Crown Copyright ©
Lord Justice Aikens:
The Background to the appeal
1.Credit default swap arrangements are giving rise to litigation again.
As is so often the case in commercial disputes, the first battle is over
jurisdiction. In this case, the battle is whether the English court should
have jurisdiction, as the parties agreed in their contractual arrangements,
or whether the Berlin Landgericht (or Berlin Regional Court) should have
jurisdiction, pursuant to the provisions of Article 22.2 and Article 25 of
Council Regulation (EC) No 44/2001; viz. the Jurisdiction and Judgments
Regulation ("the Regulation"). Teare J held, in his judgment of 9 July
2009, that the English court had jurisdiction, because the proceedings
before the Commercial Court were not "overall" principally concerned with
matters that fell within Article 22.2 of the Regulation. Therefore, because
the parties had agreed that the English court should have jurisdiction,
they should be held to that agreement, pursuant to Article 23 of the
Regulation.
2.The judge gave permission to appeal. We heard argument on 9 and
10 February 2010 and reserved judgment. The appeal raises interesting
points on the scope and application of Article 22.2 of the Regulation,
in particular when proceedings involve multiple issues of which one, at
least, falls within the ambit of Article 22.2 of the Regulation and has the
potential to be dispositive of the entire proceedings.
3.For the purposes of the appeal, it is not necessary to go into great
detail on the basic facts. The respondents are two entities that are part
of the well known banking group. I will call them collectively "JPM". The
appellant ("BVG") has been a German public law institution for 13 years,
but for a total of 80 years it has been responsible for the provision and
operation of the public transport system of Berlin. The scope of BVG's
powers is set out in the Berlin Service Company Law and in BVG's Articles
of Association. It is common ground that BVG's seat is Germany. BVG's
case is that it is not an experienced operator in the financial markets
and that before the present credit swap arrangements it had concluded
only two other interest rate swaps (both with JPM) and had never before
entered into a derivative or structured finance transaction.
4.The credit swap arrangement which gives rise to the litigation is
called an "Independent Collateral Enhancement Transaction" or "ICE
Transaction". It was considered at a series of meetings between JPM
and BVG management which took place between July 2006 and June
2007. BVG resolved to enter into the ICE Transaction by resolutions of
its Management Board in March 2007 and its Supervisory Board in April
2007. It is BVG's contention in the present dispute that those decisions of
the Management and Supervisory Boards were ultra vires and therefore
void and that this means that the subsequent contracts for the credit
default swap arrangements are void. It is common ground that the issue
of whether any decisions of the Management and Supervisory Boards
were ultra vires has to be dealt with according to German law. BVG
also contends that in the meetings between its management and JPM
representatives, BVG was given incorrect advice about the ICE transaction
and its effect.
5.The ICE Transaction, which was ostensibly concluded between the
parties on 19 July 2007, consists of two parts. The first part consists
of a contract between BVG and the Landesbank Baden – Württemberg
("LBBW"). Under that contract LBBW gave BVG credit risk protection
in respect of cross-border lease arrangements that BVG had previously
concluded with third parties. The present litigation is not directly
concerned with that part of the transaction.
6.The second part of the transaction, which has been called "the JPM
Swap", was (at least ostensibly) concluded between the first respondent,
("JPM Chase"), acting through the second respondent as agent ("JPM
Securities"), and BVG. The effect of this part of the arrangement,
crucially, was that BVG gave JPM credit risk protection worth US$ 220
million in respect of 150 companies, in return for a net premium of US$
7 million which JPM paid immediately to BVG. The terms of the JPM Swap
provide that BVG will give JPM this credit risk protection for a period of
10 years. BVG asserts that, as a result of the incorrect advice it received
from JPM, BVG did not realise that the effect of the JPM Swap was that
it was to provide highly leveraged credit protection to JPM and that BVG
was exposing itself to a potential risk of US$ 220 million. BVG thought
it was just reducing its own risk exposure on the cross – border leasing
transactions it had in place. The accusations of incorrect advice are likely
to take the form of allegations of misrepresentation and non-disclosure by
JPM during the meetings between the two parties and also of breaches of
terms of a consultancy agreement between JPM and BVG.
7.The full JPM Swap documentation was completed between the parties
on 17 August 2007. It is long and complex. The confirmation letter
consists of 60 pages. It includes the 2002 International Swaps and
Derivatives Association ("ISDA") master agreement terms plus a
schedule, as well as the 2003 ISDA credit derivative definitions and
various trading standards annexes. The parties agree that the terms
contain English law and jurisdiction clauses.
8.Following the turmoil in the financial markets both before and after
the collapse of Lehmann Brothers on 15 September 2008, seven out
of the 150 credit risks (including Lehman Brothers Holdings Inc and
three Icelandic banks) have materialised. As a result, in the present
proceedings JPM now claims US$ 112 million from BVG under the terms of
the JPM Swap.
9.On 10 October 2008, JPM informed BVG that payment obligations would
occur under the JPM Swap. On the same day JPM began proceedings
in the Commercial Court, pursuant to the English jurisdiction clause in
the ICE Transaction contract. JPM sought various declarations, including
one that the JPM Swap is "valid, binding and enforceable in accordance
with its terms". Mr Tim Lord QC, for BVG, accepts that the terms of
the declarations sought mirrored the terms of the representations and
warranties given by BVG in the JPM Swap contract.
10.The proceedings were not then served. On 21 January 2009, JPM's
claim form was re-issued and served in an amended form to claim the
declarations (including the one mentioned above) and also US$ 112
million pursuant to the terms of the JPM Swap. It was common ground
before the judge and before us that the terms of the first declaration
sought by JPM in the English proceedings would encompass issues of the
vires of decisions of the Management and Supervisory Boards of BVG to
enter into the JPM Swap.
11.On 9 March 2009, BVG applied to the Commercial Court for an order
that, pursuant to Article 22.2 of the Regulation, the English court had
no jurisdiction, because the proceedings brought by JPM had "…as their
object…the validity of the decisions" of the organs of a legal person, BVG,
whose seat is in Germany. Accordingly, under Article 22.2, the German
courts must have exclusive jurisdiction over such proceedings. Therefore,
pursuant to Article 25 of the Regulation, the English court should declare
that it had no jurisdiction to hear the claim of JPM. BVG served evidence
with the application, including an expert's report on German law by
Professor Dr Assmann. On 1 May 2009, JPM served evidence in response,
including an expert's report on German law by Professor Dr Heckmann.
On 22 May 2009 BVG served further evidence, including a second report
by Professor Dr Assmann. The hearing before Teare J was on 29-30 June
2009.
12.Meanwhile, on 9 March 2009 BVG had filed a Complaint against JPM
in the Berlin Regional Court. BVG advanced three substantive motions
by its Complaint. First it sought an order that the JPM Swap was invalid.
Secondly, it sought an order that JPM Chase be made to release BVG from
its obligations (if any) under the JPM Swap and in particular from the
claim by JPM for US$ 112 million. Thirdly, BVG sought a declaration that
JPM Chase was obliged to compensate BVG for all other damages incurred
or yet to be incurred through claims made against it under the JPM Swap.
Before us there was argument on the nature of the grounds put forward
by BVG in support of the motions in the German proceedings and which
of those grounds constituted BVG's principal ground of complaint. I shall
have to deal with that later.
13.On 26 May 2009, following written submissions from the parties, the
Berlin Regional Court ruled that the English and German proceedings
involved the same cause of action for the purposes of Article 27 of the
Regulation and that the English Court was the court "first seised" of the
claim. It stayed the German proceedings, pending the decision of the
English court on whether it had jurisdiction.
14.BVG appealed the German Court's decision to stay the German
proceedings. The first stage of such an appeal is for the first instance
court to reconsider its original decision. On 10 December 2009, the
Berlin Regional Court confirmed its original decision. The appeal was
then referred to the Berlin Kammergericht or Court of Appeal. By a
decision on 8 March 2010 (ie. after the hearing of the present appeal),
the Kammergericht decided to refer certain questions to the European
Court of Justice ("ECJ") for a preliminary ruling, pursuant to the power
to do so contained in Article 267 of the Treaty on the Functioning of the
European Union ("TFEU"). The full wording of the three questions is set
out in Appendix C to this judgment. Broadly speaking, the first question
asks whether Article 22.2 of the Regulation extends to court actions in
which a legal entity disputes an action brought against it in respect of
a contract on the ground that the resolutions of the official body which
resulted in the transaction were invalid because of breaches in the legal
entity's Articles of Association. The second question asks whether Article
22.2 applies to a legal entity created under public law, insofar as the
effectiveness of the resolutions of its official body is to be examined by
the civil courts. The third question asks whether a court of a member
state which is second seised of an action must apply Article 27 of the
Regulation and stay an action in its jurisdiction when it is alleged that
the agreement regarding jurisdiction is also invalid because of an invalid
resolution of the official body of the legal entity that has concluded the
jurisdiction agreement, because of breaches in its Articles of Association.
