Posts Tagged Forum clause
Asymmetric clauses, exclusivity, torpedoes and lis alibi pendens: The High Court in Commerzbank v Liquimar Tankers.
Many of the issues in  EWHC 161 (Comm) Commerzbank v Liquimar Tankers were also raised in Perella v Codere, albeit there, as I reported, obiter. In current case, they were very much dicta, and they amount to the English courts viewing (properly constructed) asymmetric clauses as being exclusive. As such they fall under the new anti-torpedo provisions of Article 31(2).
Applications of defendants Liquimar Tankers (registered in Liberia but with head office in Athens) are being made in the course of proceedings in London by Commerzbank in two separate actions in relation to the repayment of loans which the Bank extended for the building of a number of ships. There are ongoing proceedings taken by the defendants against the Bank in Piraeus, Greece concerning the same and/or related issues.
The Liquimar guarantee contained a governing law and an asymmetric jurisdiction clause, which was essentially similar in the other loan agreements. It provided:
“16 Law and Jurisdiction
16.1 This Guarantee and Indemnity shall in all respects be governed by and interpreted in accordance with English law.
16.2 For the exclusive benefit of the Lender, the Guarantor irrevocably agrees that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Guarantee and Indemnity and that any proceedings may be brought in those courts.
16.3 Nothing contained in this Clause shall limit the right of the Lender to commence any proceedings against the Guarantor in any other court of competent jurisdiction nor shall the commencement of any proceedings against the Guarantor in one or more jurisdictions preclude the commencement of any proceedings in any other jurisdiction, whether concurrently or not.
16.4 The Guarantor irrevocably waives any objection which it may now or in the future have to the laying of the venue of any proceedings in any court referred to in this Clause and any claim that those proceedings have been brought in an inconvenient or inappropriate forum, and irrevocably agrees that a judgment in any proceedings commenced in any such court shall be conclusive and binding on it and may be enforced in the courts of any jurisdiction …”.
Article 31(2) of the Brussels I Recast reads:
‘where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seized, any court of another Member State shall stay the proceedings until such time as the court seized on the basis of the agreement declares that it has no jurisdiction under the agreement.’
Cranston J held that the concept of ‘exclusivity’ should be autonomously interpreted under the Brussels I (Recast) regime. He did not however refer for preliminary reference to the CJEU: as such, the High Court’s finding continues to be vulnerable until we have precedent from Luxembourg. The judgment as a whole is worth a read – readers in for concise summary, please refer to Herbert Smith’s analysis.
Summing up is done in para 70, with justifiable emphasis on parties’ and the Regulation’s intentions (but as noted with considerable reference to precedent and principles of statutory interpretation): Thus with the asymmetric jurisdiction clauses in the present case, the defendants agreed to sue only in the courts of one EU Member State, England. Instead, they have enabled another court, the Greek court, to be seized of the matter. It would undermine the agreements of the parties, and foster abusive tactics, if the jurisdiction clauses in these agreements were to be treated not as exclusive, but as non-exclusive.’
Of note is also the discussion on the role of recitals (eg. at 69; also at 77 ff). Justice Cranston’s arguments are supported by reference to a number of recitals. Defendant in my view has a valid point in principle where they argue at 77 that ‘a recital cannot constitute a rule when it is not reflected in the words of Article 31(2).‘ (Although they were wrong on substance).
A subsidiary argument in the case also merits further attention. Defendants argue that Article 25 requires the parties to have designated the courts of a Member State to enable the law applicable to the substantive validity of a jurisdiction clause to be identified and to provide certainty as to the forum in which a putative defendant can expect to be sued. That, they submit, is not achieved by a clause which designates the courts of all other competent states, including those of non-Member States, outside the territorial competence of the EU, which could mean suits in multiple jurisdictions. Although the argument could be phrased more precisely, I do agree with it: in the absence of a nominatim lex contractus for the choice of court clause specifically, the new lex fori prorogati rule in Article 25 Brussels I Recast, combined with recital 20 (yet again the troublesome habit of EU private international law to include substantive rules in recitals only) does create a vacuum in the case of hybrid, asymmetric or even non-exclusive choice of court.
