Introduction
The claimant is UBS A.G. ("UBS"), which sues as the successor to the
Swiss Bank
Corporation. The defendant is Omni Holding A.G. ("Omni"), a Swiss
company now in liquidation. UBS commenced the action by an originating
summons issued on 15 April 1999. The present application is one made
by Omni by a notice dated 18 May 1999. It is made under Part 11 of the
Civil Procedure Rules 1998. Omni asks the court to declare that it should
not exercise its jurisdiction to try UBS's proceedings and to make an order
staying them. Omni's case is that the question raised by the proceedings
should be resolved in the Berne District Court in Switzerland.
Omni's application has required two issues to be argued. In order to
succeed Omni has to obtain favourable answers on both. The first issue is
whether or not UBS's claim falls within the Lugano Convention. Mr. Davis's
argument for Omni was that the claim fell outside the Convention. If he
was wrong on that he accepted that on the facts of this case he could not
ask the court not to entertain the action (the claim arises under an option
agreement which contains an express English jurisdiction clause so that
article 17 of the Convention gives the English court exclusive jurisdiction
and entitled UBS to bring its action).
The second issue arises only if Mr. Davis was right that the Convention
did not apply. In that event, whilst he accepted that the English court has
jurisdiction to entertain the action, he submitted that the Berne court is
the more natural and appropriate forum for the issue which it raises; and
he
submitted that the court ought to exercise its discretion to stay the
English proceedings so that the issue can be litigated in Berne. Mr.
Milligan's position for UBS was that Omni's application ought to fail. He
submitted that the claim fell within the Convention, so that Mr. Davis did
not reach the point at which he was able to ask the court to exercise its
discretion to stay the proceedings. If he was wrong on that, he argued
that anyway no case was made out by Omni for a stay.Background facts.
These are complicated but it is unnecessary to describe them in detail. In
1989 companies within the Omni group acquired 83 per cent. of the share
capital of Harpener A.G., a German company. The shares were listed on
the Frankfurt Stock Exchange. The size of Omni's holdings meant that
it would be required to make an offer to acquire the remaining shares
in Harpener. With a view to avoiding this, steps were taken to transfer
32.5 per cent. of the Harpener shares to companies having no direct
relationship with Omni.
These steps led to the making of a number of transactions on 18
December 1989. They included two agreements for loans totalling
DM400m. from a syndicate of banks on whose behalf Swiss Bank
Corporation ("S.B.C.") acted as agent. One agreement was for a loan
of some DM99m. to Naranda Holdings Ltd., a Jersey company. Naranda
is described in the option agreement, to which I shall come, as "S.P.V.,"
and I shall also call it that (S.P.V. stands for single or special purpose
vehicle). The other agreement was for a loan of some DM300m. to Harp
Beteiligungen G.m.b.H. "Harp"), a German company which is now in
liquidation. All members of the syndicate were lenders under each loan.
Both agreements were expressly governed by English law and contained
provisions whereby the parties agreed to the jurisdiction of the English
courts to settle any disputes arising out of them.
As security for these loans two share pledges were created on 18
December 1989. One was a pledge by Harp of 830,000 Harpener shares,
32. 5 per cent. of the share capital, which stood as security for the
indebtedness under the Harp loan agreement. The other was a pledge
by Inspectorate Beteiligungs G.m.b.H. of 290,000 shares in Harpener,
11. 36 per cent. of the share capital, which stood as security for the
indebtedness under the S.P.V. loan agreement. Both pledges were in
favour of S.B.C. as agent for the syndicate and were expressed to be
governed by German law. In addition, by a deed of undertaking in favour
of S.B.C., also dated 18 December 1989, S.P.V. undertook to pay S.B.C.
any sum due under the Harp loan agreement which Harp failed to pay.
On 18 December 1989 an option agreement was also entered into.