15.The first of those questions is in more limited terms than the issue
that was decided by Teare J and which we must consider. The second
question, which concerns the type of legal entity to which Article 22.2
might apply, was not raised in argument before us. I understand Mr
Laurence Rabinowitz QC, for JPM, to accept that Article 22.2 does, in
principle, apply to a public law institution such as BVG. The third question
obviously does not arise in this court, because the English court was the
court first seised.
16.As a result of the Berlin Court of Appeal's decision, BVG has invited
this court (in written submissions of 26 March 2010) to stay the present
appeal to await the outcome of the German court's reference to the ECJ.
BVG has also suggested that if this court has European law questions that
could be the subject matter of a preliminary ruling by the ECJ, it should
formulate and submit them. JPM opposes both those submissions and
invites the court to proceed to give judgment on the issues on which we
heard argument.
Council Regulation (EC) No 44/2001 ("the Regulation")
17.The relevant provisions of the Regulation are in Chapter II, Sections
6, 7, 8 and 9 and Chapter III, Section 1. They are Articles 22, 23, 25, 27,
29, and 35. I have set them all out in the Appendix to this judgment. I
will set out here the relevant parts of Article 22.2 and Article 25 because
they are central to this appeal.
18.Article 22.2 and Article 25 provide:
Article 22
The following courts shall have exclusive jurisdiction, regardless of
domicile:
……………….
2. in proceedings which have as their object the validity of the
constitution, the nullity or the dissolution of companies or other legal
persons or associations of natural or legal persons, or of the validity of
the decisions of their organs, the courts of the Member State in which the
company, legal person or association has its seat. In order to determine
that seat, the court shall apply its rules of private international law;
…………..
Article 25
Where a court of a member state is seised of a claim which is principally
concerned with a matter over which the courts of another member state
have exclusive jurisdiction by virtue of Article 22, it shall declare of its
own motion that it has no jurisdiction."
19.The predecessor of the Regulation was, of course, the Brussels
Convention, whose provisions were incorporated into English law by the
Civil Jurisdiction and Judgments Act 1982..."the CJJA"). The predecessors
of Articles 22 and 25 in the Regulation were Articles 16 and 19 of the
Brussels Convention. The wording of the Articles has not been changed,
except on one significant point. In Article 16.2 of the Brussels Convention
the words "…the validity of.." did not appear before the words "…the
decisions of their organs…". But this change has, I think, simply made the
previous wording clearer. It has not changed the sense or scope of Article
22.2, as the ECJ confirmed in Hassett v South Eastern Health Board.
Therefore, like the judge, I will refer always to Articles 22 and 25, even in
cases where the courts were in fact dealing with the Brussels Convention,
in the hope that this will make it easier to follow matters. Section 3(1)
of the CJJA provides that any question as to the meaning or effect of any
provision of what is now the Regulation is to be determined in accordance
with the principles laid down by any relevant decision of the ECJ.
The Jenard Report
20.Section 3(3)(a) of the CJJA, states that, as an aid to the construction
of the Regulation, the English court may consider the reports of Mr P
Jenard on the 1968 Convention (and the 1971 Protocol) for the purposes
of determining the meaning or effect of any provision in the Convention
(ie. what is now the Regulation) and the report is to be given such weight
as is appropriate in the circumstances. We were referred to various parts
of the Jenard report on the interpretation of what is now Article 22 of the
Regulation. I have reproduced the relevant parts of the Jenard report in
Appendix B to this judgment, but have substituted the Article numbers of
the Regulation in the hope that it makes for easier reference.
The decision of Teare J
21.Before the judge, Mr Rabinowitz, for JPM, had first argued that Article
22.2 applied only to disputes between a company (or other legal entity)
and its officers or shareholders and that the Article did not extend to
disputes between the legal entity, officers or shareholders and third
parties. In other words, he argued that Article 22.2 was confined to
internal disputes within the company. The judge rejected that submission.
Secondly, Mr Rabinowitz argued that, when considering whether Article
22.2 applied, the court should not look at any defences raised but only
the nature and scope of the claim itself. The judge also rejected that
argument. Although both those conclusions were the subject matter of
a Respondents' notice and were dealt with in JPM's written submissions
before us, Mr Rabinowitz did not address any oral argument on them. I
agree with the judge's conclusions on those points and I do not need to
say anything more about them.
22.Thirdly, the judge held that on the correct interpretation of Article 22.2
and 25, where a court was seised of proceedings that involved several
issues, including one that was within Article 22.2 and one or more that
are not, the court had to ask itself certain questions. He typified those
questions as being: does the issue within Article 22.2 constitute the
principal subject matter of the proceedings; or is that issue the subject
matter of the action; or are the proceedings principally concerned with
that issue; or is that issue raised only as a preliminary or incidental
matter?
23.Fourthly, the judge held, after a careful review of the authorities, that
the court must ask, in relation to the facts of the current case: are the
proceedings before the court "in substance" or "principally" concerned
with the ultra vires issue raised by BVG in its defence to JPM's claims.
In posing this question, the judge held that the court was involved in
an exercise of "overall classification" and that the court must view the
litigation overall and form an "overall judgment", taking into account the
underlying rationale of Article 22.2.
24.Lastly, the judge reviewed the issues raised in the present
proceedings, so far as they could be gleaned from material served in
these proceedings and in the German proceedings. He noted that it was
BVG's case (as set out in the German proceedings) that the JPM Swap
was concluded because of incorrect advice from JPM, misrepresentation
by JPM and also non – disclosure by it, all before the JPM Swap was
concluded, as well as breach of a consultancy contract by JPM. The judge
concluded that if the English proceedings continued there was likely to
be a major trial concerning both the events leading up to the conclusion
of the JPM Swap and also what flowed from findings concerning those
events. The judge accepted that there would also be the ultra vires
issue, which raised questions of German law, on which expert evidence
had already been exchanged, as noted above. The judge also accepted
that the ultra vires issue was likely to be an important feature of the
proceedings, because it could be dispositive of them. He recognised that
if the expert opinion of Professor Dr Assmann, instructed by BVG, was
correct, then JPM's claim must fail.
25.The judge reached this conclusion:
"….I have difficulty in concluding that these proceedings are principally
concerned with the ultra vires issue. Rather, taking into account all
aspects of the litigation, in so far as they are apparent from the materials
before the court, and seeking to form an overall judgment, these
proceedings can fairly and properly be described as being principally
concerned with a claim by JPM to enforce the JPM swap and a likely
defence and counterclaim by BVG based on misrepresentation, non –
disclosure and breach of duty by JPM of a consultancy contract arising
out of what was said or not said by JPM to BVG before the JPM swap was
entered into. But the proceedings will also involve the determination of an
important preliminary issue, namely whether the JPM swap was ultra vires
BVG".
26.The judge also considered whether the proceedings were likely to
be so closely connected with the German corporate law of ultra vires
that they should not be tried anywhere but in the courts of Germany.
In that regard, the judge took account of a number of factors. These
were, in summary: (i) that the ultra vires issue arose in the context of
a commercial contract between JPM and BVG which was, by its terms,
governed by English law and contained an English jurisdiction clause;
(ii) other issues in the proceedings arose which were not within Article
22.2; (iii) the policy underlying Article 22.2 did not require those other
issues to be tried in the German courts; (iv) the resolution of the dispute
would only affect the parties to the dispute, not other entities or persons.
The judge then reviewed the proceedings "overall". He concluded that
they were not principally concerned with the issues of ultra vires and that
the ultra vires issue that did arise, was not one which, in the context of
this case, the policy underlying Article 22.2 required it be decided by the
German courts.
27.The judge further held, on an alternative argument of Mr Lord, for
BVG, that the English court should not decline jurisdiction in respect of
the ultra vires issue alone, pending determination of that issue by German
courts. He noted that this argument (as with Mr Rabinowitz's first two
arguments, noted above) had not been "pursued with vigour". Before
us, neither party supported the idea of a partial stay. Mr Rabinowitz
graphically described it as a "recipe for chaos". So I need say no more on
that issue.
The arguments of the parties before this court
28.Mr Lord submits that the judge's approach to the interpretation of
Article 22.2 was wrong in law. He says that the guiding principle must
be certainty of jurisdiction and certainty of criteria for the application of
Article 22.2. Moreover, if, as JPM had accepted below, the ultra vires issue
might be dispositive of JPM's claim altogether, that must be sufficient to
bring these proceedings within the ambit of Article 22.2. Therefore, the
English court must declare that it has no jurisdiction in respect of the
proceedings, pursuant to Article 25 of the Regulation.
29.In the alternative, Mr Lord submits that if the judge was correct to
carry out an evaluation of the issues "overall", he failed to give sufficient
prominence to the ultra vires issue. It would have to be considered in a
trial of the issues between the parties. That issue must "trump" other
issues, because it requires a consideration of the validity of resolutions
of the managing and supervisory boards of BVG. That comes within the
subject matter of Article 22.2. Because Article 22 is the only Article of
the Regulation that stipulates when a member state's courts must have
exclusive jurisdiction, any issue which falls within its scope must be
accorded decisive weight, because Article 22 of the Regulation is at the
top of the jurisdiction structure of the Regulation.
