Lord Collins of Mapesbury:
I Introduction
This appeal turns on the construction of a jurisdiction clause. This is yet
another case in which an action for a negative declaration has been used
as a means of seeking to have a dispute litigated in what is perceived
as a favourable forum: see e.g. The Volvox Hollandia [1988] 2 Lloyd's
Rep 361, 371; Hatzl v. XL Insurance [2009] EWCA 223, [2009] 1 Lloyd's
Rep 555, at [27]. The principal issue is whether the English jurisdiction
clause in one of the documents recording the complex transaction
between the parties (a 1 page document among 500 pages of other
documents constituting the overall deal) applies to the claims in the action
in England for the negative declaration.
This case concerns derivatives in relation to the property market, or
Collateralised Debt Obligations (“CDOs”). The contractual documentation
in this matter consists of more than 500 pages and its size and
complexity, which is no doubt duplicated in many other transactions,
make it easier to understand, if not to excuse, why senior banking figures
(but not necessarily in this case) had little understanding of this market
and of the risks their institutions were undertaking.
HSH Nordbank AG (“HSH”) is a commercial bank incorporated in
Germany with dual headquarters in Hamburg and Kiel in Germany. It
was established in June 2003 as the result of a merger between two
regional German banks, Landesbank Schleswig-Holstein Girozentrale
(“LB Kiel”) and Hamburgische Landesbank. The first claimant, UBS AG, is
an investment bank created in July 1998 by the merger between Union
Bank of Switzerland and Swiss Bank Corporation. UBS AG is incorporated
in Switzerland, where it has its head office, and has substantial offices
worldwide, including New York and London. The second claimant, UBS
Securities LLC (“UBS LLC”), is an affiliate of UBS incorporated in the
United States with its principal place of business in the United States. It
will not normally be necessary to distinguish between them, and I will
generally refer to either or both of them as UBS.
The transactions which are the subject matter of the actions took place
in 2002/2003 between UBS and LB Kiel. HSH has assumed all material
assets, rights and obligations of LB Kiel, and it is in that capacity that HSH
has sued UBS in New York, and is being sued by UBS in England. HSH is
domiciled in Germany for the purposes of Council Regulation 44/2001 on
jurisdiction and the recognition and enforcement of judgments in civil and
commercial matters (“the Brussels I Regulation”).
The action for seeking negative declaratory relief against HSH was
instituted on February 25, 2008, in anticipation of proceedings which were
going to be instituted by HSH against UBS in New York. The New York
proceedings were commenced later the same day in the New York state
court. HSH alleged mis-selling and mismanagement of the securities
which were the subject of the complex arrangements between the parties.
The complaint relied on these causes of action: breach of contract;
fraud; negligent misrepresentation; breach of fiduciary duty; breach of
an implied covenant of good faith and fair dealing; unjust enrichment;
constructive trust.
The only possible basis for the jurisdiction of the English court is the
jurisdiction clause in one of the agreements in the CDO transaction. HSH
applied in the English proceedings for an order that the English court
had no jurisdiction to try UBS's claim in the English proceedings. In the
alternative HSH asked the court to decline to exercise jurisdiction on
forum non conveniens grounds. Walker J decided that the English court
did not have jurisdiction in respect of the claims made in the English
proceedings, and that it was unnecessary to decide on the alternative
application for a stay.
A distinctive feature of this case is that the only point of the English
proceedings is to pre-empt any decision of the New York court in the
proceedings brought there by the defendants in the English proceedings.
It is accepted that if the relevant claims (for fraudulent and negligent
misrepresentation) in the New York proceedings do not stand, there will
be no point in the English proceedings. UBS filed a motion in New York
for an order dismissing the New York complaint on substantive grounds,
alternatively dismissing or staying the action on jurisdictional grounds.
After Walker J's judgment, the New York judge acceded in part to UBS's
motion to dismiss, but HSH has revived some of the relevant claims in
an amended complaint, which is itself the subject of a further motion to
dismiss by UBS on the ground that they are precluded by the res judicata
effect of the New York court's judgment. That motion has been heard but
not yet decided.
II Collateralised Debt Obligations
The background to the claim is that LB Kiel wished to invest in real
estate related credit and asset backed securities which, at the time
of the transaction in March 2002, were seen in the market as having
outperformed similarly rated corporate securities. As a consequence, LB
Kiel invested in a multiple tranche synthetic CDO.
A CDO is a financial structure at the centre of which a special purpose
vehicle (“SPV”) issues tranches of debt securities, the performance of
which is linked to a portfolio of assets. The SPV may either hold the
underlying assets (a “cash CDO”) or take exposure to assets such as
corporate bonds or asset-backed securities via a credit default swap with
a financial counterparty (a “synthetic CDO”). The performance of CDOs is
linked or “referenced” to the pool of underlying bonds or securities, the
“Reference Pool”.
In the case of a synthetic CDO the issuer may (as in the present case)
invest the proceeds of issue of the CDOs in a portfolio of high quality,
typically AAA-rated assets (“collateral”); those collateral assets are used
to generate income to make coupon (interest) payments on the CDOs
and, in the case of a default of any of the Reference Pool to which the
SPV is exposed, to pay the financial counterparty the loss due under the
credit default swap. On each occasion on which one of the assets in the
Reference Pool defaults or is subject to some other “credit event” (such as
a downgrading of its credit rating), then a payment becomes due from the
SPV to the financial institution under the credit default swap. At the same
time, the principal and interest due from the SPV to the CDO noteholder
is correspondingly reduced. The usual practice is for CDO notes to be
issued in different classes, whereby the losses are allocated sequentially
commencing with the most “junior” tranche of notes until the original
principal amount of such class of notes are written down to zero, and
then losses are allocated to the next “higher” tranche of notes, until the
entire capital structure is exhausted or the maturity date of the CDO
notes occurs. As a consequence junior notes suffer as a result of earlier
Reference Pool defaults/other credit events and the less risky “senior”
tranches suffer loss only after the underlying classes of CDO notes have
been reduced to zero principal value.
A common feature of actively managed CDOs is that one of the parties
to the transaction has the right to alter the composition of the Reference
Pool. Such a right potentially increases the risk for the holder of the CDO
note, particularly if the party with the right to alter the composition of
the Reference Pool has an economic interest in the transaction, as in the
present case.
III The facts
In this case the SPV was set up by UBS, which was the financial institution
under the credit default swap, and LB Kiel was the original holder of the
CDO Notes issued by the SPV. The SPV used for the issue of the credit
linked notes was a Cayman Islands company set up by UBS called North
Street Referenced Linked Notes, 2002-4 Ltd (“NS4“).
NS4 issued notes which were denominated in United States US$ classified
in three categories. The first category comprised US$ 500 million of
floating rate notes of classes A to D (“the NS4 Notes”). They were issued
to and purchased by UBS so that UBS could sell them to LB Kiel as part of
the transaction. The second and third categories comprised US$ 25 million
floating rate notes of class E (“the Class E NS4 Notes”) and US$ 49 million
fixed rate income notes (“the NS4 Income Notes”). They also were issued
to UBS but were not involved in the transaction.
LB Kiel received the NS4 Notes which provided credit protection to UBS
against certain credit risks in relation to the Reference Pool, which was
a pool of international assets with an emphasis on U.S. commercial and
residential real estate backed bonds and other asset-backed securities,
selected by UBS.
