Sunday 20th May 2012

CASE DIGEST: EABD-Blueline and the restrictive theory of State immunity

By Paul Mbuga
EADB v BLUELINE.pdf  

The Court of Appeal of Tanzania delivered a seminal judgment on 28th December 2011 that laid down the law on the privileges and immunities that international organisations enjoy under international law. The decision (see .pdf copy above) was delivered in East African Development Bank (EADB) v Blueline Enterprises, CACA 110/2009 and brought to an end one of the most remarkable commercial disputes to have ever graced a court-room in the East African Community.  

Summarily, EADB, in the exercise of its lending powers, entered into a loan agreement with the respondent on 7th March 1990 by which it advanced a loan of Special Drawing Rights (SDRs) US$ 2,279,000 to Blueline. The loan was secured by a floating debenture and it was provided that in case of default in payment, the bank was to appoint a receiver for the charged properties. The facility was procured by Blueline to finance the purchase of various trucks, trailers and other equipment needed for a project for hauling petroleum products from Dar-es-Salaam to-upcountry stations in Tanzania, Malawi, the Democratic Republic of Congo and other neighbouring states

A dispute arose between the parties after Blueline defaulted on its repayment obligations. After EADB exercised its right to appoint a receiver-manager to enforce the debenture, Blueline petitioned for the submission of the dispute to arbitration and managed to obtain an ex parte order restraining the bank and the receiver-manager from taking over its business.

After yet another series of judicial sparring, EADB re-submitted to arbitration before Mr. A. T. H. Mwakyusa, albeit under protest. Mr. Mwakyusa delivered a ruling in which he awarded Blueline damages for losses allegedly occasioned by the bank in the sum of US$61,386,853. Shockingly, no award was made in respect of the bank’s claim for the outstanding loans and interest due from Blueline.

Blueline duly commenced execution proceedings in 2006 and obtained a garnishee order nisi. EADB, in turn, filed an application in the High Court seeking a declaration that the garnishee order nisi was improperly and unlawfully issued. This application was dismissed by Shangwa J who ruled, notably, that the bank accounts held by EADB with Standard Chartered Bank Tanzania is not a type of asset that is immune from interference for it is a “liquid asset… that is incapable of being immunized”.

Decision of the Court of Appeal

In reversing the decision of the High Court, the Rutakangwa J.A in his lead judgment made the following observations:

  • The restrictive theory of State immunity (there is no immunity in the market-place) as a principle of common law was adjudged to have no application in the dispute before the Court of Appeal. Court pointed out that the theory best applies in situations where immunity is predicated upon a claim of sovereign immunity.

  • The restrictive theory of State immunity was held not to apply to international organisations such as EADB which have been granted immunity from legal processes under their constitutive instruments, in this case the 1980 Treaty Amending And Re-Enacting The Charter Of The East African Development Bank.

  • Article 44 of the Treaty, in as far as EADB enters a transaction in the exercise of its lending powers, provides it with absolute immunity from every form of legal process. Equally, all EADB properties and assets and business premises enjoy absolute immunity under Article 45 except when exercising its borrowing powers. The celebrated case of Trendtex Trading Corporation v The Central Bank of Nigeria [1977] 1 ALL ER 881, where the claim of immunity was predicated upon a claim of state sovereign immunity, was held to have no relevance in the circumstances.

  • The court also determined that the question of immunity was not res judicata. This was in view of the points of law that, one, if a law is altered by the passing of a new Act after a decision has been made in a case, the doctrine of res judicata does not arise. Two, where as a result of a change of law new rights are conferred on parties, such rights are not barred by res judicata by decisions given before the new law came into force. Thirdly, where a proceeding applied to a different set of circumstances, it could not be defeated by a plea of res judicata. The Court of Appeal found that in view of the totality of the facts, distinct jurisdictions applied to the different proceedings. Further, the plea of immunity was premised on different and totally distinct pieces of legislation.

  • EADB’s money held in bank accounts was held to constitute assets and properties and was therefore immune from execution. This principle was held to extend to mixed bank accounts. Any view to the contrary, as was assumed by Shangwa J, was described by the Court of Appeal as a “startling proposition”.

Conflicting precedent

A fascinating issue here is that the EADB-Blueline decision departs significantly from the decisions handed down by Kenya’s Court of Appeal in Tononoka Steels Limited v The Eastern & Southern Africa Trade & Development Bank, CACA No 255/1998 and Uganda’s Supreme Court in Concorp International v The Eastern & Southern Africa Trade & Development Bank, SCCA No 11/2009.

The Kenyan Court of Appeal relied heavily on Trendtex case while the Uganda Supreme Court cited the Tononoka decision with approval.

The Tanzanian Court of Appeal has, in turn, held that the restrictive theory of State immunity that was applied in Trendtex, Tononoka and Concorp does not apply to international organisations granted absolute immunity under their constituent instruments. 

On the face of the wealth of and strength of authority quoted by Rutakangwa J.A in his brutally incisive judgment, this appears to be a justifiable departure. Nevertheless, the findings in this case mark a development that will surely herald considerable judicial and academic debate.

Paul Mbuga is an Associate with Sebalu & Lule Advocates