In the field of international commercial litigation, it is routine for two parties to make competing claims on assets under a financial institution’s control. What is far from routine is a situation in which the competing claimants also claim to be the legitimate government of a sovereign nation.
Since 2018, Venezuelan President Nicolás Maduro has maintained that he was lawfully reelected, while the United Kingdom Government has recognized Juan Guaidó, President of the democratically elected Venezuelan National Assembly, as interim president. Because of the crippling sanctions that the United States has imposed on the Maduro government and various Venezuelan-connected individuals, the Maduro regime has been desperate to identify financial assets that they can control or sell.
One significant set of assets that the Maduro government has been avidly pursuing concerns foreign currency reserves. The Bank of England has been holding gold reserves of approximately $1 billion for the Central Bank of Venezuela (BCV), and Deutsche Bank (“DB”) is obliged to pay the proceeds of a gold swap contract to the BCV for approximately $120 million that have been held by court-appointed receivers. Because Guaidó and Venezuelan Special Attorney General José Ignacio Hernández appointed different members to the BCV Board, the Bank of England, DB, and the receivers received conflicting instructions regarding the gold reserves from the Maduro-appointed Board and the Guaidó-appointed Board. These competing claims led to extended litigation in United Kingdom courts.
On December 20, 2021, the United Kingdom Supreme Court decided two fundamental and complex legal issues, both critical to the litigation, in favor of the Guaidó Board. First, the Supreme Court addressed the issue of whether Her Majesty’s Government (HMG) had recognized Guaidó as President of Venezuela. The Court held that that issue, under the United Kingdom’s constitutional arrangements, is a matter for the executive. It determined that HMG’s statement was a “clear and unequivocal recognition” of Guaidó as President, and that courts in the United Kingdom “are bound to accept HMG’s statements” that establish Guaidó’s status and that Maduro is not recognised by HMG as President of Venezuela “for any purpose.”
Second, the Supreme Court addressed the foreign act-of-state doctrine, which a leading legal authority described as “one of the most difficult and most perplexing topics which, in the field of foreign affairs, may face the municipal judge in England.” Two critical aspects of that doctrine are that United Kingdom courts will recognise and not question the effect of (1) a foreign state’s legislation or other laws in relation to any acts which take place or take effect within the territory of that state (“Rule 1”); and (2) an act of a foreign state’s executive in relation to any acts which take place or take effect within the territory of that state (“Rule 2”).
The Supreme Court determined that Rule 2 applies to an exercise of executive power such as Guaidó’s appointments to the BCV’s Board. It also held, however, that judicial rulings of a foreign state are not subject to the act of state doctrine. In this case, the Court acknowledged that the Venezuelan Supreme Tribunal of Justice (“STJ”) has issued several judgments holding that the Venezuelan transition statute under which Guaidó was appointed interim President of Venezuela is null and void. Accordingly, the Supreme Court ruled that because it remains necessary to consider whether the STJ judgments should be recognised or given effect in the United Kingdom, it remitted the proceedings to the Commercial Court for it to do so.
For lawyers interested in complex litigation involving foreign states, the Supreme Court’s decision in Maduro Board provides some welcome clarity on certain aspects of the foreign act of state doctrine. The Court’s resolution, however, is in no way a definitive victory for the now-floundering opposition forces under Guaidó’s leadership. Indeed, the remittance of the case back to the Commercial Court ensures that there will be no final resolution regarding the disputed gold reserves for some time to come, as the parties litigate the issue of recognition of the STJ judgments in that Court and the losing party in that Court will undoubtedly seek to appeal. Whether the Guaidó opposition can last long enough for such a final resolution is regrettably open to question.