The British Supreme Court has rejected Goldman Sachs’ attempt to enforce a compensation claim for its $835m loan to Banco Espírito Santo shortly before the banks collapsed into administration in the summer of 2014.
The ruling means that Goldman Sachs is faced with taking its claim through the notoriously slow Portuguese court system even though the loan was written out under the provisions of UK law.
The rejection of the claim will have resounding legal implications for future disputes between corporate lenders and borrowers as many cross-border bank loans deliberately include a provision for disputes to come under UK law which is viewed as swifter and more competent to judge complex financial cases.
Goldman wanted to challenge the decisions taken by Carlos Costa, governor of the Bank of Portugal, to shift its loan from ‘good bank’ Novo Banco to basket case bank BES, thus rendering the loan unrecoverable.
The Supreme Court decided that, “it is not for an English court to decide what would amount to an appeal from an administrative act of the Portuguese central bank.” It added there were ongoing administrative law proceedings in Portugal challenging the December 2014 decision, which have yet to be resolved.
"It is a common sense victory that avoids the potential chaos that could be caused if courts in different jurisdictions could interpret the same decision as a European resolution authority in different ways," said Stuart McNeill, a lawyer at Pinsent Masons, in a published article on the website of the company that represented the New Bank. He added that the decision will have ramifications in other cases of resolution in Europe.
The dispute stems from an $835m loan to BES from Oak Finance, a Luxembourg fund set up by Goldman Sachs. The New Zealand Superannuation Fund, TDC Pension, the Danish telecommunications pension scheme, and other investors also lost money when the loan, due to be transferred to Novo Banco, ended up in the toxic pile at BES.
The bank of Portugal argued that Goldman owned more than 2% of BES shares so its loan was in breach of EU law thus should remain with BES - and thus became worthless.
Goldman was claiming $220m plus interest, while New Zealand’s state retirement fund and its fellow investors were claiming $612m plus interest.
They are pursuing separate claims against Novo Banco and the Portuguese central bank in Lisbon.
A range of other lawsuits by bondholders in BES and Novo Banco, including the heavyweight funds - Pimco and Blackrock - are challenging the Bank of Portugal’s decision at the end of 2015 to transfer more than €2 billion of bonds from the rescued Novo Bank back to BES.