30.Mr Rabinowitz submits that the judge correctly interpreted Article 22.2
in holding that the court had to look at the proceedings overall. The judge
had rightly assessed the issues involved in this case and had properly
concluded that this was a multi-issue case where more than one issue
will be of importance. The judge correctly found that the ultra vires issue
was not the "principal matter" with which the English court would be
concerned in these proceedings. Moreover, the Court of Appeal should be
slow to interfere with the conclusion of the judge, which was a matter of
assessment and judgment on the facts.
The principal issues that arise on the appeal
31.Both parties accept that the English proceedings raise a number
of issues, including the issue of whether the decisions taken by BVG's
management and supervisory boards were ultra vires, so as to make void
or invalidate the contracts for the JPM Swap. It is also common ground
that if Article 22.2 applies to the English proceedings, then the English
court will be obliged, in accordance with Article 25 of the Regulation,
to declare that it has no jurisdiction to entertain the current English
proceedings.
32.Therefore, in my view, the focus of this appeal must be on Article
22.2, although it is clear that the correct interpretation of Article 22.2
is also going to involve consideration of the interpretation of the words
"principally concerned with" in Article 25. Therefore I think that the
two principal issues we have to decide are: (1) what is the correct
interpretation of Article 22.2; and (2) how are the facts of this case to
be applied to the correct interpretation of Article 22.2 and Article 25?
In dealing with the second question, there is a threshold matter which
I believe has to be considered. It is this: if the judge was correct in
holding that Article 22.2 requires an overall judgment of the facts and
issues of this case (as they appear now), in what circumstances is this
court, in reviewing the judge's conclusion, entitled to replace the judge's
assessment of the facts, inferences, opinions and nuances of this case
with its own view of them?
33.In the light of the parties' written submissions made since the Berlin
Court of Appeal referred three questions to the ECJ for preliminary
rulings, two further issues arise on this appeal. First, should this court
now stay the English proceedings pending the ECJ's decision on the three
questions referred to it? Secondly, should this court itself pose questions
to the ECJ for a preliminary ruling? As the first two issues were argued
out fully before us, I think I must give my full answers to the first two
issues before coming to the second two.
Issue One: the correct interpretation of Article 22.2.
The place of Article 22.2 and Article 25 in the Regulation
34.Recital (2) to the Regulation states that the objective behind the
unification of rules governing jurisdiction and recognition of judgments
is to further the "sound operation of the internal market". Recital
(11) stipulates that the general principle for jurisdiction should be the
defendant's domicile and that jurisdiction must be available on this
ground "except in a few well-defined situations in which the subject-
matter of the litigation or the autonomy of the parties warrants a different
linking factor". Recital (14) confirms that, save in certain special cases,
the autonomy of the parties to a contract to determine the court having
jurisdiction "must be respected subject to the exclusive grounds of
jurisdiction laid down in this Regulation". That last reference is to Article
22. The structure of the Regulation follows these objectives. Its Articles
must therefore be examined and their terms interpreted with these
general objectives in mind.
35.Two relevant general principles about the interpretation of the
Brussels Convention have been stated by the ECJ, which continue to
apply equally to its replacement, the Regulation. The first is that all the
provisions of the Regulation must be given an independent, Community
law, interpretation. The second is that because Article 22 is one of the
Articles on jurisdiction which creates an exception to the general rule of
jurisdiction set out in the Regulation, (ie. that jurisdiction is based on
the defendant's domicile), it must not be given an interpretation that is
broader than is required by its objective. This is because the effect of
Article 22 is to deprive the parties of the choice of forum which would
otherwise be theirs, or, in certain other cases, its provisions will result in
the parties being brought before a court which is not in the state of the
domicile of any of them.
36.The ECJ has also stated, in Gesellschaft für Antriebstecnik mbH &
Co KG (GAT) v Lamellen und Jupplungsbau Beteiligungs KG...the "GAT
case"), that the objective of Article 22 of the Regulation is to ensure
that jurisdiction rests with the courts that are closely linked, in fact and
law, with the proceedings that are within its provisions. The aim of the
Regulation as a whole is to prevent the possibility of conflicting decisions.
That is particularly important in relation to the matters dealt with in
Article 22. That is why the rules of jurisdiction provided for in Article 22
are of an exclusive and mandatory nature and are specifically binding on
both litigants and courts of member states.
37.In relation to Article 22.2 in particular, the ECJ has stated, in Hassett
v South Eastern Health Board, that the essential objective of the rule
of attributing exclusive jurisdiction to the courts of the Member State in
which the company has its seat is one of centralising jurisdiction in order
to avoid conflicting judgments being given as regards the existence of
a company or as regards the validity of the decisions of its organs. This
objective is achieved by giving exclusive jurisdiction to the courts of the
Member State in which the company has its seat. Those courts would
appear to be best placed to deal with such disputes, inter alia because
it is in that State that information about the company will have been
notified and made public. Exclusive jurisdiction is thus attributed to those
courts in the interests of the sound administration of justice.
38.However, it does not follow that Article 22.2 must apply to any dispute
which involves some link with a decision of an organ of a company. If
that had been the rule, it would mean that almost all disputes involving
companies would fall within the scope of Article 22.2. But, as the ECJ
stated in the Hassett case:
"…that provision must be interpreted as covering only disputes in which
a party is challenging the validity of a decision of an organ of a company
under the company law applicable or under the provisions governing the
functioning of its organs, as laid down in its Articles of Association."
39.Those statements of principle do not, however, deal specifically with a
case such as the present, where it is clear that if the English proceedings
are to continue they will raise issues concerning not only the validity
of the decisions of BVG's Management Board in March 2007 and its
Supervisory Board in April 2007, but also questions concerning alleged
misrepresentation and non-disclosure by JPM concerning the JPM Swap
and the advice that was given by JPM to BVG about entering into that
contract. Therefore it is necessary to consider further the scope of Article
22.2 to see how it is to be applied in multi-issue cases.
The Jenard report on Article 22 and 25
40.The Jenard report on what are now Article 22 and Article 25 makes
four important general points. First, the provisions of Article 22 cannot
be departed from either by agreement of the parties or by an implied
submission to another jurisdiction. Secondly, any court of a state other
than the state whose courts have the exclusive jurisdiction must declare
of its own motion that it has no jurisdiction: Article 25. Thirdly, a failure
to observe these rules is a ground to refuse recognition or enforcement
of a judgment: Article 35. Lastly, and most importantly, Jenard comments
that "the matters referred to in will normally be the subject of exclusive
jurisdiction only if they constitute the principal subject matter of the
proceedings of which the court is to be seised". He also puts it another
way: "These rules …take as their criterion the subject-matter of the
action…".
41.In commenting on Article 22.2 in particular, Jenard states that the
proceedings before the court having exclusive jurisdiction will be "…in
substance concerned either with the validity of the constitution, the nullity
or dissolution of the company, legal person or association, or with the
decisions of its organs". The rationale for giving exclusive jurisdiction to
the courts of the state where the company (or other legal entity within
Article 22.2) is that the state concerned will have all relevant information
concerning the company and it will be made public. This last point does
not strike me as being particularly compelling, at least in proceedings in
common law jurisdictions, where all relevant documents and information
would have to be disclosed to the other parties involved. But that may not
be so in other jurisdictions.
42.With regard to the words "principally concerned" in Article 25, Jenard
makes the comment that they have the effect that a court is not obliged
to reject jurisdiction "if an issue which comes within the exclusive
jurisdiction of another court is raised only as a preliminary or incidental
matter". This remark gave rise to argument before us. Did it follow that
if a court of a member state was seised of proceedings in which one of
the issues in it fell within one of the six paragraphs of Article 22, but that
issue was not simply "preliminary" or "incidental", then those proceedings
must therefore be "principally concerned" with a matter over which the
courts of another member state had jurisdiction by virtue of Article 22?
If it did, then the consequence must be, in accordance with Article 25,
that the court seised must declare (of its own motion) that it had no
jurisdiction.
The cases
43.We were taken through the cases in which various of the paragraphs
of Article 22 have been considered by either the ECJ or the English courts.
We were not referred to any decisions of other courts of EU member
states on the construction of Article 22.2. I will consider first the cases
where what is now Article 22.2 has been considered and I will do so in
chronological order.
44.First, we were referred to a decision of Knox J in Newtherapeutics
Ltd v Katz. Proceedings were brought by an English registered company
against two of its directors, who were domiciled in the USA and in France,
alleging breach of their duty as directors of the company. The claim
asserted, first, that certain documents relating to a contract with another
company had been signed by the defendant directors without calling a
board meeting and in excess of authority and, secondly, that the contract
was detrimental to the company. The defendants sought to set aside
the leave to serve out of the jurisdiction. The company argued that
the English court had exclusive jurisdiction under Article 22.2 of the
Regulation.