The parties were S.P.V., Omni Swiss Investments B.V. ("Omni Swiss," a
company registered in the Netherlands, now in liquidation) and Omni. It
granted call and put options over the option assets, which were defined
as being the issued shares of Harp Participation B.V. (a Netherlands
company), a loan to be made by S.P.V. to Harp Verwaltung G.m.b.H.and
certain subrogation rights. This agreement is at the centre of the issues
raised by UBS's action. It granted S.P.V. an option to put the option assets
on Omni Swiss at an aggregate price equal to "the agreed price." This was
defined in clause 1(B) of the agreement as being an amount in Deutsche
Marks equal to the aggregate (to be determined at the time immediately
prior to the actual payment) of the outstanding indebtedness under inter
alia the Harp and S.P.V. loan agreements together with any other sum
payable by Omni Swiss or Omni under the option agreement. Completion
of the sale and transfer of the option assets was to take place on the third
business day after giving the exercise notice. Payment of the agreed price
on completion was to be made to the account designated for payments
by S.P.V. to S.B.C. under the S.P.V. loan agreement. Omni was obliged
to perform in the event that Omni Swiss failed to do so. On receipt, the
agreed price was to be applied in discharge of the indebtedness under the
loan agreements. Clause 13(D) of the option agreement provided:
"Liquidated damages. Without prejudice to the provisions of clause 13(C),
if Omni Swiss and Omni should each default in their respective obligations
to purchase the option assets and pay on the due date the whole or any
part of the agreed price following the exercise of the call option and the
put option Omni Swiss, failing whom Omni, undertakes forthwith to pay
by way of liquidated damages to S.P.V. a sum equal to the agreed price
or so much thereof as is at that time outstanding and Omni Swiss and
Omni each acknowledges and the parties agree that sum represents a
genuine and reasonable pre-estimate of the loss that S.P.V. would suffer
in consequence of such a default. Upon payment in full of such damages
S.P.V. will make those documents referred to in clause 3(C)(3) available
upon request by either Omni Swiss or Omni" Clause 18(A) to (E) (1)
provided:
18. "Governing law and jurisdiction.
"(A) Governing law. This agreement shall be governed by and construed
in accordance with the laws of England.
"(B) English courts. For the benefit of S.P.V., all the parties irrevocably
agree that the High Court of Justice in England is to have jurisdiction
to settle any disputes which may arise out of or in connection with this
agreement and that, accordingly, any legal action or proceedings arising
out of or in connection with this agreement ('proceedings') may be
brought in that court and Omni and Omni Swiss irrevocably submits to the
jurisdiction of that court.
"(C) Other competent jurisdiction. Nothing in this clause 18 shall limit
the right of S.P.V. to take proceedings against Omni Swiss or Omni in any
other court of competent jurisdiction nor shall the taking of proceedings in
one or more jurisdictions preclude S.P.V. from taking proceedings in any
other jurisdiction, whether concurrently or not.
"(D) Venue. Omni Swiss and Omni each irrevocably waives any objection
which it may at any time have to the laying of the venue of any
proceedings in any court referred to in this clause 18and any claim that
any such proceedings have been brought in an inconvenient forum.
"(E) Service of process. (1) Omni Swiss and Omni each irrevocably
appoints Omni corp Advisory Services Ltd. (now of 2, Balfour Place,
London W1Y 5AH) to receive, for it and on its behalf, service of process in
any proceedings in England. Such service shall be deemed completed on
delivery to the relevant process agent (whether or not it is forwarded to
and received by Omni Swiss or Omni). If for any reason a process agent
ceases to be able to act as such or no longer has an address in London
Omni Swiss and Omni each irrevocably agrees to appoint a substitute
process agent acceptable to S.P.V., and to deliver to S.P.V. a copy of the
new agent's acceptance of that appointment, within 30 days"
By an assignment dated 18 December 1989 S.P.V. assigned the benefit of
the option agreement to S.B.C. as trustee for the syndicate and by way of
further security for the indebtedness under the S.P.V. loan and the S.P.V.
undertaking. Clause 16, headed "Governing law and jurisdiction," was
in all material respects equivalent to clause 18 of the option agreement.
It provided that the assignment should be governed by English law and,
for the benefit of S.B.C. and the lenders, S.P.V. irrevocably submitted to
the jurisdiction of the English courts and waived any objection that those
courts might be an inconvenient forum.
In 1991 the Omni group ran into financial difficulties. On 8 March
1991 S.B.C. gave notices under the Harp and S.P.V. loan agreements
demanding repayment. On 15 March S.B.C. gave a notice exercising the
put option under the option agreement, the date for completion being 21
March 1991. Neither Omni Swiss nor Omni completed either on that date
or at all. On 2 April 1991 Omni petitioned the Swiss court for protection
from its creditors and the court made an order for its interim protection
and for the appointment of provisional liquidators.