The credit default swap with NS4 gave UBS the right to alter the
Reference Pool within certain parameters. If UBS chose asset-backed
securities of high quality and stability, LB Kiel would receive a steady
stream of income based on performance of assets in the Reference Pool.
In return UBS was to receive “credit protection payments” upon the
happening of certain “credit events” to cover losses in the Reference Pool.
The effect was that LB Kiel provided credit protection to UBS in the event
of defaults which would result in reductions in the principal amounts of
the NS4 Notes.
UBS was the manager responsible for the allocation and substitution
of assets in the Reference Pool, as well as the direct recipient of any
payments from the SPV due to credit events in respect of securities in
the Reference Pool. Accordingly, in order to protect LB Kiel the “Reference
Pool Side Agreement” (“RPSA”) was entered into between LB Kiel and
UBS as a condition of the purchase of the CDO Notes. The RPSA created
obligations for UBS in connection with UBS's management, selection, and
substitution of securities in the Reference Pool.
In return, LB Kiel issued to UBS US$ 500 million of puttable (i.e.
redeemable on certain conditions) medium term notes (the “Kiel MTN
Notes”) under LB Kiel's existing medium term note programme.
The Kiel MTN Notes
There had for some years been in existence a programme which had been
agreed between LB Kiel and its Dutch subsidiary LB Schleswig-Holstein
Finance BV (“LB Finance”) and a group of banks (“the Dealers”), which
included UBS. On September 11, 2001 the parties signed an amended
and restated programme agreement (“the Programme Agreement”). The
Programme Agreement set out terms and conditions which would apply
if either LB Kiel or LB Finance agreed with any Dealer for the issue and
purchase of notes.
The normal practice would then be for the Dealer to sell the Notes
in the secondary market. An information memorandum also dated
September 11, 2001 (“the Information Memorandum”) set out terms and
conditions of Euro Notes. The Kiel MTN Notes, despite their denomination
in dollars fall within this category.
By clause 21(1) the Programme Agreement and every agreement for the
issue and purchase of Notes was to be governed by English law, and by
clause 21(2):
“Each of the Bank and Finance hereby irrevocably agrees for the exclusive
benefit of the Dealers that the courts of England are to have jurisdiction
to settle any disputes which may arise out of or in connection with this
Agreement and that accordingly any suit, action or proceedings arising
out of or in connection with this Agreement (together referred to as
'Proceedings') may be brought in such courts.
Each of the Bank and Finance hereby irrevocably waives any objection
which it may have to the laying of the venue of any Proceedings in the
courts of England and any claim that any such Proceedings have been
brought in an inconvenient forum and hereby further irrevocably agrees
that a judgment in any Proceedings brought in the English courts shall
be conclusive and binding upon it and may be enforced in the courts of
any other jurisdiction. Nothing contained herein shall limit any right to
take Proceedings against the Bank and/or Finance in any other court of
competent jurisdiction, nor shall the taking of Proceedings in one or more
jurisdictions preclude the taking of Proceedings in any other jurisdiction,
whether concurrently or not.”
The Information Memorandum of the same date indicated that the Notes
would be issued on the conditions set out in the document, as modified
and supplemented by the applicable Pricing Supplement. Condition 19(a)
provided that the Notes would be governed by English law and by
clause 19(b) there was a jurisdiction clause in these terms:
“The Issuer agrees, for the exclusive benefit of the Agents, the
Noteholders, the Receiptholders and the Couponholders that the courts
of England are to have jurisdiction to settle any disputes which may
arise out of or in connection with the Agency Agreement, the Notes, the
Receipts and/or the Coupons and that accordingly any suit, action or
proceedings arising out of or in connection with the Agency Agreement,
the Notes, the Receipts and the Coupons (together referred to as
'Proceedings') may be brought in such courts.
The Issuer hereby irrevocably waives any objection which it may have
now or hereafter to the laying of the venue of any such Proceedings in
the courts of England and any claim that any Proceedings have been
brought in an inconvenient forum and hereby further irrevocably agrees
that a judgment in any Proceedings brought in the English courts shall
be conclusive and binding upon it and may be enforced in the courts
of any other jurisdiction. Nothing contained in this Condition shall limit
any right to take Proceedings against the Issuer in any other court of
competent jurisdiction, nor shall the taking of Proceedings in one or more
jurisdictions preclude the taking of Proceedings in any other jurisdiction,
whether concurrently or not.”
The Transaction
Letter Agreement: governed by New York law/no jurisdiction agreement
On January 23, 2002 UBS and LB Kiel signed a letter agreement (“the
Letter Agreement”) confirming the purchase by LB Kiel of what became
the NS4 Notes subject to acceptable documentation. Clause 1 recorded
a mutual expectation that the structure of the transaction would be
substantially as described in a Term Sheet dated January 2002. It also
recorded that the final structure would be as described in the final
offering memorandum relating to the securities. Under clause 6 the
Letter Agreement was governed by New York law. The Letter Agreement
contained no jurisdiction clause. It was common ground that the sale
which took place on March 5, 2002 should be treated as having taken
place pursuant to the Letter Agreement. Consequently the sale was
subject to New York law but did not involve any express term as to
jurisdiction.
Offering Circular and Indenture: New York law and non-exclusive
New York jurisdiction
An offering circular dated March 1, 2002 (“the Offering Circular”)
described features of the NS4 Notes which came to be embodied in an
Indenture dated as of March 5, 2002. The Offering Circular described how
the performance of the NS4 Notes was to be linked, through a credit swap
with UBS, to the performance of assets forming the US$ 3 billion notional
amount Reference Pool. Under the credit swap NS4 would be obliged to
make credit protection payments to UBS in the event of defaults on the
assets, and the Offering Circular explained that such payments would give
rise to corresponding reductions in the unpaid accrued interest on the NS4
Income Notes and thereafter the principal balance of all classes of the
NS4 Notes, working progressively upwards from the NS4 Income Notes
through classes E, D, C, B and A. The offering circular stated:
“Governing Law
The Notes, the Indenture (including the grant by the Issuer of the security
interest in the Collateral and the enforcement by the Trustee of such
security interest (except to the extent that the validity or perfection of the
Issuer's or the Trustee's interest in the Collateral, or remedies under the
in respect thereof, may be governed by the laws of a jurisdiction other
than the State of New York, in which case the laws of such jurisdiction
shall apply to such extent)), the Kiel Custody Agreement, the Repurchase
Agreements, the Non-Kiel Custody Agreements and the Administration
Agreement will be governed by, and shall be construed in accordance
with, the laws of the State of New York without regard to the principles of
conflicts of laws. The Issuer will submit to the non-exclusive jurisdiction
of the New York courts for all purposes in connection with the Notes, the
Indenture, the Kiel Custody Agreement, the Repurchase Agreements,
the Non-Kiel Custody Agreements and the Administration Agreement and
will appoint UBS Warburg LLC to accept service of process on its behalf.
The Repo Counterparty will submit to the non-exclusive jurisdiction of
the New York courts for all purposes in connection with the Repurchase
Agreements and the Non-Kiel Custody Agreements and will appoint UBS
Warburg LLC to accept service of process on its behalf.
The Kiel MTN Notes will be governed by, and shall be construed in
accordance with, the laws of England. The MTN Issuer will submit to
the jurisdiction of the English courts in connection with the Kiel MTN
Notes and has appointed its United Kingdom representative office at
50 Gresham Street, London EC2V 7AY to accept service of process on its
behalf.
