HOUSE OF LORDS.

 

RAHIMTOOLA, APPELLANT;

AND

NIZAM OF HYDERABAD AND ANOTHER, RESPONDENTS.

 

See Law Reports version at [1958] A.C. 379

 

 

COUNSEL: Bernard MacKenna Q.C., Richard Wilberforce Q.C. and Oliver Smith for the appellant.

Sir Andrew Clark Q.C. and Samuel Cooke for the Nizam.

Geoffrey Gross Q.C., Eustace Roskill Q.C. and Peter Fosterfor the bank.

 

SOLICITORS: Sanderson, Lee, Morgan, Price & Co.; Bailey Co.; Freshfields.

 

JUDGES: Viscount Simonds, Lord Reid, Lord Cohen, Lord Somervell of Harrow and Lord Denning

 

DATES: 1957 July 16, 17, 18, 22; Nov. 7.

 

 

APPEAL from the Court of Appeal (Lord Evershed M.R., Birkett and Romer L.JJ.). Decision of the Court of Appeal (sub nom. Nizam of Hyderabad v. Jung) [1957] Ch. 185; [1957] 1 All E.R. 257 reversed.

 

VISCOUNT SIMONDS intimated that their Lordships did not require to hear argument in reply on the question whether or not the appellant acted as a private individual.

 

[*392] Their Lordships took time for consideration.

 

Nov. 7. VISCOUNT SIMONDS. My Lords, the question in this appeal is whether the Court of Appeal were right in refusing to set aside a writ of summons and all subsequent proceedings in an action brought by the respondent, the Nizam of Hyderabad, against the appellant, and further refusing to stay all further proceedings in the same action against the respondents, Westminster Bank Ltd. An order to that effect had been made by Upjohn J. but was reversed by the Court of Appeal.

 

55 (1830) 1 B. & Ad. 450.

 

56 [1938] A.C. 485, 501, 505.

 

57 (1854) 18 Beav. 596.

 

58 [1952] A.C. 582.

 

59 Ibid. 597.

 

60 (1946) Sirey Recueil Général, 1947, I, 137; Annual Digest and Reports of Public International Law Cases, 1946, Case No. 32, p. 78.

 

61 [1957] Ch. 185, 242. [*393]

 

[His Lordship stated the facts and continued:] I pause to observe that the position of the bank has throughout been one of impartial willingness to pay its debt to whomsoever it may be justly due but, reasonably enough, it is anxious not to have this action continued against it, but not against the appellant. This anxiety is shared by the appellant and has determined the form of order originally made by Upjohn J. and the course of the argument on this appeal.

 

Upon the motion coming before that learned judge with a number of affidavits on either side which add little, if anything, to the bare statement I have made, an order was made in accordance with its terms. I have read and re-read the judgment of the learned judge, and I may perhaps be permitted to say that I find in it such a lucid exposition of the facts and relevant law that I should have been content to adopt it as my own and say no more but for the fact that the Court of Appeal came to a different conclusion and set aside his order. In my opinion, as I believe is that of all of your Lordships, they were wrong in doing so.

 

The first question is: in what capacity did the appellant accept a transfer of the funds in question and become the customer of the bank, to whom it was primarily accountable? It has been said that there are three possible views. The first is that he was acting as a private individual. This view is so clearly untenable that I will not say more about it. The other alternatives were stated thus by Romer L.J.1: (1) that he was acting as “agent” for Pakistan, and (2) that he was acting as the “organ” or “alter ego” of Pakistan, and that learned Lord Justice came to the clear conclusion that he accepted the transfer in his official capacity as servant or agent of Pakistan. On the other hand, he could not accept the view that he was the “organ” or “alter ego” of Pakistan. If these words or either of them connote that a High Commissioner is in the same sense to be identified with the Government he represents, as is, for instance, a Department of State, I am not prepared to take a different view. But, for the purpose of the present case, it appears to me to be unimportant. No doubt, if a defendant, by whatever name he is called, can be identified with the Sovereign State, his task is easy: he need prove no more in order to stay the action against him. But, as soon as it is proved that quoad the subject-matter of the action the defendant is the agent of a Sovereign

 

1 [1957] Ch. 185, 243; [1957] 1 All E.R. 257. [*394]

 

State, that, in other words, the interests or property of the State are to be the subject of adjudication, the same result is reached. This is precisely what is meant by the rule thus stated in Dicey’s Conflict of Laws, 6th ed., p. 131: “Rule 19. The court has subject to the exceptions hereinafter mentioned) no jurisdiction to entertain an action or other proceeding against (1) any foreign sovereign … An action or proceeding against the property of any of the foregoing is, for the purpose of this rule, an action or proceeding against such person. …” “Two propositions of international law,” said Lord Atkin in Compania Naviera Vascongado v. S.S. “Cristina”2 “[are] engrafted into our domestic law which seem to me to be well established and to be beyond dispute. The first is that the courts of a country will not implead a foreign sovereign. That is, they will not by their process make him against his will a party to legal proceedings, whether the proceedings involve process against his person or seek to recover from him specific property or damages. The second is that they will not by their process, whether the sovereign is a party to the proceedings or not, seize or detain property which is his, or of which he is in possession or control.”

 

I should not, my Lords, have reminded your Lordships of these very familiar propositions were it not that the Court of Appeal has, as it appears to me, failed to observe them. That the Government of Pakistan were the principals (disclosed or undisclosed, it matters not) for whom the appellant as agent held the account in question with the bank, is, as I have already said, established beyond doubt. They were and are in a position to sue the bank either in the name of their agent, the appellant, or, if he were unwilling that his name should be used, in their own name, adding him as a defendant. The bank could not pay any other person without disregard of, and detriment to, their interests. For the bank knows only the appellant and knows him, as I think, though it does not matter, as the agent of the Government. I do not understand what difference it makes to this simple fact that before the Court of Appeal it was proved, or at least asserted and not disproved, that Moin exceeded his authority in making the transfer to the appellant. It would or might be important if the matter was litigated, but that is just what the Government of Pakistan, through its agent, declines to do. Much stress has been laid on the fact that it has not asserted a beneficial interest in the fund. But why should it? It is not concerned to admit,

 

2 [1938] A.C. 485, 490; 54 T.L.R. 512; [1938] 1 All E.R. 719. [*395]

 

assert or deny. It has the legal title, which cannot be displaced except by litigation which it is entitled to decline. It rests on the principle, the statement of which I take from the judgment of the Court of Appeal in Haile Selassie v. Cable and Wireless Ltd.3 just because the respondent particularly relied on that case: “If property locally situate in this country is shown to belong to, or to be in the possession of, an independent foreign Sovereign, or his agent, the courts cannot listen to a claim which seeks to interfere with his title to that property, or to deprive him of possession of it.” It is true that in that case the court did not decline to adjudicate on the claim of a foreign sovereign State: it did so on the ground that, as there stated, “in the case of a debt such as that with which we are concerned there can be no question of possession or control and the title to it is the very thing which stands to be established or not to be established in these proceedings.” Your Lordships are not concerned to consider whether the principle, which was there correctly stated, was also there correctly applied. In the present case its application does not appear to me to be in doubt. The property in dispute is situate in this country. I say that because it is, for many purposes, necessary to ascribe a situation to a chose in action which physically has none, and, for the purpose of this doctrine, no other situation can be ascribed to it than the place in which it can be sued for and enforced. A suit by a third party, the Nizam, is calculated and intended to interfere with the title of Rahimtoola and his principals, the Government of Pakistan, and with their possession or control of their property. It can only be maintained if the Government of Pakistan take a course which their sovereign dignity entitles them to reject and descend into the arena. I have used the words “possession or control” because they are the words used in the statement of principle that I have adopted. It may be said that “possession” is not an apt word in connexion with a chose in action, but it seems to me that the two words, whether used together or separately, are apt to describe the relation in which an owner stands to the property which he owns. I would deprecate fine distinctions in our municipal laws in the application of international doctrine. Let it be supposed that a bank holds valuables, as, for instance, gold bars, on account of a foreign government or its agent and at the same time is indebted to the same party on current or deposit account in a sum of x. It has

 

3 [1938] Ch. 839, 844; 54 T.L.R. 996; [1938] 3 All E.R. 384. [*396]

 

been made clear by the recent case of United States of America v. Dollfus Mieg et Cie S.A.4 that the foreign government could deny the jurisdiction of an English court to adjudicate upon their rights in regard to the valuables. I decline to accept the argument of counsel for the respondent that this conclusion rested upon any sacred principle as to the rights of bailor and bailee, and I should regard it as deplorable if the court, while accepting, as a matter of comity, the right of the foreign government to deny its jurisdiction in regard to valuables, yet rejected it in regard to a chose in action. To make one law in regard to valuables, bars of gold or perhaps bearer bonds, and another in regard to simple contract debts is not a policy that should recommend itself to your Lordships. Whether the property is a gold bar or a debt, the Government of Pakistan is the legal owner and is entitled to refuse to have its title investigated. The case law dealing with this question has been so recently and so fully expounded in the Dollfus case4 that I think it unnecessary to add anything on the broad question.

