The Venezuelan Gold decision: recognition in the English Court of Appeal

The English Court of Appeal recently handed down judgment in Maduro Board v Guaidó Board [2020] EWCA Civ 1249, which considers who can lawfully give instructions to English financial institutions regarding assets of Venezuela held in England, given the dispute about who is the rightful president of Venezuela.

This is an important decision which is likely to be of international interest. 

In this post, I summarise the decision and then comment on three separate points. First, I consider the distinction between recognition of a de facto and de jure foreign regime. Second, I consider the Court’s analysis of the position where there is both a de facto and a de jure regime: whose acts will receive effect in England?  Third, I situate this litigation in the context of academic debate about the Courts’ role in cases such as this one.

Factual background & summary of decision

Nicolás Maduro claims to be Venezuelan President on the basis that he won the 2018 Presidential election. Juan Guaidó claims to be Interim President on the ground that that election was flawed, there is no President, and that under the Constitution he became Interim President pending fresh elections because he is President of the National Assembly.

The issue comes before the English Courts because they have to decide which of two sets of claimants is entitled to give instructions to the Bank of England and to Deutsche Bank on behalf of the Central Bank of Venezuela regarding billions of dollars of the Central Bank’s assets in England.

The competing claimants are the “Maduro Board” and the “Guaidó Board”, the latter appointed by Mr Guaidó by virtue of the “Transition Statute” passed by the National Assembly. Mr Guaidó’s appointments and the Transition Statute have been held by the Venezuelan courts to be void.

The policy of the UK Government, like that of many other governments, is normally not to make a formal statement according recognition to a foreign government. However, on 4 February 2019, the UK Foreign Secretary issued the following statement:

“The United Kingdom now recognises Juan Guaidó as the constitutional interim President of Venezuela, until credible presidential elections can be held. The people of Venezuela have suffered enough. It is time for a new start, with free and fair elections in accordance with international democratic standards. The oppression of the illegitimate, kleptocratic Maduro regime must end. Those who continue to violate the human rights of ordinary Venezuelans under an illegitimate regime will be called to account. The Venezuelan people deserve a better future.”

This remained the position at the time of the litigation.  The Guaidó Board’s case was that (i) the UK Government had recognised Mr Guaidó as President of Venezuela, (ii) this is conclusive in an English Court, because of the “one voice” principle, and (iii) that the “foreign act of state” doctrine prevents the Court from entertaining any challenge under Venezuelan law to the validity of the legal acts by which the appointments to the Guaidó Board were made.

Following a trial of certain preliminary issues regarding recognition and the “act of state” doctrine, the Guaidó Board succeeded at first instance: [2020] EWHC 1721 (Comm).  Teare J accepted the Guaidó Board’s case as summarised above.  Significantly, he held that it was necessarily implicit in the recognition of Mr Guaidó as Interim President that Mr Maduro was not recognised: there could not be two Presidents of Venezuela.

The Court of Appeal judgment

The Court of Appeal allowed the Maduro Board’s appeal.  The key point on which the Court of Appeal differed from the High Court is that recognition of Mr Guaidó as the person entitled to be Interim President does not mean that the UK cannot also recognise Mr Maduro as de facto President.  The Court interpreted the UK Government’s statement as recognising Mr Guaidó as de jure Interim President.  This was conclusive for the purposes of English law as to that question. But, departing from the Court below, the Court of Appeal held that recognising Mr Guaidó as de jure Interim President did not prevent the UK also recognising Mr Maduro as de facto President.  The Court held that, interpreted in context, the Government’s statement did not amount to recognition of Mr Guaidó as de facto President.

The practical effect of the decision is that, absent an appeal to the Supreme Court, the matter is remitted to the High Court for further proceedings to determine whether the UK Government does recognise Mr Maduro as the de facto President.  

The decision also contains interesting discussion of (i) an argument that to recognise Mr Guaidó as de facto President would breach customary international law (which the Court dismissed) and (ii) the act of state issues, which for the most part could not be determined at this stage of the litigation.

De facto / de jure

Turning to the three points identified at the outset of this post, the first point is that the terminology of “de facto” and “de jure” government (or President) is not used consistently in the English materials. The Court’s judgment clarifies that “de jure” is used in at least two different ways. On one of those, the UK can recognise a different de jure and de facto government of another State.

The first meaning is the manner in which the terms were used in Luther v Sagor [1921] 3 KB 532 at 543 (thus: the “Luther v Sagor sense”).

“A de jure government is one which, in the opinion of the person using the phrase, ought to possess the powers of sovereignty, though at the time it may be deprived of them. A de facto government is one which is really in possession of them, although the possession may be wrongful or precarious.”

On that approach, there can be both a de facto and a de jure government in respect of the same territory. The Court gave examples from the 1930s in which the English Courts accepted that there was a different de facto and de jure government of Ethiopia (Abyssinia) and Spain.

The terms ‘de facto’ and ‘de jure’ government are also used in English materials in a different way: recognition of a ‘de jure’ government is the fullest type of recognition and presupposes effective control of the territory; recognition as a ‘de facto’ government recognises that the government is exercising effective control but there are doubts about whether that will remain firmly established. Among other places, the terms were used in that way in Oppenheim’s International Law (hence the Court’s reference to the “Oppenheim sense”). 

One may doubt whether it is helpful that terms encountered so frequently are used with fundamentally different meanings. Professor Brownlie had criticised the lack of clarity in this terminology as long ago as 1982: (1982) 52 BYIL 197 at p 207. The Court’s decision emphasises the importance of being clear about how the terms are being used.

