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Case:
No. 238211 Case Mme Nabiha X
Date:
30 November 2001
Translated by:
Tony Weir
Copyright:
Professor Sir B. S. Markesinis

Conseil d’Etat:

Considering the summary request and the complementary memorandum lodged on 31 March and 31 July 2000 on behalf of the Minister of the Economy, Finances and Industry, whereby the Minister asks the Conseil d’Etat to annul the decision of the administrative court of appeal of Paris whereby it first annulled the judgments of 7 July 1993 in which the administrative tribunal of Paris had dismissed the claims of M. X., Y., and others that the state be held liable to indemnify them for the damage they suffered due to the gross negligence of the Banking Commission in its supervision of credit institutions, and secondly ordered the state to pay the claimants various sums as compensation for such damage;

Considering that article 37 of the Law of 24 January 1984 concerning the conduct and supervision of credit institutions, in the version then in force, provided: “There shall be a Banking Commission with power to ensure that credit institutions follow the laws and regulations applicable to them and to sanction any deviations detected. The Commission will examine their mode of operation and check the soundness of their finances. The Commission will ensure that good practice is followed.”; that articles 39 and 40 of the same law give the Commission power to inspect documents and offices, and to demand information; that articles 42 to 44 give the Commission power, should it discover any failure in good practice, to send a warning note to the credit institution, to advise it to take proper steps to correct its financial position, to issue an injunction against it and to appoint an interim administrator; and finally, under article 45, the Commission may apply a disciplinary sanction against a credit institution which “has infringed an applicable law or regulation, has failed to obey an injunction or has not responded to a warning.”;

Considering that the liability of the state for faults committed by the Banking Commission in the exercise of its powers to supervise and sanction credit institutions does not replace the liability of the institutions themselves, particularly not as regards their depositors; that consequently, given the nature of the powers conferred on the Banking Commission, the state can be liable for any of its shortcomings or failures only in the case of gross negligence; from which it follows that the administrative court of appeal committed an error of law in holding that any fault on the part of the Banking Commission in supervising or sanctioning credit institutions could give rise to state liability;

Considering that it follows that the Minister of the Economy, Finances and Industry is entitled to demand that the decision of the administrative court of appeal of Paris dated 25 January 2000 be annulled…;Considering that although the inspector’s report on the Saudi Lebanese Bank received by the Banking Commission on 5 May 1987 stated that the bank was in a poor condition and that if it were to survive a policy for the improvement of the quality of its debts and the auditing of its doubtful loans must be urgently adopted, but confirmed the good intentions of its directors and required them for the first time to make provision for debts due from “risky countries”, and it emerged that in June 1987 the Saudi Lebanese Bank contracted a syndicated loan of 25 million francs; that on these facts it was not gross negligence for the Banking Commission to defer until 6 October 1987 a “follow-up” letter addressed to the directors of the bank instructing them to improve their financial situation “without delay”;

Considering that although the Banking Commission believed that the required recapitalisation was satisfied by the 25 million franc syndicated loan subscribed by the Kairouz Group, comprising companies which were shareholders of the bank and also indebted to it, M. and Mme X. and the others cannot maintain that it was gross negligence on the part of the Banking Commission to accept that this loan contributed to the increase in funds which it had required the bank’s directors to procure, seeing that the report did not indicate that this loan had been financed or refinanced by the Saudi Lebanese Bank;

Considering that it emerges from the findings below and from the appendices to the expert’s report that the only evidence of the fraudulent dealings of the directors of the Saudi Lebanese Bank from 1988 onwards was contained in confidential internal memoranda, and that the Banking Commission continued negotiating with them with a view to re-establishing the bank’s solvency until the secret dealings of the directors were made manifest, from which it follows that it was not gross negligence of the Banking Commission not to undertake a search for documents between May 1987 and April 1989;

But considering that although the Banking Commission in its letter of 6 October 1987 had required the managing director of the bank to increase the capital by 50 million francs “without delay”, it then reduced the requisite increase in capital by 50% and gave the bank until the end of May 1988 to procure it; that given the urgent need to re-establish solvency, emphasised by the inspector’s report of 5 May 1987, and even allowing that it might be quite proper for the Banking Commission to negotiate with the directors for a strategy of reestablishment rather than proceed immediately to legal proceedings, it should nevertheless have given much firmer instructions to the directors and imposed on them a very tight time-frame; that, going back on their previous requirements, the Banking Commission permitted the dealings between the Saudi Lebanese Bank on the one hand and the Union nationale S.A.L. and the Kairouz Group to be analysed separately rather than together, as the regulations provided, the former being a subsidiary of the latter; that even if under the regulations then applicable it could call only for these credits to be consolidated, the Banking Commission should have insisted, given the situation of the bank, on the requirements it had issued being satisfied; that these shortcoming amounted to gross negligence which renders the state liable;

Considering that although the collapse of the United Banking Corporation was largely due to fraud, nevertheless this gross negligence of the Banking Commission contributed, to an extent which can be put at 10%, to the loss by the claimants of the sums deposited and not repaid prior to 9 May 1989, when legal proceedings were started;

Considering that as the claimants are not barred by the opening of the creditors’ meeting from bringing a claim as depositors, it follows that they are entitled to call for the annulment of the judgment of the administrative tribunal of Paris which dismissed their claims against the state and to a holding that the state is liable to pay them the stated proportion of the damage they have suffered;

DECIDES

Article 1: The judgments of the administrative tribunal of Paris dated 7 July 1993 and the decision of the administrative court of appeal of Paris dated 25 January 2000 are annulled;

Article 2: The state is held liable to pay [the 78 claimants various sums, amounting in total to approximately 5,266,000 francs].

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