 

There are, however, two other aspects of the question which I must examine.

 

In the Court of Appeal, and, as I understand, not until his reply, counsel for the Nizam raised a novel point which had not been considered by Upjohn J. but which found favour with that court. The argument runs thus. It is the law as laid down by a series of cases starting with Buller v. Harrison,5 and as stated in Halsbury’s Laws of England, 3rd ed., vol. 1, p. 233, para. 522, that “if a third person pays money to an agent under a mistake of fact, or in consequence of some wrongful act, the agent is personally liable to repay it, unless, before the claim for repayment was made upon him, he has paid it to the principal or done something equivalent to payment to his principal.” Apply this principle of law to the facts of this case. The account was transferred to the name of Rahimtoola by a mistake of fact or other wrongful act, namely, the unauthorized action of Moin; Rahimtoola and the bank were informed of the wrongful act and of the Nizam’s claim before Rahimtoola had dealt with the account either by paying the money to his principal or in any other way. Therefore, it is concluded, Rahimtoola is liable in this suit to repay the Nizam and there is no need to consider any question of sovereign immunity. This argument, as I say, was

 

4 [1952] A.C. 582; [1952] 1 T.L.R. 541; [1952] 1 All E.R. 572.

 

5 (1777) 2 Cowp. 565. [*397]

 

successful in the Court of Appeal, but I think that your Lordships unanimously reject it.

 

My Lords, I am not concerned to deny that in a suit in which private persons only are concerned the rule in Buller v. Harrison,5 if I may call it so, may prevail, though I would suppose that, in any case, the principal should not be denied the opportunity of asserting that the money was not paid to his agent in consequence, for instance, of a mistake of fact. But where, as for this purpose I assume to be the case here, the transfer is made to one who, if not an “organ” of a foreign government, is demonstrably its servant and agent, it would make a strange breach in the international principle if it were open to a third party to recover from the agent by the mere assertion of mistake or other wrongful act. That is the very thing which the agent on behalf of his principal is concerned to dispute, and if his principal is a foreign sovereign it is the very thing upon which the courts of this country may not adjudicate in the face of the foreign sovereign’s objection. I look again at the writ to see what is the substance of the matter. The claim is that money was paid to Rahimtoola in trust for the Nizam or as money due and owing to the Nizam or as money had and received to the use of the Nizam. These are matters which directly concern the principal on whose behalf Rahimtoola received the money. They cannot be determined without impleading him. Therefore they cannot be determined at all.

 

The second matter is this. As your Lordships are aware, this branch of the law has long ago been complicated by a series of cases in the Court of Chancery or the Chancery Division of the High Court in which the question has been of a claim by a foreign sovereign to a trust fund or a share in a trust fund subject to the administration of the court. On this subject I can add nothing to what was said by my noble and learned friend, Lord Radcliffe, in the Dollfus case.6 But I have failed to see that they have any relevance to the present case. Here is no trust fund which is being administered by the court. It is possible that, if the action proceeded as between private persons and all the matters in dispute were litigated to a conclusion, it might be held (though truly it would be unnecessary to do so) that Rahimtoola held the account with the bank in trust for the Nizam. But that is a consequence of carrying to a successful conclusion litigation which in its inception has nothing in common with the administration of a trust. Certainly the Government of Pakistan has

 

5 2 Cowp. 565.

 

6 [1952] A.C. 582. [*398]

 

never admitted that its agent or itself is a trustee for the Nizam, and until that fact is established the cases that have been cited are wholly irrelevant. It cannot be established because the Government through its agent declines adjudication by our courts.

 

It remains to consider the question of the bank, whose attitude I have already stated. It is willing to pay whomsoever it may be ordered to pay but unwilling that the action should be stayed against Rahimtoola but continued against itself. It is, I think, clear that it would not be right to allow the action to proceed against the bank alone. Such a course would lay it open to a second attack. The account is the account of the Government of Pakistan in the name of its agent. If it pays a third party under an order of the court made in proceedings by which that Government is not bound, it is not safeguarded against a further claim. But, further than that, since the legal title is in the Government, it cannot in substance be anything but a grave interference with its property for a third party to sue the bank and, if the suit is successful, to recover from the bank the money to which it is nominally entitled.

 

In my opinion, in this, as in the rest of his judgment, Upjohn J. was right. This appeal should therefore be allowed, the order of the Court of Appeal set aside and that of the learned judge restored. The respondent, the Nizam, must pay the costs of the appellant, Rahimtoola, and the Westminster Bank here and in the Court of Appeal.

 

My Lords, I must add that, since writing this opinion, I have had the privilege of reading the opinion which my noble and learned friend, Lord Denning, is about to deliver. It is right that I should say that I must not be taken as assenting to his views upon a number of questions and authorities in regard to which the House has not had the benefit of the arguments of counsel or of the judgment of the courts below.

 

LORD REID. My Lords, in this case the Nizam of Hyderabad sues for payment of a sum of just over one million pounds. That sum is held by the respondent bank in an account standing in the name of “Habib Ibrahim Rahimtoola (High Commissioner for Pakistan in London).” Rahimtoola is the appellant in this appeal. The State of Pakistan claims that this action should be stayed on the ground that it infringes the sovereign immunity of Pakistan from actions in our courts. Such a claim may arise from a sovereign State’s claim to have a beneficial interest in the property which is the subject of the action, but no such claim is [*399] made in this case. The claim to immunity may also arise by reason of the State having some other interest in the property. In United States of America v. Dollfus Mieg et Cie S.A.7 no beneficial interest was claimed in gold bars deposited in a bank, but the States concerned had as bailors an immediate right to possession of the bars. This was held sufficient to entitle them to have an action stayed which was brought by the owners of the bars against the bank. The question in this case is whether Pakistan has an interest such that its claim to sovereign immunity requires this action to be stayed.

 

In 1948 this money was deposited with the respondent bank in an account in the name of the Government of Hyderabad, and the persons entitled to operate on this account were the Agent General and the Finance Minister of Hyderabad. In September, 1948, Indian troops were invading the territory of Hyderabad and the Finance Minister approached the appellant with a view to the money being transferred to him. No doubt the Finance Minister acted in what he thought were the best interests of the Nizam, but he had no authority to make such a transfer. The appellant was not then aware of this.

 

The only evidence about the transaction is that given by the appellant in two affidavits. He was not cross-examined. It appears that a meeting took place on September 16 at which there were present the Finance Minister of Hyderabad, the appellant, who was then High Commissioner for Pakistan, and the Foreign Minister of Pakistan. The appellant did not wish to become involved, but he was overruled by his Foreign Minister who was his superior, and who directed him to accept a transfer of the money into his name as High Commissioner. The transfer was made by the respondent bank on September 20 and intimated to the appellant on the same day. I shall not consider the evidence in detail because I think that it is clear that the appellant was throughout acting under instructions in his official capacity. I can find no ground for the respondent’s contention that the transfer was made to the appellant in his private capacity as an individual in whom the Finance Minister had confidence as a suitable person to hold the money.

 

The Court of Appeal decided that the action should not be stayed. They were of opinion that, even if the appellant was acting in his official capacity, he was only an agent, that he held the legal title to the money, that there can be no possession or

 

7 [1952] A.C. 582. [*400]

 

control of a chose in action by anyone who does not hold the legal title, and that therefore there was no basis for Pakistan’s claim to have the action stayed.

