Chinachem: Forum non conveniens, non-exclusive choice of court and concurrent proceedings in Hong Kong and Mainland China.
I reported earlier on the waiver of privilege issues in Chinachem. The Hong Kong High Court has now also ruled on the issue of application of forum non conveniens in the event of concurrent proceedings in Hong Kong and mainland China. In a lengthy judgment (particularly resulting from extensive summary of counsel arguments but also of relevant precedent), Ng J recalls English precedent on forum non conveniens (Spiliada evidently being featured) and the way in which said precedent has been applied in Hong Kong. (Carrie Tai has excellent overview here).
Contract between the parties included choice of court and choice of law as follows: ‘This Agreement shall be governed by the laws of Hong Kong and it shall be construed by the laws of Hong Kong. Both parties agree to submit to the non-exclusive jurisdiction of the courts of Hong Kong.’
Ng J in the end rejects all arguments suggesting a stay in favour of the mainland proceedings. In doing so, she confirmed the tendency of Hong Kong courts (like indeed their English common law counterparts) to only brush aside choice of court in exceptional circumstance. Even if that choice of court is, such as here, non-exclusive. The concurrent proceedings stand.
Location, location, location. Arbitration, curial and applicable law: Shagang v Daewoo confirms the importance of venue.
I reported earlier on Sulamerica and the need properly and preferably, expressly to provide for choice of law vis-a-vis arbitration agreements, in particular vis-a-vis three elements: lex arbitri, lex curia, lex contractus. The High Court has now added its view on the possible relevance of a fourth factor: the geographical venue of the arbitration, and its impact in particular on the curial law: the law which determines the procedure (e.g. such as here, the appointment of a sole arbitrator) which is to be followed.
Christopher Lockwood has a good summary of case and judgment here – I am happy to refer. Of most relevance is Hamblen J’s finding that while a choice of governing law (the substantive law of the contract) is often made express, it is far less common separately to identify curial law: most often, that is simply inferred from the place of arbitration. Moreover, while it is not commercially uncommon to separate procedure and governing law, it is quite uncommon to have ‘a bifurcation between the place of arbitration and the law governing the conduct of the arbitration there’ (at 25). In other words, seat, ‘curia’ of arbitration, which determines arbitral procedure, and geographical place or venue of arbitration, are not commonly separated. Any intention of the parties to do so, must be clearly expressed and cannot be implicitly inferred.
‘that the agreement that the arbitration is “to be held in Hong Kong” carries with it an implied choice of Hong Kong as the seat of the arbitration and of the application of Hong Kong law as the curial law.’ (at 56): location, dear readers: location, location, location.
The Hague Trust Convention arguably is of limited (not obviously irrelevant) ambition only. It gives trusts a passport, so to speak, which ensures them entry into other jurisdictions. However such entry does not guarantee fuss-free onward travel. Some trusts for that reason often prefer not to travel, keeping assets etc, domestic. For once on a journey, all sorts of mishaps might happen. For others, the prospect of foreign shores is simply too enticing to resist. Evidently, residents of countries which do not traditionally employ trust-like concepts, likewise are often tempted to use common law trusts to surpass limitations in their own national property etc. law.
A common foreign element in the life of a trust is its holding of foreign assets, often real estate or shares in foreign corporations.
The analogy often used in describing the Convention’s approach to applicable law is that of the rocket-launcher v the rocket (the latter, as the High Court held in Akers v Samba, ‘presumably when the rocket is in orbit’): Its provisions are obviously aimed in part at establishing the law applicable to trusts (see articles 6 and 7 that relate to identifying that law, and article 8 that defines what the law specified shall govern). But article 4 acknowledges that there are some preliminary issues to which the Convention and its applicable law rules will not apply.’
In Akers v Samba, the trusts concerned arose from transactions which took place between 2002 and 2008. In each of the transactions, Mr Maan Al-Sanea (“Mr Al-Sanea”), who is a citizen of and resident in Saudi Arabia, declared himself a trustee of certain Saudi Arabian shares for one of the claimant companies, SICL, a Cayman Islands company which is now in liquidation (and massively insolvent). SICL was Mr Al-Sanea’s family investment vehicle, which was managed in Geneva. SICL’s liquidators seek to challenge the validity of a disposition to Samba of the shares that were the subject of the 6 transactions, made just before SICL’s winding up order was made. The effect of the disposition, if the liquidators are right, was to deprive SICL’s creditors of shares to which it was entitled worth some US$318 million. The underlying issue, put shortly, is whether it was at least arguable that the shares were indeed held on trust for SICL.