On 26 April 1991 S.B.C. filed a claim with the liquidators for damages
equal to the agreed price under the option agreement, calculated as
DM446, 629,300.19 at the due date of completion plus interest accruing
since then. Omni's liquidation led to the collapse of the whole Omni group.
The result was that the option assets had no realisable value and the
claim was not reduced to reflect any such value. On 18 November 1991
composition proposals in respect of Omni were approved by the Berne
District Court and joint liquidators were appointed in respect of Omni.
The demands for repayment of the Harp and S.P.V. loans were not
satisfied and so S.B.C. enforced the two pledge agreements over the
Harpener shares. On 24 June 1992 S.B.C. received net proceeds of
DM263,323,200 from the sale of the pledged shares. On 5 October 1992
notice was given to the liquidators of such sales. On 2 March 1993 Omni
Swiss's liquidation commenced in the Netherlands. The liquidators have
accepted, by a decision dated 24 March 1999, that S.B.C. is entitled to
prove in Omni's liquidation for some DM447m. inclusive of interest up
to 2 April 1991 but less the net proceeds of the pledged shares. S.B.C.
disputes the correctness of the liquidator's decision that it has to give
credit for the net proceeds in the amount for which it may prove. UBS
is S.B.C.'s successor and on 19 April 1999 it appealed the liquidator's
decision to the Berne District Court. Four days earlier on 15 April 1999 it
had also issued the present originating summons. The substance of the
relief sought by the latter is a declaration that it does not have to give
credit for the share sale realisations.
I have not heard any argument on the question of whether or not such
credit does have to be given. That is of course the substantive issue
raised by the proceedings. Mr. Davis and Mr. Milligan were in agreement,
however, that that question was one of English law, involving as it did
questions of construction arising under the option agreement. They were
also agreed that it was a question which will have to be decided in UBS's
appeal in Berne as a preliminary to the determination of what distribution
is to be made to UBS in Omni's liquidation.
The issues: (a) the Lugano Convention
Article 1 of the Convention provides:
"This Convention shall apply in civil and commercial matters whatever
the nature of the court or tribunal. It shall not extend, in particular, to
revenue, customs or administrative matters. The Convention shall not
apply to...
(2) bankruptcy, proceedings relating to the winding up of insolvent
companies or other legal persons, judicial arrangements, compositions
and analogous proceedings..."
The Convention has the force of law in United Kingdom law by section
3Aof the Civil Jurisdiction and Judgments Act 1982. There is no dispute
that UBS's claim in this action is or involves a civil or commercial matter
or therefore that, unless it is excluded by the paragraph (2) exceptions, it
is one to which the Convention applies. There is also no dispute that the
composition to which Omni is subject in Switzerland falls within the ambit
of "winding up of insolvent companies... compositions and analogous
proceedings" within that paragraph. The sole issue is whether or not
UBS's claim is one "relating to" the winding up of Omni so as to be within
the paragraph (2) exceptions. Mr. Davis submitted that it was and so was
outside the Convention. Mr. Milligan submitted that it was not and so was
within it.
If I were required to approach this question unaided by authority I think
I would see much force in Mr. Davis's argument. The words "relating to"
are capable of a wide interpretation; there is no doubt that UBS's claim
has arisen in the course of, and in connection with the determination of
its rights in, Omni's liquidation; and so it would not be difficult to arrive
at a conclusion that the claim is one "relating to" Omni's winding up.