 

In my opinion, that is too narrow a view. On and after September 20, 1948, when the respondent bank opened the account in the name of “Habib Ibrahim Rahimtoola (High Commissioner for Pakistan in London),” the position was that the appellant, as a servant or officer of the State of Pakistan, was bound to act upon any instructions regarding this money given to him by the appropriate Minister of that State. If the appellant for any reason failed or was unable to do so, then, in my judgment, Pakistan could have taken proceedings directly against the bank to recover the money. It is true that the appellant was the only person who could operate the account and that the bank was not bound to honour any cheque which was not signed by him. But that does not mean that there was no other way by which Pakistan could recover the money. Even if it be said that the form in which the account was opened was not sufficient notice to the bank that the appellant was acting merely as an officer or agent of Pakistan, that State was at least the undisclosed principal of the appellant. It is well settled that a principal, including an undisclosed principal, has a right to sue directly and in his own name. I can see no reason why this rule should not apply to banking, but it may well be that, if a bank declines to pay the principal without getting the authority of the agent who is its customer, the principal in suing the bank would have to make his agent a defendant in the action. And the principal would, of course, have to prove that the agent had in fact acted as his agent. It appears to me that Pakistan had an immediate and direct right to sue the bank in its own name for payment of this money and in that sense it had a legal title. It had full control of this chose in action.

 

I do not think that it is correct to regard the appellant as a trustee. If the appellant acted throughout as the servant or agent of Pakistan, I find it difficult to see how he could become a trustee for someone else. A trustee has the duty and right to hold the trust property and to prevent anyone from carrying it off. But the appellant could not have prevented Pakistan from suing for this money without his consent. That State had control. If anyone became a trustee by reason of the facts that to the knowledge of the Finance Minister of Hyderabad the appellant took the money as servant or agent of Pakistan, that [*401] no beneficial interest is claimed either by Pakistan or the appellant, and that they were later informed that the Nizam’s property had been transferred without his authority, then the trustee must, I think, be the State of Pakistan itself. But that would not help the respondent, the Nizam.

 

We were referred to cases which show that the court will not halt the administration of an English trust because a foreign sovereign makes a claim in respect of the trust property but will not submit his claim to the jurisdiction of our courts. It may well be that the claim to sovereign immunity does not extend to such a case. But in these cases there was an independent trustee who was subject to our jurisdiction, and they appear to me to have no application to a case where the trustee is the sovereign himself. It would be quite inconsistent with the whole conception of sovereign immunity that we should require the sovereign to submit himself to our jurisdiction and seek to control him in his conduct of the trust which he has undertaken. If the State of Pakistan is a trustee then it must be left to that State to determine what its duty is.

 

We were also referred to a series of cases beginning with Buller v. Harrison,8 where it was held that a person who has paid money to the agent of a person who wrongfully induced the payment may recover the money directly from the agent if the agent still has the money in his possession. Normally a person who claims repayment would have to sue the principal, and I have found nothing to suggest that these cases would apply to a case where the person claiming payment could not successfully sue the principal. In the present case the sovereign immunity of Pakistan would prevent an action against that State, and, even if the principle of Buller v. Harrison9 applied to the circumstance of the payment in the present case, which I doubt, the fact that the principal could not be sued, in my view, excludes its application.

 

I have assumed that the appellant is to be regarded as merely the agent or servant of Pakistan. I do not find it necessary to consider the question whether a High Commissioner should be regarded as the representative of the State which he represents so that to implead him would be equivalent to impleading the State itself, or whether, if that were so, it would make a difference that the appellant ceased to be High Commissioner before the commencement of this action.

 

8 2 Cowp. 565.

 

9 Ibid. [*402]

 

The point at issue in this case can now be stated in a simple form. The State of Pakistan has a right to sue the respondent bank but Pakistan claims no beneficial right to the money owed by the bank. Does that entitle Pakistan to have this action stayed (1) in so far as it is directed against the appellant, and (2) in so far as it is directed against the respondent bank? I do not see any reason why the right of that State to claim sovereign immunity should depend on whether the bank account stands in the name of the State itself or stands in the name of its servant, agent or nominee. It was not disputed that, if the bank account had stood in the name of the State itself, the State could not have been made a party to this action against its will. It appears to me to follow that the State is entitled to object to its agent being made a party: the agent would merely be defending the action on behalf of his principal. I am therefore of opinion that the action must be stayed in so far as it is directed against the appellant, and I proceed to consider whether it can continue against the bank alone.

 

In a number of recent cases it has been necessary to consider in what circumstances a sovereign, who is not directly impleaded, is entitled to have an action stayed on the ground that it affects property in which the sovereign has or claims to have an interest. Most of these cases deal with ships or chattels and the only one dealing with a chose in action to which we were referred is Haile Selassie v. Cable and Wireless Ltd.10 There the defendants owed money to the Emperor of Ethiopia. When the action was brought, the plaintiff was recognized by our Government as de jure sovereign and the King of Italy was recognized as de facto sovereign of that country. The de facto sovereign claimed the money and sought, unsuccessfully, to have the action stayed. In that case Greene M.R., in delivering the judgment of the Court of Appeal, said11: “The rule applies in the case both of actions in personam and of actions in rem. But it has never been extended to cover the case where the proceedings do not involve either bringing the foreign sovereign before the court in his own person or in that of his agent or interfering with his proprietary or possessory rights in the event of judgment being obtained. Where it is either admitted or proved that property to which a claim is made either belongs to, or is in the possession of, a foreign sovereign, or his agent, the principle will apply. But where property which is not proved or admitted to belong

 

10 [1938] Ch. 839; 54 T.L.R. 996; [1938] 3 All E.R. 384.

 

11 [1938] Ch. 839, 844-845. [*403]

 

to, or to be in the possession of, a foreign sovereign or his agent is in the possession of a third party, and the plaintiff claims it from that third party, and the issue in the action is whether or not the property belongs to the plaintiff or to the foreign sovereign, the very question to be decided is one which requires to be answered in favour of the sovereign’s title before it can be asserted that that title is being questioned … It would be a strange result if a person claiming property in the hands of, or a debt alleged to be due by, a private individual in this country were to be deprived of his right to have his claim adjudicated upon by the courts merely because a claim to the property, or the debt, had been put forward on behalf of a foreign sovereign.” That passage, if it were still fully authoritative, would go far to assist the present respondent, the Nizam. But it must now be read in light of the decisions of this House in the Dollfus Mieg case12 and of the Privy Council in Juan Ysmael & Co. Inc. v. Indonesian Government.13 In the latter case it is said14: “In their Lordships’ opinion a foreign government claiming that its interest in property will be affected by the judgment in an action to which it is not a party, is not bound as a condition of obtaining immunity to prove its title to the interest claimed, but it must produce evidence to satisfy the court that its claim is not merely illusory, nor founded on a title manifestly defective.” The fact that Pakistan does not claim a beneficial interest in this debt does not, in my view, make its claim merely illusory or its title manifestly defective.

 

The Dollfus Mieg case15 shows that a sovereign can have an action stayed without having either a proprietary right in the sense of a beneficial right or a possessory right in the sense that the sovereign can effectively deal with the property at his own hand. In the Dollfus Mieg case15 the gold bars were held by the bank. The bank could not be compelled by the Sovereign Governments, the bailors, to hand the gold bars over to them except by a judgment of the court, and it would not do so without either a judgment or the consent of Dollfus Mieg because if it had done so it would have laid itself open to an action of damages by Dollfus Mieg. Nevertheless, the Sovereign Governments were held entitled to have the action of Dollfus Mieg stayed and so to create a deadlock. Dollfus Mieg were prevented from recovering

 

12 [1952] A.C. 582.

 

13 [1955] A.C. 72; [1954] 3 All E.R. 236.

 

14 [1955] A.C. 72, 89-90.

 

15 [1952] A.C. 582. [*404]

 

their property and the Sovereign Governments could not make good their right to immediate possession without doing the very thing that they objected to doing - submitting themselves to the jurisdiction of the English courts by suing the bank for delivery of the bars. Staying the present action may lead to a similar deadlock, but it is much too late now to argue that that is a good reason for not giving effect to the principle of sovereign immunity.