The Credit Swap, and all matters arising from or connected with it, will
be governed by, and shall be construed in accordance with, the laws
of England. The Issuer and the Swap Counterparty will submit to the
jurisdiction of the English courts for all purposes in connection with the
Credit Swap, and the Issuer will appoint Clifford Chance Secretaries
Limited to accept service of process on its behalf.”
The Indenture provided that the Indenture and the NS4 Notes were
governed by New York law and it contained a non-exclusive New York
jurisdiction clause.
Credit swap: English law and non-exclusive English jurisdiction
Contemporaneously with the transaction, and in accordance with the
Offering Circular, UBS and NS4 entered into a credit swap (“the Credit
Swap”). Under the Credit Swap UBS purchased credit default protection
from NS4 with respect to the Reference Pool. In return a total premium
of US$ 574 million, subject to reduction in certain events, was to be paid
by UBS to NS4 as periodic premium payments over the life of the swap.
The Credit Swap provided for credit protection payments as described in
the Offering Circular. It was governed by English law and (by virtue of the
incorporation of the ISDA Master Agreement) contained a non-exclusive
English jurisdiction clause.
Reference Pool Side Agreement: New York law and non-exclusive New
York jurisdiction
The RPSA was also dated March 5, 2002, and provided LB Kiel with
protections regarding UBS's management of the portfolio comprising
the Reference Pool. Under Article II of the RPSA there was an obligation
on UBS which required the creation of a “Commitments Committee”
to monitor the credit quality of the Reference Pool. The Commitments
Committee was to meet on a daily basis or as necessary. Article IV gave
LB Kiel a power of veto in certain circumstances.
The RPSA was subject to New York law and contained a non-exclusive
New York jurisdiction clause. Section 9.08 of the RPSA was entitled
“Governing Law: Consent to Jurisdiction and Service of Process.” It
included the following governing law and jurisdiction clauses:
(a) This agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to principles of
conflicts of laws.
(b) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST [UBS] OR
[LB KIEL] ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK AND ANY APPELLATE COURT
FROM ANY SUCH COURT, AND, BY ITS EXECUTION AND DELIVERY
OF THIS AGREEMENT, EACH OF [UBS] AND [LB KIEL] ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY
AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM
NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
AGREEMENT
…”
Pricing Supplement/Dealer's Confirmation: English law and exclusive
English jurisdiction
On March 5, 2002 LB Kiel issued to UBS US$ 500 million of Kiel MTN
Notes. They were “puttable“ (i.e. redeemable) in that the principal
amount of each note with accrued interest would become payable to a
noteholder on any business day at the noteholder's option subject to
written notice being given 5 business days in advance. These Notes were
issued pursuant to a Pricing Supplement and a Dealer's Confirmation
under the terms of the 2001 Programme Agreement regulating the issue
of Kiel MTN Notes.
The Pricing Supplement was signed by LB Kiel and dated March 5, 2002.
The Pricing Supplement was to be read in conjunction with the
Information Memorandum. It had detailed provisions concerning, among
other things, the interest rate of the Kiel MTN Notes and the put option
available to holders of the Kiel MTN Notes. Clause 32 of the Pricing
Supplement dealt with “other terms or special conditions”. It provided that
Condition 19(b) of the Information Memorandum for Euro Notes was to be
modified. The modification resulted in a jurisdiction clause which read:
“(b) Subject as provided [below], the parties agree that the courts of
England are to have exclusive jurisdiction to settle any disputes which
may arise out of or in connection with the …[Kiel MTN Notes]… and the
parties accordingly submit to the exclusive jurisdiction of the English
courts… nothing contained in this condition shall limit any right of the …
Noteholders… to take proceedings against [LB Kiel] in any other court of
competent jurisdiction, nor shall the taking of Proceedings in one or more
jurisdictions preclude the taking of Proceedings in any other jurisdiction,
whether concurrently or not.”
The other document executed on March 5, 2002 was a “Dealer's
Confirmation” signed by UBS AG. It has also been referred to in this
case as “the Kiel Notes Initial Purchase Agreement” or IPA. The Dealer's
Confirmation recorded that clause 21 of the Programme Agreement was
deemed to have been deleted and replaced. The replacement was a
jurisdiction clause which read:
“Subject as provided in this sub-clause (2), the parties hereby irrevocably
agree that the courts of England are to have exclusive jurisdiction to
settle any disputes which may arise out of or in connection with this
Agreement and the parties accordingly submit to the exclusive jurisdiction
of the English courts for any suit, action or proceedings arising out of or in
connection with this Agreement (together referred to as 'Proceedings').
Each of [LB Kiel and LB Finance] hereby irrevocably waives any objection
which it may have to the laying of the venue of any Proceedings in the
courts of England and any claim that any such Proceedings have been
brought in an inconvenient forum and hereby further irrevocably agrees
that a judgment in any Proceedings brought in the English courts shall
be conclusive and binding upon it and may be enforced in the courts of
any other jurisdiction. Nothing contained herein shall limit any right of the
Dealers to take Proceedings against the [LB Kiel and/or LB Finance] in any
other court of competent jurisdiction, nor shall the taking of Proceedings
in one or more jurisdictions preclude the taking of Proceedings in any
other jurisdiction, whether concurrently or not.
...”
Immediately upon issue by LB Kiel to UBS the Kiel MTN Notes were
transferred by UBS to NS4 in exchange for the issue by NS4 to UBS of the
NS4 Notes. This transfer was envisaged by the Offering Circular, which
explained that payments of principal under the NS4 Notes, along with
Credit Protection Payments affecting those notes, would be funded by NS4
exercising its option to redeem the Kiel MTN Notes.
IV The dispute and the New York proceedings
Since March 5, 2002 regular payments on the NS4 Notes have been
made by NS4 to LB Kiel and subsequently by NS4 to HSH. In recent times
there have been defaults on assets in the Reference Pool. These defaults
have not yet reached the top 4 tranches of the obligations to make credit
protection payments. HSH says that it is nevertheless concerned at what
may happen in future, and that those concerns have led it to review the
circumstances in which LB Kiel entered into the transaction and the way
in which the transaction has been put into effect. Following that review a
dispute has arisen between HSH and UBS.
A The original New York complaint
As I have said, the New York proceedings were commenced on
February 25, 2008 shortly after, on the same date, UBS had issued its
proceedings for negative declaratory relief in England. The essence of the
New York complaint in its original form concerned the alleged initial mis-
selling and subsequent mismanagement of the Reference Pool underlying
the NS4 Notes in that (a) UBS in selling the NS4 Notes to LB Kiel made
various misrepresentations to LB Kiel, fraudulently or negligently; (b) UBS
was in breach of the contract for the sale of the NS4 Notes to LB Kiel,
by failing to deliver notes with the characteristics promised; (c) UBS
breached the RPSA.
In paragraph 29 the complaint referred to LB Kiel as making “a US
$ 500 million cash investment” in return for the NS4 Notes, and in
paragraph 30 the complaint said that NS4 used what it received from
LB Kiel in order to invest in the Kiel MTN Notes. HSH acknowledged that
this was inaccurate. The true position was that LB Kiel bought the NS4
Notes by issuing the Kiel MTN Notes to UBS, and UBS transferred them to
NS4 which retained them as collateral.
The first cause of action was for breach by UBS of contractual obligations
found in the agreement for the purchase of the NS4 Notes by LB Kiel from
UBS and in the RPSA. In consequence it was claimed that HSH should
be awarded rescission of its contracts with UBS, or, in the alternative,
damages.
