COUNSEL: F. P. Neill, Q.C., M. A. Pickering and D. P. O’Connell (and Christopher French Q.C. and David Hunt on the delivery of judgments) for Trendtex.
T. H. Bingham Q.C. and A. G. Guest for the Central Bank.

SOLICITORS: Theodore Goddard & Co.; Hedleys, Botterell. Roche & Temperley.

JUDGES: Lord Denning M.R., Stephenson and Shaw L.JJ.

DATES: 1976 Oct. 6, 7, 8, 11, 12, 13, 14, 15, 18; 1977 Jan. 13

Conflict of Laws – Sovereign immunity – Bank – Commercial transaction for supply of cement to Nigerian state – Central bank issuing irrevocable letter of credit – Action to enforce payment – Status of bank – Whether department of state – Whether immunity in respect of commercial transactions exists

International Law – Recognition – Effect – Whether incorporated into English law – Whether rule of stare decisis applicable in England – Central Bank of Nigeria’s claim to sovereign immunity

The Central Bank of Nigeria was incorporated in 1958 by a Nigerian statute as a central bank modelled on the Bank of England. It issued legal tender and acted as banker and financial adviser to the Government of Nigeria. It also acted as banker for other banks and its affairs were under considerable governmental control.

In July 1975 the Central Bank issued an irrevocable letter of credit for over $14,000,000 in favour of the plaintiff, a Swiss company, to pay for 240,000 tons of cement which the plaintiff had sold to an English company. The cement was to be shipped to Nigeria where it was to be used to build government barracks. The plaintiff shipped the cement to Nigeria but there was congestion in the port of discharge and the Central Bank declined to make payments claimed to be due for the price and for demurrage.

By writ of November 1975 the plaintiff claimed against the Central Bank for payments due in respect of the bank’s breaches and repudiation of the letter of credit. Mocatta J. granted the plaintiff an injunction ordering the bank to retain $13,968,190 within the jurisdiction until the trial of the action or further order. Donaldson J., on the bank’s application, set aside the writ and stayed further proceedings in the action on the ground that the bank was a department of the State of Nigeria and was therefore immune from suit.

On the plaintiff’s appeal:—

Held, allowing the appeal, (1) that the bank, which had been created as a separate legal entity with no clear expression of intent that it should have governmental status, was not an emanation, arm, alter ego or department of the State of Nigeria and was therefore not entitled to immunity from suit (post, pp. 371, 373-374, 375-376, 382, 385B).

Baccus S.R.L. v. Servicio Nacional Del Trigo [1957] 1 Q.B. 438, C.A. and Mellenger v. New Brunswick Development Corporation [1971] 1 W.L.R. 604, C.A. distinguished.

Krajina v. Tass Agency [1949] W.N. 309; [1949] 2 All E.R. 274, C.A. considered.

(2) That (per Lord Denning M.R. and Shaw L.J.) even if the bank were part of the Government of Nigeria, since international law now recognised no immunity from suit for a government department in respect of ordinary commercial transactions as distinct from acts of a governmental nature, it was not immune from suit on the plaintiff’s claim in respect of the letter of credit (post, pp. 369, 371, 386, 389). [*357]

Per curiam. The modern principle of restrictive sovereign immunity in international law giving no immunity to acts of a commercial nature is consonant with justice, comity and good sense (post, pp. 367, 380, 385, 386B).

Per Lord Denning M.R. and Shaw L.J. International law knows no rule of stare decisis (post, pp. 365, 388).

Per Stephenson L.J. The Court of Appeal is bound by previous decisions to hold that absolute sovereign immunity is a rule of international law until the House of Lords or Parliament declares to the contrary (post, p. 381).

Dicta of Lord Mansfield C.J. in Triquet v. Bath (1764) 3 Burr. 1478, 1481 applied.

Reg. v. Keyn (1876) 2 Ex. 63; Thai-Europe Tapioca Service Ltd. v. Government of Pakistan, Directorate of Agricultural Supplies [1975] 1 W. L.R. 1485, C.A. and The Philippine Admiral [1976] 2. W.L.R. 214, P.C. considered.

(3) That since the bank was not entitled to immunity from suit the injunction preserving funds within the jurisdiction to satisfy the plaintiff’s claim should be continued (post, pp. 371, 382, 389).

Decision of Donaldson J. [1976] 1 W.L.R. 868; [1976] 3 All E.R. 437 reversed.

[*359] APPEAL from Donaldson J.

On November 4, 1975, the plaintiff, Trendtex Trading Corporation, issued a writ against the Central Bank of Nigeria, the defendant, in respect of payments due to the plaintiff from the bank under a letter of credit dated July 24, 1975, relating to a contract of the same date for the purchase of cement from the plaintiff by Pan-African Export and Import Co. Ltd. The plaintiff claimed that by reason of the defendant’s breaches and repudiation of the letter of credit (which repudiation the plaintiff had accepted) the plaintiff had suffered loss and damage. On November 4, Mocatta J. ordered that the plaintiff should have leave to serve a concurrent writ of summons against the bank and to serve notice thereof on the bank at its registered office in Nigeria and he granted the plaintiff an injunction that the bank should retain $13,968,190, or its equivalent in sterling, within the jurisdiction against the plaintiff’s claim until the hearing of a summons returnable on November 11, 1975. On December 9, 1975, following an order on November 11, Mocatta J. ordered that the injunction be continued until the trial of the action or further order.

On March 26, 1976, on the bank’s application by summons for the writ to be set aside on the ground that it was a department of the Federal Republic of Nigeria and was thereby immune from suit, Donaldson J. [1976] 1 W.L.R. 868, 877, held that the bank was “an emanation, an arm, an alter ego and a department of the State of Nigeria” and ordered (p. 879) that “the injunctions be discharged, the proceedings set aside and all further proceedings … stayed.”

The plaintiff appealed on the grounds that (1) the judge erred in fact or law in holding (a) that the bank was entitled to sovereign immunity; (b) that the bank was an emanation, an arm,an alter ego, and a department of the State of Nigeria; (c) that it was established or sufficiently established that all funds held or deposited in the United Kingdom in the name of the bank were funds held or deposited for and on behalf of the Nigerian state; (d) that the bank was not estopped from reliance upon a plea of sovereign immunity by the terms of its letter of April 28, 1975, to Credit Suisse of Lausanne; and (e) that the principles of sovereign immunity to be applied were not affected by community law. (2) The judge erred in fact or law in failing to hold (a) that the acts and functions of the bank which were relied on for the purposes of the plaintiff’s claim in the proceedings should not be accorded sovereign immunity; (b) that the funds of the bank within the jurisdiction which were subject to the injunction were not funds lodged or available for the payment of its creditors; and (c) that the bank was not entitled to the benefit of sovereign immunity in the proceedings; and (3) that it would be contended that the plea of sovereign immunity by the bank should be rejected for the additional reasons: (i) that on the facts the bank waived any right to rely thereon; and (ii) the commercial nature of the transactions which were relied upon for the puposes of the plaintiff’s claim in the proceedings.

The facts are stated in the judgment of Lord Denning M.R.

Cur. adv. vult. [*360]

January 13, 1977. The following judgments were read.

LORD DENNING M.R. In July 1975 the port of Lagos/Apapa was congested with shipping. All the berths were occupied. There were 300 to 400 ships outside waiting. More ships were arriving daily. Most of them were carrying cement. All of those waiting were on demurrage. It was because the government departments had ordered far too much. No doubt Nigeria needed cement. It was a country which was developing fast. They were building houses, factories, barracks, and so forth. All of the work required cement. Previously the average rate of import through all ports had been two million tons of cement a year. Yet early in 1975 the government departments then in charge in Nigeria had ordered 10 times that quantity, 20 million tons, to be delivered over the next 12 months. The ports were utterly unable to cope with it. Even for all commodities together, the discharging capacity at Lagos/Apapa did not amount to two million tons a year. Yet here was 10 times that amount arriving – of cement alone – leaving nothing for other vital imports of food and materials. The crisis was one of the reasons for a change of government in Nigeria. On July 29, 1975, a new military administration took over the reins. One of its first tasks was to find out the root cause of the congestion. It found that the previous administration had made contracts for cement which were “unorthodox, imprudent or inequitable.” Not only were the quantities far too large, but there were no proper safeguards in regard to payment of the price or demurrage. As a first step the new military administration issued a notice suspending the import of cement into Nigeria. It told suppliers not to load any more cement for the time being. It warned them that it would not pay demurrage unless it was certified as proper. In addition, the new administration launched a “crash programme” to increase the rate of discharge from the waiting vessels. It set up a committee to negotiate fresh terms with the suppliers. The object was to reduce the quantities on order and to spread the deliveries over a longer time. Most of the suppliers have appreciated the difficulties and fresh terms have been arranged. The steps thus taken have proved successful. The congestion of vessels has been cleared. But there is an aftermath. It is a large number of legal proceedings.

This case is one of them. It is a claim on a letter of credit issued by the Central Bank of Nigeria, the defendant. We are not concerned with the rights or wrongs of the claim: but only with a preliminary point. The Central Bank of Nigeria claim that they cannot be sued in this country on the letter of credit: because they are entitled to sovereign immunity. The plaintiff, Trendtex Trading Corporation, disputes this on the ground that this is an ordinary commercial transaction to which sovereign immunity does not apply. So I must describe the nature of the transaction.

The story starts with a contract which was made on April 25, 1975, before the crisis broke. The Ministry of Defence in Nigeria agreed to buy 240,000 tons of Portland cement from an English company, the Pan-African Export and Import Co. Ltd. The price was U.S. $60.00 per ton c.i.f. Lagos/Apapa ports. Shipment at the rate of 20,000 tons a month, plus or minus 10 per cent., all to be delivered not later than August 15, 1976.

In pursuance of that contract the Ministry of Defence instructed the Central Bank of Nigeria to open a letter of credit in favour of Pan-African to the extent of U.S. $14,400,000 to be valid for payment against shipping documents conformable to the contract of purchase.

[*361] The Central Bank of Nigeria duly issued a letter of credit in favour of Pan-African. It was numbered 83035. It was issued in London through their correspondent bank, the Midland Bank Ltd., 60, Gracechurch Street, London. It was transferable abroad once only and was subject to the uniform customs rules of the International Chamber of Commerce relating to documentary credits (1962 revision). It covered not only the price of $14, 400,000, but also demurrage of $4,100 a day.

It is important to notice that the Midland Bank Ltd. were only correspondents acting as agents for the Central Bank of Nigeria. The Midland Bank Ltd. did not confirm the credit so as to make themselves liable on it. They only advised the seller of its terms. On the credit itself, they said:

“We are requested to advise you of the terms of a credit which is irrevocable on the part of our principals but does not bear our confirmation.”