45.Knox J stated, first, that the words at the beginning of Article 22.2,
"…proceedings which have as their object the validity of the constitution
…", do not refer to the purpose of the proceedings, but to the subject
matter of the proceedings. Secondly, he recorded that it was common
ground between the parties that the question of whether an action was
governed by Article 22.2 was to be solved by identifying the "…principal
subject of the proceedings…" and seeing whether that fell within Article
22.2. Thirdly, he held that the allegations concerning the signature of
documents without a board meeting and beyond the directors' authority
came within Article 22.2, but those regarding the characteristics of the
contract did not. Lastly, he asked the question, which of the two claims
raised by the company against the directors raised the "principal issue"?
Knox J appeared to propose two solutions to this conundrum. First,
the issue upon which the defendants were likely to lose (so far as the
court could tell) is likely to be the principal one "..because they have
only to lose one to lose the action". Secondly, he said that, as a matter
of judgment, he regarded the issue concerning the absence of a board
resolution to be the principal issue in the case. The judge appears to have
preferred the second solution as the correct one and he therefore held
that the English court had jurisdiction under Article 22.2.
46.It was agreed before us that the first of Knox J's proposed methods of
identifying "the principal issue" in a case could not be correct. It has not
been followed in later cases and it is easy to understand why. Decisions
on jurisdiction have to be made at an early stage in proceedings. At
that stage the court is usually in a poor position to judge the merits
of a particular claim or defence. Moreover, there may be a degree
of manipulation of the importance of certain issues if jurisdictional
arguments arise such as the present Article 22.2 issue. A party may
lose the whole case on a preliminary point, which may be difficult to
characterise as the "principal issue" in terms of material involved,
witnesses and so forth.
47.Mr Lord criticises the second approach of Knox J as imprecise and
unprincipled. He submits we should not follow it.
48.Article 22.2 was next considered, in detail, by Mance J in Grupo Torras
SA v Sheikh Fahad Mohammed Al-Sabah and others. An action was
brought in the Commercial Court by a Spanish company and its English
subsidiary against 22 defendants. Amongst many allegations made it was
claimed that certain defendants had been in breach of duty as directors
in relation to four particular transactions. The defendants applied to set
aside the English proceedings, arguing (amongst many other points) that
the case should proceed in the Spanish court because it had exclusive
jurisdiction under Article 22.2 as the proceedings had "as their object"
the decisions or validity of decisions of organs of the Spanish claimant
company.
49.First of all, Mance J agreed with Knox J that the words "…proceedings
which have as their object…" in Article 22.2 are to be interpreted as
"…proceedings which are principally concerned with…". Next, Mance J
considered the scope of the words "…the validity of the constitution…of
companies…or the decisions of their organs…" which was the wording
of Article 16.2 of the Brussels Convention. He said that he preferred a
narrower interpretation, so that the words should be read as applying
only to proceedings which were principally concerned with the validity of
decisions of organs of companies etc, not with the decisions of organs of
companies and other legal entities. In the course of his analysis of the
meaning of the phrase, Mance J noted that if the second half of Article
22.2 were to be construed as applying to all proceedings principally
concerned with the decisions of organs of companies, that would literally
cover any dispute arising from a decision of the board of a company, eg to
determine a contract. And, I would add, it would cover any dispute arising
out of the decision of a board of a company or other legal entity to enter
into a transaction, such as the ICE transaction in this case. That, in my
view, would be far too wide a construction.
50.Mance J next tackled the question of how Article 22.2 was to be
applied in a case where there were multiple claims against multiple
defendants raising many issues. He starts the discussion by stating the
principle that Article 22.2 requires an exercise in "….overall classification".
Mance J rejects the first proposal of Knox J, ie. that the court should
try and identify the issue on which a defendant will lose. He then states
that the court has to view the litigation overall and (bearing in mind the
underlying rationale of Article 22) must attempt to assess "…whether it is
likely to be so closely connected with matters of local company law and
internal corporate decision-making in respect of one particular company
that it should not be tried anywhere but in the courts of the State of that
company's seat". In the view of Mance J, it is only if the proceedings
overall are principally concerned with the relevant company law and
practice that Article 22.2 applies.
51.Mance J then analysed the overall position of the Spanish company
claimant towards the various defendants in the context of the claims
brought. He concluded that the proceedings were not principally
concerned with either the validity of decisions of organs of the Spanish
company, or, if it were the correct interpretation of the second half
of Article 22.2, with decisions of organs of that company. He reached
this "overall conclusion" either by looking at the claims of the Spanish
company alone or in connection with its English subsidiary.
52.In my view it is clear that Mance J interpreted Article 22.2 as requiring
a court to look at the proceedings overall and to arrive at what he called
an "overall classification" of the nature of the proceedings, in particular
where they raised multiple issues. To do this required, in his view, an
"overall judgment" to be made on the nature of the proceedings and
their connection with matters of local company law and internal corporate
decision making.
53.Mr Lord emphasises the fact that Mance J had used phrases such
as whether the case would "turn on" complicated issues of Spanish
law; or whether those issues would be "at the core of the issues to be
decided at the trial" or "decisive of the outcome". It is illegitimate to pick
up individual phrases such as those and characterise them as setting
out the judge's decision on interpretation of the Article. That has to be
gleaned from looking at the tenor of the judgment as a whole but also
by examining closely those passages where Mance J particularly analyses
the interpretation of Article 22.2. In my view it is clear that Mance J
summed up the test in the first sentence of the "Conclusion" on the Article
22.2 issue, where he stated that the proceedings in that case were not
"principally concerned with either the validity of decisions of organs of or,
if it be the test, with decisions of organs of within ".
54.The scope of Article 22.2 was next considered by the Court of Appeal
in the same case. Stuart-Smith LJ (who gave the judgment of the court)
stated, first, that it was well-established that the words "…proceedings
which have as their object" in Article 22.2, meant "proceedings which
have as their subject-matter" or "proceedings which are principally
concerned with". I would note here that the same phraseology is used
in Article 22.1 and 22.3. In Article 22.4 and 22.5 the phrase used is "…
proceedings concerned with". However if one refers to the French text,
which has at the outset of all five paragraphs the phrase "…en matière
de", it is plain that no difference of emphasis is intended in any of the
paragraphs. This also fits in with the use of the phrase "…principally
concerned with" in Article 25 of the Regulation.
55.Secondly, Stuart-Smith LJ stated that he wished to reserve the
question of whether questions of want of authority of directors were
within Article 22.2. He said that there was much force in the contention
that such issues would fall within its terms. Thirdly, he said that the issue
of whether an action fell within Article 22.2 depended upon its subject-
matter, ie. the nature of the dispute, not upon the relationship between
the parties. He concluded that the subject matter of that action was
the alleged fraud which the defendants had practiced on the claimant
companies, not the decisions of the organs of either the Spanish company
or its English subsidiary. Therefore the proceedings fell outside Article
22.2.
56.Chronologically, the next case concerning Article 22.2 to which we
were referred is Speed Investments Ltd v Formula One Holdings Ltd (No
2), another decision of the Court of Appeal. That case concerned a dispute
between parties in a shareholders' agreement over the appointment of
directors to an English registered company. Two claimant companies, who
were party to the shareholders' agreement, challenged the appointment
of two directors by another company that was also a party to the
shareholders' agreement; the claimants started proceedings in the English
court. That other company then started proceedings in the Swiss courts
seeking a declaration that the directors had been validly appointed. It
also sought a declaration, in the English proceedings, that the English
court had no jurisdiction. The judge held that the English proceedings
had "as their object…" the validity of the decisions of the organs of the
company that had appointed the directors of the English company whose
appointment was challenged, so that the English court had exclusive
jurisdiction under Article 22 of the Regulation.
57.On appeal, Carnwarth LJ referred to the Court of Appeal's decision
in the Grupo Torras case, with apparent approval of its principles. He
held that the "subject matter" of the dispute was the composition of the
board of the English company, rather than the effect of the shareholders'
agreement and how it was to be implemented. Therefore the proceedings
concerned the internal management of the English company, so Article
22.2 applied and the English courts had exclusive jurisdiction.
58.I confess to having some difficulty with the reasoning in that case.
Carnwarth LJ accepted that his analysis of the issues in the case involved
some "…expansion of the language of …". He accepted that the issue in
the case was not, strictly, the validity of the constitution or the validity
of any board decisions of the English company. Moreover, Carnwarth LJ
accepted that the "..main area of live dispute may be as to the effect of
the …", but he nevertheless held that this did not prevent the proceedings
from coming within Article 22.2. With respect, I find it difficult to square
this analysis with principles laid down by the ECJ on the scope of Article
22.2 and with the statements of the Court of Appeal in the Grupo Torras
case. Therefore I would prefer to regard this as a decision on its rather
special facts which provides no help with the present problem, save that
the Court of Appeal purported to follow the principles set out in Grupo
Torras.
59.There are three further English cases dealing with Article 22.2.
