estimates given for prereading and the hearing ("manifestly too short", with inevitable consequences) and the volume of material presented to the court (which would have justified a trial measured in weeks rather than days, rather than an application hearing listed as it was). Sue Millar, Stephen Ashley, Harriet Campbell and Alexander Goodman
FINANCE LITIGATION UPDATE – JULY 2022 10 Choice of law in consumer banking contracts: Bilal Khalifeh v Blom Bank SAL In Khalifeh v Blom Bank SAL1 Foxton J considered the principles that determine the applicable law of consumer contracts where there is no express choice of law clause. In particular, Foxton J considered the factors necessary to bring a contract within the consumer contracts provisions of Article 6 of Regulation (EC) No 593/20082 ("Rome I")3, and analysed the requirement for commercial or professional activities to be "directed" to a particular jurisdiction. In this case, the combined effect of: i) a Lebanese jurisdiction clause; ii) an express choice of Lebanese law in a closely related contract; and iii) an express reference to an agreement to comply with certain provisions of Lebanese law, pointed towards an implied choice of Lebanese law. Foxton J also held that, in any event, the conditions necessary to bring the contract within the consumer protection provisions of Article 6(1) of Rome I had not been satisfied. This judgment is likely to be of comfort to financial institutions in circumstances where an increasing number of challenges are being brought by 1 Bilal Khalifeh v Blom Bank SAL  EWHC 3399 (QB) 2 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations individuals on the grounds that consumer protection provisions override the parties' contractual choices of law/jurisdiction in favour of those of the consumer's place of domicile. Background The Claimant ("Mr Khalifeh") was a Lebanese citizen who had opened a personal USD account with the defendant Lebanese Bank (the "Bank") in 2016. Following the Lebanese financial crisis, Mr Khalifeh requested the transfer of his account to a USD account in London. The Bank stated it was unable to make the transfer (due to restrictions imposed by the Lebanese Government on payments of foreign currency out of Lebanon). Instead, it offered to tender payment in the form of banker's cheques (the "Cheques") drawn on the Lebanese central bank, the Banque du Liban, to be deposited with a notary public in Lebanon. This was unacceptable to Mr Khalifeh who then sued the Bank in England for losses suffered as a result of the failure to make the transfer in the manner requested. The Bank challenged the English Court's jurisdiction 3 Rome I applied as the relevant facts predated the end of the Brexit transition period (although Rome I has now been incorporated into UK law and continues to apply in the UK in any event).
FINANCE LITIGATION UPDATE – JULY 2022 11 unsuccessfully1 and the claim therefore proceeded to trial. Ultimately, Foxton J dismissed the claim, concluding that the Bank had discharged its obligations by depositing the Cheques in accordance with Lebanese law. This article focusses on why Lebanese law was held to apply. Applicable law: Rome I Foxton J was asked to consider two key questions: 1. Did the parties make an implied choice of Lebanese law under Article 3 of Rome I (which provides that parties have the freedom to choose the governing law of their contracts, either expressly or impliedly provided that for the latter, "the contract as a whole points ineluctably to the conclusion that the parties intended it to be governed by that law"2)? 2. Could Mr Khalifeh rely on Article 6(1) of Rome I to argue that English law applied? Was there an implied choice of Lebanese law? Foxton J held that the parties had impliedly chosen Lebanese law to govern the terms of the personal USD account for the following key reasons: 1 Bilal Khalifeh v Blom Bank SAL  EWHC 2427 (QB). At the jurisdiction hearing (for reasons restricted to a confidential schedule), Master Davison found that Mr Khalifeh was domiciled in England at the time of the conclusion of the contract (the Recast Brussels Regulation refers to domicile rather than habitual residence). He also found that the Bank did direct its activities to the UK at the relevant time (although it seems the contrary was not seriously argued) and that the contract fell within the scope of these activities. Although these issues were being considered from a jurisdictional perspective (and on a summary basis), the difference between these conclusions and those which were reached at trial is notable. • The account was opened in Lebanon by a Lebanese national with a Lebanese bank, whose obligations were principally to be performed in Lebanon; • An Arabic-language document