The responsibility of the Central Bank of Nigeria

The point about confirmation had been expressly raised by suppliers: and the Central Bank of Nigeria had said that confirmation was unnecessary. They wrote an important letter on April 28, 1975, to the suppliers’ bank in these words:

“I write to inform you that no confirmation is required for credits opened by us direct with our correspondent banks, of which the Midland Bank Ltd., London, is one. We are irrevocably committed to honour our engagements under this credit. Moreover, our correspondent, the Midland Bank Ltd., has our authority to pay the beneficiary the full value of this letter of credit through your bank on presentation of relevant shipping documents to them in London, provided the documents are in order. (See our letter of authority dated March 11, 1975, to our correspondent bank attached.) As a government bank and a prime bank, no supplier should have any cause to doubt our ability to pay our bills promptly. The question of our correspondents confirming our letters of credit should, therefore, not arise.”

The transfer to Trendtex

In order to fulfil their contract to supply the cement, Pan-African entered into a contract with the Trendtex Trading Corporation of Zurich, Switzerland. The contract was dated July 24, 1975. By it Pan-African agreed to buy 240,000 tons of Portland cement from Trendtex. The price was U.S.$59.50 per ton, c.i.f. Lagos/Apapa, thus showing a small profit of U.S.$00.50 a ton to Pan-African. All other terms were to be as expressed in the Central Bank of Nigeria letter of credit (Midland Bank advice no. 83035) as transferred to the seller by the buyer.

On the same day, July 24, 1975, the credit was transferred to Trendtex. It was done by means of a new irrevocable letter of credit issued by the Central Bank of Nigeria through its correspondent the Midland Bank, London. It was numbered (83035A) and was for U.S.$14,280,000, the price of the cement and again demurrage at U.S.$4,100 a day.

In order to fulfil this contract to supply cement, Trendtex agreed to buy 240,000 tons of cement from Alsen-Breitenburg of Hamburg, and established a letter of credit issued by a Swiss bank for the price.

[*362] The shipments

During August and September 1975, Trendtex shipped four consignments of cement under their contract with Pan-African. In August they shipped 9,000 tons on The Gempita and 13,000 tons on The Sugar Importer. In September 10,600 tons on The Newport and 9,000 tons on The Constantinos. For those shipments Trendtex presented shipping documents to the Midland Bank Ltd., London, and were paid the price. In October 1975, Trendtex made two further shipments: 10,560 tons on The Leodamas and 10,900 on The Dinos Methanitis. They presented the shipping documents for these last two to the Midland Bank but were not paid the price. When each of those six vessels arrived off Lagos, the port was congested with hundreds of vessels loaded with cement, all waiting to discharge. Each waited its turn. The Gempita came on demurrage on September 5. The Sugar Importer on September 26. The Newporton October 25. The Constantinos on October 26. The Leodamas on October 31, and The Dinos Methanitis on November 20, 1971. Trendtex claimed payment of this demurrage under the letter of credit. They presented documents, all in order, to the Midland Bank, London, in support of their claim for demurrage. But the Midland Bank declined to pay. This was because of a telex message sent on September 24, from the Midland Bank to the bankers of Trendtex:

“Please inform Trendtex Trading Corporation Ltd., Zurich, beneficiaries of our account 83035A that we have received the following authenticated message from our principals, Central Bank of Nigeria, Lagos, reading as follows: ‘Please stop demurrage payments against specified documents unless such documents have been certified for payment by the Central Bank of Nigeria.’ Please request beneficiaries to be guided, accordingly.”

Trendtex also wanted payment of the price for the October shipments but the bank refused to pay. This was because of a message on October 8, 1975, from the Central Bank of Nigeria to the Midland Bank and relayed to Trendtex:

“The Nigerian Federal Military Government has directed that in view of our port situation, shipping companies must give two months’ notice to the Nigerian Ports Authority before sailing. In view of this, you are requested not to pay against documents presented in respect of letters of credit we have opened unless such documents are accompanied by certificates confirming that clearance has been obtained for the ships to sail to Nigeria. Thus, when documents are presented, no payment should be made until we confirm to you that the ship has obtained necessary clearance to sail to Nigeria.”

On October 8, 1975, representatives of Trendtex went to Lagos and made representations to the Nigerian government. They were told that no payment whatever would be made on the last two vessels: and demurrage would only be paid on the first four vessels if certified by the Central Bank of Nigeria for payment.

The action

On November 4, 1975, Trendtex issued a writ in the High Court of Justice in London against the Central Bank of Nigeria. They claimed demurrage on all six vessels. They claimed the price of the cement shipped on the last two vessels. They claimed damages for non-acceptance of the [*363] balance of 175,340 tons still outstanding (out of the 240,000 tons ordered). They claimed damages on account of their obligations to their suppliers, Alsen-Breitenburg.

The Central Bank of Nigeria applied to set aside the writ on the ground that the Central Bank of Nigeria is a department of the Federal Republic of Nigeria and, therefore, immune from suit.

On March 26, 1976, Donaldson J. [1976] 1 W.L.R. 868 set aside the writ. Trendtex appeal to this court. Trendtex also applied for an order that the bank do retain $14 million in London to meet the claim. Mocatta J. made that order. It is effective because the bank have that sum to their credit with the Midland Bank. The money is being retained here pending the appeal.

One thing I would mention at the outset. There was a string of contracts for the purchase of cement – by the Ministry of Defence at Lagos from the Pan-African company in London – by the Pan-African company from Trendtex – and by Trendtex from Alsen-Breitenburg. Those contracts are altogether distinct from the contracts contained in the letter of credits. The contract sued upon in this action is the contract contained in the letter of credit issued by the Central Bank of Nigeria in favour of Pan-African and transferred to Trendtex. Trendtex can sue upon that contract as a distinct contract completely separate from the contract of sale. In the provisions of Uniform Customs issued by the International Chamber of Commerce it is said:

“Credits, by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts.”

See Gutteridge and Megrah, The Law of Bankers’ Commercial Credits, 5th ed. (1976), p. 205 (and p. 59).

Another point I would mention is that many people must have suspicions about the validity of the contracts made by the previous administration. There must have been some mismanagement somewhere to lead to this pile-up of vessels off Lagos. This may give rise in some of these claims to defences on the merits. But no considerations of that kind arise at this stage. The only question now is whether the action should be allowed to proceed at all. Is it to be stayed or struck out on the ground of sovereign immunity?

The case has been presented to us by both sides in a manner to which I would pay sincere tribute. The documents have been prepared admirably with all the relevant material and authorities collected, photographed and arranged for convenient study. The arguments have been put forward convincingly by two of the most able and persuasive advocates of the day. We cannot hope to do full justice to them, but we are much indebted to them.

The general picture

The doctrine of sovereign immunity is based on international law. It is one of the rules of international law that a sovereign state should not be impleaded in the courts of another sovereign state against its will. Like all rules of international law, this rule is said to arise out of the consensus of the civilised nations of the world. All nations agree upon it. So it is part of the law of nations. [*364]

To my mind this notion of a consensus is a fiction. The nations are not in the least agreed upon the doctrine of sovereign immunity. The courts of every country differ in their application of it. Some grant absolute immunity. Others grant limited immunity, with each defining the limits differently. There is no consensus whatever. Yet this does not mean that there is no rule of international law upon the subject. It only means that we differ as to what that rule is. Each country delimits for itself the bounds of sovereign immunity. Each creates for itself the exceptions from it. It is, I think, for the courts of this country to define the rule as best they can, seeking guidance from the decisions of the courts of other countries, from the jurists who have studied the problem, from treaties and conventions and, above all, defining the rule in terms which are consonant with justice rather than adverse to it. That is what the Privy Council did in The Philippine Admiral [1976] 2 W.L.R. 214: see especially at pp. 232-233; and we may properly do the same.

The two schools of thought

A fundamental question arises for decision. What is the place of international law in our English law? One school of thought holds to the doctrine of incorporation. It says that the rules of international law are incorporated into English law automatically and considered to be part of English law unless they are in conflict with an Act of Parliament. The other school of thought holds to the doctrine of transformation. It says that the rules of international law are not to be considered as part of English law except in so far as they have been already adopted and made part of our law by the decisions of the judges, or by Act of Parliament, or long established custom. The difference is vital when you are faced with a change in the rules of international law. Under the doctrine of incorporation, when the rules of international law change, our English law changes with them. But, under the doctrine of transformation, the English law does not change. It is bound by precedent. It is bound down to those rules of international law which have been accepted and adopted in the past. It cannot develop as international law develops.

(i) The doctrine of incorporation. The doctrine of incorporation goes back to 1737 in Buvot v. Barbut (1736) 3 Burr. 1481; 4 Burr. 2016; sub nom. Barbuit’s Case in Chancery (1737) Forr. 280, in which Lord Talbot L.C. (who was highly esteemed) made a declaration which was taken down by young William Murray (who was of counsel in the case) and adopted by him in 1764 when he was Lord Mansfield C.J. in Triquet v. Bath (1764) 3 Burr. 1478:

“Lord Talbot declared a clear opinion – ‘That the law of nations in its full extent was part of the law of England, … that the law of nations was lo be collected from the practice of different nations and the authority of writers.’ Accordingly, he argued and determined from such instances, and the authorities of Grotius, Barbeyrac, Binkershoek, Wiquefort, etc., there being no English writer of eminence on the subject.”

That doctrine was accepted, not only by Lord Mansfield himself, but also by Sir William Blackstone, and other great names, too numerous to mention. In 1853 Lord Lyndhurst in the House of Lords, with the concurrence of all his colleagues there, declared that … “the law of nations, according to the decision of our greatest judges, is part of the [*365] law of England”: see Sir George Cornewall Lewis’s book, Lewis on Foreign Jurisdiction (1859), pp. 66-67.

(ii) The doctrine of transformation. The doctrine of transformation only goes back to 1876 in the judgment of Cockburn C.J. in Reg. v. Keyn (1876) , 202-203:

“For writers on international law, however valuable their labours may be in elucidating and ascertaining the principles and rules of law, cannot make the law. To be binding, the law must have received the assent of the nations who are to be bound by it… . Nor, in my opinion, would the clearest proof of unanimous assent on the part of other nations be sufficient to authorise the tribunals of this country to apply, without an Act of Parliament, what would practically amount to a new law. In so doing, we should be unjustifiably usurping the province of the legislature.”

To this I may add the saying of Lord Atkin in Chung Chi Cheung v. The King [1939] A.C. 160, 167-168:

“So far, at any rate, as the courts of this country are concerned, international law has no validity save in so far as its principles are accepted and adopted by our own domestic law.”

