NZ Super Fund's debt claim against Portuguese bank OK'd for UK court

Monday 10th August 2015

The UK Commercial Court has confirmed that the debt recovery case filed by the New Zealand Superannuation Fund and others against Portuguese bank, Novo Banco, can be heard in an English court.

The case relates to a $199 million loan the New Zealand national pension fund made, and has since written off, to Banco Espirito Santo (BES) of Portugal by buying bonds in a Goldman Sachs entity.

In February the NZ Super Fund said it had written off the investment in Oak Finance, a loan vehicle arranged by Goldman Sachs, after Oak made a US$835 million loan last July to BES, which collapsed amid allegations of fraud shortly after.

The central bank of Portugal bailed out BES, splitting its assets and loans into a good and bad bank, with the bank’s main shareholders forced to leave their interests the bad bank. Oak Finance was initially told the loan would be transferred to the good bank, Novo Banco, meaning it would be likely to be repaid. But later that year the central bank reversed its decision, arguing Goldman Sachs had owned more than 2 percent of BES and its rights as a creditor shifted back to the bad bank.

The NZ Super Fund and 11 other claimants filed the debt recovery claim in February in the UK courts, demanding repayment of US$612.7 million. The New Zealand fund was the first investor to buy into Oak Finance and has the most at stake, seeking US$155 million of the total group claim.

Separate proceedings have been filed in Portugal against the Bank of Portugal, challenging the validity of its decision not to transfer the Oak Finance loan from BES to Novo Banco.

In a written judgement, the UK Commercial Court has found that the English court has jurisdiction to hear the claim, despite Novo Banco’s contention that doing so would trespass on the administrative acts of a foreign executive body – the Bank of Portugal - which the UK court should refrain from investigating.

The facility agreement between BES and Oak Finance contained an express choice of English law and of English jurisdiction to settle any dispute arising from the agreement. The UK court said the claimants “had the better of the argument” that Novo Banco became a party to the facility agreement as a result of the Bank of Portugal’s restructure of BES and that the English court accordingly has jurisdiction.

Novo Banco was created by the Bank of Portugal under a Europe-wide scheme for the rescue of banks under a directive known as EBRRD. The UK Commercial Court also agreed with the claimants’ argument that the Bank of Portugal’s decision not to transfer the Oak liability didn’t involve resolution powers provided for in the EBRRD and therefore should not be recognised as such by the court.

The UK court said on the material before it, the claimants have a good arguable case and the better of the argument that as a matter of fact, the Oak liability should be been transferred to Novo Banco.

A date for the debt recovery proceedings has yet to be set.

The Super Fund said it remained confident that it has a strong legal case.

BusinessDesk.co.nz

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