entitled "General Agreement for Opening and Operating Creditor Accounts" contained an express reference to an agreement to comply with and facilitate the enforcement of specific provisions of Lebanese law; • The aforementioned General Agreement contained an asymmetric jurisdiction clause providing that Mr Khalifeh could only sue the Bank in Beirut; and • A securities account, opened at the same time as the personal USD account, was subject to an agreement which was expressly governed by Lebanese law, which agreement regulated the position of the personal USD account in certain respects (and, pursuant to the aforementioned General Agreement, both accounts were treated as "chapters of one single and indivisible account"). Whilst there was some debate as to whether the jurisdiction clause in the General Agreement was exclusive or not, Foxton J held that he would have reached the same conclusion even if the clause had been non-exclusive (albeit it would have carried less weight), and, in fact, would have reached the same conclusion had there been no jurisdiction clause at all3. Could Mr Khalifeh rely on Rome I, Article 6(1)? Article 6(1) of Rome I provides that a consumer contract shall be governed by the law of the country of the consumer's habitual residence provided that the trader: "(a) pursues his commercial or professional activities in the country where the consumer has his habitual residence, or (b) by any means, directs such activities to that country or to several countries including that 2 Lawlor v Sandvik Mining and Construction Mobile Crushers and Screens Ltd  2 Lloyd's Rep 98 3 The parties relied on Section 3(3)(a) of the Contracts (Applicable Law) Act 1990, which provides that the Report on the Convention on the law applicable to contractual obligations is admissible when interpreting provisions of the Rome Convention. The report states that a contractual choice of forum "may show in no uncertain terms that the parties intend the contract to be governed by the law of that forum". It also states that references in a contract to specific provisions of a particular legal system may establish an implied choice of that legal system as the applicable law.
FINANCE LITIGATION UPDATE – JULY 2022 12 country, and the contract falls within the scope of such activities." This provision can be disapplied in certain circumstances: • Article 6(2) provides that, notwithstanding Article 6(1), the parties to a consumer contract may expressly or impliedly choose which law applies to the contract (providing that such choice does not deprive the consumer of the protection of nonderogable provisions of the law of the country in which the consumer habitually resides); and • Article 6(4)(a) excludes from Article 6(1) any contracts for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which the consumer habitually resides. Mr Khalifeh argued that English law governed the terms of the personal USD account pursuant to Article 6(1). However, given the judge's conclusion that the parties had impliedly chosen Lebanese law, it was clear that, even if Mr Khalifeh could bring himself within Article 6(1), Lebanese law would nevertheless apply as a result of Article 6(2)1. The Bank argued that Article 6(1) did not in any event apply because: • It did not pursue its commercial activities in, or direct such activities to, England and Wales, and the personal USD account did not fall within the scope of such activities; • Mr Khalifeh was not habitually resident in England and Wales at the relevant time (being the date of the original contract and not the date of any subsequent variation); and • The contract in question was one for the supply of services exclusively outside England and Wales, and that Article 6 did not apply by virtue of Article 6(4)(a). Were the Bank's activities "directed" to the jurisdiction? The test under Article 6 of Rome I is materially the same as the test which applies when determining questions of jurisdiction under the consumer contracts provisions of the Recast Brussels 1 In these circumstances, Mr Khalifeh would have benefited from the protection of any provisions of English law that cannot be derogated from by agreement, but nothing appears to have turned on this, and Foxton J merely stated that Mr Khalifeh's attempt to bring himself within Article 6(1) failed at the first hurdle given the conclusion that the parties impliedly chose Lebanese law to apply. Regulation (and now s.15B of the Civil Jurisdiction and Judgments Act 1982). Foxton J referred to the leading authority on the application of this test, Pammer2, which established that directing activities to a particular member state requires something more than simply having a website accessible from that member state; instead, the trader