There is, however, authority on paragraph (2) which requires a rather
narrower approach to its construction. The case is the decision of the
Court of Justice of the European Communities in Gourdain v. Nadler (Case
133/78) [1979] E.C.R. 733. That decision was on the identical wording
in the Brussels Convention rather than on the Lugano Convention, but
both sides agree that it identifies the principle which I must apply. The
court pointed out, at p.743, that the reason for the exceptions from the
Convention in paragraphs (1) to (4) of article 1 is "because of the special
nature of certain matters and of the profound differences between the
laws of the contracting states..." The court said, at p. 744:
"As far as concerns bankruptcy, proceedings relating to the winding up
of insolvent companies or other legal persons, judicial arrangements,
compositions and analogous proceedings, according to the various laws of
the contracting parties relating to debtors who have declared themselves
unable to meet their liabilities, insolvency or the collapse of the debtor's
creditworthiness, which involve the intervention of the courts culminating
in the compulsory’liquidation des bien's in the interest of the general body
of creditors of the person, firm or company, or at least in supervision
by the courts, it is necessary, if decisions relating to bankruptcy and
winding up are to be excluded from the scope of the Convention, that
they must derive directly from the bankruptcy or winding up and be
closely connected with the proceedings for the 'liquidation des bien's
or the 'règlement judiciaire.' In order to answer the question referred
to the court by the national court it is therefore necessary to ascertain
whether the legal foundation of an application such as that provided for in
article 99 of the French law is based on the law relating to bankruptcy and
winding up as interpreted for the purposes of the Convention."
It is apparent, therefore, that for the paragraph (2) exception to apply it
is not enough that the claim can be said to relate to the winding up of an
insolvent company: it must derive directly from it. For example, a claim
by a liquidator to recover the company's pre-liquidation debts would be
a claim which would be made in the course of the winding up and could
therefore in one sense be said to relate to it; but I respectfully agree with
Rattee J. when he expressed the view in In re Hayward, decd. [1997] Ch.
45, 54d that such a claim would not be within the paragraph (2) exception
so as to take it outside the scope of the Convention. It is a claim which
would have existed as much before as during the winding up and so would
not be one deriving directly from it. By contrast I think it probable that,
by way of non-exhaustive examples, claims in a compulsory liquidation by
a liquidator under section 238 (transactions at an undervalue) or section
239 (preferences) of the Insolvency Act 1986, being claims for which an
insolvency regime for the company is a prerequisite, would be within the
paragraph (2) exception. Such claims derive directly from the insolvency.
The question, therefore, is as to which side of the line UBS's claim
falls. Mr. Davis submitted that the claim has been triggered by Omni's
insolvency and that it was unthinkable that the question which it raised
could have arisen if Omni had not become insolvent. UBS filed its claim
with Omni's liquidators as long ago as 1991, its claim has in part been
rejected and it has appealed that decision in Switzerland in accordance
with its rights under the Swiss bankruptcy code, being the code which
governs the procedure for determining the rights of creditors in a Swiss
insolvency. In these circumstances Mr. Davis submitted that UBS's
claim in this action derived directly from Omni's insolvency so that the
paragraph (2) exception applied. The consequence was, he said, that the
Lugano Convention did not apply to the claim.
By contrast Mr. Milligan submitted that the nature of the issue raised
by UBS's originating summons was a free-standing one which turned
primarily on the
construction of the option agreement and so involved a question of
English law. The answer to that issue will determine how much UBS
can prove for in Omni's liquidation although the precise amount of the
distribution which will ultimately be made as a result of the proof will have
to be determined by Swiss insolvency law. This latter consideration does
not, however, mean that the UBS claim in the English proceedings is one
"relating to" Omni's winding up. Mr. Milligan submitted that it was not,
and that it was therefore within the Convention.
I consider that Mr. Milligan's argument is to be preferred. I have
expressed the view that a claim by a liquidator to recover debts due
to the company would not be within the paragraph (2) exception; and
if such a claim involved a question of construction of a pre-liquidation
contract between the company and the debtor, I do not consider that the
question of construction would be within the exception either. This case
is closely akin to that. The substance of UBS's case is that it is claiming
that, upon the true construction of its (and its assignor's) pre-liquidation
relationship with Omni, the indebtedness for which it is entitled to prove
in the liquidation is greater than Omni's liquidators have so far been
prepared to accept. A claim of that nature is not, in my view, one which
derives directly from Omni's winding up. It is one which was capable of
arising quite apart from any such winding up. Omni's insolvency now
requires the question to be determined. But it is not one which derives
directly from the insolvency. It derives from the dispute between Omni
and UBS as to the latter's rights under the pre-liquidation transactions in
which they engaged.
I hold, therefore, that the UBS proceedings are within the Lugano
Convention. Were I to do so Mr. Davis accepted that it would follow that
Omni's present application must be dismissed.
(b) Should the court exercise a discretion to stay UBS's action?