And I myself accepted this without question in Reg. v. Secretary of State for the Home Department, Ex parte Thakrar [1974] 1 Q.B. 684, 701.

(iii) Which is correct? As between these two schools of thought, I now believe that the doctrine of incorporation is correct. Otherwise I do not see that our courts could ever recognise a change in the rules of international law. It is certain that international law does change. I would use of international law the words which Galileo used of the earth: “But it does move.” International law does change: and the courts have applied the changes without the aid of any Act of Parliament. Thus, when the rules of international law were changed (by the force of public opinion) so as to condemn slavery, the English courts were justified in applying the modern rules of international law: see the “Statement of Opinion” by Sir R. Phillimore, Mr. M. Bernard and Sir H. S. Maine appended to the Report of the Royal Commission on Fugitive Slaves (1876), p. XXV, paras. 4 and 5. Again, the extent of territorial waters varies from time to time according to the rule of international law current at the time, and the courts will apply it accordingly: see Reg. v. Kent Justices, Ex parte Lye [1967] 2 Q.B. 153, 173, 189. The bounds of sovereign immunity have changed greatly in the last 30 years. The changes have been recognised in many countries, and the courts – of our country and of theirs – have given effect to them, without any legislation for the purpose. Notably in the decision of the Privy Council in The Philippine Admiral [1976] 2 W.L.R. 214.

(iv) Conclusion on this point. Seeing that the rules of international law have changed – and do change – and that the courts have given effect to the changes without any Act of Parliament, it follows to my mind inexorably that the rules of international law, as existing from lime to time, do form part of our English law. It follows, too, that a decision of this court – as to what was the ruling of international law 50 or 60 years ago – is not binding on this court today. International law knows no rule of stare decisis. If this court today is satisfied that the rule of international law on a subject has changed from what it was 50 or 60 years ago, it [*366] can give effect to that change – and apply the change in our English law – without waiting for the House of Lords to do it.

Has there been a change?

(i) The doctrine of absolute immunity. A century ago no sovereign state engaged in commercial activities. It kept to the traditional functions of a sovereign – to maintain law and order – to conduct foreign affairs – and to see to the defence of the country. It was in those days that England – with most other countries – adopted the rule of absolute immunity. It was adopted because it was considered to be the rule of international law at that time. In The Parlement Belge (1880) 5 P.D. 197, 205, Brett L.J. said:

“The exemption of the person of every sovereign from adverse suit is admitted to be a part of the law of nations … [so also] of some property … The universal agreement which has made these propositions part of the law of nations has been an implied agreement.”

The rule was stated by Dicey in his work on Conflict of Laws, and repeated religiously by the judges thereafter. The classic restatement of it was made by Lord Atkin in Compania Naviera Vascongado v. S.S. Cristina (The Cristina) [1938] A.C. 485, 490:

“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.”

That doctrine was repeated by Viscount Simonds in Rahimtoola v. Nizam of Hyderabad [1958] A.C. 379, 394. He treated it as if it was a rule of English law, fixed and immutable, not to be departed from, even by the House of Lords itself.

(ii) The doctrine of restrictive immunity. In the last 50 years there has been a complete transformation in the functions of a sovereign state. Nearly every country now engages in commercial activities. It has its departments of state – or creates its own legal entities – which go into the market places of the world. They charter ships. They buy commodities. They issue letters of credit. This transformation has changed the rules of international law relating to sovereign immunity. Many countries have now departed from the rule of absolute immunity. So many have departed from it that it can no longer be considered a rule of international law. It has been replaced by a doctrine of restrictive immunity. This doctrine gives immunity to acts of a governmental nature, described in Latin as jure imperii, but no immunity to acts of a commercial nature, jure gestionis. In 1951 Sir Hersch Lauterpacht showed that, even at that date, many European countries had abandoned the doctrine of absolute immunity and adopted that of restrictive immunity – see his important article, “The Problem of Jurisdictional Immunities of Foreign States” in The British Year Book of International Law, 1951, vol. 28, pp. 220-272. Since that date there have been important conversions to the same view. Great impetus was given to it in 1952 in the famous “Tate letter” in the United States. Many countries have now adopted it. We have been given a valuable collection of recent decisions in which the courts of Belgium, Holland, the German Federal Republic, the United States of America and others have abandoned absolute immunity and granted only restrictive immunity. Most authoritative of all is the opinion of the Supreme Court [*367] of the United States in Alfred Dunhill of London Inc. v. Republic of Cuba. It was delivered on May 24, 1976, by White J. with the concurrence of the Chief Justice, Powell J. and Rehnquist J.:

“Although it had other views in years gone by, in 1952, as evidenced by … (the Tate letter) … the United States abandoned the absolute theory of sovereign immunity and embraced the restrictive view under which immunity in our courts should be granted only with respect to causes of action arising out of a foreign state’s public or governmental actions and not with respect to those arising out of its commercial or proprietary actions. This has been the official policy of our government since that time, as the attached letter of November 25, 1975, confirms … ‘Such adjudications are consistent with international law on sovereign immunity’.”

To this I would add the European Convention on State Immunity (Basle, 1972), article 4, paragraph 1, which has been signed by most of the European countries.

Are we to follow likewise?

Seeing this great cloud of witnesses, I would ask: is there not here sufficient evidence to show that the rule of international law has changed? What more is needed? Are we to wait until every other country save England recognises the change? Ought we not to act now? Whenever a change is made, some one some time has to make the first move. One country alone may start the process. Others may follow. At first a trickle, then a stream, last a flood. England should not be left behind on the bank. “… We must take the current when it serves, or lose our ventures.”: Julius Caesar, Act IV, sc. III.

In one respect already the Privy Council have abandoned the absolute theory and accepted the restrictive theory. It is in respect of actions in rem: see The Philippine Admiral [1976] 2 W.L.R. 214, 232. But, unfortunately, the Privy Council seem to have thought that the absolute theory still applied to actions in personam. They said, at p. 233:

“… it is no doubt open to the House of Lords to decide otherwise but it may fairly be said to be at the least unlikely that it would do so.”

That is a dismal forecast. It is out of line with the good sense shown in the rest of the judgment of the Privy Council. This is how they put it, at pp. 232-233:

“… the trend of opinion in the world outside the Commonwealth since the last war has been increasingly against the application of the doctrine of sovereign immunity to ordinary trading transactions … Their Lordships themselves think that it is wrong that it should be so applied … Thinking as they do that the restrictive theory is more consonant with justice they do not think that they should be deterred from applying it.”

Such reasoning is of general application. It covers actions in personam. In those action, too, the restrictive theory is more consonant with justice. So it should be applied to them. It should not be retained as an indefensible anomaly.

I see no reason why we should wait for the House of Lords to make the change. After all, we are not considering here the rules of English [*368] law on which the House has the final say. We are considering the rules of international law. We can and should state our view as to those rules and apply them as we think best, leaving it to the House to reverse us if we are wrong.

The modern rule

What then is the modem rule of international law? I tried to state it nearly 20 years ago in Rahimtoola v. Nizam of Hyderabad [1958] A.C. 379, 422:

“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.”

I recently re-stated it in Thai-Europe Tapioca Service Ltd. v. Government of Pakistan, Directorate of Agricultural Supplies [1975] 1 W.L.R. 1485, 1491:

“… a foreign sovereign has no immunity when it enters into a commercial transaction with a trader here and a dispute arises which is properly within the territorial jurisdiction of our courts. If a foreign government incorporates a legal entity which buys commodities on the London market; or if it has a state department which charters ships on the Baltic Exchange: it thereby enters into the market places of the world: and international comity requires that it should abide by the rules of the market.”

Since those cases, there have been two very recent cases on the subject: The Philippine Admiral [1976] 2 W.L.R. 214 in November 1975, in the Privy Council; and Alfred Dunhill of London Inc. v. Republic of Cuba on May 24, 1976, in the Supreme Court of the United States. There is a Bill also before the House of Representatives of the United States reported on September 9, 1976 (now passed into law, Foreign Sovereign Immunities Act of 1976) which is very much on the lines I suggested. All this confirms me in the view which I have expressed.

The law of the European Community

Even if there were no settled rule of international law on the subject, there should at least be one settled rule for the nine countries of the European Economic Community. The Treaty of Rome is part of the law of England. One of the objectives contained in article 3 (h) [see Cmnd. 5179] is to ensure “the approximation of the laws of member states to the extent required for the proper functioning of the common market.”

It is one of the functions of the Commission and the Council to issue directives to achieve this approximation: see articles 100, 101 and 102. I regard the word “approximation” in the treaty to mean “harmonisation.” [*369]

In view of those provisions, it seems to me that it is the duty of each of the member states – and of the national courts in those states – to bring the law as to sovereign immunity into harmony throughout the community. The rules applied by each member state on the subject should be the same as the rules applied by the others. There is only one acceptable way of doing it. That is by adopting the doctrine of restrictive immunity on the lines I have suggested.

The application to this case

So I turn to see whether the transaction here was such as to attract sovereign immunity, or not. It was suggested that the original contracts for cement were made by the Ministry of Defence of Nigeria: and that the cement was for the building of barracks for the army. On this account it was said that the contracts of purchase were acts of a governmental nature, jure imperii, and not of a commercial nature, jure gestionis. They were like a contract of purchase of boots for the army. But I do not think this should affect the question of immunity. If a government department goes into the market places of the world and buys boots or cement – as a commercial transaction – that government department should be subject to all the rules of the market place. The seller is not concerned with the purpose to which the purchaser intends to put the goods.

There is another answer. Trendtex here are not suing on the contracts of purchase. They are claiming on the letter of credit which is an entirely separate contract. It was a straightforward commercial transaction. The letter of credit was issued in London through a London bank in the ordinary course of commercial dealings. It is completely within the territorial jurisdiction of our courts. I do not think it is open to the Government of Nigeria to claim sovereign immunity in respect of it.

The German decision

It is interesting to find that the German courts have had to deal with a precisely similar point. In February 1975, the Ministry of Defence in Nigeria agreed to purchase 240,000 tons of cement from a firm in Liechtenstein. The Central Bank of Nigeria issued letters of credit through its correspondent the Deutsche Bank in Frankfurt. The goods were shipped. The price paid. The vessel arrived at Lagos but, owing to the congestion, had to wait. The holders of the letters of credit claimed demurrage. They levied distress on the assets of the Central Bank of Nigeria then in Germany. The Central Bank claimed the release of these assets on the ground of sovereign immunity. On December 2, 1975, the Commercial Court of Frankfurt in Y.M.N. Establishment v. Central Bank of Nigeria rejected the plea. Their reasons were as follows:

“According to the decisions of the Federal Constitutional Court of 1962 and 1963 … a foreign state may be granted immunity from German jurisdiction only in respect of its sovereign activity (acta jure imperii) but not in respect of its non-sovereign activity (acta jure gestionis), because no general rule of public international law exists under which the domestic jurisdiction for actions against a foreign state in relation to its non-sovereign activity is precluded.”