The High Court as this stage is not concerned with whether the liquidators will ultimately prove to be entitled to a declaration that the Transfer was void.Nor with whether Samba might be entitled to a validation order in respect of the Transfer on the grounds that Samba was a good faith purchaser of the Shares: it is ‘simply’ concerned with whether or not to confirm a stay of proceedings in England, granted earlier. Reasons given for that stay were that each of the relevant trusts was governed by either Saudi Arabian law or Bahraini law, neither of which will enforce foreign (trust) laws or recognise any division of the legal and beneficial interests in shares. Sir Terence Etherton had held that these proceedings should be stayed on the grounds that the courts of Saudi Arabia were clearly and distinctly a more appropriate forum.
Lord Vos leading, the High Court lifted the stay after complete yet somehow fairly concise review of the most relevant existing scholarship on the implications of the various articles of the Hague Convention. (including the most recent by prof Hayton in the Recueil des cours). It was held:
i) On the assumption that the governing law of the declarations of trust is Cayman Islands law, article 4 does not operate to exclude the application of the Convention to the declarations of trust under the 6 transactions. Whilst Saudi Arabian law as the lex situs would still govern the question of whether Mr Al-Sanea had capacity to alienate the Shares at all, Cayman Islands law would govern the capacity of Mr Al-Sanea to alienate an interest in the Shares by way of declaration of trust, and the transfer of the beneficial interest effected by the declarations of trust.
ii) It was not appropriate in this case to determine on a stay or summary judgment application whether article 15 applied to the transfer of the equitable interests under the declarations of trust, because (i) the mandatory nature of the Saudi Arabian law rules was not explored in the expert evidence, and (ii) it would be better for the interaction between the application of the governing law of the trust to the validity, construction and effects of the trust under article 8, and the application of article 15(d) to the transfer of the beneficial interest in the Shares to SICL, to be decided after a full evidential hearing.
iii) It is at least arguable that it is to be implied from the terms of the declarations of trust in the later transactions that they were to be governed by Cayman Islands law under article 6. In that event, article 7 would not be engaged for those later declarations of trust. It would be better for all questions under articles 5, 6 and 7 to be determined after a full evidential hearing in the light of all the circumstances of the case.
Both counsel had argued that the case had monumental consequences: at 35: ‘There must be large numbers of trusts established under the laws of common law jurisdictions, onshore or offshore, that comprise registered shares in civil law countries amongst their assets. Mr Mark Howard QC, counsel for the liquidators, opened this appeal by pointing out that it would be remarkable if all those trusts were to be held to be ineffective. Mr Mark Hapgood QC, counsel for Samba, responded by pointing out that there was nothing to stop people purporting to put shares registered in civil law jurisdictions into common law trusts; it was just that the trusts would create only personal remedies in those jurisdictions and not proprietary remedies against third parties to whom the shares were transferred or in the event of the trustee’s bankruptcy’. It would seem the High court for now would seem to side with the need to ensure effectiveness of those many trusts which are a staple part of international finance and assets management.
To be continued, however. Geert.
Key question in Diageo, Case C-681/13 is whether the fact that a judgment given in the State of origin is contrary to EU law (in the case at issue; trademark law) justifies that judgment’s not being recognised in the State in which recognition is sought, on the grounds that it infringes public policy (‘ordre public’) in that Member State. Precedent for Diageo did not look good.
‘Public policy in the Member State in which recognition is sought’, is by its very nature a matter for the courts of that Member State to define, however the ECJ has held that the nature of the JR necessarily implies that the ECJ has to exercise a degree of control. It has held that the clause on public policy may be relied on only in exceptional cases. The possibility that the court of the State of origin erred in applying certain rules of EU law, including free movement of goods and competition law, does not qualify as such: per Case C-126/07 Eco Swiss and Case C-38/98 Renault, that these rules concern Union as opposed to national law, does not as such have an impact on the application of the recognition and enforcement title: Union law needs to be looked at just the same as national or indeed international law.
Szpunar AG refers of course to these judgments, distinguishes them where necessary, and concludes that an error in the application of EU trademark law does not suffice to justify a refusal of recognition. All that is left to Diageo is an action in damages against Bulgaria.
In Toyota v Prolat, the High Court was asked by Toyota to confirm the existence of an agreement between parties to arbitrate. The arbitral panel, already seized by Toyota, agreed that it would be best for the Court preemptively to settle this issue since it suspects any ruling by the tribunal itself will be subject to litigation by Prolat. The agreement (existence of which is disputed by Prolat; it had employed an authorised agent, whose signings on behalf of Prolat are disputed) concerns the delivery of sugar by Toyota to Prolat. Prolat objects to the jurisdiction of the tribunal. It has itself started proceedings in Naples for damages for various alleged wrongdoing by Toyota, whether for breach of contract or tort.