 

It is true that Dollfus Mieg were permitted to proceed against the bank alone in an action of damages for conversion of 13 of the gold bars, which the bank had negligently failed to retain in their possession. The result of the bank’s failure to retain possession of the gold bars was that it could be sued for damages both by Dollfus Mieg as owners of the bars and by the Sovereign Governments as bailors of the bars. The fact that Dollfus Mieg were permitted to pursue their action for damages does not appear to me to assist the present respondent. In the present case, the bank owes a single debt - the amount at the credit of the account in the name of the appellant. The question is to whom that debt should be paid. In order to succeed, the respondent, the Nizam, would have to displace the legal title and the right of the State of Pakistan to recover the money. In my judgment, an action for that purpose does directly affect the rights of that State and it cannot be allowed to proceed in the absence of that State or its representative.

 

The argument for the respondent, the Nizam, involves the proposition that, if a sovereign deposits with a bank both money and gold bars, in neither of which he claims a beneficial interest, and a third party sues the bank claiming to be owner of both, then, although the sovereign can found on the principle of immunity to prevent the action from proceeding with regard to the gold bars, he cannot prevent the action from proceeding with regard to the money. The principle of sovereign immunity is not founded on any technical rules of law: it is founded on broad considerations of public policy, international law and comity. While the differences between the rights of a bailor and the rights of a lender of money are of great importance in many respects those differences do not appear to me to require or justify such a result. I would associate myself with the final observations of my noble and learned friend, Viscount Simonds. In my judgment this appeal should be allowed.

 

LORD COHEN. My Lords, I need not restate the facts.

 

The first question that arises is whether the action brought by [*405] the Nizam against the appellant and the bank should be stayed as against the appellant under the doctrine of sovereign immunity.

 

The second, which only arises if the first question is answered in the affirmative, is whether the action should be allowed to proceed against the bank.

 

Sir Andrew Clark submits that the first question should be answered in the negative on a number of grounds. He argues, in the first place, that the account opened by the bank in the name of the appellant was opened in his favour in his individual capacity and that the reference to “High Commissioner of Pakistan” in the title of the account was merely descriptive and was not intended to connote any Pakistan Government interest in the account. This view appears to have commended itself to the Master of the Rolls and Birkett L.J., although they did not decide the matter in favour of the Nizam on this ground. I find it impossible to accept it as correct, in view of the affidavit evidence by the appellant, the accuracy of which is not challenged. In his first affidavit he says that it was agreed between the defendant Moin (who had been placed by the Nizam in control of the funds in question) and himself that the said funds should be transferred to him as the agent of the Government of Pakistan and that he accepted the transfer in accordance with the instructions of and as agent for his Government. In his second affidavit he is more explicit. Speaking of the interview at which the transfer was arranged and at which there was present, in addition to the defendant Moin and the appellant, Sir Mohamed Zafrullah Khan, the then Foreign Minister of Pakistan, he says that (1) the said Foreign Minister instructed him to accept the transfer of the said funds into an account in his name but described as the High Commissioner for Pakistan; (2) but for those express instructions he would never have agreed to the transfer; (3) it was never suggested to him that he should accept the said funds on his own account as a private individual as agent or trustee for the Nizam; (4) had such a suggestion been made he would have refused the transfer as he would have considered it improper to act in such a way while holding the position of High Commissioner.

 

In face of this evidence I am forced to the conclusion that when the appellant accepted the transfer of these funds he did so on behalf of the Government of Pakistan.

 

My Lords, in the Court of Appeal Romer L.J. accepted that the appellant did not take the transfer in his individual capacity, and then proceeded to consider whether, taking the transfer on [*406] behalf of the State of Pakistan, he did so as the alter ego of the State or merely as its servant or agent. Like Upjohn J., I do not think that in considering the application of the doctrine of sovereign immunity I ought to draw narrow distinctions. To make a distinction between a title to a debt in the name of the State and title to a debt in the name of the appellant as High Commissioner of the State would, in my opinion, be drawing a very narrow distinction. However, I am content, for the moment, to say that, having regard to the title of this account in the books of the bank, and to the circumstances in which the account was opened, the appellant was plainly the agent for the State of Pakistan and the State could have enforced the transfer to the State of the balance to the credit of the account, though the appellant might have been a necessary party to the proceedings.

 

Prima facie, therefore, a suit against the appellant in respect of this account affects the right or interest of the State of Pakistan. None the less, the Court of Appeal rejected the claim of the appellant to sovereign immunity on the basis of a principle stated in Halsbury’s Laws of England, 3rd ed., vol. 1, p. 233, para. 522, in the following terms: “The receipt of money from a third person by an agent on his principal’s behalf, does not in itself render the agent personally liable to repay it when the third person becomes entitled as against the principal to repayment, whether the money remains in the agent’s hands or not. But if a third person pays money to an agent under a mistake of fact, or in consequence of some wrongful act, the agent is personally liable to repay it, unless, before the claim for repayment was made upon him, he has paid it to the principal or done something equivalent to payment to his principal.”

 

Applying that exception to the present case, Sir Andrew argued that (1) Moin acted wrongfully in transferring the funds to the appellant; (2) the appellant was the agent for the State of Pakistan and, before he had transferred the funds to his principal, the State, he had notice of Moin’s wrongful act and knew that the Nizam was demanding the return of the money. Therefore, (3) the Nizam could recover the balance to the credit of the account from the appellant as money had and received without impleading the State of Pakistan directly or indirectly. This argument was accepted by the Court of Appeal, Romer L.J. saying that the appellant could successfully escape from this position only by identifying himself with the State of Pakistan. My Lords, were it necessary to do so I should, I think, have regarded the evidence of the appellant as discharging this [*407] onus; but I do not think it is necessary to go so far. Like the Master of the Rolls and Birkett L.J., I am prepared to base my judgment on the citation made by them from the speech of Lord Radcliffe in United States of America v. Dollfus Mieg et Cie S.A.,16 though I arrive at a different conclusion. I need not repeat that citation. I am prepared to accept that the effect of it is correctly stated by their Lordships in the following extract from their judgment17: “From this passage it sufficiently appears, in our judgment, that the prohibition, which is of the essence of the rule, is a prohibition against the assertion by the English court of jurisdiction to entertain proceedings against a sovereign who (or a sovereign State which) is unwilling to submit to such jurisdiction. Whenever, therefore, the rule is invoked in a proceeding to which the sovereign is not made or sought to be made a party, but in which the subject-matter is some property in regard to which the sovereign has or claims some kind of right or interest, the applicability of the rule depends upon the extent to which the prosecution of the claim so affects the right or interest of the sovereign ‘as to amount in one way or another to a suit against the sovereign.’ The proposition is imprecise, no doubt; but as Lord Radcliffe observed, the law cannot be set at rest ‘by any neat combination of words.’”

 

In my opinion, the suit instituted by the Nizam so affects the right or interest of the State of Pakistan as to make this case on a par with the Dollfus Mieg case.18 True it is, as the Court of Appeal point out, that in that case the subject-matter of the suit was chattels, that in the case of chattels a sovereign State must act through individual agents and that this necessity does not apply in the case of a chose in action. In the case of a chose in action the question is, no doubt, one of title, not control, but, in my opinion, the effect of the transfer of the balance into an account in the name of “Habib Ibrahim Rahimtoola (High Commissioner for Pakistan in London)” was to vest in the State of Pakistan such title to the balance to the credit of that account as to make any suit against the appellant to recover that balance whether as “money held in trust for the plaintiff” or as “money due and owing to the plaintiff” or “as money had and received to the use of the plaintiff” a claim which amounts to a suit against a sovereign State.

 

16 [1952] A.C. 582, 615-617.

 

17 [1957] Ch. 185, 233-234.

 

18 [1952] A.C. 582. [*408]

 

Before parting from this part of the case, I would call attention to two points. In the first place, it is to be observed that no question of sovereign immunity arose in any of the cases establishing the exception to the general rule stated in the passage from Halsbury’s Laws of England which I have cited. It would be strange indeed if the applicability of the rule of sovereign immunity depended on whether the defendant was the sovereign or his agent.

 

Secondly, I would observe that this point was not taken before Upjohn J., and was only raised in reply in the Court of Appeal. It may, none the less, be a good point, but at least, in such circumstances, I may be allowed to suspect a flaw in the argument and to hope I have exposed it.