The second and third causes of action were for fraud and negligent
misrepresentation respectively. Each gave an account of allegedly untrue
representations, along with failures to disclose, which were said to have
induced LB Kiel to have purchased the NS4 Notes. In relation to both
these causes of action it was said that HSH should be awarded rescission
of its contracts with UBS, or, in the alternative, damages.
The fourth cause of action was for breach of fiduciary duty. It asserted
that UBS had utilised LB Kiel's investment as an opportunity to take
default risk off its own balance sheet and profit by taking short positions
against the Reference Obligations it selected for inclusion in the Reference
Pool. As a result HSH said that it had been damaged in an amount to be
determined at trial, and was also entitled to punitive damages.
The fifth cause of action was for breach of an implied covenant of good
faith and fair dealing. It asserted that UBS knowingly, intentionally, in
bad faith, and in secret, selected Reference Entities that fundamentally
compromised the NS4 Notes, charged an excessively high price for
those Notes, and set an excessively low yield to be paid on them. It also
asserted that UBS had made multiple adverse substitutions of collateral in
the Reference Pool for its own benefit. The remedy claimed was rescission
of the NS4 transaction, or, in the alternative, damages in an amount to be
determined at trial.
The sixth cause of action was for unjust enrichment and breach of
constructive trust, on the basis that UBS had received a monetary benefit
to which it was not entitled, and which it had unjustly retained, and that
in consequence the parties should be returned to their original position
prior to UBS's misconduct, and UBS's ill-gotten gains should be held on
constructive trust for HSH.
The seventh cause of action sought an injunction requiring UBS to
establish a Commitments Committee conforming with the requirements of
the RPSA or in some other way to manage its conflicts of interest.
The eighth cause of action was for conversion, on this basis: HSH had
entrusted funds, through its investment in the NS4 Notes, to UBS for
specific and limited purposes; UBS had wrongfully converted those funds;
as a result of the conversion HSH had been damaged in an amount to be
proved at trial.
B The Motion to Dismiss
On March 28, 2008, UBS filed a motion to dismiss the New York
proceedings as not disclosing a cause of action. UBS also argued
(as an alternative submission) that the New York court should stay
its proceedings on forum non conveniens grounds. A few days after
Walker J's judgment on July 4, 2008, UBS withdrew its forum non
conveniens challenge, on the basis that in the light of Walker J's decision
and pending the present appeal it was moot.
In his decision dated October 21, 2008, Justice Richard B Lowe III
dismissed six out of the eight causes of action advanced in the New York
complaint, namely the second to fourth and sixth to eighth causes of
action, i.e., the causes of action for (alleged) fraudulent and negligent
misrepresentation, breach of fiduciary duty, unjust enrichment and
constructive trust, request for an injunction and conversion.
The fraud claims were dismissed on the ground that because HSH's
claims of fraud were merely repetition of its claims for breach of contract,
with the addition of allegations that UBS never intended to act in
HSH's interests, and the many ways in which UBS did not honour the
agreements, HSH had failed to allege fraud in the inducement, and that
the many disclaimers and disclosures in the documents also barred the
claim. The claim for negligent misrepresentation was barred because
there was no special relationship of trust or confidence.
Consequently, the only causes of action which Justice Lowe was prepared
to allow HSH to continue to advance in the New York proceedings against
UBS were the first and fifth causes of action set out in the New York
complaint, for: (a) breach of contract, in connection with which Justice
Lowe described HSH's “overarching claim” as being the allegation that
“UBS failed to maintain the promised high quality of the notes in the
Reference Pool, by failing to ensure that the Commitments Committee
keep an eye on the condition of the investments” (i.e., a claim for breach
of the RPSA); and (b) breach of the implied covenant of good faith and
fair dealing, which is implied in all New York contracts, and which was
treated in essence as an allegation in respect of the RPSA.
C The Amended New York Complaint
During the course of argument before Walker J, the judge in effect
indicated that HSH's position might be stronger if in the New York claim
HSH were not seeking rescission or alleging conversion of the Kiel MTN
Notes. Consequently HSH confirmed that it was withdrawing its request
that the NS4 transaction be unwound, and that it would amend the
complaint to omit the request for rescission. HSH says that, although the
request for rescission never concerned the Kiel MTN Notes issued by HSH,
which were no longer even held by UBS, the amendment would make
clear that the Kiel MTN Notes were not at issue in the dispute before the
New York court.
On December 10, 2008, HSH filed an Amended Complaint in the New
York proceedings. HSH re-introduced its claims that UBS made fraudulent
and negligent misrepresentations and non-disclosures in respect of the
transaction, and thereby induced HSH to invest in it. There are now four
causes of action in the New York complaint: (1) breach of the contract;
(2) fraudulent misrepresentation; (3) negligent misrepresentation;
(4) breach of the implied covenant of good faith and fair dealing. The
essence of the claims for misrepresentation is that HSH was induced “to
purchase debt securities in [NS4]” in reliance on those representations,
and “HSH would not have purchased the debt securities” in the absence of
those representations (paras 97 – 98 and 107 – 108).
On January 16, 2009, UBS filed a motion to dismiss the misrepresentation
claims in the Amended Complaint on the basis that these claims were
barred by reason of res judicata, following the decision of Justice Lowe
dated October 21, 2008; or alternatively should be dismissed on the
substantive grounds identified by Justice Lowe. The motion was heard in
April 2009 and judgment is expected in the autumn.
V Jurisdiction under the Brussels I Regulation, Article 23
It is common ground that HSH is domiciled in Germany for the purposes
of the Brussels I Regulation, and that the only possible basis for
jurisdiction in the English action is the jurisdiction clauses in the Dealer's
Confirmation and the Kiel MTN Notes (via the Pricing Supplement). But
nothing turns on the jurisdiction clause in the Kiel MTN Notes, since they
passed immediately to NS4. It is therefore the Dealer's Confirmation
which was the focus of the judge's decision and of this appeal. The
question on this issue is whether the claims in the draft particulars of
claim fall within the Dealer's Confirmation jurisdiction clause, with the
consequence that the English court has jurisdiction under Article 23 of the
Brussels I Regulation, which provides that where the agreement complies
with the formal requirements (as to which there is no issue):
“1. If the parties, one or more of whom is domiciled in a Member State,
have agreed that a court or the courts of a Member State are to have
jurisdiction to settle any disputes which have arisen or which may arise in
connection with a particular legal relationship, that court or those courts
shall have jurisdiction. Such jurisdiction shall be exclusive unless the
parties have agreed otherwise. …”
A The judge's decision
The judge said that the fundamental question was the meaning of the
English jurisdiction clause in the Dealer's Confirmation jurisdiction clause
rather than the Kiel MTN Notes jurisdiction clause, because UBS held the
Kiel MTN Notes for no more than an instant. The judge accepted that
had the contracts in which those clauses were found stood on their own,
they should be given a wide construction. But this was a case where the
parties had entered into different agreements for different aspects of an
overall relationship, with different terms as to jurisdiction.
As a matter of general principle the court must seek to identify the
meaning which the document would convey to a reasonable person
having all the background knowledge which would reasonably have been
available to the parties in the situation in which they were at the time
of the contract: Investors Compensation Scheme Ltd v. West Bromwich
Building Society [1998] 1 WLR 896, 912 – 913. The relevant background
knowledge in the present case would include knowledge of other contracts
forming part of the transaction.
