Posts Tagged High Court
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 126.96.36.199.1, Heading 188.8.131.52.
Assymetric jurisdiction clauses. Their existence and (obiter) their neutralising effect in Perella v Codere.
Apologies for late posting. I had tweeted and linked and done all sorts of other things when the judgment came out but as readers tell me, that is not quite the same as a review on this blog.
Walker J decided Peralla v Codere  EWHC 1182 (Comm) at the end of July. His views on Article 25 and exclusivity in the event of asymmetric jurisdiction clauses, are very much dicta. On their neutralising effect under Article 31, he suggested obiter. Let me explain. The jurisdiction clause which Perella alleged to have been breached by Codere comprises a single sentence of a clause of their letter of engagement. That sentence states:
“[Codere] agrees for the benefit of [Perella] that the courts of England wil have non-exclusive jurisdiction to settle any dispute which may arise in connection with this engagement.”
Codere sued in Spain alleging breach of contract. Perella countersues in England. The English proceedings are very much necessitated by one or two awkward consequences of the wording of Article 31 of the Brussels I Recast. This Article was specifically included to neutralise the torpedo which the Court of Justice had armed in its Gasser judgment, C-116/02: following Gasser, lis alibi pendens applies even if there is exclusive choice of court and a court other than the court assigned in that clause, has been seized. The Brussels I Recast neutralises the torpedo but only if there is exclusive court of choice, and if the court designated by that clause has been seized.
The first consideration in the case was whether the clause was exclusive. It was pertinently not. Perella suggested the language indicates that the benefit to be conferred upon Perella is an entitlement to insist that Codere must regard itself as bound by the exclusive jurisdiction of the English courts. Walker J (at 30) rejects this justifiably: it would have been simplicity itself verbatim to indicate exclusivity. As Ken Kaar notes, the inclusion of ‘for the benefit of’ is an old, now redundant boilerplate provision in choice of court: in the original Brussels and Lugano Conventions, ‘If the agreement conferring jurisdiction was concluded for the benefit of only one of the parties, that party shall retain the right to bring proceedings in any other court which has jurisdiction by virtue of this Convention.’ This proviso meant there was plenty of discussion in court whether only one party had procured such benefit, lest one state in so many words that it had. The current version of the Brussels I Recast (and the 2001 version before it) and Lugano 2007 have both dropped the provision, and it would be best dropped from the boilerplate clause, too.
Having held that the clause was not exclusive, the Court could have stopped there. Obiter however Walker J offered his view on whether Article 31(2)’s protection extends to asymmetric choice of court clauses – the notion of which I have reported on before. Walker J (at 18) suggests that it does. The party invoking Article 31(2) pointing to an exclusive forum which the counterparty who is suing elsewhere, had committed itself to, need not be itself subject to a symmetric duty only to sue in that court. The point has not been argued before the CJEU yet, but I agree that the High Court’s position is the correct one, with the important caveat of course that such clause needs to be valid in accordance with the lex fori prorogati. This also means that asymmetric clauses where such lex cannot be identified, would have trouble disarming the recalcitrant party’s torpedo.
Well, we are going to miss this type of judgment following Brexit. Better make conflict of laws part of the continuing relations with the UK.
(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.
Banco Santander Totta: the High Court upholds snowball interest rate swaps under English law. The ‘purely domestic contracts’ provision of Article 3(3) Rome I is not engaged.
A longer title than readers are used to from this blog. However judgment itself is also an unusually long 163 pages. In Banco Santander Totta, the High Court was asked whether snowball interest rates swaps in loan agreements between a Portuguese Bank and four Portuguese public transport companies, should be declared invalid under Portuguese ‘mandatory’ law, applicable by use of the corrective mechanism of Article 3(3) Rome I.