The interest of the case for this blog lies in particular with the concurrent proceedings in Italy and the UK. Should the UK decline? The case is subject to Regulation 44/2001, not to the recast. Cooke J holds that ‘This Court is not being asked to interfere with the functions of the Italian court as no form of anti-suit injunction is being sought against Prolat. This Court is being asked to determine whether or not there is an arbitration agreement and to make a declaration in the light of its conclusion.‘ West Tankers is therefore distinguished. Would, had it applied, Regulation 1215/2012 made a difference? Cooke J held that it would not: ‘Article 1(2)(d) remains unchanged from the earlier Regulation but is more fully explained in paragraph 12 of the Preamble. I was also referred to Article 73 which states that the Regulation will not affect the application of the New York Convention. (…)‘ (at 16)
He concludes ibidem ‘Although it is not yet in force, it was suggested that some might regard the new Regulation as declaratory of the existing state of the law. . The jury on that, as is well-known, is out.
Cooke J further explores the issue of the applicable law to the contract per its putative law (Article 10(1) Rome I). Firm and justifiable conclusion (at 18) there, is: English law.
Ready steady, flare? The ECJ in Marktgemeinde Straßwalchen limits the scope of ‘commercial’ yet insists on strict cumulation test.
In a judgment undoubtedly with consequences for the fracking industry in the EU, the ECJ held yesterday in Marktgemeinde Straßwalchen, Case C-531/13. Rohöl-Aufsuchungs AG had obtained authorisation to undertake exploratory drilling within the territory of the Marktgemeinde Straßwalchen (Austria) up to a depth of 4 150 metres, without environmental impact assessment. The Marktgemeinde Straßwalchen and 59 other persons have challenged that decision before the Verwaltungsgerichtshof (Administrative Court).
The EIA Directive‘s key element is that not all projects are subject to mandatory EAI. Only projects listed in Annex I of the Directive are subject to a mandatory EIA. Annex I lists for example crude-oil refineries, thermal and nuclear power stations which fulfill certain production or output thresholds. Projects listed in Annex II of the Directive, are subject to a screening procedure of the Member States. Screening is commonly referred to as the process by which a decision is taken on whether or not an EIA is required for a particular project. The competent authority in the Member States can make this decision either based on a case-by-case examination or by establishing thresholds or criteria, or both.
‘Extraction of petroleum and natural gas for commercial purposes where the amount extracted exceeds 500 tonnes/day in the case of petroleum and 500 000 cubic metres/day in the case of gas’ is included in Annex I, sub 14. However the Court held that exploratory drilling even if by nature it is ‘commercial’ (lest it be carried out purely for research purposes), does not meet the conditions of Annex I entry 14, for that provision links the obligation to conduct an environmental impact assessment to the quantities of petroleum and natural gas earmarked for extraction. Prior to an exploratory drilling operation, the actual presence of hydrocarbons cannot be determined with certainty. An exploratory drilling operation is carried out in order to establish the presence of hydrocarbons and, where they are found, to determine the quantity and ascertain, through a trial production, whether or not a commercial operation is feasible. Thus, it is only on the basis of an exploratory drilling operation that the quantity of hydrocarbons that can be extracted per day can be determined. Moreover, the quantity of hydrocarbons earmarked for extraction in such a trial, as well as its duration, are restricted to the technical needs arising from the objective of establishing the feasibility of a deposit.
No mandatory EIA therefore on the basis of Annex I. However, Annex II, in entry 2 d), includes ‘Deep drillings, in particular:(i) geothermal drilling;(ii) drilling for the storage of nuclear waste material; (iii) drilling for water supplies; with the exception of drillings for investigating the stability of the soil’. Exploratory drilling falls under that entry. With reference to previous case-law, the ECJ emphasises that notwithstanding the discretion enjoyed by national authorities vis-a-vis projects included in Annex II, the characteristics of a project must be assessed, inter alia, in relation to its cumulative effects with other projects. Failure to take account of the cumulative effect of one project with other projects must not mean in practice that they all escape the obligation to carry out an assessment when, taken together, they are likely to have significant effects on the environment. With this approach the ECJ has countered the salami effect: the artificial splitting up of projects which do not individually meet EIA thresholds but which do so on a cumulative basis.
There are roughly 30 probes for gas extraction within the area of the Marktgemeinde Straßwalchen. The ECJ does not take the final decision as to whether an EIA therefore had to be carried out, for that is for the national court to be decided, however it is quite likely that the cumulative effect of these 30 probes does lead to a requirement for EIA (which will have to look beyond municipal borders) once it started being clear that the area concerned is a hotbed for such exploratory drillings.