In FKI Engineering Ltd v Dewind Holdings Ltd, Steel J referred to the
decisions in the Newtherapeutics case and Grupo Torras. He said the
correct approach was to ask whether the substance of the relevant claims
involved the validity of a decision of an organ of the relevant company. He
held that they did not. In Calyon v Wytwornia Sprzetu Komunikacynego
PZL Swidnik SA, which was decided after Teare J had delivered his
judgment in this case, Field J followed the approach of Knox J in the
Newtherapeutics case.
60.The last case on Article 22.2 I should examine is the ECJ decision
in Hassett v SE Health Board, to which I have already referred. In that
case, two claimants had sued Irish health authorities in the Irish High
Court, alleging medical negligence against two doctors employed by the
authorities. The health authorities joined the doctors as third parties.
They in turn claimed indemnities from their medical defence union for any
damages that they might be liable to pay. The medical defence union was
an English registered company. It refused the doctors' claim, relying on
provisions on the Articles of Association which stated that the grant of an
indemnity was at the absolute discretion of the Board of Management.
The doctors sought to join the medical defence union to the action in
the Irish courts. The medical defence union argued that since the claims
against it concerned in essence the validity of decisions adopted by its
Board of Management, the proceedings against it fell within the scope
of Article 22.2, with the result that jurisdiction lay solely with the courts
of England and Wales, (the country of its seat), not with the courts of
Ireland. The doctors argued that the Irish courts had jurisdiction under
Articles 5.3 and 6.2 of the Regulation.
61.The Irish High Court rejected the argument of the medical defence
union. On appeal, the Supreme Court of Ireland referred a preliminary
question to the ECJ on whether the dispute between the doctors and the
medical defence union fell within the scope of Article 22.2, thus giving the
English courts exclusive jurisdiction in respect of that dispute.
62.The ECJ characterised the question posed by the Irish Supreme Court
thus:
"By that question, the national court is essentially asking the Court
whether point 2 of art. 22 of Regulation 44/2001 is to be interpreted as
meaning that proceedings, such as those at issue before the referring
court, in the context of which one of the parties alleges that a decision
adopted by an organ of a company has infringed rights that it claims
under that company's Articles of Association, concern the validity of
the decisions of the organs of a company within the meaning of that
provision".
63.The ECJ held that Article 22.2 was not to be interpreted as embracing
all proceedings where a decision of an organ of a company was being
challenged; that would give too wide an interpretation to Article 22.2
and would undermine the supremacy of the general jurisdictional regime
of the Regulation. In the present case the doctors were challenging the
manner in which a decision was taken by an organ of the medical defence
union, which was not within Article 22.2. The ECJ therefore answered the
preliminary issue as follows:
"In the light of the foregoing, the answer to the question referred must
be that point 2 of art.22 of Regulation 44/2001 is to be interpreted as
meaning that proceedings, such as those at issue before the referring
court, in the context of which one of the parties alleges that a decision
adopted by an organ of a company has infringed rights that it claims
under that company's Articles of Association, do not concern the validity
of the decisions of the organs of a company within the meaning of that
provision."
64.This decision accords with the narrower view of the second part of
Article 22.2 preferred by Knox J in the Newtherapeutics case, and by
Mance J in the Grupo Torras case. But it does not assist much on the
approach that the court must take in deciding how to decide whether
proceedings involving multiple issues can be said to be "principally
concerned" with matters within Article 22.2.
65.The other cases to which we were referred concern other paragraphs
of Article 22 or its predecessor, Article 16. First I will refer to those
dealing with Article 22.4, which relates to proceedings "…concerned with
the registration or validity of patents, trade marks, designs or other
similar rights…". The first of these cases is Coin Controls Ltd v Suzo
International (UK) Ltd. The claimant brought proceedings in the English
courts seeking relief against four defendants in respect of infringement
of three identical European patents in the UK, Germany and Spain
concerning a coin-dispensing device. The defendants challenged the
English court's jurisdiction on several grounds and said that one of the
issues on the merits would be a challenge to the validity of the German
and Spanish patents. One of the defendants' jurisdiction arguments was
that the English court only had jurisdiction to deal with the UK patent and
that, by Article 22.4 of the Regulation the courts of the states in which the
German and Spanish patents were registered had exclusive jurisdiction
to determine issues concerning those patents. Therefore, the defendants
argued, the English court was bound by Article 25 of the Regulation to
declare it had no jurisdiction in relation to those patents.
66.Laddie J noted that he had not been shown any case in which the
meaning of "principally concerned" in Article 22 of the Regulation had
been considered. He was not referred to either the Newtherapeutics
case, or the Grupo Torras case on the relationship between Article 22 and
Article 25. Nor was he shown ECJ decisions which held that the provisions
of Article 22 must not be given an interpretation that was broader than
was required by their objective. Therefore, with respect, Laddie J was
incorrect to state "…I can see no reason to give the article a narrow
linguistic interpretation", whether that remark is aimed at Article 22 or
Article 25 or both. Nor, in my view, does it follow, as Laddie J seemed to
think, that if an issue in litigation is not incidental, it must be a "major
feature of the litigation", which must therefore be "a matter with which
the action is principally concerned". Laddie J did not deal directly with the
correct construction of the words "concerned with" in Article 22.4. So, in
my view, the comments of Laddie J concerning the interpretation of Article
22.4 and its relationship with Article 25 have to be treated with caution.
67.However, Laddie J went on to hold that where infringement of a patent
and the validity of a patent were raised in proceedings, they were so
closely related that they should be treated "for jurisdictional purposes" as
one issue or claim. He demonstrated how an attack on the validity of a
patent would directly impinge on the issue of infringement. Thus, on that
view of the litigation, he held that the issue of the validity of the German
and Spanish patents was something with which the claim in the English
proceedings was "principally concerned" for the purposes of Article 25 of
the Regulation. Therefore the English court had no jurisdiction in respect
of all claims concerning the validity of the German and Spanish patents.
68.Laddie J's analysis of the relationship between an allegation of
infringement of a patent and a defence of invalidity of the patent for the
purposes of Article 22.4 of the Regulation was approved by the Court
of Appeal in Fort Dodge Animal Health Ltd v Akzo Nobel NV. Therefore,
in an action in which the claimant alleged patent infringement by the
defendants and the defendants alleged that the patent was invalid if the
alleged infringing acts fell within the ambit of the claim to a patent, for
the purposes of Article 22.4, the claim was "principally concerned" with
the validity of the patent, which in that case was a UK patent.
69.Mr Rabinowitz submits that because Laddie J in the Coin Controls
case and (so far as one can see from the transcript) the Court of
Appeal in the Fort Dodge case, were not referred to the decisions in the
Newtherapeutics case and the Grupo Torras case, therefore both Laddie
J and the Court of Appeal characterised wrongly the test to be applied
in relation to Article 22.4 and Article 25. In my view the statements of
Laddie J and the Court of Appeal are relevant only to cases in which
infringement and validity of a patent were raised. They are analysed as
being cases where there was only one issue or claim involved. Therefore
there was no need, in either case, for either court to consider how Article
22.4 or Article 25 had to be interpreted when a case involved multiple
issues.
70.The analyses of Laddie J and the Court of Appeal on the relationship
between issues of infringement and validity of a patent for the purposes
of Articles 22.4 and 25 appear to have been implicitly approved by
the ECJ by its decision in the GAT case. The claimant, GAT, brought a
declaratory action against the defendant, LuK, in the Dusseldorf Regional
Court, to establish that it was not in breach of French patents of which
LuK was the proprietor. GAT alleged that those patents were either void
or invalid. The Regional Court dismissed the claim. On appeal, the Higher
Regional Court stayed the proceedings and referred a question for a
preliminary ruling by the ECJ. The question asked whether Article 22.4
applied only where there was an action to declare the patent invalid,
or whether it applied also to a patent infringement action in which it is
alleged that the patent is invalid or void so that there is no infringement
for that reason.
71.The ECJ characterised the question in these terms:
"…the referring court seeks in essence to ascertain the scope of the
exclusive jurisdiction provided for in in relation to patents. It asks whether
that rule concerns all proceedings concerned with the registration or
validity of a patent, irrespective of whether the question is raised by way
of an action or a plea in objection, or whether its application is limited
solely to those cases in which the question of a patent's registration or
validity is raised by way of an action."
72.The ECJ noted that the issue of validity was frequently raised in a
patent infringement action. It is telling that the ECJ concluded that the
wording of Article 22.4 could not, by itself, answer the question raised in
that case as to its scope; nor could the wording of Article 25. However,
the court noted that the rationale of Article 22.4 was that the courts of
the state in which the patent was registered were best able to deal with
issues of validity according to its national law. Therefore, the exclusive
jurisdiction provided for by Article 22.4 should apply whatever the form of
proceedings in which the issue of validity was raised, whether the issue is
raised in the claim or defence.
