Original version by Matthias Herdegen February 2007; updated November 2012 and March 2013; reviewed by Matthias Herdegen November 2024.

1  The Banco de Bilbao was a Spanish company with headquarters in Bilbao. It had a branch office in London under the management of Sancha and Rey. Until the beginning of 1937, the affairs of the bank were conducted by a board of directors elected by the shareholders according to the articles of association. In December 1936, the Basque State, which had been constituted as an autonomous entity within the Spanish State, issued a decree, under which a few weeks later a new board was composed by the minister of the treasury (Autonomy). The new board appointed a new manager of the London office and brought civil actions against Sancha and Rey to gain control of the branch. Lewis J held that, having regard to the Spanish Constitution, the decrees of the Basque State were ineffective and that the new board had no right to act for the bank.

2  While the appeal was pending, Bilbao was occupied by the Nationalist insurgents under General Francisco Franco (Insurgency; Spanish Civil War [1936–39]), the new board having withdrawn to Barcelona (see also Occupation, Belligerent; Occupation, Pacific). The President of Republican Spain issued a decree that the registered offices of all Basque companies should be deemed transferred to either Valencia or Barcelona; another decree purported to validate all decrees of the Basque State. A meeting of the shareholders in Bilbao confirmed the authority of the defendants. Shortly afterwards, Nationalist legislation nullified the recent changes in the constitution of such companies as the Banco de Bilbao. A certificate of the British Foreign Office stated that the Nationalist regime was recognized as the de facto government of the Basque country by the British Crown (De facto Organs of a State; Governments); nevertheless, the Foreign Office confirmed the status of the Republican government as the recognized de iure government of the whole of Spain.

3  By a judgment of 17 March 1938, the Court of Appeal in London held that the determination of the legal right to represent the bank depended on the construction of the articles under which the bank was constituted and therefore on the law in force at the place where the company had been set up (Banco de Bilbao v Sancha and Rey (‘Banco de Bilbao Case’). The court held that the acts of the government recognized by the British Crown as the de facto government must prevail over the legislation of the rival de iure government and that the acts of the de iure government—i.e. the decrees of the Republican government—must be treated as a mere nullity in the area controlled by the opponent de facto administration (Recognition of Foreign Legislative and Administrative Acts). The appeal was therefore dismissed.

4  The rule laid down in the Banco de Bilbao Case’, that in a conflict between the laws of territorially competing regimes the acts of the recognized de facto government must prevail, does not extend to assets which are situated outside the territory in dispute (Haile Selassie v Cable and Wireless Ltd Case; Civil Air Transport Inc v Central Air Transport Corp; ‘Maduro Board’ of the Central Bank of Venezuela v ‘Guaidó Board’ of the Central Bank of Venezuela).

5  The decision in the Banco de Bilbao Case follows the traditional English doctrine that the executive certificate on recognition is conclusive as to the status of two rival systems and that recognition or non-recognition by the British Crown governs the choice of law and determines the validity of their acts before an English court. However, in the light of subsequent developments the test of effectiveness seems to be determinative. Thus, in the case of Hesperides Hotels Limited v Aegean Turkish Holidays Limited, Lord Denning MR held the laws of the separatist Turkish State on Cyprus to be applicable as the relevant lex loci (the law of the place) with respect to the area under its effective control despite non-recognition by the British Government. On 28 April 1980, the Secretary of State for Foreign and Commonwealth Affairs declared in Parliament that the British government would no longer express recognition of governments but only recognition of States. According to a further statement of the Foreign and Commonwealth Office, the status of a new regime as a government is to be inferred from its dealings with the British government (see Marston (1980); Governments). In the summer of 2011, the British government, in context with the management of a bank account of Libya during the Libyan civil war, returned to its previous practice and formally certified in court proceedings that it recognized the National Transitional Council as the sole government of Libya (British Arab Commercial Bank PLC v The National Transitional Council of the State of Libya).

6  The abstention from formal recognition of governments shifts the burden of clarifying the disputed status of foreign authorities from the executive to the judiciary. In this context, it has been doubted whether the distinction between de iure and de facto governments is still relevant at all (Republic of Somalia v Woodhouse Drake & Carey (Suisse) S.A. and Others 67). However, public international law as well as national law attaches effects to the exercise of effective governmental control over territory even in the presence of a competing, internationally recognized government—especially at least for the purpose of stable relations under private law. Moreover, the emerging duty of non-recognition of situations established by serious violations of international law—see Article 41 ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts (2001) (International Law Commission (ILC); State Responsibility)—forces international as well as national courts to maintain the distinction between de iure and de facto authority, at least for the purpose of stable relations under private law.