When considering the jurisdiction clauses found in the RPSA, the Kiel MTN
Notes, and the Dealer's Confirmation, a person having that background
knowledge would at once see that there was scope for the clauses to
clash. In order to limit that scope, and to ensure that the clauses had
meaning, such a person would be driven to the conclusion that each such
clause focused upon matters directly relating to the contract in which it
was found. It was manifestly incompatible with a non-exclusive New York
jurisdiction clause for a matter falling within it also to be the subject of an
exclusive English jurisdiction clause.
The question in each case was to which contract the dispute in question
was properly to be allocated; and the court then applied whatever
jurisdiction provisions, if any, that contract might contain: Credit Suisse
First Boston (Europe) Ltd v. MLC (Bermuda) Ltd [1999] 1 Lloyd's Rep 767.
The English jurisdiction clauses were insufficiently wide to cover the
dispute set out in the New York complaint. All matters relating to the
NS4 Notes, including the Indenture, the Letter Agreement and the
RPSA, were subject to the laws of New York. All those agreements
contained submissions to the jurisdiction of the New York courts, except
for the Letter Agreement which was silent as to jurisdiction and hence
effectively agreed that action could be brought in any court of competent
jurisdiction. The Letter Agreement would not entitle UBS to sue HSH, a
German domiciled company, in England.
The focus must be on the cause of action rather than the remedy flowing
from that cause of action. Thus a claim to rescission, or for damages
based upon the risk of exercise of the put option, was not to be regarded
as so directly linked to the Kiel MTN Notes or the Dealer's Confirmation
as to fall within the English jurisdiction clauses. The result was that the
English court did not have jurisdiction under Article 23 of the Brussels I
Regulation.
B The appeal
UBS's arguments
UBS's arguments are essentially these. It accepts that a claim for post-
inception breaches of the RPSA would be outside the scope of the Dealer's
Confirmation jurisdiction clause. That would include the first and fourth
causes of action in the amended New York complaint.
But HSH's claim for misrepresentation is a claim concerning the
representations which caused it to issue and transfer the Kiel MTN Notes.
The Dealer's Confirmation was the agreement by which HSH invested
in the transaction. Accordingly a dispute as to whether or not HSH was
misled into agreeing to invest would clearly fall within the Dealer's
Confirmation jurisdiction clause. So would any dispute as to whether
damages should be paid for any loss caused by entering into the Dealer's
Confirmation, or for any breach of the Dealer's Confirmation.
The New York complaint clearly indicates from the start that the action
relates to HSH's investment in NS4, i.e. by its sale of the Kiel MTN
Notes to UBS, so that it could fit into the NS4 structure described in the
Offering Circular. Section B of the complaint is headed “UBS induces
HSH to invest US$ 500 million in North Street 4” (i.e. the investment
of the Kiel MTN Notes pursuant to the Dealer's Confirmation). The
fraud and misrepresentation allegations made by the second and third
causes of action are that HSH was induced to “purchase the debt
securities” (Paras 72 and 82) (i.e. invest in NS4) in reliance on the truth
of UBS's statements.
The Kiel MTN Notes were central to the transaction. Without them there
would have been no issue and purchase of NS4 Notes. In addition to
being the consideration provided by HSH for the NS4 Notes, the Kiel
MTN Notes also serve as collateral for any credit protection payments
relating to the NS4 Notes due to UBS under the credit swap. Should a
credit protection payment need to be made in respect of the NS4 Notes, it
is effected by redemption of the appropriate amount of Kiel MTN Notes.
The proper approach to the construction of clauses agreeing jurisdiction
is to construe them widely and generously, and the words “arising out of”
or “in connection with” apply to claims arising from pre-inception matters
such as misrepresentation.
The Dealer's Confirmation jurisdiction clause had been specially
renegotiated to provide expressly for the exclusive jurisdiction of the
English court. If the parties had intended to give it a narrower scope, they
would have done so. They must have envisaged the risk of a clash, and
could have avoided it. The meaning of the clause is to be determined as
at the time it was entered into and not by reference to the events which
have happened.
The judge wrongly proceeded on the basis that the Dealer's Confirmation
jurisdiction clause had to be construed narrowly (because of the existence
of non-exclusive jurisdiction clauses in other agreements comprising
the transaction), and thus wrongly construed the Dealer's Confirmation
jurisdiction clause as applying only to matters “directly relating
to” (Judgment, paragraph 92) or “directly linked to” (paragraph 94) the
Dealer's Confirmation. The judge wrongly approached the matter not by
asking whether or not a particular cause of action directly related to the
Dealer's Confirmation, but whether it was more directly related to some
other agreement.
The only question for the judge was whether on a true construction of
the Dealer's Confirmation jurisdiction clause, Article 23 was engaged
in relation to any of the claims made by HSH. It was irrelevant to this
question whether or not the disputes, or some of them, also fell within a
jurisdiction clause in any other contract. Nothing in the language of the
Dealer's Confirmation jurisdiction clause indicates that certain disputes
which otherwise fall within the scope of the clause are to be excluded
from the English court's jurisdiction, whether by reason of the other
jurisdiction clauses or otherwise.
The judge's assumption that the different jurisdiction clauses had to be
interpreted so that they did not “overlap”, and therefore that a dispute
had to be “allocated” to only one agreement within the transaction, was
erroneous. Claims in relation to the transaction may well involve more
than one agreement. The fact that the different agreements comprise a
single transaction makes it all the more likely that certain claims might
fall within more than one jurisdiction clause in those agreements. This
does not however mean that on an ordinary interpretation of the Dealer's
Confirmation jurisdiction clause, the jurisdiction clauses in the RPSA,
the Kiel MTN Notes and the Dealer's Confirmation will “clash”, or that
the Dealer's Confirmation jurisdiction clause properly interpreted would
render the other (non-exclusive) jurisdiction clauses otiose.
If contrary to UBS's principal submission, the judge's approach that only
one jurisdiction clause can be engaged at any one time was correct,
then he should have given particular weight to the fact that the Dealer's
Confirmation jurisdiction clause, in favour of the English courts, was an
exclusive jurisdiction clause. The other jurisdiction clauses in the other
contracts comprising the transaction were each non-exclusive New York
clauses. In so far as the parties are to be taken to have been addressing
the question of how any overlap between different jurisdiction clauses
was to be resolved, this is the clearest indication that they envisaged
that if a matter fell within the wording they had agreed in the Dealer's
Confirmation jurisdiction clause, then it would take precedence over any
other clause which might also apply.
HSH's arguments
HSH's arguments are these. The terms of the sale of the NS4 Notes were
contained in the Letter Agreement and the RPSA. The only purpose of the
Dealer's Confirmation was to set out the conditions on which the Kiel MTN
Notes were to be issued. HSH used the Kiel MTN Notes (rather than cash)
to pay for the NS4 Notes. There is no dispute about the issue, sale or
performance of the Kiel MTN Notes. The dispute revolves entirely around
the contracts by which the CDOs, i.e. the NS4 Notes, were acquired and
managed. The Kiel MTN Notes are at best collaterally involved and which
UBS held them for a mere scintilla temporis.
The dispute relates wholly to the NS4 Notes and not the Kiel MTN Notes,
which are no more than part of the mechanics by which the NS4 Notes
were acquired and collateralised. Not merely the centre of gravity but
the entirety of the dispute is focused on the sale of the CDO Note and its
subsequent management. The sale of the Kiel MTN Notes is only more
distantly or collaterally involved, if involved at all.