Status of acts of “de jure” regime where there is a “de facto” regime

A second interesting point concerns the status of the acts of a de jure government if there is a different regime recognised as exercising control in fact.

The Court of Appeal stated (para [85]):

“where 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”.   

However, it identified an exception to this general rule.  In some circumstances, therefore, under existing English law a de jure government will be the proper entity to assert title to the State’s assets even if there is a competing de facto government. 

What is the dividing line between cases in which the proper claimant is the de jure government and those in which it is the de facto government? 

The Court of Appeal treated the dividing line as being where the de jure regime has an existing title to property in England (para [88]) and perhaps also as depending on where the relevant acts giving rise to the alleged title to the property took place (para [90]).  Its discussion was based on Haile Selassie v Cable & Wireless Ltd (No 2) [1939] 1 Ch 182, in which money was due to the Ethiopian Emperor under a contract concluded before the 1935 Italian invasion. That debt was a chose in action recoverable in England. Bennett J held that recognition of a new de facto government did not deprive the de jure government of title to that debt. (When the UK later recognised the new Italian regime de jure as well as de facto, the Emperor lost title to sue.)  The Court of Appeal considered that the exception did not apply on the facts of the Venezuelan case (para [90]). 

Two points may be noted. One is that the formulation of the principle in Haile Selassie was different from that in the Court of Appeal’s judgment. Bennett J’s summary of the principle was that ([1939] 1 Ch 182 at p 192):

 “the Courts of this country will recognize and give effect to the acts of the [de facto government] in relation to persons and property in the governed territory and will disregard and treat as a nullity the acts of the [de jure government]”.

That is a narrower formulation of the circumstances in which the de facto government’s acts are valid than that adopted by the Court of Appeal. Bennett J’s formulation of when a de facto regime’s acts will be accepted as valid focused on acts relating to persons and property in the relevant territory of which the de facto regime had effective control. By contrast, the Court of Appeal at para [85] took as its starting point that all acts of the (rival) de jure government are treated as a nullity.

The second point is to ask where, if anywhere, the dividing line should be drawn in principle. One might ask why should a de jure government, with no effective control in the relevant State, be entitled to assets of that State because (i) its entitlement to them came into existence before it was displaced as the effective government, (ii) the assets are abroad and (iii) it can access them without needing to perform any act in the territory of the foreign State? The reasoning in Haile Selassie was, in part, that the relevant assets were the sovereign’s assets and it was no concern of English law what the sovereign entitled to the assets does with them. The fact that the de jure regime did not have effective control over the relevant territory therefore did not affect the claim to the assets in England.  Almost a century later, this might not be viewed as being as forceful, although other arguments could be advanced about where a dividing line should be drawn.

The question in this type of case: status of foreign regime / person? Or recognition by UK of foreign regime / person?

The Court’s decision means that the matter is remitted to the High Court for further questions to be posed to the UK Government about whether it recognises Mr Maduro as de facto President. The Court stated that if that response is not determinative, “the Commercial Court will have no alternative but to determine for itself whether HMG recognises Mr Maduro as de facto President by necessary implication” (para [129]).

This is, itself, noteworthy, as it situates this case on one side of a debate about the role of the Court in cases such as this.

Until the UK Government’s change of policy in 1980, British policy was that in the event of an unconstitutional change of regime the UK Government would formally announce a decision ‘recognising’ the new government. That was determinative for the purpose of Court proceedings. Since 1980, the UK Government no longer makes such a formal announcement, although it has to decide the nature of its dealings with the regime and in some exceptional circumstances it will make an express public statement.

Following the change of policy, there was discussion about the effects of the change. In particular, if a Court has to determine which of various competing parties is the valid government or a representative of a foreign State, what question is the Court to ask?  Does the Court ask whether the UK Government has recognised the foreign regime, albeit that this is now to be determined by the Court based on how the UK Government has conducted itself (taking into account e.g. the maintenance of diplomatic relations)?  Or is the Court to seek to determine for itself whether the foreign regime is the government of the relevant territory, giving some (undetermined) weight to the attitude and conduct of the UK Government when answering that question?

This is a fundamental question, which goes to the heart of what it is that the Court is doing in this type of case and affects what it is that a party to this type of litigation needs to prove.

In the English High Court case of Somalia v Woodhouse Drake [1993] QB 54 Hobhouse J rejected the first approach. He considered that the Court had to decide whether a government exists as a government of a State and identified four factors to be considered in that respect. The question is no longer one of recognition.

Academic writing, however, is divided.  For example, Professor Talmon argues that the change in the Government’s policy in respect of recognition in 1980 did (indeed, could) not change the law. The question which the Court is to determine is whether the relevant foreign regime has been recognised by the UK Government. In the usual case in which there is no express statement of recognition, the Court has to determine whether, based on the Government’s conduct, it has impliedly recognised the relevant foreign government: see Talmon (1992) 63 BYIL 231.

The contrary approach is that the Court itself has to determine who is the government of the relevant foreign State. That is supported by Professor McLachlan Foreign Relations Law (2016 edn), relying on Woodhouse. He argues that this is a question “of fact, which turns primarily on effective control”: para 10.87, et seq.   There are arguments about whether such an approach can be reconciled with the “one voice” doctrine, which is based on the appropriate division of constitutional responsibility between executive and judiciary in the sphere of foreign relations.

The extent to which this point was the subject of argument in the Venezuela litigation is not clear. The formulation of the preliminary issues and the Court of Appeal’s statement about what is to happen next suggest that the matter is being approached in the manner proposed by Professor Talmon. Given the debate on this point, it will be interesting to see in future decisions in this case whether that is so, and whether the same approach is taken in other cases in England and elsewhere.