English Court of Appeal Overturns Decision that Guaidó Appointed Central Bank of Venezuela Board Controls Gold Reserves in England

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Latham & Watkins LLPThe decision confirms that the UK government can recognise one person as de jure head of state of a foreign state and implicitly recognise another person as the de facto head of state.

The English Court of Appeal’s recent decision in The “Maduro Board” of the Central Bank of Venezuela v The “Guaidó Board” of the Central Bank of Venezuela & Ors[i] concerned who controls Venezuela’s gold reserves in England: the ad hoc board of the Central Bank of Venezuela appointed by Mr. Juan Guaidó (the Guaidó Board) or the board of the Central Bank of Venezuela appointed by Mr. Nicolás Maduro (the Maduro Board).

The Court of Appeal’s decision overturned the English Commercial Court’s decision that the UK government’s recognition of Mr. Guaidó as the President of Venezuela was conclusive of the person duly authorised under English law to give instructions with respect to Venezuela’s gold reserves in England. Instead, the Court of Appeal held that, while the UK government recognised Mr. Guaidó as the de jure head of state of Venezuela, the UK government’s statement left open the possibility that it implicitly recognises Mr. Maduro as the de facto head of state. If that is the case, English law requires an English court to treat the acts of the de jure head of state, including the appointment of the Guaidó Board, as a nullity. Given this uncertainty as to the UK government’s position, the Court of Appeal allowed the appeal and remitted the issue to the Commercial Court, and stated that the UK government’s recognition of Mr. Guaidó as the President of Venezuela is best determined by posing a further question to the UK Foreign, Commonwealth and Development Office (FCDO). In the absence of an adequate response from the FCDO, the Court of Appeal directed the Commercial Court to determine whether the UK government recognises Mr. Maduro as the de facto head of state of Venezuela.

Facts

The proceedings arise from conflicting instructions received by Deutsche Bank regarding the payment of proceeds of a gold swap contract concluded with the Central Bank of Venezuela, and the refusal by the Bank of England to accept instructions from the Maduro Board regarding Venezuela’s gold reserves held by the Bank of England.

In response to this conflict, Deutsche Bank issued an arbitration claim form seeking assistance from the court (notwithstanding the choice of arbitration) with the appointment of receivers to hold and manage the proceeds of the gold swap contract. After hearing argument, the judge in the court proceedings relating to the application in support of arbitration wrote to the UK Foreign Secretary inviting the UK government to provide a written certificate on two questions: (1) “Who does HMG [Her Majesty’s Government] recognise as the Head of State of the Bolivarian Republic of Venezuela?”; and (2) “Who does HMG recognise as the Head of Government of the Bolivarian Republic of Venezuela?”

The Director for the Americas at the Foreign and Commonwealth Office (FCO) (the predecessor department to the FCDO) replied but did not provide a direct answer to either question. Instead, the FCO Director’s letter referred to, inter alia, a 4 February 2019 statement by the then UK Foreign Secretary that recognised Mr. Guaidó as “constitutional interim President of Venezuela until credible elections could be held […]”,[ii] and confirmed that this remained the UK government’s position.

The judge then ordered that the recognition and justiciability issues be determined as preliminary issues (i.e., (1) who the UK government recognises as the head of state/head of government of Venezuela; and (2) whether an English court could investigate the validity of legislative and executive acts under Venezuela law). These preliminary issues were subsequently joined with similar preliminary issues in a separate proceeding commenced by the Central Bank of Venezuela, upon instruction of the Maduro Board, against the Bank of England given the latter’s refusal to accept instructions from the Maduro Board.

First instance decision

The preliminary issues were heard at first instance by Teare J in the Commercial Court. Following a four-day hearing, his Honour held that the Foreign Secretary’s statement on 4 February 2019 recognized Mr. Guaidó as interim President of Venezuela, and that the UK government implicitly no longer recognised Mr. Maduro as President. Teare J however emphasised that the Foreign Secretary’s statement did not constitute recognition of a government, but was limited to recognition of Mr. Guaidó as interim President, and that the UK government’s recognition of Mr. Guaidó as de jure President left no room for the UK government to recognise Mr. Maduro as de facto President.