must have "manifested its intention" to trade in the consumer's state of domicile. Foxton J also approved the academic analysis in Plender and Wilderspin3 that: "it is important for courts not to conclude on the basis of one or two weak indicators, such as an international dialling code, that a directed activity exists". However, he rejected the suggestion that there must be a "direct and substantial causal link" between the directed activities and the conclusion of the contract. Provided there is evidence of "directed activities", there is no requirement for a causal connection. On the facts, Foxton J determined that the only evidence of the Bank directing activities to England and Wales was information contained on the Bank's website. Whilst noting that it was a "finely balanced issue", taking the evidence as a whole Foxton J concluded (following Pammer and Plender and Wilderspin) that the content of the website (including the availability of the international dialling code) were insufficient to establish that the Bank had directed relevant activities to the UK. In particular, whilst the Bank's website referred to the Bank as serving "the niche market of Lebanese and Arab expatriates and businesspeople in Europe", Foxton J did not accept that a reader of this material would regard it as an attempt by the Bank to persuade Lebanese expatriates in the UK to open accounts in Lebanon. Any activities that the Bank did direct to the UK were purely to promote services provided by its London branch, and the personal USD account did not fall within the scope of such services. Foxton J distinguished the decision in Bitar v Banque Libano-Francaise SAL (see our earlier article here), highlighting that, in that case, the website material relied upon referred specifically to encouraging investments by expatriates in their Lebanese "homeland", and confirming that the decision in this case was not made on a summary basis (as to which see footnote 3 above) but rather after a full analysis 2 Pammer v Reederei Karl Schluter & Co KG, Hotel Alpenhof GesmbH v Heller (Cases C-585/08 and C-144/09) 3 Sir Richard Plender QC and Michael Wilderspin: The European Private International Law of Obligations (5th) ("Plender and Wilderspin")
FINANCE LITIGATION UPDATE – JULY 2022 13 of material obtained through disclosure and in crossexamination. Mr Khalifeh's habitual residence Foxton J upheld the Bank's argument that Mr Khalifeh did not have his habitual residence in England and Wales at the relevant time, namely October 2016, when the personal account was opened. Although he had formed an intention to move his habitual residence to England at this time, and had begun to take the necessary steps, he had not yet acquired a habitual residence in the UK. Foxton J rejected Mr Khalifeh's argument that the relevant time was in fact June 2019, when the contract was amended, describing the argument that the applicable law should be assessed at the variation date as a "recipe for chaos"4. Had Foxton J agreed with Mr Khalifeh, it would have found that he was habitually resident in England by June 2019 (although, for the reasons set out above, this would not have changed the outcome of the case). Was this a contract for the supply of services exclusively outside of England and Wales Finally, Foxton J did not accept the Bank's argument that the services to be provided by the Bank under the contract in question were to be received exclusively outside the UK, such that Article 6(4)(a) applied. It was, for example, possible for Mr Khalifeh to make withdrawals from the personal USD account using a debit card and to give remote instructions for the funds to be transferred to other accounts all without leaving his place of habitual residence. 4 The judge accepted that the position might be different where the variation in question amounted to a complete restatement of the Practical implications This judgment serves as a reminder of the importance of expressly specifying the applicable law in a contract and the principles to be applied in the absence of such a choice. Its conservative analysis of when a business will be deemed to be directing its activities to other jurisdictions is also likely to be welcomed by financial institutions and other professional service providers who deal with customers in England & Wales from outside the jurisdiction. While the question is clearly highly factsensitive, the judgment confirms that consumer contracts can be governed by the laws of a country which is not the one in which the consumer has his or her habitual residence. Ben Sigler, Chris Pettett and Harriet Campbell parties' relationship but considered that the application of Article 6 in such a situation should be dealt with in a case in which it arises.