We are told that that decision is subject to appeal. So be it. But it affords strong support for the view I have expressed, seeing that the German court decided in just the same way for just the same reasons. [*370]

Alter ego or organ of government

If we are still bound to apply the doctrine of absolute immunity, there is, even so, an important question arising upon it. The doctrine grants immunity to a foreign government or its department of state, or any body which can be regarded as an “alter ego or organ” of the government. But how are we to discover whether a body is an “alter ego or organ” of the government?

The cases on this subject are difficult to follow, even in this country: let alone those in other countries. And yet, we have to find what is the rule of international law for all of them. It is particularly difficult because different countries have different ways of arranging internal affairs. In some countries the government departments conduct all their business through their own offices – even ordinary commercial dealings – without setting up separate corporations or legal entities. In other countries they set up separate corporations or legal entities which are under the complete control of the department, but which enter into commercial transactions, buying and selling goods, owning and chartering ships, just like any ordinary trading concern. This difference in internal arrangements ought not to affect the availability of immunity in international law. A foreign department of state ought not to lose its immunity simply because it conducts some of its activities by means of a separate legal entity. It was so held by this court in Baccus S.R.L. v. Servicio Nacional Del Trigo [1957] 1 Q.B. 438.

Another problem arises because of the internal laws of many countries which grant immunities and privileges to its own organisations. Some organisations can sue, or be sued, in their courts. Others can not. In England we have had for centuries special immunities and privileges for “the Crown” – a phrase which has been held to cover many governmental departments and many emanations of government departments – but not nationalised commercial undertakings: see Tamlin v. Hannaford [1950] 1 K.B. 18. The phrase “the Crown” is so elastic that under the Crown Proceedings Act 1947 the Treasury have issued a list of government departments covered by the Act. It includes even the Forestry Commission. It cannot be right that international law should grant or refuse absolute immunity according to the immunities granted internally. I would pot on one side, therefore, our cases about the privileges, prerogatives and exceptions of the “Crown.”

It is often said that a certificate by the ambassador, saying whether or not an organisation is a department of state, is of much weight, though not decisive: see Krajina v. Tass Agency [1949] 2 All E.R. 274. But even this is not to my mind satisfactory. What is the test which the ambassador is to apply? In the absence of any test, an ambassador may apply the test of control, asking himself: is the organisation under the control of a minister of state? On such a test, he might certify any nationalised undertaking to be a department of state. He might certify that a press agency or an agricultural corporation (which carried out ordinary commercial dealings) was a department of state, simply because it was under the complete control of the government.

I confess that I can think of no satisfactory test except that of looking to the functions and control of the organisation. I do nat think that it should depend on the foreign law alone. I would look to all the evidence to see whether the organisation was under government control and exercised governmental functions. That is the way in which we [*371] looked at it in Mellenger v. New Brunswick Development Corporation [1971] 1 W.L.R. 604, when I said, at p. 609:

“The corporation … has never pursued any ordinary trade or commerce. All that it has done is to promote the industrial development of the province in a way that a government department does.”

With these considerations in mind, I turn to our problem.

Central Bank of Nigeria

At the hearing we were taken through the Act of 1958 under which the Central Bank of Nigeria was established, and of the amendments to it by later decrees. All the relevant provisions were closely examined: and we had the benefit of expert evidence on affidavit which was most helpful. The upshot of it all may be summarised as follows. (i) The Central Bank of Nigeria is a central bank modelled on the Bank of England. (ii) It has governmental functions in that it issues legal tender; it safeguards the international value of the currency; and it acts as banker and financial adviser to the government. (ii) Its affairs are under a great deal of government control in that the Federal Executive Council may overrule the board on monetary and banking policy and on internal administrative policy. (iv) It acts as banker for other banks in Nigeria and abroad, and maintains accounts with other banks. It acts as banker for the states within the federation: but has few, if any, private customers.

In these circumstances I have found it difficult to decide whether or no the Central Bank of Nigeria should be considered in international law a department of the Federation of Nigeria, even though it is a separate legal entity. But, on the whole, I do not think it should be.

This conclusion would be enough to decide the case, but I find it so difficult that I prefer to rest my decision on the ground that there is no immunity in respect of commercial transactions, even for a government department.

Waiver or estoppel

It was submitted that, by the letter of April 28, 1975, the Central Bank of Nigeria waived any claim to sovereign immunity or is estopped from claiming it. But the point was not pressed in this court because of previous decisions, such as Kahan v. Pakistan Federation [1951] 2 K.B. 1003. It was reserved for the House of Lords.

Injunction

It was said that the money standing to the credit in the books of the Midland Bank was money belonging to the Federation of Nigeria: and that it was not subject to seizure or to an injunction. This point seems to me to depend on precisely the same grounds as those considered earlier. If the Central Bank is entitled to immunity from being sued, so also can the funds be immune from being seized. Otherwise not.

Conclusion

In my opinion the plea of sovereign immunity, does not avail the Central Bank of Nigeria. I would allow the appeal, accordingly. STEPHENSON L.J. The Central Bank of Nigeria issued a letter of credit drawn on the Midland Bank in London in favour of Trendtex [*372] Trading Corporation, a Swiss company. It was to pay for a large quantity of cement sold by Trendtex to an English company. The bank assured Trendtex by letter that there was no need to get the letter of credit confirmed by another bank: the money would be available. So Trendtex went ahead, bought the cement from a German company, sold it to the English company, and shipped it to Nigeria. Now the bank refuses to pay and treats the letter of credit as a scrap of paper. The cement was bought by the English company to build barracks for the Ministry of Defence of the Government of Nigeria, which had agreed to buy it from the English company. The bank claims to be an arm or department of that government and to have performed an act of government in granting Trendtex this letter of credit. Whether the grant was a public act of government or a private commercial transaction, it would offend against the dignity of the sovereign state of Nigeria and the comity of civilised nations if the bank had to defend Trendtex’s claim to payment in accordance with the letter of credit in the courts of this country against the Nigerian Government’s will; and it would be a breach of international law if the High Court of Justice in England were to compel the bank to defend the claim. The court ought therefore to act in accordance with international law, to give effect to the plea of sovereign immunity and to stay all further proceedings in the action. This the judge has done. We have to consider whether that was rightly done or whether he should have held that he was not required by international law to uphold the plea of sovereign immunity in respect of an act done by the bank in the ordinary course of banking business in connection with an ordinary commercial transaction and should have allowed the action to go on.

There is apparently no answer to the claim except the plea of sovereign immunity, and I would have to be satisfied that the law of nations plainly requires the courts of this country to prevent Trendtex from pursuing its claim before I could agree with the judge that in spite of what the bank wrote in their letter of April 28, 1975, which Lord Denning M.R. has read, its promise to pay was in effect a mere obligation of honour not enforceable in an English court of law.

In 1958 when the bank was incorporated by the Central Bank of Nigeria Act, there were other central banks in existence, notably the Bank of England, on which the Central Bank of Nigeria was modelled. In 1958 the functions of central banks were well known to be partly governmental and partly private. In 1958 the law of nations relating to sovereign immunity was on the move. It was uncertain how far it was going or how far it had gone in its development; but a body declared to be constitutionally a government department was certainly entitled to sovereign immunity for some of its acts and perhaps still for all its acts. Yet this bank was not declared to be so. Was it nevertheless a government department, and if not has it become one?

Lord Cross of Chelsea delivering the judgment of the Privy Council in The Philippine Admiral [1976] 2 W.L.R. 214, 228 said:

“There is no doubt that since the Second World War there has been both in the decisions of courts outside this country and in the views expressed by writers on international law a movement away from the absolute theory of sovereign immunity championed by Lord Atkin and Lord Wright in The Cristina towards a more restrictive theory. This restrictive theory seeks to draw a distinction between acts of a state which are done jure imperii and ads done by it jure [*373] gestionis and accords the foreign state no immunity either in actions personam or in actions in rem in respect of transactions falling under the second head.”

After referring to a decision of the United States Supreme Court in 1945 (Republic of Mexico v. Hoffman (1945) 324 U.S. 30) and the “Tate letter” of May 19, 1952, the judgment proceeded, at p. 230:

“According to the Tate letter the countries of the world were then fairly evenly divided between those whose courts adhered to the absolute theory and those which adopted the restrictive; but there is no doubt that in the last 20 years the restrictive theory has steadily gained ground. According to a list compiled by reference to the various textbooks on international law and put before their Lordships by agreement between the parties there are now comparatively few countries outside the Commonwealth which can be counted adherents of the absolute theory.”

This movement had gained a fair amount of ground by 1958 in the courts of many countries, as was demonstrated by the decisions collected by Professor Lauterpacht in the Appendix to his article on “The Problem of Jurisdictional Immunities of Foreign States” published in the British Year Book of International Law 1951, vol. 28, p. 220, at pp. 250 and following. The decisions reviewed by the Federal Constitutional Court of the Federal Republic of Germany in 1963 in the Claim against the Empire of Iran Case,45 International Law Reports 57, show that by 1958 several countries had accepted and enforced the rule of restrictive immunity. In this country an interdepartmental committee appointed in 1949 had been dissolved in 1953 without doing more than recognise the divergencies in the practice of states in relation to sovereign immunity and the differences of its own members as to what the best principle was, and without being able to decide either what the rule was or what it ought to be: see Dr. F. A. Mann’s article on “Sovereign Immunity” in (1955) 18 M.L.R. 184, 185. In 1958 the unanimity of English judges was divided by one judicial voice speaking out in favour of restricting immunity to acts jure imperii: Lord Denning in Rahimtoola v. Nizam of Hyderabad [1958] A.C. 379, 422. In 1957 and 1958 the Asian-African Legal Consultative Committee was discussing the immunity of states, though agreement was not reached or restrictive immunity recommended until 1960: see the Claim against the Empire of Iran Case, 45 International Law Reports 57, 77.