On the justiciability issue, Teare J held that, pursuant to the foreign act of state doctrine, an English court was not permitted to investigate whether the legislation pursuant to which Mr. Guaidó appointed the Guaidó Board was valid under the Venezuelan constitution. His Honour held that the same doctrine precluded an English court from investigating the validity of the executive acts pursuant to which the Guaidó Board and the Special Attorney General (the persons said to be authorised to give instructions on behalf of the Central Bank of Venezuela) were appointed, irrespective of whether those acts were unlawful or null and void under Venezuelan law.

Grounds for appeal

The Maduro Board appealed Teare J’s decision to the Court of Appeal.

With respect to recognition, the Maduro Board submitted that:

  • The language of the Foreign Secretary’s 4 February 2019 statement and the continuing diplomatic relations between the UK and Mr. Maduro’s government support recognition of Mr. Maduro as the de facto head of state of Venezuela.
  • The “one voice” principle does not apply to recognition de jure, which is no more than a statement of opinion by the UK government as to the position under the law of the foreign state.
  • Teare J was wrong to hold that the “one voice” principle precluded the possibility that the UK government continued to recognise Mr. Maduro as de facto head of state or head of government, and also wrong to hold that evidence of the UK government’s maintenance of diplomatic relations with Mr. Maduro was irrelevant.
  • Recognition of Mr. Guiadó as de facto President would be unlawful under customary international law as it would amount to coercive intervention in the internal affairs of another state.

On the foreign act of state issue, the Maduro Board submitted that the doctrine did not apply to the Transition Statute ― the purported legislative basis for the appointment of the Guaidó Board and Special Attorney General ― as the Venezuelan National Assembly had no power to legislate under Venezuelan law, as confirmed by Venezuela’s Supreme Tribunal of Justice, or to the appointment of the Guaidó Board and Special Attorney General, which were said to be appointments outside the scope of the Transition Statute. Moreover, the Maduro Board contended that the foreign act of state doctrine does not apply when: (a) the legislative or executive act was unlawful under Venezuelan law; (b) the act takes effect outside of Venezuela; or (c) the act extends beyond affecting property or personal injuries within Venezuela.

Court of Appeal decision

Recognition

The Court of Appeal drew two distinctions regarding the recognition of a foreign state or government. First, recognition may be either express or implied. Second, recognition may be either de jure or de facto. Accordingly, the Court stated that “it is perfectly possible for HMG to recognise one ruler or government de jure and another de facto.”[i] Indeed, the Court of Appeal cited the examples from the 1930s when the UK government recognised concurrent de jure and de facto heads of state with respect to Abyssinia, and de jure and de facto governments with respect to Spain.

The Court then proceeded to state that “[w]here one ruler or government is recognised de facto, English law is clear that the acts of a rival government (including its legislation) must be treated as a nullity, even if that rival government is recognised de jure.”[ii] Accordingly, if Mr. Maduro is recognised as the de facto head of state of Venezuela, the acts of Mr. Guaidó must be treated as a nullity. However before the Court reached that consideration, it had to first determine whether Mr. Maduro was in fact recognised by the UK government as the de facto head of state of Venezuela.

In this context, the Court noted that an English court usually seeks a formal statement of the UK government’s position as to whether it recognises a state, ruler, or government. A clear and unequivocal statement of recognition or non-recognition would be conclusive and preclude the court from enquiring into conduct that may constitute implied recognition ― i.e., the “one voice” principle. However, the Court of Appeal noted that, while a statement of recognition is conclusive for what it says, the meaning of that statement is to be determined by the court. In the event of ambiguity, the court may, but need not, seek clarification, and the UK government may, but need not, provide that clarification.

Having distilled these principles, the Court of Appeal undertook the task of construing the UK government’s statements on the recognition of the President of Venezuela. In this regard, the Court found that the FCO Director’s letter to the Commercial Court was a clear statement that the UK government recognised Mr. Guaidó to be the person entitled to be Venezuela’s head of state (i.e., the de jure head of state). However, in considering whether the UK government may also recognise a de facto head of state of Venezuela, the Court of Appeal found that the Foreign Secretary’s 4 February 2019 statement fell short of stating that Mr. Guaidó was exercising effective control over the territory of Venezuela. Accordingly, the Court of Appeal held that it was open to recognise Mr. Maduro as the de facto head of state of Venezuela, and that this possibility was closed off in the FCO Director’s letter to the Commercial Court.