 

There remains the question whether what were called the trustee cases apply. If they do, it matters not whether the transferee was the appellant or the State of Pakistan. In either event Sir Andrew contended that he was entitled to maintain his suit on the ground that the English courts will not be deterred from administering a British trust by reason only that a beneficial interest in the trust fund is claimed by a sovereign State. His argument on this point was rejected by all the members of the Court of Appeal. I am content to express my agreement with them and to adopt the language of Romer L.J., where he says19: “I think those cases are only properly applicable where the court finds a trust fund in the hands of a person who is an independent trustee, and that they should not be extended to cases in which the person who controls the fund combines the character of trustee with that of agent for the foreign State which is setting up an interest in the fund. The contrary view, as it seems to me, would stretch what has hitherto been regarded as an exception to the doctrine to a point at which it ceases to be reconcilable with the doctrine itself. An additional reason why I should hesitate to hold that the exception applies is that Pakistan has not sought to establish any beneficial interest in the fund; its claim, as urged before the court, is limited to the legal title to the fund and is founded upon agency, and not the trusteeship, of Rahimtoola. Such a position, as I am inclined to think, is outside the scope and ratio alike of the relevant authorities which were brought to our attention.”

 

My Lords, I agree with Upjohn J. in thinking the quotation

 

19 [1957] Ch. 185, 250-251. [*409]

 

he makes from Sir Robert Phillimore in The Charkieh20 particularly applicable to the present case. It reads as follows: “The object of international law, in this as in other matters, is not to work injustice, not to prevent the enforcement of a just demand, but to substitute negotiations between governments, though they may be dilatory and the issue distant and uncertain, for the ordinary use of courts of justice in cases where such use would lessen the dignity or embarrass the functions of the representatives of a foreign State.” I would, therefore, stay the proceedings against the appellant.

 

There remains the question whether the action should be allowed to proceed against the bank. In my opinion, it should not. On this point also I agree with Upjohn J. that proceedings must be stayed and for the reasons that he gives 21: “With regard to the bank, the plaintiffs are suing the bank for the debt due at law to Rahimtoola. Proceedings must be stayed against them, for to continue to sue them is to interfere with the property of the sovereign. That is clearly the proper course when dealing with a claim in detinue: see Dollfus Mieg.22 This cannot be likened to the case of a claim for damages for conversion. In this case, unlike the claim in respect of the 13 bars of gold in the Dollfus Mieg case,22 there is no claim for damages against the bank, nor does this case resemble the Haile Selassie case.23 The question there was to whom were Cable and Wireless Ltd. indebted. In this case, so far as the bank is concerned, there is only one answer to that question - Rahimtoola. Both Moin and Miz had authority to operate the account, and the statement of claim does not allege that the bank had any knowledge of the alleged but, as I have held, unproved breaches of duty by Moin or Miz. The plaintiffs can only reach the debt through Rahimtoola. Therefore the action against the bank must be stayed.”

 

True it is that evidence not available to Upjohn J. was produced to the Court of Appeal establishing a prima facie case that Moin had been guilty of a breach of duty, but he was acting within the scope of his ostensible authority and neither the bank nor the appellant was aware of the alleged excess of authority when the account was transferred to the appellant. I do not think, therefore, the alleged excess of authority affords any reason why the action should be allowed to proceed against the bank.

 

20 (1873) L.R. 4 A. & E. 59, 97.

 

21 [1957] Ch. 185, 209-210; [1956] 3 All E.R. 311.

 

22 [1952] A.C. 582.

 

23 [1938] Ch. 839. [*410]

 

For these reasons, as well as for the reasons given by your Lordships, I would allow the appeal. I only desire to add that I entirely agree with the concluding observations of my noble and learned friend on the Woolsack.

 

LORD SOMERVELL OF HARROW. My Lords, I agree with the opinion of my noble and learned friend, Lord Reid, which has just been given. I would also like to associate myself with the concluding observations of my noble and learned friend on the Woolsack.

 

I wish only to add a few words on the decision in.24 I would agree that it is not sufficient for a foreign sovereign, in cases where the facts do not speak for themselves, simply to claim. On the other hand, there would be no “immunity” if the foreign sovereign had Haile Selassie v. Cable and Wireless Ltd to prove its title. I respectfully do not accept the statements to this effect in the speech of Lord Maugham in The Cristina.25 This passage, which was in its context a dictum, was cited with approval in the Haile Selassie case.26 The foreign sovereign must, in my opinion, establish an arguable issue.

 

The decision in the Haile Selassie case26 was based on a further ground. This, it was said, is not a case of property, possession or control of a chattel. The Italian Government is not a necessary party to the action. That, of course, is true. It is also true that a decision in favour of Haile Selassie would not have been pleadable as res judicata against the Italian Government.

 

The contract was made in 1935 at a time when the plaintiff was sovereign. The telegraphic station, the operation of which gave rise to the dues claimed, was closed on May 2, 1936, one day after the plaintiff left the country and seven days before the King of Italy proclaimed the annexation of the territory. The writ was issued on January 4, 1937. On that date His Majesty’s Government recognized the plaintiff as de jure, and the King of Italy as de facto, sovereign of Ethiopia. The issue was between the de jure and de facto sovereigns. The Court of Appeal decided that the claim by Haile Selassie was to proceed in the absence of the Italian Government, the defendant having raised the defence that by reason of the conquest of Ethiopia the right to recover the sum claimed had vested in the King of Italy. The court, if the case had proceeded to trial, would have had to decide whether

 

24 [1938] Ch. 839.

 

25 [1938] A.C. 485, 516; 54 T.L.R. 512; [1938] 1 All E.R. 719.

 

26 [1938] Ch. 839, 848. [*411] it had become so vested or not. If the decision was in favour of the plaintiff the court would presumably have decided that, having regard to international law, the nature of the agreement and the dates and so on, the King of Italy had no claim. It does not seem to me satisfactory to say that this is not indirectly impleading a foreign sovereign because he is not estopped by res judicata. It also puts or may put the defendant in a position in which I would prefer he should not be placed. He cannot interplead because one claimant is a foreign sovereign, but he may have to pay twice over.

 

If and in so far as the decision proceeded on the principle as stated above, I would wish to reserve the point.

 

LORD DENNING. My Lords, if the State of Pakistan succeed in this case in putting up the “protective umbrella” of sovereign immunity, it will be the first time, so far as I know, that the courts of this country have ever allowed it to be raised to ward off a claim to a debt or a chose in action situate here on the ground that a foreign Government own or control it. Your Lordships have heretofore allowed it to be raised in regard to a ship destined for public purposes, and in regard to gold bars likewise destined, but never before in regard to a debt.

 

Much of the argument in the courts below and before your Lordships was dominated by the question. To whom does this money - this debt - belong? That question was asked, no doubt, because of the rule stated in Dicey and the “two propositions of international law” formulated by Lord Atkin which, so far as applicable to this case, come down to this: Is this debt the property of the State of Pakistan? or alternatively, Is that State in control of it? for, if so, the action must be stayed.

 

Mr. MacKenna argued that the debt was the property of Pakistan because it had the legal title to it. He said that Pakistan could sue the bank at law in its own name for it, or, at any rate, that Rahimtoola could sue for it, and Rahimtoola was the agent of Pakistan.

 

The legal title to the debt was originally in the Nizam of Hyderabad. It was assigned by his Finance Minister, acting within the scope of his ostensible authority, to Rahimtoola or to Pakistan - I will consider which in a moment - and that assignment was effective to pass the legal title to the transferee. So much was admitted by Sir Andrew Clark, but, as I pointed out during the argument, the assignment was not complete and perfect so as to pass the legal title until the bank attorned to the [*412] transferee. At any moment up to the attornment, the Nizam could have countermanded the instructions to the bank and no one could say him nay: see Gibson v. Minet.27 Neither Rahimtoola nor Pakistan could have objected up to that point for the simple reason that they gave no value. They paid nothing for the debt. They gave up nothing. They promised nothing. And they could not say that there was a legal assignment within section 136 of the Law of Property Act, 1925, seeing that the arrangements for the transfer were all made by word of mouth. There was nothing in the nature of an “absolute assignment by writing.” There was only notice in writing to the debtor. Nevertheless, as soon as the assignment was perfected by the attornment of the bank to the transferee, the legal title passed, for the money was thenceforward held by the bank to the use of the named transferee and could be recovered by him from the bank, not in an action of simple contract but in an action of debt or for money had and received to his use: see Clark’s Case28 and Liversidge v. Broadbent.29 A few days after the attornment - before, indeed, it had been acknowledged by the transferee - the Nizam countermanded the instructions to the bank, but it was then too late to stop the legal title passing.