It might therefore have been thought necessary, as it certainly would have been prudent, to take the first step requisite for obtaining sovereign immunity for the bank’s acts by according it in statutory terms a status which qualified for that immunity. Yet the Government of Nigeria in that year created not a government department but a bank; a central bank, a “government bank and a prime bank,” if you like to call it that, but all the same a bank with many of the powers and duties of a bank and with no declaration of government status; a separate entity [*374] not stated to be a government department or to be immune from suit internally or externally, or to be subject to claims under the Petitions of Right Act 1958, as is any ministry or department of the Nigerian Government, but on the contrary capable of suing and being sued in its own name under section 3 (2) of the Central Bank of Nigeria Act 1958. Such a body can be an emanation of government, immune from suit at home or abroad or everywhere: Baccus S.R.L. v. Servicia Nacional Del Trigo [1957] 1 Q.B. 438. It can be certified to be so by a representative of its own government or perhaps of the government of the country in which proceedings are brought against it. And a certificate from the ambassador of the government claiming sovereign immunity is, as was held in Krajina v. Tass Agency [1949] 2 All E.R. 274, weighty but not conclusive – weighty because he speaks with knowledge of his country and its law, which may be the law applicable to the question whether the body is a government department; inconclusive because he may apply a test which the courts of the country where proceedings are brought against the body would not consider decisive, as Lord Denning M.R. has pointed out.

In this case we have the affidavits of the High Commissioner of the Federal Republic of Nigeria in the United Kingdom, the Acting High Commissioner and the Solicitor General, since the hearing before Donaldson J. reinforced by the affidavit of Professor Nwabueze. I should not differ from these authoritative opinions if I were satisfied that their authors had asked themselves what Mr. Neill for Trendtex has convinced me are the right questions: what was the legislative intention of the Government of Nigeria in creating this bank by the statute which we have examined, and in tightening control over it by the subsequent decrees to which we have been referred? and, is the bank, controlled as it now is by the Government of Nigeria, the sort of body which the law of nations, or if it differs, the law of this country, recognises as entitled to the immunity which it accords to a sovereign state?

The first of these questions is not answered by any express provision in the Act or decrees. I would not accept Mr. Neill’s extreme submission that such an express provision is universally necessary, particularly when there is evidence that it is not the practice of the Nigerian Government to make such express provision. There may be countries where such a provision could not be expected, though Mr. Bingham has not persuaded me that Nigeria is one of them. The affidavit of Professor Nwabueze, on which he relied, states that it is not the practice in Nigeria to establish a body specifically as a department of government, but that executive departments of government are created by a decision of the executive recorded in a gazette notice, never – or only exceptionally – by statute: an opinion which throws little light on the constitutional status of a bank which is created by statute. That status is a question on which the law of Nigeria may be relevant. But I am not satisfied by the affidavit evidence that there is any difference between the law of England and the law of Nigeria on the question whether a separate legal entity is a department of a foreign government. If there were any material difference between the laws of the two countries I should be content to follow the opinion of MacKenna J. in Swiss Israel Trade Bank v. Government of Salta [1972] 1 Lloyd’s Rep. 497, 506 and hold that the foreign law may determine that a particular quality is inconsistent with the status of a department of state and perhaps that the foreign body in question possesses [*375] those characteristics which English law considers essential to that status, but it is the conception of a government department according to English law which that body must satisfy in an English court. But I accept Mr. Neill’s submission that English courts should be extremely careful not to extend sovereign immunity to bodies which are not clearly entitled to it: and I regard the absence in a 1958 enactment of any clear expression of intent to confer the status of a government department on the bank as a pointer towards the opposite intention.

Then does the bank prove, as it must, that the intention to make the bank a department or an organ of the Nigerian State is of necessity to be implied from the Act and the amending decrees? Like Lord Denning M.R., I have found this a difficult question. The judge set out and analysed the provisions which he regarded as important in an admirably clear and careful statement [1976] 1 W.L.R. 868, 874-876. Counsel on both sides have referred to a great number of them in an exhaustive and helpful exegesis of their terms and implications. I do not propose to review them again or to compare them with those which regulate the Bank of England in the Acts of 1694 and 1946 – its constitutional position was not directly in issue or, properly, the subject or any concession by Mr. Bingham – or other banks such as the Provincial Bank of Salta set out in Swiss Israel Trade Bank v. Government of Salta [1973] 1 Lloyd’s Rep. 497 [sic] or the National Economic Bank of Poland examined in Ulen v. Bank Gospodarstwa Krajowego (1940) 24 N.Y.S. 2d. 201; or with the constitutions and functions of many other bodies which have pleaded sovereign immunity with varying success. There ic nothing as strong as the articles constituting the Tass Agency which justified the Soviet ambassador’s certificate in Krajina v. Tass Agency [1949] 2 All E.R. 274. Nor shall I go into the reasoning (mostly adopted in Mr. Neill’s argument for Trendtex) by which Dr. Cotran and Professor Read have reached their conclusions that the bank is not part and parcel of the State of Nigeria or a department of its government. I would add only a word of caution against using decisions on the immunity of Crown servants and agents internally as more than a guide to determining the immunity of government agencies externally. We were told that this was the first case in which cases on both questions had been brought together. Their collocation in this case was foreshadowed by Cohen L.J.’s citation of Mackenzie-Kennedy v. Air Council [1927] 2 K.B. 517 in Krajina v. Tass Agency [1949] 2 All E.R. 274, 280 and by Lord Denning M.R.’s citation of Tamlin v. Hannaford [1950] 1 K.B. 18 in Mellenger v. New Brunswick Development Corporation [1971] 1 W.L.R. 604, 609. We were taken to such helpful authorities as Metropolitan Meat Industry Board v. Sheedy [1927] A. C. 899 and Bank voor Handel en Scheepvaart N.V. v. Administrator of Hungarian Properly [1954] A.C. 584. But a meat industry board or a custodian of enemy property may not necessarily be recognised as in the same position at home and abroad when it comes to considering relationship to the state and immunity from suit. I shall simply state my conclusions, differing with hesitation from the opinion of Donaldson J. [1976] 1 W.L.R. 868, 872-877, on what he called the personality issue, that the bank has not proved its case. I am not satisfied that the bank was created by the Act a department of the Nigerian Government or has been changed into one by any of the eleven amending decrees which it was contended for the bank had dramatically eroded its independence. A hobbled horse is still a horse. A corporation may change its constitution by degrees, but I am not satisfied that any of the amendments of the [*376] Act incorporating the bank have changed its constitution and turned it into an organ of the Nigerian State.

I would allow the appeal on this ground, but will state my conclusions on the other questions which have to be decided if I am wrong on this point, and which have been put before us with a wealth of care and skill in preparation and argument to which I would join with Lord Denning M.R. in acknowledging a debt of gratitude.

Of these remaining questions I take first the question whether, assuming that the bank is a body entitled to plead sovereign immunity, it is entitled to plead it in respect of an action on the letter of credit which it issued to Trendtex. That resolves itself into two questions. (1) Was the issue of the letter of credit by the bank in favour of Trendtex an ordinary trading transaction? (2) If it was, can an English court below the House of Lords reject the bank’s plea of sovereign immunity in respect of such a transaction?

(1) The movement or trend of opinion towards restricting sovereign immunity is based on the distinction between ordinary trading transactions and governmental acts. The new doctrine would restrict immunity to the latter, labelled in Latin as acta jure imperii, and deny it to the former under the description of acta jure gestionis. The distinction between the two categories has been found as difficult to draw as the distinction between a state’s agents who are not immune and a state’s agencies which are. But I entertain no doubt that the issue of this letter of credit in payment for this cement fell on the private and commercial side of the line and was an ordinary trading transaction. It was a separate transaction from the sale to the English company in whose favour the first letter of credit was issued by the bank: see General Provision and Definition (c) of Uniform Customs and Practice for Documentary Credits (1962 Revision) from which Lord Denning M.R. has quoted, ante, p. 363D.

If it were necessary, or permissible, to look at that underlying contract of sale, or below it at the purpose for which the cement was required, namely, to build barracks for the Nigerian Ministry of Defence, I would still regard the whole transaction as commercial. Trendtex must be taken to have known that the bank’s transferable letter of credit in favour of the English company was opened with the Midland Bank in London on account of the Permanent Secretary, Ministry of Defence, Lagos. But the letter of credit opened in favour of Trendtex was on account of the English company. There are those who regard the purpose of the transaction as determining the question whether it is public and governmental or private and commercial; I prefer the view incorporated in the Bill introduced into the United States House of Representatives in 1975:

“the commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose”: see section 1603 (d) of the Foreign Sovereign Immunity Act 1976.

This accords with the judgment of the German Federal Constitutional Court in the Claim against the Empire of Iran Case, 45 International Law Reports 57, 80.

(2) Are we prevented from enforcing the bank’s obligation to pay in accordance with the letter of credit? Are we bound by authority to [*377] the doctrine of absolute immunity which protects a sovereign in respect of all his acts whether jure imperii or jure gestionis? This is the question of the most general importance raised by this appeal and perhaps of the greatest difficulty. On the one hand, Mr. Neill for Trendtex has argued that every court in the United Kingdom can and should apply the relevant contemporary rule of international law with certain exceptions which do not include a previous decision of binding authority applying a different rule no longer in force; and the relevant contemporary rule is restrictive immunity. On the other hand, Mr. Bingham, for the bank, contended that the rule of absolute immunity for a sovereign state or one of its organs sued in personam is still binding upon this and every court in the United Kingdom unless and until the House of Lords decides to depart from its previous decisions or Parliament repeals the rule; and there is not yet established by international law any new rule of restrictive immunity which exempts acts of a sovereign state or one of its organs from immunity or agrees on what those exempted acts are. The first difficulty in deciding between these two submissions is caused by the nature of international law and the manner in which municipal courts ascertain what it is, how the law of nations is made and how proved.

Sir William Blackstone wrote: “The law of nations … is here adopted in its full extent by the common law, and is held to be a part of the law of the land.” He went on to add that “the law merchant (in which I include the law relating to letters of credit) … is a branch of the law of nations”: Blackstone’s Commentaries, 15th ed. (1809), Book IV, Ch. 5, p. 67. That opinion reproduces the opinion attributed to Lord Talbot L.C. in Buvot v. Barbut, 3 Burr. 1481, by Lord Mansfield C.J., one of the counsel in the case, in Triquet v. Bath, 3 Burr. 1478, 1481, and Heathfield v. Chilton (1767) 4 Burr. 2016. There is no trace of any such opinion, or of the elaborate and solemn argument to which Lord Mansfield also refers there, in the report of Barbuit’s Case in Forrester’s cases in Equity temp. Talbot 281, where it is dated 1737. But preserved and adopted by Lord Mansfield and Blackstone and other judges, Lord Talbot’s opinion has great force which I should be the last to disparage, coming as it does from a judge whom Bayley J. described in 1827 as “one of the greatest real property lawyers that ever filled the office of Lord Chancellor”: Doe d. Lloyd v. Passingham (1827) 6 B. & C. 305, 315 Lord Talbot was, however, deciding that a consul was not entitled to “the antient universal jus gentium” belonging to ambassadors of which the statute of Anne was declaratory, and for my part I would attach more importance to his going to contemporary jurists to ascertain the relevant rule of the law of nations than to his description of the law of nations generally as part of the law of England. For the law of nations is, according to Blackstone (p. 66), “a system of rules, deducible by natural reason, and established by universal consent among the civilised inhabitants of the world” and which “must necessarily result from those principles of natural justice in which all the learned of every nation agree.” But the universal consent required by this confident and exacting 18th century definition is, as Lord Denning M.R. has pointed out, a fiction; if it ever existed, it is not now forthcoming in many spheres of international law, and certainly not, in my judgment, in the area of sovereign immunity.