Given my conclusion under issue (a), which Mr. Davis accepted was fatal
to Omni's application, this issue does not arise for decision. As, however,
I heard argument on it, and in case I am wrong in my conclusion on issue
(a), I ought to express my views. Mr. Davis started his argument from the
disadvantages that, by clause 18(A), the option agreement was governed
by English law; that by clause 18(B) the parties agreed to the English
courts having jurisdiction; and that, by clause 18(D), Omni irrevocably
waived any objection to the jurisdiction of those courts. He recognised
the hurdles which those provisions place in Omni's path. He submitted,
however, that clause 18(B) did not oust the English court's jurisdiction or
discretion to stay the proceedings in favour of proceedings in a different
forum; and that, if he was right on that, the terms of clause 18(D) could
not do so either. He accepted that UBS was in principle entitled to pursue
the present action here if it would be unjust for it to be confined to its
remedies elsewhere. He accepted also that the burden was on Omni
to show that there was another forum for the resolution of the issue
which is more appropriate than England. He accepted that in exercising
its discretion in this type of application the court must have regard to
the interests of all the parties and to the ends of justice: see, generally,
Spiliada Maritime Corporation v. Cansulex Ltd. [1987] A.C. 460.
As to the English jurisdiction clause contained in clause 18 I agree with
Mr. Davis that clause 18(B) is not fatal to his application for a stay,
although the policy of the courts is to hold parties to bargains such
as clause 18(B) in the absence of strong reasons to the contrary. In
Commercial Bank of the Near East Plc. v. A, B, C and D [1989] 2 Lloyd's
Rep. 319, 321 Saville J. said:
"My attention was drawn to two authorities: Unterweser Reederei
G.m.b.H. v. Zapata Off-Shore Co. (The Chaparral) [1968] 2 Lloyd's Rep.
158 and Spiliada Maritime Corporation v. Cansulex Ltd. [1987] A.C. 460.
The Chaparral is an example to my mind of the fact that prima facie it
is the policy of the courts to hold parties to bargains which they have
made--at all events commercial bargains such as the present. If a party
enters into an agreement containing a jurisdiction clause such as the
one in this case"--which was comparable to clause 18(B)--"then in the
ordinary way and in the absence of strong reasons to the contrary, the
court will hold the parties to their bargain with regard to jurisdiction. This
rule is not wholly inflexible, however, because there may be facts and
circumstances which lead the court to a conclusion that the proceedings
should nevertheless be stayed or set aside. In the present case the
jurisdiction clause in the guarantee did not, unlike The Chaparral,
provide for the exclusive jurisdiction of the English courts because it
gave the bank the right to enforce the guarantee in any other competent
jurisdiction. To my mind, however, this makes very little difference to the
principle that the court will hold the parties to their bargain in the absence
of strong reasons to the contrary".
A rather stricter view was taken by Waller J. in British Aerospace Plc. v.
Dee Howard Co. [1993] 1 Lloyd's Rep. 368, 375-376, where he indicated
that for someone such as Omni to be able to ask the court to displace
the jurisdiction bargain which it has made it needs to be able to point to
some factor which it could not have foreseen when it made the bargain;
and Mr. Milligan submitted that there is no such factor in this case, since
the insolvency of Omni was a "triggering event" expressly foreseen as a
possibility by clauses 3(B) and 7(E) of the option agreement.
As regards clause 18(D) Mr. Milligan submitted that this operates to
deprive the court of any jurisdiction or discretion to stay the proceedings
on Omni's application. However, I prefer Mr. Davis's submission that
if clause 18(B) does not have that consequence, then nor can clause
18(D). In Bankers Trust International Plc. v. R.C.S. Editori S.p.A. [1996]
C.L.C. 899 Longmore J. had to consider whether to grant an injunction
to restrain the defendant from continuing proceedings in Italy which had
been commenced in defiance of an agreement containing an exclusive
jurisdiction clause under which disputes were to be determined by the
English courts. The defendant in turn applied for a stay of the English
proceedings. Longmore J. approached the case on the basis that the court
has a jurisdiction to stay an action which has been brought in an agreed
forum, although there must be strong grounds to justify such a stay. The
jurisdiction clause in the contract before him included a provision in terms
similar to those of clause 18(D). He said about that clause, at p.907:
"It seems to me that that amounts to a promise that the defendant will
not object to English jurisdiction. Nevertheless that is precisely what they
are doing and it seems to me for that reason also that it is appropriate
that an injunction in some form should be granted."