An important case. Not the last we have heard of the issues.
(Handbook of) European Private international law, 2nd ed. 2016, Ch.2, Heading 2.2.9, Heading 184.108.40.206.1, Heading 220.127.116.11.
The CJEU has in my view taken the sensible approach in C-366/13 Profit Investment Sim, on (among others) whether choice of court included in a bond prospectus, binds not just the original transactional parties but also the buyers of such bonds on the secondary markets or via intermediaries. (An issue which many of us pondered in Kolassa but which was not sub judice there).
Parties at issue were Commerzbank (formerly Dresdner), the bond issuer; Redi, financial intermediary licensed by the UK FSA and subscriber of all relevant bonds on the primary market; and Profit, an Italian company, who bought part of the bonds of Redi, on the secondary market. Dresdner’s prospectus contains choice of court in favour of the English courts.
First, on the issue of the jurisdiction clause. The referring court asks, in essence, whether Article 23(1)(a) and (c) of Regulation 44/2001 (both now part of Article 25) must be interpreted as meaning that a jurisdiction clause, such as that at issue in the main proceedings, satisfies the formal requirements laid down in Article 23(1)(a) [‘in writing or evidenced in writing’] where (i) it is contained in a prospectus produced by the bond issuer concerning the issue of bonds, (ii) it is enforceable against third parties who acquire those bonds through a financial intermediary and (iii), in the event that the first two parts of the second question are answered in the negative, it corresponds to a usage in the field of international trade or commerce for the purpose of Article 23(1)(c).
Choice of court in the prospectus and the impact on the primary market.
The Court first of all holds that the ‘formal requirement’ of (now Article 25 a (a) ”in writing or evidenced in writing’ for the issue of choice of court between Dresdner and Redi is only met (along the lines of Colzani Case 24/76) if the contract signed by the parties upon the issue of the bonds on the primary market expressly mentions the acceptance of the clause by Redi, or contains an express reference to the prospectus. The latter in particular is quite likely.
Choice of court in the prospectus and enforceability against third parties acquiring through a financial intermediary.
Next, the Court (at 30) holds that the same two alternatives apply for the relationship between Redi and Profit. Here the court refers to Refcomp and distinguishes it, basically by pointing to the specific examples of bills of lading and choice of court in shareholders registries, cases in which the CJEU had previously accepted transferability of choice of court to third parties, in specific circumstances. (Please refer to both the Refcomp judgment and to current judgment (at 33 ff) for detail).
The Court consequently held (at 37) that choice of court contained in a prospectus produced by the bond issuer concerning the issue of bonds may be relied on against a third party who acquired those bonds from a financial intermediary if it is established, which it is for the referring court to verify, that (i) that clause is valid in the relationship between the issuer and the financial intermediary, (ii) the third party, by acquiring those bonds on the secondary market, succeeded to the financial intermediary’s rights and obligations attached to those bonds under the applicable national law, and (iii) the third party had the opportunity to acquaint himself with the prospectus containing that clause. (Emphasis added).
The emphasis I added is quite important: the CJEU does not hold that such succession is somehow part of an EU Ius Commune.
Finally, if the answer to the first two questions is negative, is there usage in international trade or commercial custom between the parties?
This, the Court holds, has to be determined by the national court. The CJEU (at 48) recalls its earlier case-law in particular C-106/95 MSG: actual or presumed awareness of a usage on the part of the parties may be made out, in particular, by showing either that the parties had previously had commercial or trade relations between themselves or with other parties operating in the sector in question, or that, in that sector, a particular course of conduct is sufficiently well known because it is generally and regularly followed when a particular type of contract is concluded, so that it may be regarded as being an established practice.