FINANCE LITIGATION UPDATE – JULY 2022 14 The English courts' approach to foreign law: Cassini v Emerald Pasture and Byers v Saudi National Bank Most disputes before the English courts are based on English law. Increasingly, however, courts are resolving disputes governed by foreign law. The Commercial Court Guide, for example, has recently been updated to deal with the 'significant proportion' of trials featuring expert evidence of foreign law. While judges are used to reaching conclusions about which party's expert is correct, the extent to which special considerations apply when the expert opinion relates to the law itself is complex. In this article we consider the two recent decisions from the Court of Appeal in Cassini SAS v Emerald Pasture Designated Activity Company & Ors1 and Byers v The Saudi National Bank (SNB)  EWCA Civ 43 about the process the courts must follow when addressing competing expert opinions on foreign law. Foreign law is treated as a question of fact, to be determined by the trial judge on the basis of the evidence put forward by the parties. In Dexia v Prato2, the court confirmed that the task faced by 1  EWCA Civ 102 2 Dexia Crediop S.p.A v Comune di Prato  EWCA Civ 428 3 Note, however, in Deutsche Bank v Comune di Busto Arsizio  EWHC 2706 (Comm), the court expressed the view that it is the judge is to determine what the highest available court in the foreign jurisdiction would have decided3. So far, so factual. However, In Parkasho v Singh4, doubt was cast on the extent to which foreign law is just a question of fact. Instead, the court described it as "a question of fact of a peculiar kind". This peculiarity was analysed in Macmillan v Bishopsgate5, where the court identified two different kinds of foreign law: 1. Foreign law involving principles and concepts "unfamiliar to an English lawyer". In this case, the extent to which the judge can draw on their own legal knowledge and training in reaching the decision on foreign law is limited. The judge is effectively confined to analysing the expert evidence. 2. Foreign law involving concepts which are similar to English law. Here, the judge is entitled "and indeed bound" to bring their legal knowledge and training to bear. Instead of just assessing the weight of the expert evidence given, the judge provides their own legal input. open to it to depart from a decision of the highest courts of the country whose law applies. 4  P 233, 250 5 Macmillan Inc v Bishopsgate Investment Trust (No 4)  CLC 417
FINANCE LITIGATION UPDATE – JULY 2022 15 In Byers v SNB (the background to which is set out in our article here), the Court of Appeal dismissed the appellants' arguments that concepts found in Saudi Arabian legislation, an Islamic system of law "far removed" from English law, fell into the second category. Not only was it an unfamiliar system of law but the question had to be determined against a background of the capital markets culture and practice in Saudi Arabia, with which the English courts had no "inherent familiarity". It would have been wrong in principle, and impossible in practice, for either the trial judge or the Court of Appeal to have attempted to interpret the provisions themselves as a matter of construction. In Cassini v Emerald, where the concept derived from the French Legal Code, there was seemingly no attempt by either party (or the judge at first instance or on appeal) to suggest that this was a case in which an English judge could provide their own legal input. Whose evidence is presented more expertly? In Cassini v Emerald, the court was asked to consider the impact of a French Sauvegarde procedure (a form of restructuring) on the obligation to provide information under a loan agreement subject to English law and jurisdiction. French law applied to the question of interpretation of the Sauvegarde because it was a main proceeding under the Recast European Insolvency Regulation. At first instance, HHJ Kramer determined that the information obligations continued despite the Sauvegarde, dismissing Cassini's argument that the Sauvegarde rendered them unenforceable. The Court of Appeal upheld that decision. The principal grounds of appeal were as follows: 1. that the conclusion reached by the judge produced an 'illogical result' contrary to the purpose of the Sauvegarde regime; 2. that the judge placed too much reliance on the French cases he had considered; and 3. that the judge was unduly influenced to reject Cassini's expert analysis by a number of unjustified criticisms of his evidence. On the first point, the Court of Appeal found there was no 'illogicality' in deciding that the information obligations continued. It was not illogical for a counterparty which had fully performed its side of a contractual bargain to be able to enforce nonmonetary obligations for which it had paid in full. The Court of Appeal also dismissed the criticisms of the way in which the trial judge evaluated the evidence on foreign law. In his judgment, HHJ Kramer helpfully articulated his approach to the assessment of the expert evidence, with which the Court of Appeal agreed: • Generally, foreign law is proved by expert evidence. Legal texts and foreign case law can only be placed before the court as part of the expert evidence. Experts can be legal practitioners or academic lawyers specialising in the law of that country. • Where the evidence of each party's expert witness conflicts, the court must look at the evidence to reach a decision "using its own intelligence", as on other questions of evidence. • While the reputation of an expert is relevant, it is only one factor to be taken into account. The greater renown of one expert over another is not determinative as to who is correct. While HHJ Kramer did make criticisms of the French law expert instructed on behalf of Cassini, the Court of Appeal found that these were on peripheral matters and did not affect his analysis of the key points. Further, it held that he was right to prefer the evidence of Emerald's expert, and he had not improperly 'descended into the fray' in his analysis of the evidence. For practical purposes, the trial judge's task was to decide which of the two experts was likely to be correct. In circumstances where the experts were presenting very different theories to predict how a French court would decide a 'novel' point of French law, the Court of Appeal held a judge might 'naturally and legitimately engage more actively with the expert legal witnesses and counsel in the course of cross-examination'. Further, the Court of Appeal held that HHJ Kramer had not approached the French cases as if they were common law authorities or sought to place too much weight on them, given the absence of the doctrine of precedent in French law. Both parties had put thewww.shlegal.com