Mr Kolassa, as a consumer, through the Austrian bank direktanlage.at AG, invested just under Euro 70,000.00 in X1 Global EUR Index Certificates. The certificates were issued by Barclays Bank, registered in the UK, with a branch in Frankfurt. At the time of the issue of the certificates, Barclays distributed a base prospectus, ia in Austria. The portfolio was to be established and administered by X1 Fund Allocation GmbH, to which Barclays Bank had entrusted the investment of the money raised from the issue of the certificates. Most of that money has been lost.
The certificates were sold to institutional investors who sold them on, in particular, to consumers. In the present case, direktanlage.at ordered the certificates to which Mr Kolassa wished to subscribe from its German parent company, DAB Bank AG, with its seat in Munich (Germany), which in turn acquired the certificates from Barclays Bank. In each case, the orders were placed and carried out in the name of the respective bank. Direktanlage.at fulfilled Mr Kolassa’s order in accordance with its general terms and conditions ‘in securities account’, meaning that direktanlage.at holds the certificates as covering assets in its own name at Munich, on behalf of its clients.
Mr Kolassa sues in Vienna, on the basis of contractual, precontractual, tortious or delictual liability. Jurisdiction in Vienna in his view is present on the basis of Article 15 JR (consumer contracts), 5(1) (contract) or 5(3) (tort). Application of Article 15 JR is dismissed by the ECJ on the basis of there being no contract whatsoever between Barclayas and Mr Kolassa. (Judgment in Maletic distinguished given that the consumer in that case was from the outset contractually linked, inseparably, to two contracting partners). Application of Article 5(1) is in some ways more flexible because there need not be proof of a contract between the two parties: what is required, though, is proof of a legal obligation freely consented to by one person towards another and on which the claimant’s action is based. (For otherwise there is no ‘obligation’ which constitutes the connecting factor under Article 5). No such legal obligation ‘freely consented’ was apparent from the case hence Article 5(1) was dismissed, too.
That left Article 5(3). Per Kronhofer (also referred to in the Hoge Raad’s referral in Universal), the mere fact that the applicant has suffered financial consequences does not justify the attribution of jurisdiction to the courts of the applicant’s domicile if, per Kronhofer, both the events causing loss and the loss itself occurred in the territory of another Member State. On the basis of the facts of the case, the ECJ dismisses Austria as the locus delicti commissi: the decisions regarding the arrangements for the investments proposed by Barclays Bank and the contents of the relevant prospectuses, were taken in the Member State of Barclays’ seat, i.e. the UK.
The locus damni, the place where the loss occurred, is the place where the investor suffered it (at 54). ‘The loss occurred where the investor suffered it’ sounds like an abstract definition however the ECJ emphasises that that conclusion is fact-related, that is to say: it is a result of the that, first, the certificates’ loss of value was due, not to the vagaries of the market, but to the management of the funds in which the money from the issue of those certificates had been invested. Second, the actions or omissions alleged against Barclays with respect to its legal information obligations took place before the investment made by Mr Kolassa and were, in his view, decisive for that investment (at 51). If ‘the loss occurred where the investor suffered it’ is not an abstract but a fact related criterion, that puzzlingly may mean that there must be an alternative general criterion for purely financial loss if these are due to the ‘vagaries of the market’.
The Court further invites distinguishing by holding at 55 that ‘The courts where the applicant is domiciled have jurisdiction, on the basis of the place where the loss occurred, to hear and determine such an action, in particular when that loss occurred itself directly in the applicant’s bank account held with a bank established within the area of jurisdiction of those courts’. (Emphasis added).
Finally, the ECJ clarifies as much at it could, the balance between plaintiff’s allegations, and defendant’s rebuttal, at the jurisdictional level: what extent of evidence does the seized court need to review with a view to establishing its jurisdiction? The court holds ‘the national court seised is not, therefore, obliged, if the defendant contests the applicant’s allegations, to conduct a comprehensive taking of evidence at the stage of determining jurisdiction, it must be pointed out that both the objective of the sound administration of justice, which underlies Regulation No 44/2001, and respect for the independence of the national court in the exercise of its functions require the national court seised to be able to examine its international jurisdiction in the light of all the information available to it, including, where appropriate, the defendant’s allegations. (at 64). That of course is a thin line however I do not see how the ECJ can instruct otherwise.
In my view Kolassa invites further specification especially on the exact relevance of banks and bank accounts in cases of purely economic loss: Universal provides one such immediate opportunity.