There is, however, ample authority not for the view that each nation can decide what rule suggested by any jurist or body of jurists, or laid down and applied by any foreign court or courts, it can and should itself [*378] apply, but for the view that it can and should apply a generally accepted rule. I cite two statements from the early years of this century. In 1915 Sir Samuel Evans P. in The Odessa [1915] P. 52, 61-62, defined the law of nations as

“the law which is generally understood and acknowledged to be the existing law applicable between nations by the general body of enlightened international legal opinion.”

He went on to say:

“In the domain of international law, in particular, there is room for the extension of old doctrines or the development of new principles, where there is, or is even likely to be, a general acceptance of such by civilised nations. Precedents handed down from earlier days should be treated as guides to lead, and not as shackles to bind. But the guides must not be lightly deserted or cast aside.”

He may have felt a greater freedom in the Prize Court than a judge of a court of common law to let precedents lead him on to the future and not bind him to the past; but his judgment does, I think, point the way in which Mr. Neill asks this court to go. Against this forward movement, which Lord Talbot’s doctrine of incorporation is claimed to permit, is set the doctrine of transformation derived from the judgment of Cockburn C.J. in Reg. v. Keyn, L.R. 2 Ex.D. 63, 202-203, which Lord Denning M.R. has quoted, and other judgments considered to require adoption of a rule of international law by the courts of this country and to forbid the adoption of a new rule at variance with or developed from a rule already adopted by the courts of this country. One such judgment is that of the Queen’s Bench Division, Lord Alverstone C.J., Wills and Kennedy JJ., in West Rand Central Gold Mining Co. Ltd. v. The King [1905] 2 K.B. 391 in which Lord Alverstone C.J. said, at pp. 406-408:

“The second proposition urged by Lord Robert Cecil, that international law forms part of the law of England, requires a word of explanation and comment. It is quite true that whatever has received the common consent of civilised nations must have received the assent of our country, and that to which we have assented along with other nations in general may properly be called international law, and as such will be acknowledged and applied by our municipal tribunals when legitimate occasion arises for those tribunals to decide questions to which doctrines of international law may be relevant. But any doctrine so invoked must be one really accepted as binding between nations, and the international law sought to be applied must, like anything else, be proved by satisfactory evidence, which must shew either that the particular proposition put forward has been recognised and acted upon by our own country, or that it is of such a nature, and has been so widely and generally accepted, that it can hardly be supposed that any civilised state would repudiate it. The mere opinions of jurists, however eminent or learned, that it ought to be so recognised, are not in themselves sufficient. They must have received the express sanction of international agreement or gradually have grown to be part of international law by their frequent practical recognition in dealings between various nations. We adopt the language used by Lord Russell of Killowen in his address at Saratoga in 1896 on the subject of international law and arbitration: ‘What, then, is international law? I know no better definition of it than that it is the sum of the rules or [*379] usages which civilised states have agreed shall be binding upon them in their dealings with one another.’ In our judgment, the second proposition for which Lord Robert Cecil contended in his argument before us ought to be treated as correct only if the term ‘international law’ is understood in the sense, and subject to the limitations of application, which we have explained. The authorities which he cited in support of his proposition are entirely in accord with and, indeed, well illustrate our judgment upon this branch of the arguments advanced on behalf of the suppliants: for instance, Barbuit’s Case, Forr. 280, Triquet v. Bath, 3 Burr. 1478 and Heathfield v. Chilton, 4 Burr. 2016, are cases in which the courts of law have recognised and have given effect to the privilege of ambassadors as established by international law. But the expressions used by Lord Mansfield when dealing with the particular and recognised rule of international law on this subject, that the law of nations forms part of the law of England, ought not to be construed so as to include as Part of the law of England opinions of text-writers upon a question as to which there is no evidence that Great Britain has ever assented, and a fortiori if they are contrary to the principles of her laws ns declared by her courts.”

I have quoted this passage in its full extent because it suggests that the differences between the two schools of thought are more apparent than real: which I think is the view of Professor Brownlie in his Principles of public International Law, 2nd ed. (1973), pp. 44-49 for which I am indebted to Mr. O’Connell, junior counsel for Trendtex; for it is the nature of international law and the special problem of ascertaining it which create the difficulty in the way of adopting, or incorporating, or recognising as already incorporated, a new rule of international law. I would find less difficulty in accepting restrictive immunity, Lord Denning M.R.’s fourth exception in Thai-Europe Tapioca Service Ltd. v. Government of Pakistan, Directorate of Agricultural Supplies [1975] 1 W.L.R. 1485, 1491, in place of absolute immunity if restrictive immunity were as generally accepted today as absolute immunity was in the past – and that may not have been as universally accepted as I have assumed. But rules of international law, whether they be part of our law or n source of our law, must be in some sense “proved,” and they are not proved in English courts by expert evidence like foreign law: they are “proved” by taking judicial notice of “international treaties and conventions, authoritative text books, practice and judicial decisions” of other courts in other countries which show that they have “attained the position of general acceptance by civilised nations” The Cristina [1938] A.C. 485, 497. per Lord Macmillan: and those sources come seldom if ever from every civilised nation or agree upon a universal rule; they move from one generally accepted rule towards another. But if none moved, old rules would never die and new rules never come into being. Some move must be made by states, or their tribunals, or jurists, to prevent petrifaction of the living law. When should n court of law accept or adopt or incorporate or assent to what is alleged to be a new rule of international conduct? Can an English court ever make the first move in this country? Or must it wait for a “Tate letter” from the Government of the United Kingdom? Or for an Act of Parliament? If one asks the questions indicated by the judgment in West Rand Central Gold Mining Co. Ltd. v. The King [1905] 2 K.B. 391 the answers do not give Trendtex much help. Have civilised states [*380] agreed that the doctrine of restrictive immunity shall be binding upon them in their dealings with one another? The answer is doubtful; many have. Is there evidence that Great Britain has ever assented to the doctrine? The answer must be no – until she ratifies the European Convention on State Immunity which she signed at Basle on May 16, 1972, and perhaps also the Brussels Convention of 1926. Has it been proved by satisfactory evidence that the doctrine has been recognised and acted upon by our own country? No. Or that it is of such a nature, and has been so widely and generally accepted, that it can hardly be supposed that any civilised state would repudiate it? The answer to that might be yes; the Government of Nigeria has not repudiated the doctrine by instructing the bank to plead immunity for what it alleges to be an act done jure imperii, but it is a bold claim that no civilised state would repudiate the application of the restrictive doctrine to actions in personam, and inconsistent with the opinion of the Privy Council to which Lord Denning M. R. has referred, that the House of Lords is unlikely to apply it to them: The Philippine Admiral [1976] 2 W.L.R. 214, 233. Have the opinions of jurists received the express sanction of international agreement, or have they grown to be part of international law by their frequent practical recognition in dealings between various nations? On all the material put before us I could not answer that question in the affirmative. It is clearly difficult if not impossible to prove that governments have acted on the “rule” of restrictive immunity by failing to plead immunity for ordinary commercial transactions. How do you prove that the gestation of a new rule is over and that it has come to birth? Or that an old rule has grown and developed into a new form?

It is part of Mr. Bingham’s case that a vacuum may have been created in the law of nations by the dissent of many from the old rule, but that the vacuum has not been filled by any agreed new rule. Even if the law of nations does not abhor a vacuum, it is entirely unsatisfactory that the courts of this country should not lift a finger to help fill it by a new rule which is “consonant with justice.” In my judgment this new rule is consonant with justice. It is in accord with the law merchant which requires that payments on letters of credit should be honoured. It is now so widely and generally accepted that no civilised country which has not yet expressly assented to it should be presumed to repudiate it. It would be repugnant to justice if an English court were to repudiate it in modern conditions and so in effect extend the old rule of immunity to transactions which were never considered subject to it by former judges and jurists because such transactions would never in their time have been carried out by sovereign states or their emanations.

We ought therefore to keep in step, if we can, with the Supreme Court of the United States of America in Alfred Dunhill of London Inc. v. Republic of Cuba and the German courts in their decisions in Youssef M. Nada Establishment v. Bank of Nigeria.

We should also keep in step with the courts of the other countries who have signed the Treaty of Rome. Article 3 (h) is primarily directed to such economic questions as distortion by competition, as articles 100-102 show. But it lays down a general idea of approximation or “rapprochement” or “Angleichung”; that is “harmonisation” to be “undertaken by member states of the Council of Europe in the legal field” (see the preamble to the Basle Convention of 1972 cited in The Philippine Admiral [1976] 2 W.L.R. 214, 231F-H) which ought to result in the courts of all the European Economic Community countries coming as close to each [*381] other as possible in their decisions, the law which they apply and their application of it. If the courts of the European Economic Community countries were out of step with other countries in the international law which they recognised and applied, there might be a conflict. Here there is none – but a getting as nearly into line with them as possible. I am therefore of opinion that in so far as the Treaty of Rome has any effect upon the power or duty of our courts to adopt the rule of restrictive immunity, it tends to reinforce the argument that they have that power and duty.