73.Mr Lord submits that the GAT case supported his submission because
the relationship between issues of validity and infringement of a patent
are directly analogous to the relationship between validity or invalidity of
the JPM Swap because of the issue of ultra vires. That, to my mind, is a
false point. Validity/ultra vires may equate to validity/infringement, which
can, as Teare J said, be regarded as one issue. But in the present case
there are also other issues which have no equivalent in the patent case
that raises only the issues of validity and infringement.
74.The last case I wish to consider on the interpretation of Article 22
generally is the ECJ's decision in Land Oberösterreich v CEZ as, which
I have already cited. That case concerned Article 16.1 of the Brussels
Convention, now Article 22.1, ie. proceedings "….which have as their
object rights in rem in immovable property…". The Province of Upper
Austria brought an action in the courts of Linz, Austria, against CEZ, a
Czech energy supply undertaking in which the Czech state had a 70%
ownership, alleging that a nuclear power station owned by CEZ and
situated on Czech soil was emitting ionising radiation and thus causing
a nuisance to land in Upper Austria, within the meaning of paragraph
364(2) of the Austrian Civil Code. The Province sought an order from the
court that CEZ put an end to risk or effect of the ionising radiation on the
Province's land. CEZ submitted that the Austrian courts lacked jurisdiction
and argued that the case ought to be heard in the Czech courts. But the
Province of Upper Austria argued that the case came within Article 22.1,
so the Austrian courts had exclusive jurisdiction.
75.The case was considered by the Regional Court of Linz, the Higher
Regional Court and then the Austrian Supreme Court, which referred a
question to the ECJ for a preliminary ruling. The ECJ characterised the
question in the following terms:
"By its question, the national court asks if must be interpreted as meaning
that an action which, like that brought under para.364(2) of the in the
main proceedings, seeks to prevent a nuisance affecting or likely to affect
land belonging to the applicant, caused by ionising radiation emanating
from a nuclear power station situated on the territory of a neighbouring
State to that in which the land is situated, falls within the category of
"proceedings which have as their object rights in rem in immovable
property" within the meaning of that provision."
76.The ECJ held that it did not. It decided that, on its proper
interpretation, Article 22.1 did not encompass all actions concerning
rights in rem in immovable property. Actions for damages based on the
infringement of rights in rem or based on damage to property in which
rights in rem existed did not necessarily fall within the scope of Article
22.1. The judgment of the ECJ continued:
"It is true that the basis of such an action is the interference with a right
in rem in immovable property, but the real and immovable nature of
that right is, in this context, of only marginal significance…the real and
immovable nature of the right at issue does not have a decisive influence
on the issues to be determined in the dispute in the main proceedings…".
77.The ECJ also held that considerations of the sound administration
of justice did not require the case to be determined in accordance with
the terms of Article 22.1. First, because it was not clear which state's
laws would necessarily apply to the dispute when the alleged nuisance
was committed in one state but affected land in another state. Secondly,
because the issues in the case did not require an assessment of facts by
the courts of one state such as to "…justify conferring jurisdiction on the
courts of one of two states to the exclusion of the other".
78.Mr Lord submits that this case established that the test for whether
proceedings come within one of the paragraphs of Article 22 is whether
the issue that is within the relevant paragraph will have a "decisive
influence on the issues to be determined". He submits that the ECJ held
that the fact that the land allegedly affected was in Austria did not have a
decisive influence on the matters to be determined and that is why Article
22 did not apply in that case. He contrasts that with the present case,
where the ultra vires issue would have a decisive influence on the issues
to be determined because it was potentially dispositive.
79.The ECJ's decision is important in the present context for two reasons.
First, because it shows that a court must examine the issues raised in
proceedings carefully to see if they do "principally concern" or have
"as their subject matter" something which is within the terms of a
relevant paragraph of Article 22. Just because the basis of an action is
something which comes within the relevant paragraph (which, in the Land
Oberösterreich case the ECJ held was the infringement of a right in rem in
immovable property) it does not necessarily follow that the proceedings
will fall within the relevant paragraph of Article 22. That will depend on
how significant the issue is to the proceedings overall. In that case, the
claimant obviously had to demonstrate it had rights in rem in the land
said to be affected by the ionising radiation, but once that basis for the
nuisance claim had been laid, there were no further issues about "rights
in rem" in the land to be determined.
80.Secondly, the decision shows that the ECJ has taken a practical
approach to the sound administration of justice, as is clear from its
remarks at paragraphs 37 and 38, referred to above. Conferring exclusive
jurisdiction on the courts of one state as opposed to another has to be
justified. In my view, that consideration is all the more strong when the
two parties to proceedings have agreed which court should determine
disputes between them.
81.I cannot accept Mr Lord's submission that the ECJ was, in that case,
setting out a general test that if a particular issue that falls within one of
the paragraphs of Article 22 is raised in proceedings and it could have a
"decisive influence", that is enough to make the proceedings "principally
concerned with" that issue. The phrase "decisive influence" is used in
paragraph 29 of the judgment in contrast to the statement that the
"real and immovable nature" of the claimant's right in property is, in the
context of the case, only of "marginal significance". The issue is of some
significance, of course, because if the claimant had no rights in the land, it
could not bring a claim for infringement of rights by virtue of the nuisance
alleged. In that sense, the issue of a right in the land would be potentially
dispositive of the case. But that is, in the ECJ's view, not enough.
82.We were referred to a number of textbooks on the interpretation of
Article 22 and its relationship with Articles 27 and 29. The commentary
in Kaye might be said to assist JPM but it was not reasoned and was
published before nearly all the relevant cases were decided. The other
extracts did not deal directly with the issues we face.
Conclusions on the interpretation of Article 22.2
83.The proper interpretation of Article 22.2 has to be derived from its
wording, its objective, its position in the scheme of the Regulation, the
ECJ decisions on Article 22 and its predecessor, the commentary of
Mr Jenard and the English cases on the Article. My conclusions on its
interpretation are as follows: first, I think we are bound by English Court
of Appeal authority to interpret the words "…proceedings which have
as their object…" in Article 22.2 as "proceedings which are principally
concerned with". Although the Court of Appeal in Grupo Torras stated
that the words could also mean "proceedings which have as their subject-
matter", I prefer the former formulation, because it links with the wording
in Article 25, ie. "…a claim which is principally concerned with….". That
interpretation also accords with the French text. That construction is
entirely consistent with the analysis of Mr Jenard to which I have referred
above.
84.Secondly, I reject the submission of Mr Lord that the opening phrase
of Article 22.2 must be read in such a way that if proceedings raise
any issue within Article 22.2, ie. if the proceedings are concerned with
the validity of the constitution of a company (etc) or the validity of
the decisions of its organs (etc), then that is sufficient to make those
proceedings "principally concerned with" that issue. There is nothing in
the wording of the Article to warrant that broad interpretation. It is not
consistent with the interpretation suggested by Mr Jenard, who talks
of the proceedings being "in substance concerned with" the items set
out in Article 22.2. The ECJ has stated more than once that Article 22
generally is to be given an interpretation no broader than is necessary
to fulfil its objectives of ensuring that the sound administration of justice
is achieved by giving exclusive jurisdiction to the courts of the state
concerned with the land, company, public registers, patents and so forth.
But it is not axiomatic that any proceedings that raise an issue about
the validity of the constitution of a company or the validity of a decision
of its organ must be most soundly dealt with by the court of the state
where the company has its seat, particularly if the parties have chosen
another jurisdiction to solve their disputes. The validity issue may be one
of many other issues which have nothing to do with the validity of the
company or the validity of decisions of its organs and those other issues
may have to be decided by a different applicable law and may concern
facts which are unrelated to the state where the company has its seat.
In such a case the sound administration of justice could well require the
courts of another state to determine the issues. That is even more so
when the parties have agreed a jurisdiction for the resolution of disputes.
This conclusion is, I think, clearly supported by the approach of the ECJ
in Land Oberösterreich v CEZ as and in Hassett v South Eastern Health
Board.
85.Thirdly, I reject the submission of Mr Lord that if proceedings raise a
number of issues and one of them is within the terms of Article 22.2 and
the resolution of that issue may be dispositive of the proceedings as a
whole, that must mean that the proceedings are "principally concerned
with" an issue within Article 22.2. Again, that is not what the Article
states. It is inconsistent with Mr Jenard's commentary. If the test is: what
are the proceedings "principally concerned with", as the English Court of
Appeal has held, then one issue which may be dispositive may be what
the proceedings are principally concerned with, but it is not necessarily
the case. No ECJ decision has given the Article that interpretation. The
GAT case does not support this proposition because that was a patent
case and, as the ECJ makes clear in its judgment, when an infringement
claim raises the issue of validity of the patent, they are really two aspects
of one issue. The Coin Controls and Fort Dodge cases are to the same
effect. For the reasons I have already set out, neither does the Land
Oberösterreich case support Mr Lord's submission.
