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When can an English court rule on the acts of a foreign state? Examining Crane Bank Ltd & Ors v DFCU Bank Ltd & Ors

Posted on 31 August 2023

Notwithstanding their international reach, the English courts will generally resist invitations to rule on the lawfulness or validity of the executive acts of foreign states pursuant to the foreign act of state rule. However, as the recent decision in Crane Bank Ltd & Ors v DFCU Bank Ltd & Ors has clarified, there are important exceptions to this rule which foreign states, and their counterparties, should be aware of.

Foreign Act of State Rule

The foreign act of state rule provides that, save for in very limited circumstances, the English courts will not adjudicate or sit in judgment on the lawfulness or validity of an executive act of a foreign state, performed within the territory of that state under its own law. The rule, which was authoritatively recognised by the Supreme Court in "Maduro Board" of the Central Bank of Venezuela v "Guaidó Board" of the Central Bank of Venezuela (2021), is founded upon respect for the sovereignty and independence of foreign states and is intended to promote comity in foreign relations. Whilst similar to the concept of state immunity, it is not founded on the personal immunity of a prosecuted party, but rather upon the subject matter of the proceedings.

However, the rule is not absolute. There are several exceptions, including:

  1. The Commercial Activity Exception: the rule does not apply where the conduct of the foreign state is of a commercial as opposed to a sovereign character.
  2. The Public Policy Exception: the rule does not apply to foreign acts of state which are in breach of clearly established rules of international law, or are contrary to English principles of public policy, as well as where there is a grave infringement of human rights.
  3. The Kirkpatrick Exception: the rule does not apply where the only issue is whether certain acts have occurred, as opposed to where the court is asked to inquire into them for the purpose of adjudicating on their legal effectiveness.


Crane Bank Limited ("Crane") had been a major commercial bank in Uganda. However, in 2016 it was placed into statutory management by the Bank of Uganda ("BoU"), the Ugandan central bank, under the provisions of the Ugandan Financial Institutions Act 2004. It was then placed into receivership, with the BoU as receiver.

In 2020, Crane and certain of its shareholders (the claimants) brought proceedings in England for conspiracy to injure by unlawful means and knowing receipt, claiming that these actions were part of a corrupt scheme, including senior Ugandan government and BoU officials, to take control of Crane with the intention of selling it or its assets. The claimants alleged that in its capacity as receiver of Crane, the BoU had caused the sale of Crane's assets to another Ugandan bank, DFCU Bank, at a gross undervalue.

At first instance several of the defendants successfully challenged the English court's jurisdiction on the basis that the claims were barred by the foreign act of state rule. The claimants appealed.

The Court of Appeal Decision

The Commercial Activity Exception

The claimants accepted that the alleged corrupt scheme involved the BoU and its officials exercising statutory and regulatory powers as part of the executive organ of the Ugandan state, within Ugandan territory, and subject to the law of Uganda, resulting in Crane ultimately being placed in receivership. However, they contended that the final unlawful act in carrying out the conspiracy was the sale of Crane's assets to DFCU Bank, which they said was a commercial act carried out by the BoU in its capacity as receiver rather than central bank, and therefore engaged the Commercial Activity Exception.

Distinguishing between a "private act" and "a sovereign or public act", the Court of Appeal noted that the sale of assets to a commercial third party by the receiver of a company is a quintessentially commercial act, which can be performed by any private person duly appointed as such receiver. While the overall character of the corrupt scheme in this case was the wrongful exercise of executive powers, it was necessary to consider the character of the specific act of selling Crane's assets ostensibly in an arm's length sale. Further, the Court noted that a course of conduct that is initially sovereign may become commercial in nature. In this case, the BoU's decision to move from statutory management of Crane to receivership effected a significant change in its role, as it became an agent of Crane, and it was in that capacity that it sold Crane's assets. The sale could, therefore, be considered a commercial activity.

The defendants alternatively contended that the sale by the BoU was in any event a sovereign act, being a managed transfer of the assets and liabilities of one Ugandan bank to another in the public interest, rather than a commercial sale. The judge accepted there was some force in that argument, but nevertheless accepted that it was well arguable that the sale was commercial activity, regardless of the BoU's purpose in entering into it.

The Public Policy Exception

The claimants also argued that all the executive acts in question engaged the English public policy of combatting and not giving legal protection to bribery and corruption, engaging the Public Policy Exception.

Rejecting the Respondents' narrow interpretation that the public policy exception will only apply where the courts are constitutionally required to determine the legality of the foreign act, the Court of Appeal noted that precisely what policies qualify for the exception is an open issue and subject to change. Although there was some force in the submission that recognising an exception based on a policy of combatting corruption might significantly reduce the scope of the foreign act of state rule, it was arguable that that corruption of foreign public officials is contrary to English public policy. Whether that corruption must be of a particularly egregious nature or a central feature of the illegality alleged, or whether some sort of balancing exercise was required, were all matters for trial rather than determination as part of a jurisdictional challenge. In this case it was alleged that the BoU and its officials abused their public office and duties for the corrupt purpose of obtaining undue advantage by financial inducements from DFCU Bank, and it was therefore arguable that the public policy exception was engaged.

The Kirkpatrick Exception

The Kirkpatrick exception arises out of a decision of the US Supreme Court where a disappointed bidder brought proceedings against the successful bidder, contending that the successful bidder had obtained a contract through the payment of bribes to government officials. The Supreme Court held that the claim was not barred by the foreign act of state rule since the validity of the foreign state's actions was not at issue. The claimants contended that their claims that DFCU Bank bribed the BoU and/or its officials were of a similar nature, and could be determined as a matter of fact as regards the BoU, without any need to adjudicate on the effect of such bribery on the executive acts of the officials in Uganda.

However, on this point the Court of Appeal disagreed. The claimants' principal cause of action was that DFCU Bank joined in a conspiracy with the BoU to dispossess Crane of its assets by misuse of the BoU's statutory and regulatory powers, a claim which required proof that the BoU was party to an unlawful means conspiracy, and that the means used were unlawful. Similarly, knowing receipt requires proof that the BoU was acting in breach of fiduciary duty, and the BoU was bribed to sell the assets at an undervalue to DFCU Bank. Therefore, there was no part of the claim which did not require the English court to adjudicate on the validity and lawfulness in Uganda and under Ugandan law of the actions of the BoU and its officials. The Kirkpatrick Exception was therefore not engaged.

Article 6

The Court of Appeal also rejected arguments that the foreign act of state rule is a disproportionate interference with a claimant's rights to fair hearing pursuant to Article 6 of the European Convention on Human Rights, noting that importing a proportionality test into the application of the rule would have a major impact on the rule and its applications.

Concluding remarks

The foreign act of state rule is important in preserving a state's ability to act as it sees fit. However, as the Court of Appeal's decision demonstrates, there are limits to the doctrine, and state parties will need to be aware that when they are dealing with commercial matters (even if those matters are part of an overall process which is sovereign in character) or with acts that trespass on public policy, there is a risk that their actions will become subject to the jurisdiction of the English court.

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