The Transport Companies do not assert that BST wrongly advised them to enter into the swaps, or misrepresented the swaps to them. Rather, defences raised by the Transport Companies are that:
(1) under Portuguese law, each company lacked capacity to enter the swaps which are therefore void; this is on the basis (among other reasons) of an assertion that the swaps were speculative transactions; this defence applies regardless of the law applicable to the swaps; it is common ground that, if correct, it is a complete answer to the claim;
(2) although English law governs the Master Agreements, this is subject to Art. 3(3) of the Rome Convention; this provides that where all the elements relevant to the situation at the time of the choice of law are connected with one country only, the choice does not prejudice the application of rules of the law of that country which cannot be derogated from by contract (“mandatory rules”). Portuguese mandatory rules apply to the swaps, giving rise to two defences: a) under rules dealing with gaming and betting and ordre public, the swaps are void for being unlawful “games of chance”, alternatively speculations; b) seven of the nine swaps are liable to be terminated under rules dealing with an “abnormal change of circumstances” (which termination takes effect as though the swaps were void); this is on the basis that since 2009 (following the financial crisis), the reference interest rates relating to the swaps (EURIBOR and LIBOR) have been close to zero (and remain so at the time of this judgment);
(3) in presenting the swaps to the Transport Companies, the bank acted in breach of its duties under provisions of the Portuguese Securities Code which implement relevant European Union legislation; these apply to the bank as a financial intermediary and relate to the protection of the legitimate interests of the Transport Companies as clients, and to conflicts of interest; the breach is said to entitle the Transport Companies to damages thereby extinguishing their liabilities under the swaps.
Blair J reviews precedent (European (limited, mostly related to the preparatory works), English and Portuguese (likewise limited) and decides against the engagement of Article 3(3). I will not regurgitate all of the analysis: readers are best referred to the judgment, in particular p.65 onwards, and the decision at 411, where Blair J concludes
because of the right to assign to a bank outside Portugal, the use of standard international documentation, the practical necessity for the relationship with a bank outside Portugal, the international nature of the swaps market in which the contracts were concluded, and the fact that back-toback (sic) contracts were concluded with a bank outside Portugal in circumstances in which such hedging arrangements are routine, the court’s conclusion is that Art. 3(3) of the Rome Convention is not engaged because all the elements relevant to the situation at the time of the choice were not connected with Portugal only. In short, these were not purely domestic contracts. Any other conclusion, the court believes, would undermine legal certainty.
The latter element is quite important. Referring in particular to Briggs (at 374), the Court holds that the uncertainty of the rule of Article 3(3) should lead to its narrow interpretation. I agree. With party autonomy the core consideration of the Regulation, standard recourse to Article 3(3) [or 3(4) for that matter) under the pretext for instance of a general campaign against fraus legis is most definitely not warranted.
Permission was granted to appeal the issues on the Rome Convention (thank you to Ali Malek QC for pointing that out).
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 3, Heading 3.2.8, Heading 18.104.22.168
Rome II: A manifestly closer connection overrides common habitual residence. The High Court in Marshall v MIB.
Marshall v MIB  EWHC 3421 (QB) involved a road traffic accident that occurred in France. On 19th August 2012 an uninsured Peugeot motor car registered in France driven by Ms Bivard, a French national, hit Mr Marshall and Mr Pickard, both British nationals, as they were standing behind a Ford Fiesta motor car and its trailer, while it was being attended to by a breakdown recovery truck on the side of a motorway in France. The Ford Fiesta motor car was registered in the UK and insured by Royal & Sun Alliance (“RSA”), and the recovery truck was registered in France and insured by Generali France Assurances (“Generali”). The Peugeot then collided with the trailer shunting it into the Ford Fiesta which in turn was shunted into the vehicle recovery truck. Mr Pickard suffered serious injuries. Mr Marshall died at the scene.
This case raises points about among others (1) the law applicable to an accident involving a number of persons and vehicles; and (2) the application of the French Loi Badinter to the facts of this case, if French law applies: The second main issue is if French law applies, whether the Ford Fiesta motor car and recovery truck are “involved” within the meaning of the Loi Badinter, which it is common ground is the applicable French statute. If those vehicles are “involved” it is common ground that RSA, as insurer of the Ford Fiesta, and Generali, as insurer of the recovery truck, are liable to Mrs Marshall, and that Generali, as insurer of the recovery truck, is liable to Mr Pickard.
Two actions were commenced. The first by Mrs Marshall (Mr Marshall’s widow) against the Motor Insurers’ Bureau (“the MIB”). Mrs Marshall relied on relevant English 2003 Regulations. The 2003 Regulations make the MIB liable in respect of liabilities of compensation bodies in other EEA states for losses caused by uninsured drivers. The relevant compensation body in France responsible for such losses is the Fonds de Garantie (“FdG”). The MIB denied liability, contending that the FdG would not be liable to Mrs Marshall because under the Loi Badinter Mr Pickard and RSA, as driver and insurer of the Ford Fiesta, and Generali, as insurers of the recovery truck, were liable. The second action was brought by Mr Pickard against the Motor Insurers’ Bureau relying on the 2003 Regulations. The MIB deny liability and contend that Generali, as insurers of the recovery truck, are liable to Mr Pickard.