86.There are no other English cases which support this submission of Mr
Lord. In my view the statements of Knox J in the Newtherapeutics case
are contrary to his submission. Although the judge accepted that the
company could win the action on either of the two issues raised, Knox J
was concerned to find the principal issue in the proceedings, as Teare J
noted. Further, the whole approach of Mance J in the Grupo Torras case
is contrary to Mr Lord's submission. Mance J held that Article 22.2 called
for an exercise in "overall classification", and an "overall judgment", by
which the court attempts to assess whether the proceedings are so closely
connected with matters of local company law and internal corporate
decision making that the proceedings should not be tried anywhere else
but in the courts of the state of the company's seat. The Court of Appeal
in that case endorsed this overall approach. It means that if a court is
faced with a dispute on whether Article 22.2 applies, it has to decide on
the principal concern of the proceedings overall. I do not accept that the
statement of Chadwick LJ in Prudential Assurance Co Ltd v Prudential
Insurance Co of America, at paragraph 25, is support for the proposition
that, for Article 22.2 purposes, one set of proceedings can be principally
concerned with several issues. Chadwick LJ was not dealing with such an
argument in that case. Article 29 of the Regulation does not itself address
the question of how to determine what a particular action is concerned
with to see whether the exclusive jurisdiction provisions of Article 22
apply or not.
87.Fourthly, given my view that the Court of Appeal in the Grupo Torras
case did endorse the approach of Mance J that a court has to undertake
an exercise in "overall classification" and make an "overall judgment" to
see whether the proceedings are "principally concerned" with one of the
matters set out in Article 22.2, we are bound to follow that interpretation
unless there has been a subsequent decision of the ECJ (or House of
Lords) which has stated a contrary interpretation. There is none.
88.In any case, in my respectful view the interpretation of Mance J
was correct. It fits with the wording of Article 25. It also fits with the
objective of Article 22, which is to give exclusive jurisdiction to the
courts of the state which will be best suited to dealing with the relevant
issue, depending on which paragraph of Article 22 is in play. It is only
necessary to displace the general rule as to jurisdiction or the parties'
own agreed jurisdictional choice if, making an overall judgment, it is clear
that granting jurisdiction to the courts of the relevant state (where the
land is; where the company has its seat; where the patent is registered
etc) will result in the sound administration of justice. In the context of
Article 22.2, this will not be the case unless, overall, the proceedings
are so closely connected with matters of local company law and internal
corporate decision making in respect of the company that the proceedings
should not be tried anywhere but in the courts of the state where the
company has its seat.
89.Fifthly, whilst I respectfully accept that Mr Jenard must be right
in saying that if an issue within Article 22.2 is only a "preliminary or
incidental matter" in some proceedings, they cannot be "principally
concerned" with Article 22.2, the converse does not follow. Even if an
issue within Article 22.2 is not simply a "preliminary" or "incidental"
matter, it does not necessarily mean that, looking at the proceedings
overall, they are proceedings which are "principally concerned" with
Article 22.2 matters. That will depend on the overall classification or
overall judgment. Insofar as Laddie J may have come to the opposite
conclusion in the Coin Controls case, I think he was wrong.
90.Therefore, I conclude that Teare J reached the right conclusion on the
interpretation of Article 22.2, as stated at of his judgment. Put in the
context of this case, I agree with him that the question is whether the
English proceedings are, "…in substance principally concerned with the
ultra vires issue raised by BVG by way of defence to JPM's claim".
Issue Two: How are the facts of this case to be applied to the correct
interpretation of Article 22.2?
Threshold Question?
91.After the judge had reached his conclusion on the correct
interpretation of Article 22.2, he then considered the nature of the English
proceedings and the issues that either had been raised or, in the judge's
opinion, were likely to be raised. He made an assessment of "..all aspects
of the litigation, in so far as they are apparent from the materials before
the court", so as to reach an overall judgment of its nature. He also
considered whether the proceedings were likely to be so closely connected
with the German corporate law of ultra vires that the proceedings should
not be tried anywhere but in the courts of Germany. That exercise also
involved making an assessment of the nature of the proceedings and the
importance of various issues raised in them.
92.CPR Pt 52.11(1) states that "every appeal will be limited to a review
of the decision of the court below, unless (a) a practice direction makes
different provision for a particular category of appeal; or (b) the court
considers that in the circumstances of an individual appeal it would be in
the interests of justice to hold a re-hearing". Neither exception applies
in this case. CPR Pt 52.11(3) provides that the appeal court will allow an
appeal where the decision of the lower court was "wrong" or was unjust
because of procedural unfairness. The second of those does not apply in
this case.
93.It seems to me that the second issue in this case therefore raises
a threshold question, which is: to what extent is the Court of Appeal
entitled to re-assess a trial judge's overall assessment of facts by
reference to a specific legal standard, which, in this case, is whether
proceedings are "principally concerned with" the validity of decisions
made by the management and supervisory boards of BVG, within the
meaning of Article 22.2 of the Regulation. The judge heard no oral
evidence, of course, but he did have written evidence before him,
including the opinions of the two German law experts, Professor Dr
Assmann and Professor Dr Heckmann.
94.The question of when the Court of Appeal can interfere with a judge's
overall assessment of facts by reference to a judicial concept or standard
has been considered by this court and by the House of Lords in several
contexts in recent years, particularly where the judge at first instance has
made findings and inferences of fact after hearing evidence. An appellate
court will be most reluctant to interfere with findings of primary fact
based on oral evidence from witnesses. But in cases where a judge has
to evaluate primary facts, inferences from facts, opinions (particularly
of experts), impressions and nuance, the appellate court will also be
reluctant to interfere with the judge's assessment.
95.The constraints on the Court of Appeal are at their greatest where it
has to consider the exercise of a discretion by a judge at first instance.
That is not this case. But, in my view, the present case does involves the
application of a legal standard (which is, itself, not altogether precise),
to a combination of features of varying importance. In such a case as
this one, in my view, this court has to be very cautious before interfering
with the judge's conclusions, when he has assessed the combination
of features and arrived at an "overall classification" to see with what
the English proceedings will be "principally concerned" for the purposes
of Article 22.2 of the Regulation. I would say that the Court of Appeal
cannot interfere unless it is satisfied that the judge has erred in principle
in making his "overall classification", or he has gone outside the bounds
within which reasonable disagreement is possible.
With what will the English Proceedings be "principally concerned"?
96.Mr Lord attacked Teare J's analysis and conclusions using the "overall
judgment" approach. He submits that the judge failed to take a step back
and put the ultra vires issue in its proper context. Mr Lord emphasises,
first, that the ultra vires point is potentially dispositive. Secondly, he
notes that, logically, the ultra vires is the first point to arise for decision,
because if the decision of the BVG boards to enter the JPM was ultra vires,
then the claim for a declaration as to its validity and the monetary claim
under the JPM Swap must fail. In this regard, Mr Lord points out that the
judge himself characterised the issue of ultra vires as "…an important
preliminary issue". Thirdly, Mr Lord submits that the ultra vires issue is
central to JPM's first claim for a declaration as to the validity of the JPM
Swap. Lastly, Mr Lord argues that the German law issue on ultra vires is
both significant and very substantial and so would be likely to occupy a
considerable part of any trial.
97.The English proceedings have, of course, not reached the stage of
pleadings, let alone a List of Issues, so that the potential issues between
the parties have not been properly identified and refined. We were shown
the Complaint that has been lodged by BVG in the German proceedings.
This is an 80 page document (in translation at least), which sets out
BVG's case for the three motions it claims. Under the heading "Grounds"
there are the following two paragraphs:
"The cause of action is the establishment that the Plaintiff, as a result
of the Defendant's grossly incorrect advice, entered into a derivative
transaction (Credit Default Swap) in the form of a Collateralized Debt
Obligation ("Credit Default Swap JP Morgan") which is invalid on the
ground of the Plaintiff, as a result thereof, having acted outside its scope
of function and sphere of operation and hence ultra vires.
…….
The Plaintiff therefore in a first stage seeks establishment by this court
that the Credit Default Swap JP Morgan entered into as a result of the
Defendant's grossly incorrect advice is invalid on the ground of the
Plaintiff, as a result thereof, having acted outside its functions and sphere
of activity according to its Articles of Association and hence ultra vires…".
98.The Complaint also tackles the possible argument that JPM might
raise that the proceedings in Germany and in England concern the same
cause of action between the same parties so that the German court, being
second seised, should stay its proceedings, pursuant to Article 27 of the
Regulation. The Complaint characterises the English proceedings and the
German proceedings in the following terms:
"Hence, the core of the proceedings conducted in England is an alleged
(contested) claim to payment on the part of the Defendant. As a
preliminary question, the Defendant also wants to have the validity of the
ISDA 2002 Master Agreement dated 17 August 2007 clarified (see Sec. 2
of the Claim Form on page 3).