He therefore regarded the existence of that provision as at least fortifying
the claim for the injunction. I do not, however, interpret his judgment
as deciding that a clause of that type has the effect of wholly ousting
the court's jurisdiction or discretion to stay proceedings which have
been brought in the forum provided for by the jurisdiction clause. I
therefore approach Omni's application for a stay in the light of the fact
that it has made an unambiguous bargain that the English courts should
have jurisdiction, a bargain which it underlined by clause 18(D). I find it
unnecessary to express a view on whether the circumstances in which
the court might grant a stay are as narrowly circumscribed as Waller
J. indicated in the British Aerospace case [1993] 1 Lloyd's Rep. 368,
an approach at which Mr. Davis directed some criticism. It is, however,
agreed that Omni must at least show strong reasons for claiming to be
released from its bargain.
Has Omni identified any such reasons in this case? I bear in mind that,
whatever decision the English court might come to in the proceedings, the
same question will have to be the subject of determination by the Berne
court in the course of deciding the appeal which UBS launched on 19 April
1999, so that, if the English proceedings are allowed to continue, there
will be some duplication of proceedings. Mr Milligan's preferred stance
was that, once the English court has ruled on the question raised by the
originating summons, its decision will be recognised by the Berne court
and will be applied by it in disposing of the appeal. There is, however,
an issue on the evidence as to whether the decision of the English court
will be so conclusive; and Mr. Davis's position was that it will not. He
accepted, however, that the Berne court will at least have regard to any
English decision in determining UBS's rights in its pending appeal.
Accepting that the Berne court will at least have regard to any English
decision, it appears to me that there are compelling reasons for allowing
the English court to decide the question which UBS has posed it. That
question is one of English law. On the face of it an English court is the
most appropriate forum for its determination; and Omni has expressly
agreed to the jurisdiction of that court. I would expect any decision by
an English court on the question to be regarded as of assistance by the
Swiss court, even if it is not regarded as conclusive; were the situation
reversed, I would expect an English court to derive great assistance from
a prior decision of a Swiss court on the very question of Swiss law which
it had to decide. Since, therefore, a decision of the English court on the
question is likely to be of assistance in the determination of the Swiss
appeal, I regard that factor as pointing firmly away from the granting of a
stay. This conclusion is, I consider, in line with the approach of Clarke J. in
Berliner Bank A.G. v. C. Czarnikow Sugar Ltd. [1996] 2 Lloyd's Rep. 281,
291.
It appears to me, therefore, that not only have the parties expressly
agreed that the English court should have jurisdiction to decide the
question which UBS wants it to decide, it is likely to be of real benefit
to the disposal of UBS's appeal in Berne if it does decide it. In my view,
once that position is arrived at all the other points advanced by Omni
as supporting a stay fall away as being of little weight. Most of them
revolve around the point that Omni is the subject of a Swiss insolvency
regime and that all questions concerning the winding up of Omni should
be determined in Switzerland. For the reasons given, and in the particular
circumstances of this case, I consider that the English proceedings will
be likely to serve a valuable function in aid of the disposal of the Swiss
proceedings.
Mr. Davis also submitted that it was now too late in the day for UBS to
have recourse to the English courts: he pointed out that its negotiations
with the Omni liquidators have been going on in Switzerland since 1991.
In my view, there is nothing in that. The negotiations have been lengthy
but their outcome has been a decision in March 1999 which UBS regards
as wrong as a matter of English law; and I can see no good reason why
UBS should not now be entitled to ask an English court to determine the
point. Mr. Davis also made the point that the Swiss appeal will be subject
to a process which provides for an accelerated hearing which should take
place within six months, or perhaps a little longer. I do not regard this as
a material factor either. The issue raised by UBS's action is a short one,
capable of being disposed of within two days. If the Swiss proceedings are
proceeding on a fast track, then I consider that the right way to deal with
the English action is to direct its expedition, with a view to a hearing and
decision during the next sittings.
Mr. Davis argued Omni's case very carefully and comprehensively.
However, I am not satisfied that he has identified grounds which
have anything like the strength necessary to justify a stay of UBS's
proceedings. I dismiss Omni's application.