The Court does though give a few more practical things which the national court needs to look out for: at 49. In order to determine, in the main proceedings, whether the insertion into the prospectus of a jurisdiction clause constitutes a usage in the sector in which the parties operate, of which those parties were aware or ought to have been aware, the referring court must take into account, inter alia, the fact that that prospectus was approved in advance by the Irish Stock Exchange and made available to the public on the latter’s website, which does not seem to have been contested by Profit in the proceedings on the merits. In addition, the referring court must take account of the fact that it is undisputed that Profit is a company active in the field of financial investments as well as of any commercial relationships it may have had in the past with the other parties to the main proceedings. The national court must also verify whether the issue of bonds on the market is, in that sector, generally and regularly accompanied by a prospectus containing a jurisdiction clause and whether that practice is sufficiently well known to be regarded as ‘established’.
Lest one forgets, the Court’s judgment is also relevant for a more general query on the nature of (now) Article 7(1): must the action seeking the annulment of a contract and the restitution of the amounts paid on the basis of a document the nullity of which is established, be regarded as ‘matters relating to a contract’ (the existence of which plaintiff seeks to dispute)? Yes, it does: if only (at 54) to ensure that Article 7(1) cannot simply be torpedoed by one party claiming that there is no contract.
(The judgment also reviews the conditions of application of (now) Article 8(1), with respect to ‘irreconcilability’ of judgments).
This judgment is quite relevant in yet again the CJEU having to defer to national law on the issue of transferability (see the emphasis I added, above). The Court very clearly does not wish to overplay its hand in trying to force a European Ius Commune in private law, via the use of private international law.
(Handbook of) European Private International Law Chapter 2, Heading 18.104.22.168; Heading 22.214.171.124.a; 126.96.36.199;.188.8.131.52; 2.2.12
Much of the analysis in Swissmarine would have been redundant had Denmark been subject to the Insolvency Regulation. Please refer to the judgment for the many lines of arguments by applicants and defendants – Alexis Hogan has good summary over at the RPC blog.
SwissMarine Corporation Limited (“SwissMarine”) applied for an anti-suit injunction against O. W. Supply & Trading A/S (“OW Supply”), a Danish company that had filed for bankruptcy in the Bankruptcy Court of Aalborg, Denmark on 7 November 2014. SwissMarine sought an order restraining OW Supply (i) from proceeding with an action that it had brought in the District Court in Lyngby, Denmark (the “Lyngby action”) and (ii) from commencing any other or further proceedings in Denmark or elsewhere against SwissMarine directed to obtaining a “disputed” sum claimed under an ISDA Master Agreement (the “ISDA Agreement”) or any transaction thereunder. (For a related discussion of the ISDA Agreement, see Anchorage).
Brussels I recast does not apply for the dispute arguably falls under that Regulation’s insolvency exception. The Insolvency Regulation as noted does not apply for Denmark has opted out of it. The High Court held essentially that the Lygnby action is not covered by the jurisdiction agreement because it is not a suit, action or proceedings relating to a dispute arising out of or in connection with the ISDA Agreement or any non-contractual obligations arising out of or in relation to it. The Court followed the defendant’s argument that OW Supply is not seeking to have determined any dispute under the ISDA Agreement or about the parties’ rights and obligations under it, and there is no dispute about their contractual rights and obligations. The question for the Lyngby court will be how the Danish insolvency regime applies to them. In the words of Smith J: ‘The wording (of the choice of court clause in the ISDA Agreement – GAVC) does not bear on the question whether OW Supply can invoke the protection of Danish insolvency rules, or whether the jurisdiction agreement was intended to prevent this. I cannot accept that the parties evinced an intention in the schedule that OW Supply (or SwissMarine) should abandon the protection of its national insolvency regime.’ (at 26) In conclusion, SwissMarine have not shown a sufficient case that the jurisdiction agreement applies to the Lyngby action to justify its submission that it should be granted an anti-suit injunction on the grounds that in bringing and pursuing the action OW Supply is acting in breach of it. (at 29).
Smith J also discusses at length the impact of the Brussels I and Brussels I recast Regulation on the reference, in the choice of court provision of the ISDA Agreement, to ‘Convention’ (ie 1968 Brussels Convention) parties. Athough this discussion had no bearing on the eventual outcome, the Court’s (disputable) conclusion that reference to Convention States should be read as such (and not include ‘Regulation’ States), in my view would merit adaptation, by parties ad hoc or generally, of the relevant choice of court clause.
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.