 

The transfer being good, however, the question is, To whom was the legal title transferred? Was it to Rahimtoola? Or to the State of Pakistan? This is a question of construction. The named transferee here was not the State of Pakistan but Rahimtoola himself. True, he was described in brackets as “(High Commissioner for Pakistan in London).” That is a description of his office and shows that he was acting in an official capacity. It shows, indeed, that he was an agent. But he still remained the named transferee. If he had been so named and described in a transfer of land or of shares, or in the assignment of an insurance policy, or in a bill of exchange as the payee or indorsee to whom the money was to be paid, there could be no doubt that the legal title would pass to him and not to Pakistan: see Hinson v. Burridge30 (point 1). So also in this transfer the legal title passed to Rahimtoola. If Pakistan had desired to have the legal title in itself, it should have taken care to have the account transferred into its own name, but it did not do so and must take the consequences, just as the principals had to do in Sims v. Brittain31 and Sims v. Bond.32 On the wording of the transfer

 

27 (1824) 2 Bing. 7.

 

28 (1614) Godb. 210.

 

29 (1859) 4 H. & N. 603, 612.

 

30 (1595) Moore K.B. 701.

 

31 (1832) 4 B. & Ad. 375, 378.

 

32 (1833) 5 B. & Ad. 389, 394. [*413] here, as it stands, Rahimtoola was in law the named transferee just as effectively as if the description “High Commissioner” had been omitted. He was the customer of the bank and the sole person entitled to operate the account. If the Foreign Minister of Pakistan had purported to give instructions to the bank, they could properly reply: “If you want anything done with this account, you must tell Rahimtoola and let him give us the instructions. He is our customer and the only person we know in this matter.”

 

Mr. MacKenna argued, however, before your Lordships - not, I believe, in the courts below - that Pakistan was entitled to sue the bank at law in its own name, without joining Rahimtoola as a party, because it was his principal in the matter. This might be a tenable argument if Pakistan could show that it was the real contracting party who was lending its money to the bank. That appears from the case of Cooke v. Seeley,33 on which Mr. MacKenna so much relied. But it is not this case. The real contracting party here was the Nizam of Hyderabad, who lent his money to the bank. He, through his Finance Minister, transferred the debt to Rahimtoola, and thereupon Rahimtoola acquired the legal title as transferee, not as contractee. It is just the same as when any piece of property is transferred into the name of a transferee who is acting on behalf of a principal, such as shares transferred to a nominee. The principal, when he is the beneficial owner, is entitled to intervene in equity to protect his interests, but he is not entitled to sue at law without joining the legal owner as a party: see Performing Right Society Ltd. v. London Theatre of Varieties Ltd.34 Here, however, Pakistan was not even the beneficial owner. The only way in which Pakistan might sue the bank alone is if it could show a contract of novation to which it was a principal, with consideration to support it, but none such was ever alleged or proved. In the motion to stay it was only the transfer that was relied upon.

 

In the result, I find myself in full agreement with all the judges in the courts below that, upon the transfer, the legal title to the debt became vested in Rahimtoola and not in Pakistan. And as Pakistan admittedly had no beneficial interest, I should have thought that it could not sue in its own name at all, but only in the name of Rahimtoola. Howsoever that may be, it by no means disposes of Pakistan’s claim. That State says that, even so, Rahimtoola was its agent and it could tell him what to

 

33 (1848) 2 Ex. 746.

 

34 [1924] A.C. 1; 40 T.L.R. 52. [*414] do with the debt, in particular, whether to sue for it or not, and it could require him to collect the money and hand it over. “In effect,” therefore, the property was in Pakistan or at any rate it was in its control.

 

That is a formidable argument, which Upjohn J. accepted, and it was only rejected by the Court of Appeal because it was displaced by new evidence adduced by the Nizam. This was to the effect that the Finance Minister of Hyderabad made the transfer wrongfully in breach of his duty to the Nizam and without any authority from the Nizam in fact. As soon as the Nizam got to know of it - it was within a very few days - and before any money had been withdrawn from the bank, the Nizam gave notice to the bank that the Finance Minister had no authority to make the transfer and asked for it to be retransferred. The bank did not retransfer it but they did not hand it to anyone else. They still have the money.

 

On this new evidence (which was not controverted) Sir Andrew Clark argued before the Court of Appeal that any kind of title or control in Pakistan had disappeared. It had been superseded by the right of the Nizam to recover the money from Rahimtoola in an action for money had and received. He referred to Buller v. Harrison35 for this purpose. Before your Lordships Sir Andrew went further and contended that the Nizam could recover the money at law from the bank likewise. He did not adduce any specific authority for that proposition, but I think it is plainly correct. The matter can be tested by taking a fictitious illustration which I only take because it comes from a decided case and throws the legal points into sharp relief. Suppose the Finance Minister had transferred the money to a lady of high standing whose official position was stated on the transfer, the transfer being within his ostensible authority but without actual authority, and it was later discovered that the lady was his mistress and the transfer made for no consideration. As soon as the bank were told that the transfer was wrongful and unauthorized, they would be bound to return the money to the Nizam. The Nizam could clearly recover the money from the bank, if they still had it in their hands or from the mistress if she had got it, or, indeed, from any person who received it from her, except one who received it in good faith and for valuable consideration. That is shown by the well-known decision of the Court of Appeal in Banque Belge pour l’Etranger v. Hambrouck.36 The gist of it is that an agent,

 

35 2 Cowp. 565.

 

36 [1921] 1 K.B. 321; 37 T.L.R. 76. [*415]

 

acting within his ostensible authority but without actual authority, handed over his master’s money for no consideration. The judgment of Atkin L.J. shows that he regarded such a transaction as voidable and not void. The named transferee obtained a title to the money until the plaintiff elected to avoid it, whereupon the title revested in the plaintiff subject to any title acquired in the meantime by any subsequent transferee for value without notice. So here, when the Nizam elected to avoid this transaction, the title revested in him so that he can sue the bank for the money which they still hold, but Rahimtoola ought to be joined as a defendant so that the bank may be protected from any claim by him, and he may have an opportunity of controverting the facts if he wishes to do so.

 

Sir Andrew Clark made a further point which appealed particularly to Romer L.J. There being no consideration for this transfer, and it not being a gift, the money was clearly held by the legal owner, Rahimtoola, on a resulting trust for the Nizam. That gives the Nizam a right of control over it which overrides any claim which Pakistan may have, as principal, to give directions to Rahimtoola.

 

Those arguments of Sir Andrew Clark appear to me to be very strong, as they appeared also to the Court of Appeal. Indeed, if it is open to the Nizam to displace the claim of Pakistan by showing a legal title in himself or an equitable title, I think he has done so. He has shown both, and if the matter stopped there I should have found myself in agreement with the Court of Appeal.

 

But the question is whether it is open to the Nizam so to displace the claim of Pakistan when that State declines to litigate about it. This throws us back, I think, to the rules which govern sovereign immunity.

 

It has sometimes been supposed that there is an absolute rule that a foreign Government cannot be impleaded in our courts in any circumstances, and, as a corollary, that it cannot be asked to come to our courts to litigate about its interest in property. That is supposed to be the result of Dicey’s rule and Lord Atkin’s two set propositions. But there are difficulties in it. To begin with, the rule about “not impleading a foreign Government” is by no means universal or absolute, as I will show. In the next place, the rule about “property” only applies, I think, to property which plainly or admittedly belongs to a foreign sovereign, or plainly or admittedly is in his possession or control. It is not appropriate in cases such as the present where the question “To [*416] whom does this debt belong?” “Whose property is it?” is the very question which has to be decided in the action. It cannot also be the question which has to be decided on a summons to stay. It is obvious that, if that is the question to be decided by the courts, it ought to be decided at the trial - or, at any rate, at a trial - after full discovery and examination of witnesses, instead of being done imperfectly at this preliminary stage with no discovery and on insufficient materials. Lord Maugham was of that opinion. He thought the foreign Government ought to prove its title. But if that is to be done, there is no point in a stay. You might as well have the trial anyway.

