2. Translation

[…]

Whereas the liability of the state for faults committed by the Banking Commission in the exercise of its functions of regulation and supervision of credit institutions should not be a substitute for the liability of the institutions themselves vis-à-vis in particular their depositors; that as a consequence, and in view of the nature of the powers conferred upon the Banking Commission, the liability of the state for damage caused by the inadequacies or omissions in the exercise of the Commission's functions can only be incurred in case of gross fault; that it follows from this that in deciding that any fault¹ committed by the Commission in the regulation and supervision of credit institutions can give rise to the liability of the state, the Paris Administrative Court of Appeal committed an error of law;

Whereas it follows from the foregoing that the Minister of Economy, Finance and Industry is entitled to succeed in its appeal from the decision of the Paris Administrative Court of Appeal of 25 January 2000; that consequently the cross-appeal of Monsieur and Madame Kechichian et al. should be rejected.

Whereas, in the circumstances of the instant case, the merits of the claim can be ruled upon pursuant to Article L 821–1 of the Code of Administrative Justice.

Whereas even if an inspector's report was submitted to the Banking Commission on 5 May 1987 which emphasized that the position of the Saudi Lebanese Bank appeared to have worsened and that its survival could be assured only if a policy was swiftly implemented to make provision for uncertain debts and improve the quality of its commitments, it transpires from the instruction ² that the Saudi Lebanese Bank took an equity loan of 25 million Francs in June 1987 and that the report submitted in May 1987 underlined the goodwill of the managers of the bank and for the first time imposed an obligation upon them to make provision for ‘countries at risk’; that in these circumstances, the Banking Commission (p.322) did not commit a gross fault, on solely sending the managers of the company ‘a follow-up letter’ on 6 October 1987 which asked them to undertake a financial overhaul ‘as soon as possible’.

Whereas even if the Banking Commission agreed that the required recapitalization [of the bank] had been satisfied to the extent of 25 million Francs by virtue of an equity loan financed by the companies belonging to the Kairouz group, whilst these companies—which were also shareholders of the bank—were in fact themselves indebted to the bank, it does not appear from the instruction ² that this equity loan was financed or refinanced by the Saudi Lebanese Bank itself; that therefore Monsieur and Madame Kechichian et al. are not justified in arguing that the Banking Commission committed a gross fault when it agreed that this equity loan could constitute part of the increase in capital which it required of the managers of the bank.

Whereas it results from the instruction ² and the annexes of the expert's report that the fraudulent arrangements put in place by the managers of the Saudi Lebanese Bank from 1988 onwards were solely apparent from confidential internal documents; that until the surreptitious activities of the managers of the Saudi Lebanese Bank were revealed, the Banking Commission had continued to negotiate with them in order restore the solvency of the bank; that it follows from this that the Banking Commission did not commit a gross fault in failing to conduct an in situ inspection between May 1987 and April 1989.

Whereas the Banking Commission had requested the Managing Director of the bank in a letter dated 6 October 1987 to increase its capital by 50 million Francs ‘as soon as possible’, it subsequently reduced this figure by half and eventually allowed the bank until the end of May 1988 to satisfy it; that even though the Banking Commission could legitimately choose to negotiate with the directors a strategy which would restore the solvency of the bank rather than initiating court proceedings, given the urgent need to re-establish the solvency of the Saudi Lebanese Bank as emphasized by the inspector's report of 5 May 1987, it ought to have made more direct instructions to the directors and accompanied these with firm deadlines; that moreover the Banking Commission went back on its earlier requirements in allowing on 14 March 1988 the Saudi Lebanese Bank's loans to Union Nationale S.A.L. and the Kairouz group to be regarded separately under the prudential regulation, and not as a whole, even though the former company was actually a subsidiary of the latter; that according to the prudential rules then in force, the Banking Commission was only able to require the consolidation of these debts, and it ought, given the position of the bank, to have maintained the requirements which it had previously (p.323) made; that these omissions constitute a gross fault capable of leading to the liability of the state;

Whereas, even though the insolvency of the United Banking Corporation was principally caused by fraud, the gross fault committed by the Banking Commission did contribute to the occurrence of the loss sustained by the claimants at first instance, which can be calculated as corresponding to 10% of the amount of the non-reimbursed deposits on 9 May 1989, the date on which the insolvency proceedings concerning the bank commenced;

Whereas it results from the foregoing that the claimants, who should not be prevented by the commencement of the insolvency procedure from bringing an action qua depositor, are entitled to succeed in their appeal from the decision of the Paris Administrative Tribunal which had rejected their contention that the state should be found liable to pay damages relating to the compensable proportion of the loss they had sustained, as currently assessed.

[…]

Translator's Notes

1. 1. Namely liability which can arise on the basis of a faute simple.

2. 2. The full elements of the case against the defendant as established by the inquisitorial procedure. For further analysis of the inquisitorial procedure before the French administrative courts see Chapter 4, section 3.4.

(p.324)