Given this ambiguity, the Court of Appeal considered it appropriate to remit the matter to the Commercial Court and for that court to pose two further questions to the FCDO:

  1. Whether the UK government recognises Mr. Guaidó as President of Venezuela for all purposes and, therefore, does not recognise Mr. Maduro as President for any purpose
  2. Whether the UK government recognises Mr. Guaidó as entitled to be the President of Venezuela and thus entitled to exercise all the powers of the President, but also recognises Mr. Maduro as the person who does in fact exercise some or all of the powers of the President of Venezuela

The Court of Appeal noted that absent a clear response from the FCDO, the Commercial Court would need to determine for itself whether the UK government recognises Mr. Maduro as the de facto President of Venezuela.

Furthermore, the Court of Appeal rejected the submission that recognition of a de facto head of state is a violation of customary international law.

Foreign Act of State

The second preliminary issue before the Court of Appeal was whether the foreign act of state doctrine precludes an English court from questioning the validity of the appointment of the Guaidó Board under Venezuelan law, in circumstances in which: (a) the highest constitutional court in Venezuela found the appointment and the underlying legislation to be invalid; and (b) the Guaidó Board submitted that the Venezuelan court decisions should not be recognised in England due to the denial of due process and lack of judicial independence that constitute violations of English public policy. However, as the issue only arises if Mr. Guaidó is found to be the sole head of state of Venezuela, the Court of Appeal considered it premature to decide the point.

Nonetheless, the Court of Appeal did observe, in obiter, that if the Venezuelan court decisions do not violate English public policy, the act of state doctrine would not apply as the Venezuelan court decisions would be authoritative statements of the status of the legislative and executive acts on which the Guiadó Board rely.

Comment

The Court of Appeal’s decision provides greater clarity with respect to the recognition of foreign heads of state under English law. In particular, the decision confirms that it is possible for the UK government to recognise one person as the de jure head of state of a foreign state and another person as the de facto head of state. While, pursuant to the “one voice” principle, an English court will defer to an express statement by the appropriate arm of the UK government that a person is, or is not, the head of state of a foreign power, a general statement will not necessarily answer the question of who the UK government recognises as the de facto head of state.

When the UK government has not issued a specific statement recognising a de facto head of state or head of state for all purposes, an English court may consider whether the UK government’s conduct ― for example, the maintenance of diplomatic relations ― evidences the UK government’s recognition of a de facto head of state separate to the recognised de jure head of state. The distinction is important as under English law the acts of the de jure head of state of a foreign State will be treated as a nullity when there is a separate de facto head of state.

In the case at hand, the issue of which board of the Central Bank of Venezuela controls Venezuela’s gold reserves in England will be determined based on who the UK government recognises as the de facto head of state of Venezuela. If the FCDO issues a statement that the UK government recognises Mr. Guaidó as the President of Venezuela for all purposes and rejects recognition of Mr. Maduro as the de facto President, that should be dispositive of who is the de facto head of state of Venezuela. On the other hand, if the FCDO is less explicit, or does not issue a statement at all, then the Commercial Court will need to determine for itself who the UK government recognises as the de facto head of state of Venezuela.

If the Commercial Court finds that Mr. Maduro is the de facto head of state of Venezuela, the acts of Mr. Guaidó, including his appointment of the Guaidó Board, should be considered a nullity. However, if the Commercial Court finds that Mr. Guaidó is the head of state of Venezuela for all purposes, that alone will not be dispositive of which Board of the Central Bank of Venezuela controls the gold reserves in England. That is because Mr. Guaidó’s authority to appoint the Guaidó Board arises from either the Transition Statute passed by Venezuela’s National Assembly or his capacity as interim President, the lawfulness of both of which the Maduro Board has challenged on the basis that Venezuela’s Supreme Tribunal of Justice found the acts to be invalid.

However, as noted above, the Guaidó Board argues that the Venezuelan Supreme Tribunal of Justice’s judgments should not be recognised as they are contrary to English public policy. While the Court of Appeal was prepared to assume for its purposes that the Venezuelan court judgments are not contrary to English public policy, this question may need to be decided by the Commercial Court. Depending on the answer, the Commercial Court may also need to consider the competing views of the UK Supreme Court in Belhaj v Straw as to whether the foreign act of state doctrine applies to unlawful foreign legislative and executive acts.

[i]               [2020] EWCA Civ 1249.

[ii]              [2020] EWCA Civ 1249 at para. 38.

[iii]             [2020] EWCA Civ 1249 at para. 82.

[iv]             [2020] EWCA Civ 1249 at para. 85.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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