The High Court was asked (1) what law applies per Article 4 Rome II, and (2) whether under the circumstances, Article 4(3) Rome II might have any relevance.
Save for Mrs Marshall’s claim for dependency which if English law applies is under the Fatal Accidents Act 1976 (“FAA 1976”), it is common ground that the direct damage occurred in France for all of the claims, including Mrs Marshall’s claim on behalf of Mr Marshall’s estate. In respect of the FAA 1976 claim, RSA (Mr Marshall’s insurers) submits that the direct damage occurred in the location where Mrs Marshall has suffered her loss of dependency, which is in England and Wales. Dingemans J resolves this issue of ricochet damage with reference to the AG’s Opinion in Lazar: the CJEU’s judgment in same was issued about a month after the High Court’s judgment in Marshall. The Advocate General, having regard to the relevant principles of consistency, foreseeability and certainty, in his opinion considered that “the damage occurs” for the purposes of a claim such as an FAA 1976 claim where the relevant death occurs. The AG noted that different EEA states took different approaches to the characterisation of a dependency claim. For example in both England and Italy it is considered that the damage for a loss of dependency occurs in the country where the dependant is situated, but that this is not a European wide approach. The opinion, Dingemans J notes, shows that the Advocate General was influenced by the need to avoid different Courts in different EEA states adopting different solutions to applicable law in fatal accident cases, which would lead to a diversity of approach in different jurisdictions.
The action between Mrs Marshall and Mr Pickard triggers Article 4(2) of the Rome II Regulation, identifying as applicable law the law of the country were both the ‘person’ claimed to be liable and the ‘person’ sustaining damage, are habitually resident at the time the damage occurs. Dingemans J rightly (at 17) dismisses the suggestion (made in scholarship) that the moment more than two ‘persons’ are involved, Article 4(2) becomes inoperable.
Turning then to Article 4(3), the escape clause of a ‘manifestly closer connection’. Dingemans J entertains the interesting proposition that Article 4(3) has to lead to a law different from the law which would be applicable per Article 4(1) or (2). This in particular would mean that once Article 4(2) is engaged, it cannot be undone by recourse to Article 4(3). Dingemans J insists that Article 4(3) must be employed generally, even if it leads to a resurrection of Article 4(1), and goes on to find French law to be applicable (at 19-20):
In my judgment this case provides an illustration of when French law is provided as the governing law under article 4(1), excluded (for part of the claims) under article 4(2), and then required again under article 4(3).
It is also common ground that article 4(3) imposes a “high hurdle” in the path of a party seeking to displace the law indicated by articles 4(1) or 4(2), and that it is necessary to show that the “centre of gravity” of the case is with the suggested applicable law. In this case there are a number of circumstances which, in my judgment, make it clear that the tort/delict is manifestly more closely connected with France than England and Wales. These are: first that both Mr Marshall and Mr Pickard were hit by the French car driven by Ms Bivard, a national of France, on a French motorway. Any claims made by Mr Marshall and Mr Pickard against Ms Bivard, her insurers (or the FdG as she had no insurers) are governed by the laws of France; secondly the collision by Ms Bivard with Mr Marshall and Mr Pickard was, as a matter of fact and regardless of issues of fault or applicable law, the cause of the accident, the injuries suffered by Mr Marshall and Mr Pickard and the subsequent collisions; and thirdly any claims that Mr Marshall and Mr Pickard have against Generali, as insurers of the vehicle recovery truck, are also governed by the laws of France.
This judgment to my knowledge, with Winrow v Hemphill is one of few discussing Article 4(3)’s escape clause in such detail. (The add-on being that in Marshall Article 4(3) was found as being able to override Article 4(2). A judgment which, like Winrow, does justice to both the exceptional nature of the provision, and the need to consider all relevant factors.
Ps very soon the Supreme Court will hear further argument on the application of the Rome II Regulation in Moreno v MIB.
European private international law, second ed. 2016, Chapter 4, Headings 4.5.1 and 4.5.2