 

What is the alternative? If the foreign Government has not to prove its title, will a mere claim by it suffice? That is the only logical alternative, as Scrutton L.J. perceived. He pointed out that if the foreign Government is not to be impleaded, directly or indirectly, it must not be called upon for proof of anything, not even to show good cause: see The Jupiter.37 But the Privy Council have refused to carry the rule about “not impleading a foreign Government” to that absolute extreme. It would be far too unjust to a plaintiff in an English court: see Juan Ysmael & Co. Inc. v. Indonesian Government.38 But is there any halfway house? The Privy Council there said39 that a foreign Government is not bound to prove its title “but it must produce evidence to satisfy the court that its claim is not merely illusory, nor founded on a title manifestly defective.” Even this leaves many questions unanswered. What degree of evidence is needed for this purpose? And if the foreign Government produces some evidence, is it not open to the plaintiff to displace it? And if the plaintiff does succeed in displacing it (as the Nizam did here) - so that on the uncontroverted affidavits there is no longer an arguable issue - is the foreign Government still entitled to a stay?

 

Again, what does the rule mean when it speaks of “property” and “control”? Suppose that a legal title is in Pakistan or its agent, does it follow that the debt is “property” which belongs to it? It can well be argued that Pakistan should not be entitled to sovereign immunity simply because it has a bare legal title without any equitable right. The Cour de Cassation in France would not grant immunity on such a ground: see Procureur Général prs la Cour de Cassation v. Vestwig.40 And can Pakistan

 

37 [1924] P. 236, 243; 40 T.L.R. 815.

 

38 [1955] A.C. 72.

 

39 Ibid. 89.

 

40 (1946) Sirey Recueil G&ecute;néral, 1947, I, 137; Annual Digest and Reports of Public International Law Cases, 1946, Case No. 32, p. 78. [*417]

 

be said to have “control” over the debt when the Nizam has a good equitable title which has priority in the courts over any direction that Pakistan may give to its agent?

 

And where is the line to be drawn between an agent who is the “organ or alter ego” of a foreign Government and one who is not? Into which category did Rahimtoola, the High Commissioner, fall? It is said that, if he was an “organ” of the State, the transfer to him was equivalent to a transfer to the State of Pakistan itself and that automatically entitles it to a stay; whereas, if he was only an agent, it must produce evidence to satisfy the rule about “property.” I agree with the Court of Appeal that Rahimtoola cannot be regarded as an “organ or alter ego,” but I find it difficult to reconcile this with the decision in Baccus S.R.L. v. Servicio Nacional del Trigo,41 as to which I would only say that I should have thought that a separate legal entity which carried on commercial transactions for a State was an agent, and not an organ, of the Government, and that it was only if it was an “organ or alter ego” that it could not be impleaded.

 

And why, I ask, should sovereign immunity depend on the finer points of our domestic law? It is a strange proposition of international law which depends for its application on whether a satisfied judgment in trover changes the property in the goods (the point which apparently turned the scale in the Dollfus Mieg case42, or on whether the principal of a transferee can sue in his own name for cash at bank (a point which looms large in the present case). The comity of nations is not offended more or less according to the way such points are resolved.

 

Such are the difficulties in the existing rules. I can see no satisfactory answer to them. They are so great that I think we should go back and look for the principles which lie behind the doctrine of sovereign immunity. Search as you will among the accepted sources of international law and you will search in vain for any set propositions. There is no agreed principle except this: that each State ought to have proper respect for the dignity and independence of other States. Beyond that principle there is no common ground. It is left to each State to apply the principle in its own way, and each has applied it differently. Some have adopted a rule of absolute immunity which, if carried to its logical extreme, is in danger of becoming an instrument of injustice. Others have adopted a rule of immunity for public

 

41 [1957] 1 Q.B. 438; [1956] 3 All E.R. 715.

 

42 [1952] A.C. 582. [*418]

 

acts but not for private acts, which has turned out to be a most elusive test. All admit exceptions. There is no uniform practice. There is no uniform rule. So there is no help there.

 

Search now among the decisions of the English courts and you will not find them consistent. They seem to have different rules about “property” according to the subject-matter. On the one hand, there are the cases about ships and other specific chattels. In these cases the courts have tended to apply the rule of absolute immunity. This rule was formed in the days when no action lay against the sovereign in any circumstances. It was thought to offend the dignity of a sovereign and to impinge on his independence if his subjects were allowed to sue him in his own courts. Likewise if he were sued in the courts of another country. Proper respect for sovereign power therefore required that a sovereign should not be impleaded, directly or indirectly, in the courts of his own or any other country without his consent. These cases have received a check lately by the case of Sultan of Johore v. Abubakar Tunku Aris Bendahar,43 where the Privy Council rejected the notion that there was any absolute rule about “not impleading a foreign Government.”

 

On the other hand, there are the decisions about trust funds and other debts. These have a modern look about them. It is more in keeping with the dignity of a foreign sovereign to submit himself to the rule of law than to claim to be above it, and his independence is better ensured by accepting the decisions of courts of acknowledged impartiality than by arbitrarily rejecting their jurisdiction. in all civilized countries there has been a progressive tendency towards making the sovereign liable to be sued in his own courts; notably in England by the Crown Proceedings Act, 1947. Foreign sovereigns should not be in any different position. There is no reason why we should grant to the departments or agencies of foreign Governments an immunity which we do not grant our own, provided always that the matter in dispute arises within the jurisdiction of our courts and is properly cognizable by them.

 

This difference of treatment according to subject-matter is seen very noticeably in the Dollfus Mieg case,44 on which both sides relied. Mr. MacKenna relied on the decision of this House about the 51 gold bars, whereas Sir Andrew Clark relied on the decision about the remaining 13. It is indeed the fact that a

 

43 [1952] A.C. 318, 343-344; [1952] 1 T.L.R. 1106; [1952] 1 All E.R. 1261.

 

44 [1952] A.C. 582. [*419]

 

stay was granted in respect of the 51 gold bars which were still specific chattels, but not in respect of the remaining 13 which had, by mistake, been sold and melted down, leaving only a chose in action. And there seems, from the report, no difference between them except subject-matter. It must be remembered that the claim against the bank, as finally formulated, was not for delivery of the 64 gold bars but for damages for their conversion. The evidence of conversion of the 51 was the refusal to deliver them, and of the 13 was the sale of them. This difference did not affect the substance of the dispute. It did not matter to the rival claimants whether they received the specific gold bars or the equivalent value in cash. Wherein, then, lies the difference unless it be in subject-matter; that is, in the difference between specific chattels and a chose in action? And the speeches in this House bear this out.

 

The reason for granting immunity in respect of the 51 bars was because the Sovereign Governments had the right to immediate possession of them and were entitled to have their bailees kept immune from suit in respect of them, whatever the form of action, whether it was for delivery of the specific 51 bars or for damages for their conversion. Lord Radcliffe said that the Admiralty decisions about ships had much more bearing than the Chancery decisions about trust funds. The 51 bars were specific chattels, and, if the plaintiffs obtained damages for conversion of them, the bank would be able to set up the plaintiffs’ title against the Sovereign Governments, and that would materially affect the existing right of the Sovereign Governments to possession of them.

 

The reason for refusing immunity in respect of the 13 bars was because, as Lord Tucker put it,45 the bank, by its own act, had “put an end to the bailment which alone afforded the protective umbrella of immunity.” It is instructive to consider the consequences. The action by the Dollfus Mieg company was allowed to continue against the bank for conversion of the 13 bars. Yet it is obvious that the Sovereign Governments could also bring an action against the bank for conversion of the same 13 bars, and in that action the bank could not dispute the bailor’s title. No system of jurisprudence could view with equanimity the prospect of the bank being made liable twice over for one and the same conversion. The bank would have a clear right to interplead by inviting the Sovereign Governments to come in and either to maintain or relinquish their claim, or else be barred:

 

45 [1952] A.C. 582, 622-623. [*420]

 

see R.S.C., Ord. 57, rr. 1, 3, 5, 10. The rule about “not impleading a foreign Government” would not be applied so rigidly or so absolutely as to obstruct the justice of that course. The Sovereign Governments, having no immunity in respect of the 13 bars, would therefore have been compelled to come in or lose their right. Even if the bank had not sought to interplead and the Dollfus Mieg company had obtained judgment against the bank (or against the purchasers of the 13 bars), then on satisfaction by the bank of the judgment (or of the claim of the purchasers for indemnity) the bank could set up the title of the Dollfus Mieg company against the Sovereign Governments, because a satisfied judgment in trover changes the property in the goods (see Brinsmead v. Harrison46 and is equivalent to eviction by title paramount: see Biddle v. Bond.47 So the Sovereign Governments would be prejudiced by the continuance of the action. Yet this House allowed it to continue.