The misrepresentation claims were made about the Reference Pool, not
about the Kiel MTN Notes. The same allegations would be made if Kiel LB
had paid for its investment in cash instead of Notes. The Kiel MTN Notes
were no more than the consideration for the NS4 Notes. The jurisdiction
clause contained in the Dealer's Confirmation (i.e. the method of payment
for the investment) cannot govern the dispute relating to inducement of
making such investment.
HSH's claims against UBS are in essence that UBS wrongfully sold and
managed the CDOs (the NS4 Notes) issued by NS4. In particular, the
New York complaint alleges that UBS (1) induced HSH to purchase the
NS4 Notes by misrepresentations concerning, among other things,
the credit quality of the Reference Pool to which payments under the
NS4 Notes were linked; (2) failed to deliver to HSH CDOs with the
characteristics which it had agreed to provide; and (3) breached the
RPSA, which was intended to provide HSH with important protections
regarding the contents, and UBS's management, of the Reference Pool.
The Claim Form does not mention the Dealer's Confirmation. The
draft Particulars of Claim underline the point that the dispute revolves
around the represented and actual qualities of the NS4 Notes and
their subsequent management. The draft places extensive reliance on
provisions of the Letter Agreement, the Offering Circular, the Indenture
and the RPSA, none of which contains an English jurisdiction agreement.
The draft discloses no dispute in relation to the Kiel MTN Notes and no
other connection with England. HSH's claims arise from or in connection
with two written agreements only: the RPSA and the Letter Agreement.
In determining which contract a dispute arises from or in connection with,
in a multi-contract situation, a degree of common sense is appropriate:
Credit Suisse First Boston (Europe) Ltd v. MLC (Bermuda) Ltd [1999]
1 Lloyd's Rep 767 (Rix J). The parties entered into different agreements
for different aspects of an overall relationship, with different terms
as to jurisdiction. All matters relating to the CDO Note, including the
Note itself (as set out in the Indenture), the Letter Agreement and the
RPSA, are subject to the laws of New York. All those agreements contain
submissions to the jurisdiction of the courts of New York, except for the
Letter Agreement, which is silent as to jurisdiction and would not entitle
UBS to sue HSH in England. The existence of the other contracts, with
their own provisions as to jurisdiction, indicates that the parties intended
that disputes arising out of them were not to be regarded as arising out
of some other, at best collaterally involved, contract such as the Dealer's
Confirmation.
VI Conclusions
The question on this part of the appeal is whether the claims in the
English action fall within the jurisdiction agreement in the Dealer's
Confirmation. That question turns on whether, in the light of the complex
documentation as a whole, the parties should be taken objectively to have
intended by the jurisdiction clause in the Dealer's Confirmation that, when
a dispute arose as to whether the transaction as a whole was induced by
fraudulent or negligent misrepresentation, the issue whether the issue
and transfer of the Kiel MTN Notes was so induced should be subject to
the exclusive jurisdiction of the English courts, while the question whether
the conclusion of the other agreements was induced by the same alleged
misrepresentations should be subject to the non-exclusive jurisdiction of
the New York courts.
The claim form in the English proceedings makes no mention of the
Dealer's Confirmation. It specifies only (1) the credit default swap dated
March 3, 2002, which is an agreement between NS4 and UBS, to which
HSH is not a party and under which it has made no claim; (2) HSH's
subscription for the NS4 Notes, the terms of which contain a non-
exclusive New York jurisdiction clause; (3) a subscription by NS4 for the
Kiel MTN Notes issued by HSH, in relation to which no dispute exists;
and (4) the RPSA, an agreement under which HSH makes claims in the
New York court, and which contains a New York non-exclusive jurisdiction
clause.
The draft particulars of claim have not been produced in a revised form
following the dismissal of the misrepresentation claims in New York. This
does not matter for present purposes. As I have said, the essence of
the claims for misrepresentation is that HSH was induced “to purchase
debt securities in [NS4]” in reliance on those representations, and
“HSH would not have purchased the debt securities” in the absence of
those representations (paras 97 – 98 and 107 – 108 of the Amended
Complaint). Those pleas are in the same terms as the original complaint
(paras 72 – 73 and 82 – 83).
According to the draft particulars of claim (paragraph 2): “These
proceedings concern the Defendant's investment in a multiple tranche
synthetic Collateralised Debt Obligation ('the Transaction') which is the
subject of these proceedings.” It is important to note the wide definition of
“the Transaction.”
Section B of the draft particulars of claim is headed “Events leading to the
Transaction.” Paragraph 6.2 pleads:
“HSH decided to participate in the Transaction by issuing to UBS on a
principal to principal basis US$ 500 million of puttable medium term notes
('the MTNs') under HSH's existing MTN programme, and pursuant to a
series of Agreements ('the MTN Agreements') in return for HSH providing
credit protection to UBS against certain credit risks in relation to the
Reference Pool. HSH's objective was to enhance its return … in exchange
for assuming a degree of risk on the Reference Pool.”
Paragraph 8 pleads:
“HSH also expressly confirmed that it understood, acknowledged and
agreed that UBS was only acting as initial purchaser for the Transaction
and was not acting as adviser to HSH (clause 2 of the Letter Agreement),
and that the Letter Agreement constituted the entire agreement and
understanding of the parties with respect to the Transaction and
superseded all oral or written communications in relation thereto
(clause 6(b) of the Letter Agreement).”
Then after referring to several passages in the Offering Circular,
paragraph 13 pleads:
“Accordingly, at the time at which HSH entered into the Transaction it did
so of its own volition based on its own judgment (following advice from its
independent advisors and not on the basis of any advice or representation
made by UBS), at its own risk and solely on the terms of the written
agreements comprising the Transaction.”
Paragraphs 15 to 17 record that the Kiel MTN Notes were the mechanism
by which Kiel made its US$ 500 million investment in the Transaction, and
described the Dealer's Confirmation, the Pricing Supplement, the role of
the notes as collateral for Credit Protection Payments, and the NS4 Kiel
margin.
Paragraph 31 summarises HSH's claim as being that it is entitled to
rescind the Transaction (a claim now dropped) and/or to damages on
the grounds that UBS acted fraudulently and/or in breach of duty and/
or wrongfully in relation to the Transaction and, in particular, in relation
to the selection and substitution of assets comprising the Reference Pool.
It then goes on to summarise the allegations in the original New York
complaint.
Section E sets out the declarations of non-liability which are sought. The
draft particulars of claim defined “the Principal Agreements” to include
all of the documents involved in the transaction, including the Dealer's
Confirmation, and defined “Related Documents” as “all other written
agreements and/or written notifications and/or documents entered into
and/or executed by the parties pursuant to or related to or in connection
with the Transaction”. As I have said, “Transaction” was defined as
HSH's “investment in a multiple tranche synthetic Collateralised Debt
Obligation”. The declarations which were sought were:
i) that the Principal Agreements and the terms contained therein, as
well as all other written agreements and/or written notifications and/
or documents entered into and/or executed by the parties pursuant
to or related to or in connection with the Transaction (the “Related
Documents”) were and had been at all material times valid, binding and
enforceable;
ii) that HSH was not entitled to rescind any of the Principal Agreements or
any of the Related Documents (which is no longer relevant since the claim
for rescission has been dropped);
iii) that HSH was not induced to enter into the Transaction by the alleged
misrepresentations and/or non-disclosures;
iv) that the obligations of the parties in relation to the Transaction were
(and had at all material times been) governed by, and are limited to,
the terms of the Principal Agreements and/or the Related Documents
and, save as expressly set out in those Agreements and/or the Related
Documents, UBS had assumed no obligation, duty or other responsibility,
whether of a fiduciary or other nature, to HSH;
v) alternatively, that any such duty, obligation or responsibility
undertaken by UBS had been lawfully performed and discharged;
vi) that UBS had not been unjustly enriched as alleged and/or had not
converted any of HSH's funds and/or HSH's investment as alleged;
vii) that UBS had materially complied with and/or discharged each and all
of its relevant obligations arising out of or in connection with the Principal
Agreements and the Related Documents and accordingly UBS had not
caused and/or was not liable to HSH in respect of any loss or damage
arising out of or in connection with those Agreements and the Related
Documents (whether in contract, tort, statute or otherwise) which may
have been suffered or incurred by HSH in connection with the Transaction.