In contrast, the present action concerns a finding that the Defendant
has been seriously at fault with its advice: firstly, it should be held that
the Plaintiff, as a consequence of the incorrect advise provided by the
Defendant, concluded, in the form of the Credit Default Swap JP Morgan,
a derivative credit transaction that lay outside its scope of operation
pursuant to its Articles of Association ("Articles"), hence was ultra vires
and invalid. Secondly, the Plaintiff pursues claims for damages on the
grounds of an infringement by the Defendant of obligations to advise and
inform resulting from a consultancy contract and from the infringement of
rules of conduct applicable to the Defendant in the STA.……"
99.The judge identified the following issues as being likely to arise in
any trial of the disputes between JPM and BVG in relation to the JPM
Swap. (1) How the JPM Swap works according to its terms. This issue
has to be considered in order to deal with the allegation of BVG that JPM
gave incorrect advice about the nature and working of the JPM Swap and
that JPM made misrepresentations about it, failed to disclose relevant
matters and otherwise was in breach of contract. (2) What was said and
understood (or not) at the meetings between JPM and BVG between
June 2006 and July 2007 regarding the JPM Swap and how it worked.
Those events have to be analysed to deal with BVG's allegations of
the incorrect advice, misrepresentation, non- disclosure and breach of
contract, which BVG says were the result of what JPM (or those for whom
it is responsible) said or wrote at or between meetings in that period. (3)
The ultra vires issue. This will involve looking at the relevant German law
and also the constitution of BVG. As the judge noted, this issue arises
independently of the first two I have summarised.
100.The judge accepted that the ultra vires issue is important because
it might be dispositive of the proceedings. He gave weight to that point.
But, like the judge, I find it difficult to characterise these proceedings as
being "principally concerned with" the ultra vires issue. At this very early
stage of the proceedings and on the very limited material we have, I find
it hard to see how the ultra vires issue could be completely isolated from
the others. The issue (and therefore the German law evidence) will surely
have to be placed in the context of the narrative of the meetings and
negotiations and a detailed analysis of the nature of the JPM Swap itself to
see if resolutions to conclude that contract were ultra vires the powers of
the two boards of BVG.
101.Therefore, like the judge, I would characterise these proceedings
as being "principally concerned with" the validity of the JPM Swap and
whether JPM can enforce its rights under it. As a part of that overall issue,
the court will have to consider various defences put forward by BVG, of
which an important one, which could be decisive, is the ultra vires issue.
But, the ultra vires issue is not the focus of the proceedings as a whole.
102.The judge also looked at this question from the viewpoint of whether
the proceedings were so likely to be connected with the German law of
ultra vires that they should not, as a matter of the sound administration
of justice, be tried anywhere but the courts of Germany. I have already
summarised the points that the judge took account of under this heading.
103.Mr Lord criticises the judge's list of what Mr Lord called "policy
considerations". I regard those criticisms as unfounded. First, the
ECJ has made it clear that Article 22 should be given no wider an
interpretation than its policy requires, precisely because it detracts from
the basic jurisdiction rules of the Regulation and its invocation may
prevent the parties from being able to use the jurisdiction agreed to
deal with disputes. So it is right to ask whether, on the grounds of the
sound administration of justice, this case demands trial in the courts of
Germany. In my view, agreeing with the judge, given all the other issues
that arise and given the chosen applicable law of the contract is English
law, it does not.
104.Secondly, the judge was right to emphasise that this action only
involves the parties to these proceedings, not others, as may be the
case in patent or other intellectual property disputes. That leads back
to the question: does the sound administration of justice in this action
necessitate it being tried in the German courts? Again, for the reasons
given, I agree with the judge that the answer is: no.
105.Thirdly, the judge rightly points out that even preliminary (and
perhaps also incidental) issues have to be decided somewhere. If, taken
overall, the proceedings are not "principally concerned with" issues which
are within Article 22.2, then the other jurisdictional rules of the Regulation
have to apply and their application will avoid conflicting judgments. In this
case that means deciding the case in the parties' chosen forum, pursuant
to Article 23 of the Regulation. There is therefore no tension within the
Regulation.
106.Accordingly, I agree with the judge that the ultra vires issue, viewed
in its context, is not one which the policies underlying Article 22 generally
or Article 22.2 in particular require a decision by the German courts.
Conclusion on Issue Two.
107.It follows that I agree with the judge's conclusions on the application
of Article 22.2 to this case. I would therefore dismiss BVG's appeal.
Issues Three and Four: The application for a stay of the appeal pending
the ECJ's consideration of the questions referred by the German court
and the issue of this court referring questions to the ECJ for a preliminary
ruling
108.In my view these issues are closely related and so I will deal with
them together. On behalf of BVG, Mr Lord submits that the English
proceedings must be stayed pending the ECJ's preliminary ruling to avoid
a risk of inconsistent results on jurisdictional issues in the courts of two
member states, viz. Germany and the UK. It is said that a failure to stay
the English proceedings could distort the scheme of the Regulation and
put the UK in breach of the obligation of "sincere co-operation" in EU law
between the national courts of member states and the ECJ, which derives
from Article 4.3 of the Consolidated Version of the Treaty of European
Union. Mr Lord relies on the decision of the ECJ in Masterfoods Ltd v HB
Ice Cream. He submits that the first question submitted by the German
court raises a number of points which are directly in issue before this
court. He argues that the second question, although not before this court,
could have an impact on the Article 22.2 argument. The ECJ's preliminary
rulings therefore "may well determine" BVG's jurisdiction application.
Next, Mr Lord submits that if the English court gives its judgment in
advance of the ECJ ruling, it may be inconsistent with that ruling. Lastly,
any judgment given by a court which conflicts with Article 22 of the
Regulation will not be recognised, in accordance with Article 35 of the
Regulation. Therefore, the construction of all parts of Article 22 should be
uniform to avoid the risk that any judgment of the English court in this
case will not be recognised in Germany.
109.Mr Lord therefore submits that the English proceedings should be
stayed pending the ECJ's preliminary rulings, although he accepts that it
would be proper for the English court to express its views on the issues
that have been argued. He also accepts that the English court could
formulate its own questions for preliminary rulings by the ECJ.
110.Mr Rabinowitz submits that the court should not stay the present
proceedings pending the ECJ's preliminary ruling of the German court's
questions. He also submits that the court should not refer any questions
to the ECJ for preliminary rulings. He notes that the first question posed
by the German court is not the question that arises in the present
proceedings, because it does not deal with the multi-issues point at all.
Therefore there is no prospect that the German court's reference will
resolve it. He also points out that, at no stage of the hearing before us
did BVG advance an argument that this court should refer a question for a
preliminary ruling to the ECJ.
111.In my judgment, this court should not stay the English proceedings
to await the outcome of the ECJ's preliminary ruling on the questions put
to it by the German court. The first question is the most important one
and the point is that even if the ECJ's answer to that question is: "yes
it does", it will not deal with the two issues that we have had to decide.
So I do not see the point in awaiting the ECJ's answer to it. The second
question is not in issue before the English courts, so there is no reason
to stay the present proceedings to await an answer on it. Neither is the
third question. I accept that the third question is an open one for the ECJ,
given various remarks in its decision in Overseas Union Insurance Ltd
v New Hampshire Insurance Co. But as the English court is plainly the
court first seised, as such it must be entitled to state its own decision on
the issue of whether Article 22.2 applies to the proceedings or not. The
fact that the German court, as the court second seised, has referred a
question on the position of a court second seised under Article 27 should
not prevent this court, as the court first seised, from giving its answer
on the Article 22.2 issue, particularly as the German court has, quite
properly, refrained from giving its own opinion.
112.It follows that, in my view, if this court gives its judgment on the
issues before it and does not stay the English proceedings, it will not be
failing to fulfil its obligation of sincere co-operation. This court would not
be making any decision which might be inconsistent with decisions yet
to be made by the ECJ on the same subject matter between the same
parties, because, as I have tried to show, the issues before this court and
those referred to the ECJ by the German court are different.
113.Therefore, there is no basis for staying the present proceedings on
the ground of a potential conflict with the preliminary rulings that the ECJ
has been asked to give. No other basis is advanced in favour of a stay.
In my view, given the conclusions I have reached, there is every reason
not to stay the present proceedings. The parties should get on with the
litigation as swiftly as possible so that their rights and obligations under
the JPM Swap can be determined by the Commercial Court.
114.In reaching this conclusion I have considered very carefully whether
this court should itself refer any questions to the ECJ, despite the fact
that neither party invited us to do so in their written or oral submissions
at the hearing. If we had been shown any decisions of the ECJ or of
courts of other Member States of the EU that supported the submissions
put forward by Mr Lord, that might have been a powerful argument for
making a reference. But, in my judgment, we were shown none. It seems
to me, therefore, that we are bound by the decision of this court in the
Grupo Torras case on the interpretation of Article 22.2, which has been
followed subsequently and never doubted. The Supreme Court may
disagree, in which case it will doubtless consider making a reference, but
that would be a matter for it to consider.
Disposal
115.I would dismiss the appeal and I would refuse to grant a stay of the
present proceedings. I would decline to refer any questions to the ECJ for
preliminary rulings.
Lord Justice Etherton:
116.I agree.
Lord Justice Pill:
I also agree.