Has this court the power to do what Trendtex asks and to reject the bank’s plea of sovereign immunity by applying the sufficiently accepted rule of restrictive immunity? Having overcome the first difficulty in Trendtex’s way I am confronted with a barrier which prevents me, with diffidence and regret, from agreeing with Lord Denning M.R. that we can defeat the plea by applying his fourth exception in the Thai-Europe Tapioca Service Ltd. case [1975] 1 W.L.R. 1485, 1491, even if the bank is not an arm of the Nigerian State. That barrier is the decision of the majority of this court in that case. That decision was unanimous in rejecting the plea of sovereign immunity. Lord Denning M.R.’s statement of the fourth exception was obiter, because it was held not to apply to the facts of the case. But both the other members of the court, Lawton and Scarman L.JJ., rejected the exception and refused to base their decisions that the plea must be rejected on the ground that the transaction sued on was not an actum jure imperii. They decided the case on the ground that it was outside the territorial jurisdiction of the English courts, but the “fascinating” and “erudite” argument of counsel for the plaintiffs invited a decision on the question whether the Pakistan Government could rely on sovereign immunity for trading activities of the corporation for which it was substituted as defendant and whether the commercial nature of the transaction brought it within an exception to the rule of immunity: [1975] 1 W.L.R. 1485, 1488B, 1490D, 1492H, 1494H. Lawton and Scarman L.JJ. each rejected that argument on the ground that the doctrine of stare decisis applied to a rule of international law and the rule of absolute immunity had been incorporated into our municipal law by decisions binding on this court (pp. 1493, 1495). Even if their reasoning or conclusion were wrong – and they seem to follow the opinions or all three members of this court in Reg. v. Secretary of State for the Home Department, Ex parte Thakrar [1974] Q.B. 684 – they clearly decided, by no means per incuriam, that it was not open to them to accept the rule of restrictive immunity, and the ratio of that decision of theirs was that this court is bound by previous decisions as to what international law is to hold that it is the same until altered by the House of Lords or the legislature; and that this court is bound by previous decisions to hold that absolute sovereign immunity is a rule of international law until the House of Lords or the legislature declares that it is so no longer.

Neither has done so. The Judicial Committee of the Privy Council has in The Philippine Admiral [1976] 2 W.L.R. 214 cleared the way forward by restricting the immunity for actions in rem, but has discouraged any advance towards restricting the immunity for actions in personam. The recent American and German decisions already cited may encourage the legislature or the executive or the House of Lords to recognise and adopt the new development of the old doctrine. But meanwhile I must stand loyally but reluctantly on the old doctrine and the old decisions. [*382] I therefore prefer to rest my decision in this case on the ground that the bank is not an emanation, arm, alter ego or department of the State of Nigeria.

On the issue of waiver or estoppel no point arises for our decision in this court.

On what the judge called the property issue I feel more doubt than the other members of this court. In the action Trendtex claims damages for breach of undertakings under the letter of credit and for repudiation of obligations under the letter of credit. It is rot a claim to the moneys in a bank account like the claim in Rahimtoola v. Nizam of Hyderabad [1958] A. C. 379. But the injunctions order that assets held by the bank be retained within the jurisdiction and they do operate on funds in a bank account. There is uncontradicted evidence from the Acting High Commissioner supported by the evidence of the Governor of the Central Bank of Nigeria that all the assets held by the bank to which the injunctions relate are part of the external reserves of Nigeria and are the property of the Federal Government. The Acting High Commissioner clearly lays a claim to those assets which I find it hard to regard as “illusory” or “founded on a title manifestly defective” when challenged, if at all, by nothing more than the unexplained discrepancy in the bank’s balance sheet at December 31, 1974, on which Mr. Neill relied. If what was said by Viscount Jowitt in Juan Ysmael & Co. Inc. v. Government of the Republic of Indonesia [1955] A. C. 72, 89 is to be applied, I would agree with the judge and discharge the injunctions. But the Acting High Commissioner may have been influenced by his opinion that the hank was a department of state. Furthermore the German courts refused to release the bank’s assets held by the Deutsche Bank in Frankfurt, on what evidence is not clear but apparently because they rejected the plea of sovereign immunity in respect of similar “non-sovereign activity.” In Ulen’s case, 24 N.Y.S. 2d 201, 207 the same view appears to have been taken of funds claimed to be part of the public debt of Poland. I do not therefore dissent from Lord Denning M.R.’s opinion on this point that it depends on precisely the same grounds as those considered earlier and that we should continue the injunctions.

For these reasons I concur in allowing the appeal.

SHAW L.J. The cardinal question is whether the Central Bank is properly to be regarded as a department of the Government of Nigeria in the guise of a bank, or whether it is in truth a bank to which the execution of specific aspects of government control of finance has been delegated. In the first case the Central Bank may be entitled to immunity from suit in the courts of this country; in the second case it can claim no such immunity. There can be no intermediate hybrid status occupied by the hank wherein it is to be regarded as a government department for certain purposes and as an ordinary commercial or financial institution for different purposes. It must be one or the other and counsel for the bank did not contend otherwise. The burden of his submission was that the bank was subordinated to and subservient of the Federal Government to such a degree that it was a mere instrument of that Government and was therefore to be identified with it. The opposing argument was that the Central Bank was constituted as a bank and that the functions assigned to it in relation to the economic and financial affairs of the Nigerian State did not have the result of changing its fundamental character. There is much [*383] to be said for each of these views and indeed much was most admirably said in the presentation of the case for the respective parties.

The proposition that what is on its face a financial institution with the descriptive title of “Central Bank of Nigeria” is a mere government bureau obviously calls for stringent scrutiny. Its acceptance may, and in the present case will, result in serious and substantial detriment to the material interests of others. While this consideration cannot of itself determine whether the proposition is valid or fallacious it serves to sound a note of caution against a too facile attribution of sovereign immunity; the more so because in these times, as Lord Denning M.R. has pointed out the encroachment of government upon many forms of activity not traditionally within its sphere grows ever more extensive.

Whether a particular organisation is to be accorded the status of a department of government or not must depend on ils constitution, its Dowers and duties and its activities. These are the basic factors to be considered. The view of the government concerned must be taken into account but is not of itself decisive (Krajina v. Tass Agency [1949] 2 All E.R. 274); it does not relieve a court before which the issue of sovereign immunity arises of the responsibility of examining all the relevant circumstances. So far as authority throws light on the problem, the law has been comprehensively reviewed in the respective judgments of Lord Denning M.R. and Stephenson L. J. There is nothing to be added to their exposition. Earlier instances of the problem and of its solution may offer guidance but cannot answer the particular case. I propose only to indicate what are the features which lead mc to the conclusion that the Central Bank of Nigeria ought not to be accorded the status of a department of the government of that country. It is, in the first place, a statutory corporation whose personality. powers and legal attributes are determined by the Central Bank of Nigeria Act 1958 and the amending enactments which Followed. The totality of that legislation represents the intention and objectives of those who created and moulded it for the performance of its contemplated functions. If it was designed as a department of state, many titles indicative of that status come readily to mind. What was conferred upon it was the title of a bank. Nowhere in that legislation is it called anything but a bank; and not a “Federal” or “National” or “State” bank but a “Central” bank. The 52 sections of the principal Act and the several amending orders and enactments contain no direct indication that the bank is a department of the government and there are many indications which deny it that status. The very name has a commercial ring. Its powers do not identify it with the government and in some respects preclude identification with the government. For example by section 18 it is provided:

“the bank shall have the sole right of issuing notes … throughout Nigeria and neither the Federal Government nor any state government shall issue currency notes.”

This is an instance of explicit differentiation between the role and status of the bank on the one hand and of the government on the other. Again by section 4 it is declared that a principal object of the bank is “to act as banker and financial adviser to the Federal Government.” This in my view must envisage the bank’s function in this regard as independent of and external to the immediate realm of government. It would have been simple enough for the Act to have made it a principal object of the bank to discharge the functions of the department of commerce and finance [*384] in matters assigned to it; but this is not what it does. When therefore section 4 goes on to provide that another principal object of the bank is to issue legal currency and to safeguard the internal value of that currency it does not simply because the subject matter is a function of government thereby confer on the bank a governmental status. It merely delegates that function to the bank as its agent in that regard; and in its capacity of agent the bank is subject to a very tight control. Again while power is conferred on the bank to change the parity of the Nigerian pound it can exercise that power only with the approval of the Federal Executive Council.

These are hardly indications of executive power having been vested in the bank. Rather do they exhibit the bank as having only the status of an agent for the government in certain matters. There are other similar indications in the Central Bank of Nigeria Act 1958 which in my opinion reinforce the view that the bank has a status outside the government and separate from it.

Apart from these matters there is an important practical consideration. A consequence of the doctrine of immunity is that in protecting sovereign bodies from the indignities and disadvantages of adverse judicial process, it operates to deprive other persons of the benefits and advantages of that process in relation to rights which they possess and which would otherwise be susceptible of enforcement. Those who contemplate entering into transactions with bodies which may he in a position to claim sovereign immunity are entitled at least to the opportunity of assessing any special risk which may arise. How can they know that such a risk lurks in dealing with a body which assumes a guise and bears a title appropriate to a commercial or financial institution? Readily recognisable individual sovereigns are now rare. Departments of state are impersonal and faceless. Institutions which share in the government of a state carry no visible hallmark of sovereign status. The least that the interests of justice require is that the intention to invest an institution which is not manifestly part of government with the status of government should be declared and overt. There is no rule of law which demands this; but where the issue of status trembles on a fine edge, the absence of any positive indication that the body in question was intended to possess sovereign status and its attendant privileges must perforce militate against the view that it enjoys that status or is entitled to those privileges. This is especially the case where the opportunity to define the status of the institution concerned in clear and express terms has existed from the very inception, or indeed conception, of that institution – as in this case.

The evidence before Donaldson J. below included the affidavit of Mr. Adamu Ciroma who is the governor of the bank. His evidence was directed principally to the issue of a title to the assets held by the bank in this country. It is of interest to note that he repeatedly refers to the bank in one connection or another, as “the agent of the government.” When he mentions instances of the bank’s delegated powers in relation to public affairs he does not omit to lay emphasis on the overriding control and supervision of those matters by the Federal Executive Council. So also Professor Nwabueze in an affidavit which was not before Donaldson J. develops the same theme. He avers that “the control of the bank by the Federal Military Government, Federal Executive Council and Federal Commission for Finance is nearly complete.” He asserts that [*385] the bank “is an agency or arm of the government” and adds that “its status cannot be determined simply by reference to English institutions and legal concepts.” Now it is true that the constitution and powers of a Nigerian corporation must be viewed in the light of the domestic law of Nigeria. But its status in the international scene falls to be decided by the law of the country in which an issue as to its status is raised. In civilised states that law will derive from those principles of international law which have been generally accepted among such states. As I understand the tenor of Professor Nwabueze’s affidavit he suggests that the bank was under the thumb of the military government and its executive councils. It is clear enough that the bank was the subserving agent of the government in a variety of activities but this is not in my judgment adequate to constitute it as an organ or department of government. I cannot find in the constitution of the bank or in the functions it performs or in the activities it pursues or in all those matters looked at together any compelling or indeed satisfactory basis for the conclusion that it is so related to the Government of Nigeria as to form part of it. Accordingly I would hold that the bank is not entitled to the immunity which it claims.