Are these claims within the Dealer's Confirmation jurisdiction clause? I
accept UBS's submission that the proper approach to the construction of
clauses agreeing jurisdiction is to construe them widely and generously:
Donohue v. Armco Inc [2001] UKHL 64, [2002] 1 Lloyd's Rep 425
at [14]. I also accept that in the usual case the words “arising
out of” or “in connection with” apply to claims arising from pre-
inception matters such as misrepresentation: Fiona Trust & Holding
Corp v. Privalov [2007] EWCA Civ 20, [2007] 2 Lloyd's Rep 267
(affd sub nom Premium Nafta Products Ltd v. Fili Shipping Co Ltd
[2007] UKHL 40, [2007] 4 All ER 951); Deutsche Bank AG v. Asia
Pacific Broadband Wireless Communications Inc [2008] EWCA Civ 1091,
[2008] 2 Lloyd's Rep 619; Ashville Investments Ltd v. Elmer
Contractors Ltd [1989] QB 488.
But the essential task is to construe the jurisdiction agreement in
the light of the transaction as a whole. As I suggested in Satyam
Computer Services Ltd v. Upaid Systems Ltd [2008] EWCA Civ 487,
[2008] 2 All ER (Comm) 465, at [93], whether a dispute falls within one
or more related agreements depends on the intention of the parties as
revealed by the agreements.
Plainly the parties did not actually contemplate at the time of the
conclusion of the contracts that there would be litigation in two
countries involving allegations of misrepresentation in the inception and
performance of the agreements. But in my judgment sensible business
people would not have intended that a dispute of this kind would have
been within the scope of two inconsistent jurisdiction agreements. The
agreements were all connected and part of one package, and it seems
to me plain that the result for which UBS contends would be a wholly
uncommercial result and one that sensible business people cannot have
intended.
It is fanciful to suppose (as UBS contends) that the Dealer's Confirmation
jurisdiction clause had been specially renegotiated to provide expressly for
the exclusive jurisdiction of the English court to deal with disputes of this
kind, or that the parties must have envisaged the risk of a clash.
The Dealer's Confirmation is expressed to be issued pursuant to LB Kiel's
US$ 20 billion Global Medium Term Note Programme and simply confirms
the issue of the US$ 500 Kiel MTN Notes to UBS as one of the dealers on
HSH's bond programme. UBS immediately transferred them to NS4. NS4
kept the Kiel MTN Notes as an investment or “collateral” to create income
in order to fund payments under the NS4 Notes.
I accept HSH's argument that the Kiel MTN Notes are simple AAA-rated
bonds that HSH issued pursuant to a pre-existing bond programme.
HSH used these Notes (rather than cash) to pay for the NS4 Notes. This
dispute has nothing to do with the Kiel MTN Notes, which were no more
than the consideration for the NS4 Notes. The parties cannot be taken
objectively to have intended that the jurisdiction clause contained in the
Dealer's Confirmation (i.e. the method of payment for the investment)
would govern every dispute relating to inducement of making such
investment.
There is no dispute about the issue, sale or performance of the Kiel MTN
Notes. Their holder, NS4, is not a party to any of the proceedings. None
of the parties to the proceedings advances any claim under the Kiel MTN
Notes against any other party. None of the parties suggests there has
been any breach of the Kiel MTN Notes, or any misrepresentation in
relation to them. The Kiel MTN Notes are supported by a German state
guarantee and are virtually equivalent to cash. The misrepresentation
claims were made about the Reference Pool, not about the Kiel MTN
Notes. The same allegations would be made if Kiel LB had paid for its
investment in cash instead of Notes.
The New York complaint alleges (inter alia) that (a) UBS induced HSH to
purchase the NS4 Notes by misrepresentations concerning, among other
things, the credit quality of the Reference Pool to which payments under
the NS4 Notes were linked; (b) UBS failed to operate a Commitments
Committee, as required by the RPSA, so as to select Reference Pool assets
with stable or improving credit profiles, carefully monitor the credit status
and quality of each asset, and avoid downgrades. As Justice Lowe stated
in his decision of October 21, 2008 (at p. 5) (in relation to HSH's first
cause of action): “HSH's overarching claim is that UBS failed to maintain
the promised high quality of the notes in the Reference Pool, by failing to
ensure that the Commitments Committee keep an eye on the condition of
the investments.”
In Credit Suisse First Boston (Europe) Ltd v. MLC (Bermuda) Ltd
[1999] 1 Lloyd's Rep 767, MLC, a hedge fund, bought Russian bonds from
the claimant, an English company, pursuant to two Purchase Agreements
containing exclusive English jurisdiction clauses. MLC financed the
purchase of the bonds by repurchase transactions with the claimant
pursuant to a Global Master Repurchase Agreement (“GMRA”), containing
a non-exclusive English jurisdiction clause. When the claimant made a
margin call under the GMRA which MLC failed to pay, and the claimant
sued MLC in England for the amounts due under the GMRA.
MLC then sued the claimant and two of its group companies in New
York for securities violations. The claimant sought an anti-suit injunction
relying on the exclusive English jurisdiction clauses in the Purchase
Agreements. One issue was how much of the subject matter of the
New York proceedings arose out of the Purchase Agreements, and
was therefore in breach of the exclusive jurisdiction clauses in those
agreements.
Rix J concluded (at 777):
“then, where the jurisdiction clauses are in conflict, I do not see why the
GMRA clause should not prevail: either on the basis that, in a case of
conflict on standard forms plainly drafted by CS Europe, MLC should be
entitled to exercise the broader rights; or on the basis that the clause in
the contract which is closer to the claim and which is more specifically
invoked in the claim should prevail over the clause which is only more
distantly or collaterally involved.”
He therefore refused to grant an injunction restraining MLC's claims in
New York under the GMRA, because (at 781) the claims were preferably
to be viewed as arising out of or in connection with the GMRA rather than
the Purchase Agreement and thus were not within the jurisdiction clause
in the Purchase Agreement; but if he were wrong about that, the New
York court would be in a much better position to analyse the complaint
for the purpose of identifying the relevant or more relevant jurisdiction
clause.
The essence of Rix J's first reason is that under the contra proferentem
principle, the intention must be taken to have been that, where a dispute
fell within the wording of both jurisdiction agreements, it was the GMRA
which was to be taken as the agreed position. The second reason, which
he must have meant as a matter of construction, was that the parties
must be taken to have intended that, where a dispute fell within both sets
of agreements, it should be governed by jurisdiction clause in the contract
which was closer to the claim.