 

I have dealt at some length with the position of the 13 bars because it seems to me to be a direct decision of this House about a chose in action. So regarded, the decision falls into line with the decisions of the Court of Chancery about a trust fund or a debt. It has been held, I think rightly, that the court must administer a trust fund which is here in the hands of an English trustee, even though a foreign sovereign is known to claim an interest in it. This is only simple justice to the English trustee and beneficiaries. The court cannot allow the fund to lie stagnant for ever because one of the claimants is a foreign sovereign. In such a case the court does not issue process to the foreign sovereign. It simply gives him notice of the proceedings: see Strousberg v. Republic of Costa Rica,48 by James L.J. If he, after being given an invitation, does not choose to come to our courts to make good his claim, the court will adjudicate as best it can in his absence, and he will be bound by the decision. Lord Langdale intimated as much in Duke of Brunswick v. King of Hanover,49 and so did Lord Hatherley L.C. in Larivière v. Morgan.50 Likewise with an English debt due in England to a creditor who comes to our courts to enforce it. If a foreign Government wishes to claim the debt, it ought, on being invited, to come to our courts to make good its claim. It cannot ask for the action to be stayed and do nothing more, because that would mean that the debt would remain unpaid for ever, which would

 

46 (1871) L.R. 6 C.P. 584.

 

47 (1865) 6 B. & S. 225.

 

48 (1881) 44 L.T. 199, 201.

 

49 (1844) 6 Beav. 1, 39.

 

50 (1872) L.R. 7 Ch. 550, 560; affirmed by (1875) L.R. 7 H.L. 423. [*421]

 

be unjust to all others concerned. The creditor’s action must therefore be allowed to continue, and in that action the claim of the foreign Government can be adjudicated upon in its absence: see Haile Selassie v. Cable and Wireless Ltd.,51 by Lord Greene. If the English creditor succeeds and is paid, and the foreign Government should afterwards seek to make the debtor pay the debt twice over, our courts would not permit it. Seeing that the foreign Government had refused to do the debtor the justice of coming in when given the chance, our courts would not permit it “to commit that injustice against him.” Those were Lord Eldon’s words in Stevenson v. Anderson,52 a case of interpleader, which Lord Hatherley said had a great analogy. And if the foreign Government should seek to sue the debtor in any foreign court, I would assume, as Lord Hatherley did,53 “that the courts of all countries would recognize the decision of a court of competent jurisdiction in a country where the property was situated, and where the rights were properly to be tried.”

 

So much for our English decisions. If it were necessary in this case to choose between the Admiralty decisions and the Chancery decisions, I should have thought that the Chancery decisions had much more bearing. If the Nizam of Hyderabad is not allowed to proceed with this action, the money will lie stagnant in the bank and the debt may remain unpaid for ever. The bank cannot safely pay either Rahimtoola or the State of Pakistan because, once it does so, there will clearly thenceforward be no immunity available to protect the bank. The bank must wait until it is sued by Rahimtoola or the State of Pakistan: and once that is done, the State automatically waives its immunity. If Pakistan succeeds in getting a stay, therefore, it means that it does not choose to sue for the debt itself: and yet by claiming immunity, it can prevent the Nizam from ever getting the money: and it can prevent the bank from ever getting a good discharge. That would not seem to be right. It creates a stalemate. The only way to break it is to allow the Nizam to continue the action but to protect the bank by having Rahimtoola as a party, which has been done. On this ground also I would have been in favour of supporting the decision of the Court of Appeal but for one thing to which I now come.

 

I do not think it is right to resolve this case by asking whether it is more like the Admiralty decisions or the Chancery decisions, or whether it is more like the 51 gold bars or the 13 gold bars, or

 

51 [1938] Ch. 839, 845.

 

52 (1814) 2 V. & B. 407, 412.

 

53 L.R. 7 Ch. 550, 561. [*422]

 

whether it concerns a specific chattel or a chose in action. Such distinctions do not touch the root of the problem. Faced with an inconsistency between two lines of cases, the only course is to see which is more consistent with principle. For this I go back, as Upjohn J. did, to the words of that great international lawyer, Sir Robert Phillimore, in The Charkieh,54 who, after a full review of the authorities, said this: “The object of international law, in this as in other matters is not to work injustice, not to prevent the enforcement of a just demand, but to substitute negotiations between governments, though they may be dilatory and the issue distant and uncertain, for the ordinary use of courts of justice in cases where such use would lessen the dignity or embarrass the functions of the representatives of a foreign State.” Applying this principle, it seems to me that at the present time sovereign immunity should not depend on whether a foreign government is impleaded, directly or indirectly, but rather on the nature of the dispute. Not on whether “conflicting rights have to be decided,” but on the nature of the conflict. Is it properly cognizable by our courts or not? If the dispute brings into question, for instance, the legislative or international transactions of a foreign government, or the policy of its executive, the court should grant immunity if asked to do so, because it does offend the dignity of a foreign sovereign to have the merits of such a dispute canvassed in the domestic courts of another country: but if the dispute concerns, for instance, the commercial transactions of a foreign government (whether carried on by its own departments or agencies or by setting up separate legal entities), and it arises properly within the territorial jurisdiction of our courts, there is no ground for granting immunity.

 

Such a test, if accepted, would enable the difficulties presented by the Dollfus Mieg case55 to be resolved. The dispute about the 51 gold bars brought into question an international transaction. During the war the bars had been looted by the enemy but recaptured by the Allied forces, and they were held by the Sovereign Governments in a pool for disposal according to international agreement: see the facts stated.56 It would not be right for our courts to listen to an attempt to remove them from the pool vi without the consent of the Sovereign Governments. Whereas the 13 bars had been removed from the pool by the bank’s own

 

54 L.R. 4 A. & E. 59, 97.

 

55 [1952] A.C. 582.

 

56 [1949] Ch. 369, 370-378; [1949] 1 All E.R. 946. [*423]

 

act and the claim of the Dollfus Mieg company could be regarded as a simple claim for a wrong done by the bank devoid of any international element. It was therefore properly cognizable by our courts.

 

I would therefore for myself approach this case somewhat broadly and ask whether the dispute is one properly cognizable by our courts: and I would test it by asking what would be the position if the transaction had taken place, not between the Finance Minister of Hyderabad and the Foreign Secretary of Pakistan, but between the Finance Minister of Hyderabad and the Foreign Secretary of Great Britain, and the money had been transferred, not into the name of the High Commissioner of Pakistan, but into the name of a high officer such as a Custodian of Property? Would an action lie in our courts for the return of the money? Clearly not. The transaction was more in the nature of a treaty than a contract or a trust. Reference would be made to such well-known cases as Nabob of the Carnatic v. East India Co.57 and Civilian War Claimants Association Ltd. v. The King58 to show that no action would lie for money had and received or upon a trust. The court would not listen to an inquiry whether the Finance Minister of Hyderabad had authority to make the transfer. It would say that any representations to that effect must be made to the Crown and not to the courts. If our courts would not in like circumstances entertain an action against our own Government or its agent, they should not entertain an action against the State of Pakistan or its agent. Upjohn J. put the point in a sentence when he said59: “The present transaction was an inter-governmental transaction; let it be solved by inter-governmental negotiations.” That is the kernel of the matter. I agree with it and would allow the appeal.

 

My Lords, I acknowledge that, in the course of this opinion, I have considered some questions and authorities which were not mentioned by counsel. I am sure they gave all the help they could and I have only gone into it further because the law on this subject is of great consequence and, as applied at present, it is held by many to be unsatisfactory. I venture to think that if there is one place where it should be reconsidered on principle - without being tied to particular precedents of a period that is past - it is here in this House: and if there is one time for it to

 

57 (1792-3) 2 Ves. 56.

 

58 [1932] A.C. 14; 48 T.L.R. 83.

 

59 [1957] Ch. 185, 209. [*424]

 

be done, it is now, when the opportunity offers, before the law gets any more enmeshed in its own net. This I have tried to do. Whatever the outcome, I hope I may say, as Holt C.J. once did after he had done much research on his own: “I have stirred these points, which wiser heads in time may settle.”60

 

Appeal allowed.

 

60 (1703) 2 Ld.Raym. 909, 920 (Coggs v. Bernard).