If this view is wrong there still exists a further obstacle which the bank has to overcome before it can claim to be entitled to immunity from suit in respect of the proceedings instituted by Trendtex.

There has been put before the court a wealth of material comprising decisions of foreign courts and the writings of international jurists which tends to show that over the last half-century there has been a shift from the concept of absolute immunity to a narrower principle which excludes ordinary mercantile transactions from the ambit of sovereign immunity notwithstanding the sovereign status of a party to those transactions.

Here again I can add nothing to Lord Denning M.R.’s and Stephenson L.J.’s recapitulation and analysis of the impressive body of international authority. I am content to say that it convinces me that the preponderant contemporary rule of international law supports the principle of qualified or restrictive immunity which takes account not only of the sovereign status of a party but also of the nature of the transaction in respect of which the issue of immunity arises. If the English courts are free to apply this current concept to the present proceedings the inescapable result would be that even if the bank were held to be a government department this status would not avail to confer upon it immunity from suit in respect of their subject matter.

The question does, however, arise as to whether this court is free to fall into line with and to follow this modified concept even if it be the case that it has achieved such substantial acceptance as to be recognised as the operative rule of international law.

It is perhaps right to consider first whether the narrower principle is in better conformity with contemporary international relationships than the doctrine of absolute immunity. It seems undeniable that it is. So long as sovereign institutions confined themselves to what may in general terms be described as the basic functions of government a total personal or individual immunity from suit was unobjectionable since the area in which it operated had its own inherent limits. The comity of nations was aided by such a doctrine confined as it was, broadly speaking, to acts which could be properly described as an exercise of sovereign power. The radical changes in political and economic and sociological [*386] concepts since the first world war have falsified the very foundations of the old doctrine of sovereign immunity. Governments everywhere engage in activities which although incidental in one way or another to the business of government are in themselves essentially commercial in their nature. To apply a universal doctrine of sovereign immunity to such activities is more likely to disserve than to conserve the comity of nations on the preservation of which the doctrine is founded. It is no longer necessary or desirable that what are truly matters of trading rather than of sovereignty should be hedged about with special exonerations and fenced off from the processes of the law by the attribution of a perverse and inappropriate notion of sovereign dignity.

In the conditions of international relations which now prevail the restrictive principle which has emerged is manifestly in better accord with practical good sense and with justice. This is indeed the motive force which has brought about its establishment in place of the old rule. Can this court not merely recognise the new principle but also adopt and apply it?

Lord Denning M.R. has given an affirmative answer to this question. Stephenson L.J. considers that this court is precluded from giving effect to the new principle. I am in agreement with the view expressed by Lord Denning M.R. for reasons I shall endeavour to explain.

The grounds upon which Stephenson L.J. bases his judgment in this regard is that as long ago as 1880 in The Parlement Belge, 5 P.D. 197 this court held that the absolute doctrine of sovereign immunity was the recognised and accepted principle of international law and that it was accordingly to be adopted so as to form part of the law of England; and it has remained ever since so that the decision continues to bind this court. Thus runs the argument. It is important, however, to recall that in giving the judgment of the court in that case Brett L.J. said, at D. 205:

“The … question really raises this, whether every part of the public property of every sovereign authority in use for national purposes is not as much exempt from the jurisdiction of every court as is the person of every sovereign. Whether it is so or not depends upon whether all nations have agreed that it shall be, or … whether it is so by the law of nations.”

This last passage seems to me to make it plain that what is to be adopted into English law and applied in the English courts is the current principle in regard to which “nations have agreed that it should be so by the law of nations.” If those words of Brett L.J. were spoken for the first time today in relation to the issue of sovereign immunity they would result in the adoption and application of the restrictive principle contended for by Trendtex.

However, the argument continues ia this way. When once a rule or international law has been recognised and adopted and applied by an English court a transformation of the English law is brought about whereby the adopted rule becomes part of the corpus of English law. Thenceforth it cannot be changed save by a decision of a higher court than that which first applied it or else by legislation. This was the view expressed by a majority of the Court of Appeal in Thai-Europe Tapioca Service Ltd. v. Government of Pakistan [1975] 1 W.L.R. 1485. Lord Denning M.R., who on this point differed from Lawton and Scarman L.JJ., enunciated at pp. 1490-1491 four exceptions to the principle of [*387] sovereign immunity which he suggested were recognised or were becoming recognised. The fourth of those exceptions was that, and I quote from his judgment, at p. 1491:

“a foreign sovereign has no immunity when it enters into a commercial transaction with a trader here and a dispute arises which is properly within the territorial jurisdiction of our courts.”

Lawton L:J. demurred. He did not agree that such innovations were tenable or could derogate from the established rule as to absolute sovereign immunity. He said, at p. 1493:

“It was submitted on behalf of the plaintiffs that since 1924 the views of jurists all over the world about the immunity of sovereign states which engage in trade have changed; and that in many parts of the world courts have decided that states engaging in trade should lose their sovereign immunity when so doing. We have to concern ourselves with the law of this country. It may be that at some future date the House of Lords will consider the three cases to which I have referred … it is most important that rules of this kind should not be altered save by the appropriate judicial or legislative body.”

The three cases of which Lawton L.J. was speaking were The Parlement Belge, 5 P.D. 197; The Porto Alexandre [1920] P. 30 and the Compania Mercantil Argentina v. United States Shipping Board (1924) 131 L.T. 388. All three were decisions of the Court of Appeal in which the principle of absolute immunity was recognised and applied. Scarman L.J. agreed with Lawton L.J. He said, at p. 1493: “In my opinion we are precluded by authority from accepting the submission made to this court on behalf of the plaintiff shipowners” and he went on to say, at p. 1495, that it had been submitted:

“that we should take account of the developing consensus of juristic and judicial opinion all over the world in favour of what may briefly be called the commercial exception to the absolute character of the doctrine of sovereign immunity. I do not think myself it is open to this court to go further than the journey already taken in the House of Lords and the Court of Appeal … a rule of international law, once incorporated into our law by decisions of a competent court, is not an inference of fact but a rule of law. It therefore becomes a part of our municipal law ann the doctrine of stare decisis applies.”

The question underlying the difference of opinion was not material to the ultimate decision of that appeal; but the views thus expressed by Lawton and Scarman L.JJ. must command respectful attention. It is with diffidence that I venture to suggest that there may be a flaw in the reasoning which led to their conclusion as to the application of the principle of stare decisis. If it were correct that once a rule of international law has been duly recognised and properly applied by an English court it is thereafter an integral and permanent part of English law then no court could afterwards change it. Perhaps not even the House of Lords, on the assumption that the original application of the principle was right and in any case not until an appeal was carried there; and this would remain the position whatever alterations of the international rule might come about. The principle originally applied might not be amenable to review or revision save by the legislature. The rule enshrined in The [*388] Parlement Belge, 5 P.D. 197 might survive inviolable in English jurisprudence even if discarded and discredited everywhere else in the world, unless and until Parliament intervened. The strange result would follow that eventually current international law would have to be introduced into English law by statute unless the opportunity to apply it became available to the House of Lords.

This reductio ad absurdum carries the suggestion that there must be a flaw in the argument which leads to the incidence df stare decisis. May it not be that the true principle as to the application of international law is that the English courts must at any given time discover what the prevailing international rule is and apply that rule? This is not the same process as applying foreign law in our courts for that only comes into question when for a particular reason the proper law relating to the matter before the court is that foreign law. In the case of international law it is always part of the law to be applied irrespective of any intention or agreement of the parties in snit. This, so it seems to me, is the true distinction and not that the one is immutable as a rule of law while the other is always subject to investigation as a question of fact.

What is immutable is the principle of English law that the law of nations (not what was the law of nations) must be applied in the courts of England. The rule of stare decisis operates to preclude a court from overriding a decision which binds it in regard to a particular rule of (international) law, it does not prevent a court from applying a rule which did not exist when the earlier decision was made if the new rule has had the effect in international law of extinguishing the old rule. The judgment in The Parlement Belge, 5 P.D. 197 cannot be a binding authority as to what form the doctrine of sovereign immunity would take a century after the judgment was delivered. As Brett L.J. said, at p. 205: “it depends upon whether all nations have agreed.” When they have agreed to a different effect the old rule loses its validity. It is supplanted in international law (and therefore also in English law of which it forms a part) by the new rule which derives its force from, and only from, that agreement of which Brett L.J. spoke.

This view would appear to be in accord with the dictum of Lord Mansfield C.J. in Heathfield v. Chilton, 4 Burr. 2016, that “the law of nations will be carried as far in England as anywhere.” So also Lord Lyndhurst in 1853, “The law of nations according to the decisions of our greatest judges is part of the law of England.” This is hardly consonant with the idea that what was the law of nations persists as part of English law when it has ceased to be part of international law.

Lawton L.J. expressed concern as to the possible prejudice which might result to those engaged in international trade if changes in international law brought about ipso facto corresponding changes in the law of England. But even the law of England changes quite apart from what may be happening to international law. Moreover, changes in rules of international law do not come about abruptly; and changes will not be recognised in an English court without convincing support. Those engaged in world commerce will not be insensible to the incidence of such changes over the years. Lastly there must be a greater risk of confusion if precepts discarded outside England by a majority (or perhaps all) of civilised states are preserved as effective in the English courts in a sort of judicial aspic. I would adopt what Lord Denning M.R. said, ante, p. 365H, namely that “international law knows no rule of stare decisis.” I would [*389] add that this remains the case even when a particular aspect of international law is being looked at as part of the law of England.

In my judgment, therefore, even if the Central Bank of Nigeria is part of the government of that country, it is not immune from suit in respect of the subject matter of the present action. In coming to this conclusion I should make it clear that I regard the intrinsic nature of a transaction rather than its object as the material consideration in determining whether entering into that transaction is a commercial activity or an exercise of sovereign authority.

There remains the issue as to the injunction. Mr. Ciroma’s evidence is to the effect that all funds held by the bank within the jurisdiction of the English courts belong to the Nigerian Government. If the bank is to be regarded as part of that government yet not immune from suit (and a fortiori if it is not so regarded) it is a reasonable corollary that those funds should be preserved within the jurisdiction so long as there is a possibility that the action may survive and succeed. I am much encouraged to this view by the brash intimation given to Trendtex in Lagos in October 1975 that they would not receive any payment. I would continue the injunction, and I would allow the appeal.

Appeal allowed with costs in Court of Appeal and below with a certificate for three counsel.

Application of bank dismissed.

Leave to appeal.

Injunction extended to cover amount in issue and past and future costs.