In this case it is not necessary to go so far. Whether a jurisdiction clause
applies to a dispute is a question of construction. Where there are
numerous jurisdiction agreements which may overlap, the parties must
be presumed to be acting commercially, and not to intend that similar
claims should be the subject of inconsistent jurisdiction clauses. The
jurisdiction clause in the Dealer's Confirmation is a “boiler plate” bond
issue jurisdiction clause, and is primarily intended to deal with technical
banking disputes. Where the parties have entered into a complex
transaction it is the jurisdiction clauses in the agreements which are at
the commercial centre of the transaction which the parties must have
intended to apply to such claims as are made in the New York complaint
and reflected in the draft particulars of claim in England.
I return to the draft particulars of claim to emphasise that the claims
raising the misrepresentation issue refer to “the Principal Agreements,”
the “Related Documents,” and to “the Transaction.” As I have said,
“the Principal Agreements” means all of the documents involved in
the Transaction (including the Dealer's Confirmation), and “Related
Documents” are “all other written agreements and/or written notifications
and/or documents entered into and/or executed by the parties pursuant
to or related to or in connection with the Transaction”. “Transaction” was
defined as HSH's “investment in a multiple tranche synthetic Collateralised
Debt Obligation”.
The action in England is intended to mirror the New York proceedings.
I have already emphasised that the essence of the claims for
misrepresentation in New York is that HSH was induced to purchase the
NS4 Notes in reliance on the fraudulent and negligent misrepresentations,
and would not have purchased them in the absence of those
representations. No sensible commercial interpretation of the jurisdiction
clause in the Dealer's Confirmation could have the result that identical
misrepresentation claims would fall both within that clause and within
the non-exclusive New York jurisdiction clauses, simply because the
consideration for the transaction was the issue of the Kiel MTN Notes.
In my judgment the standard form bond issue jurisdiction clause in the
Dealer's Confirmation does not apply to claims that the transaction as a
whole, and in particular the purchase of the NS4 Notes, was induced by
misrepresentation. I am satisfied that the judge's decision was right.
VII Forum non conveniens
In the alternative, HSH sought a stay of the English proceedings on forum
non conveniens grounds, which only arises if (contrary to HSH's main
case) the English court has jurisdiction under Article 23. In view of his
conclusion that the English court did not have jurisdiction, the judge did
not deal with this application because it did not arise for decision.
There are a number of formidable difficulties arising from the jurisdiction
agreement, which on this part of the appeal must be taken to apply to
part of the dispute, in the way of HSH establishing its case for a stay.
It is true that HSH would have a very good prospect of showing that
there is another court with competent jurisdiction (the New York court)
which is clearly or distinctly more appropriate than England for the trial
of the action: Spiliada Maritime Corp v. Cansulex Ltd [1987] AC 460.
The employees of UBS who made the alleged misrepresentations to HSH
were and are based in New York. The employees of HSH who negotiated
the transaction were based in Germany. There were meetings between
UBS and HSH in New York prior to the completion of the transaction, in
which it is alleged that UBS confirmed that its management of NS4 would
be performed in New York. Negotiations occurred in New York, between
HSH and UBS's New York lawyers. No individual at HSH involved in the
purchase of the NS4 Notes or the negotiation of the RPSA was located in
London. No meetings or negotiations concerning the Notes or the RPSA
occurred in London. The transaction was concluded in New York. The UBS
employees who administered NS4 and were responsible for ensuring UBS
complied with the terms of the RPSA were based in New York.
But against that, it is most unusual for an English court to
stay proceedings brought in England pursuant to an English
jurisdiction agreement. In British Aerospace v. Dee Howard
[1993] 1 Lloyd's Rep. 368, at 376, Waller J. said (in the context of an
exclusive English jurisdiction clause) that it should not be open to a
party to start arguing about the relative merits of fighting an action in
the foreign jurisdiction as compared with fighting an action in London,
where the factors relied on would have been foreseeable at the time
that they entered into the contract. That case involved an application
to set aside service out of the jurisdiction. It has been approved in
this court in the context of an application to stay English proceedings
(Ace Insurance SA-NV v. Zurich Insurance Co [2001] EWCA Civ 173,
[2001] 1 Lloyd's Rep 618, at [62], per Rix LJ) and of an application to
restrain foreign proceedings in which the foreign court was asked to
prevent a party suing in England pursuant to an English jurisdiction
clause (Sabah Shipyard (Pakistan) Ltd. v. Islamic Republic of Pakistan
[2002] EWCA Civ 1643, [2003] 2 Lloyd's Rep 571, at [36], per Waller LJ)
and it has been applied in many decisions in the Commercial Court.
The next difficulty is that there is an express agreement in the
jurisdiction clause the effect of which is that HSH irrevocably waived
any claim that proceedings had been brought in an inconvenient
forum. In National Westminster Bank v. Utrecht-America Finance Co
[2001] EWCA Civ 658, [2001] CLC 1372, at [23], Clarke LJ thought it was
„fatal“ to any forum non conveniens case, whereas in Sabah Shipyard
(Pakistan) Ltd. v. Islamic Republic of Pakistan, ante, at [36] Waller LJ did
not treat such an agreement as decisive, but thought that it underlined
the point that the jurisdiction agreement would be overridden only in
exceptional circumstances.
Finally, it is a matter of controversy whether there is any room at all
under the Brussels I Regulation regime for a stay on forum conveniens
grounds. The effect of the ruling of the European Court in Case
C-281/02 Owusu v. Jackson [2005] ECR I-1383, [2005] QB 801 is that
the Brussels I Regulation precludes a court of a Member State from
declining jurisdiction under Article 2 (domicile of the defendant) on the
ground that a court of a non-Member State would be a more appropriate
forum for the trial of the action. The Supreme Court of Ireland has
made a reference to the European Court as to whether the ruling in
Owusu v. Jackson applies even where proceedings have been commenced
in a non-Member State prior to the proceedings in Ireland (the so-called
“reflexive effect” of Regulation provisions, which does not arise in the
present case): Goshawk Dedicated Receivables Ltd v. Life Receivables
Ireland Ltd [2009] IESC 7, [2009] ILPr 26.
The prevailing view is that there is no scope for the application of forum
conveniens to remove a case from a court which has jurisdiction under
the Regulation, even as regards a defendant who is not domiciled in
a Member State: see, e.g. Dicey, Morris & Collins, Conflict of Laws,
14th ed 2006, paras 11-023, 12-020, and specifically in relation to
jurisdiction agreements, paragraph 12-124, and Briggs, Agreements
on Jurisdiction and Choice of Law (2008), paragraph 7.02; and it has
been held at first instance that Owusu v. Jackson applies to cases
where Article 23 applies: Equitas Limited v. Allstate Insurance Company
[2008] EWHC 1671, [2009] Lloyd's Rep IR 227, at [64].
I am therefore disinclined (in common with the judge) to express a view
on this controversial area where, on my view of the case, it does not arise
for decision. For the reasons given on the main point, I would dismiss the
appeal.
I add only one more point. As I have said, the motion in New York to
dismiss the relevant parts of the Amended Complaint is still pending.
The motion to dismiss was due to be heard shortly after the hearing in
this appeal, and judgment is expected in the autumn. If the motion is
successful this appeal would have been entirely unnecessary, since the
English proceedings will have no point. I do not understand why the
parties did not co-operate to have this appeal stood out of the list to await
the outcome of the motion in New York.
Lord Justice Toulson:
I agree.
Lord Justice Ward:
I also agree.