Posts Tagged Lugano Convention
JSC BTA Bank v Khrapunov. UK Supreme Court confirms the conspiracy itself, not its implementation, as locus delicti commissi under Lugano. Does not entertain locus damni.
The UK Supreme Court held in  UKSC 19 JSC BTA Bank v Khrapunov late March. Defendant is based in Switzerland, hence triggering the Lugano Convention. Addleshaw Goddard have the history of the case and I am happy to refer for those facts. Suffice to say that at the core is a claim in tort of conspiracy, alleging that Mr Khrapunov and his father in-law Mr Ablyazov conspired to injure the Bank by preventing it from enforcing its judgments against Mr Ablyazov’s assets.
First let’s have a look at was not discussed at the SC: domicile and locus damni. As for the former, domicile once held but now fleed from was correctly rejected by Teare J as establishing domicile under Lugano (or indeed Brussels). The argument that jurisdiction should, nevertheless, be taken still to be domiciled in England because defendant was in breach of an obligation under the worldwide freezing order prohibiting him from leaving the jurisdiction, was likewise rejected. An interesting proposition though.
Now, for the location of the locus damni. At 29 the SC refers to the Bank’s argument at the High Court and Court of Appeal stage. The Bank’s argument was that the damage occurred in England. This was based on the contention that its worldwide freezing order and its judgments against Mr Ablyazov were located here and had been reduced in value by the alleged conduct in relation to assets in other jurisdictions. The High Court and Court of Appeal considered that the element of damage proximate to the harmful event was the Bank’s inability or reduced ability to execute against those assets in the places where they were located. Another fine example of the difficult implications of Bier and not one which the CJEU has hitherto had the occasion to review. (But current case will not reach it).
As for locus delicti commissi, the Bank submit that the event giving rise to the damage was the conspiracy itself, which was hatched in England. At the High Court Teare J rejected this submission, because he considered that the cause of the damage was not the conspiracy but its implementation: a suggestion I like in the context of competition law, as readers of the blog will be aware. Teare J was not followed by the Court of Appeal though, which identified the place where the conspiratorial agreement was made as the place of the event which gives rise to and is at the origin of the damage.
The SC refers to CJEU authority to conclude with CDC and at 41 it reiterates the CA’s core reasoning: ‘As Sales LJ explained (at para 76), in entering into the agreement Mr Khrapunov would have encouraged and procured the commission of unlawful acts by agreeing to help Mr Ablyazov to carry the scheme into effect. Thereafter, Mr Khrapunov’s alleged dealing with assets the subject of the freezing and receivership orders would have been undertaken pursuant to and in implementation of that agreement, whether or not he was acting on instructions from Mr Ablyazov.’
The Supreme Court concludes that the making of the agreement in England should be regarded as the harmful event which set the tort in motion.
The judgment keeps open many issues, however. For starters, to have a sole birthplace of conspiratorial agreement is handy in the case at issue however it is likely not often to be so clearly the case (as Dan and Tom point out, particularly not in a digital context). Moreover, for those instances where Mr Khrapunov were not to be acting on instructions from Mr Ablyazov, questions of ultra vires so to speak and hence of a separate tort would arise.
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 188.8.131.52
The French Cour de Cassation’s in Banque Privee Edmond de Rothschild Europe v X held that a unilateral jurisdiction clause was invalid under (doubtful) reference to (then) Article 23 of the Brussels I Regulation. The clause was held not to be binding under the French doctrine of clauses potestatives, even though the agreed forum was Luxembourg (whence the validity of the clause was judged under the lex fori derogati, not prorogati; that will no longer be possible under the recast Jurisdiction Regulation). In Credit Suisse, it extended this view (without reference this time to clauses potestatives) to choice of court in the context of the Lugano Convention.
In Apple Sales international v eBizcuss.com, the Cour de Cassation effectively qualifies its Rotschild case-law. The Court of Appeal held as unacceptable, under the theory of clauses potestatives, choice of court obliging eBizcuss to sue in Ireland, while allowing Apple Sales International to sue either in Ireland, or the place of registered office of eBizcuss, or any place where Apple Sales would have suffered damage. The Cour de Cassation now held that this clause is perfectly acceptable under Article 23 (now 25)’s regime for it corresponds to the need of foreseeability. (Which more extreme unilateral clauses arguably do not have). As always, the judgment is scant on details of the underlying contract whence it is not entirely clear whether French law was lex contractus or whether the Cour stuck to lex fori as determining validity of choice of court.
Kaupthing: the High Court interprets (and rejects) Lugano insolvency exception viz the Icelandic Banking crisis.
Thank you Eiríkur Thorláksson (whose expert report fed substantially into the Court’s findings) for flagging and for additional insight: In Tchenguiz v Kaupthing, the High Court had to review the insolvency exception to the Lugano Convention, combined with Directive 2001/24 on the reorganisation and winding-up of credit institutions. Directive 2001/24 applies to UK /Iceland relations following the EFTA Agreement. See my earlier post on Sabena, for Lugano context. Mr Tchenguiz is a London-based property developer. He claims against Kaupthing; Johannes Johannsson, a member of Kaupthing’s winding-up committee; accountants Grant Thornton; and two of its partners.
While Directive 2001/24 evidently is lex specialis vis-a-vis the Insolvency Regulation, much of the ECJ’s case-law under the Regulation is of relevance to the Directive, too. That is because, as Carr J notes, much of the substantial content of the Regulation has been carried over into the Directive. Carr J does emphasise (at 76) that the dovetailing between the Lugano Convention /the Judgments Regulation, and the Insolvency Regulation, carried over into the 2001 Directive does not extend to matters of choice of law. [A bit of explanation: insolvency was excluded from the Judgments Regulation (and from the Convention before it) because it was envisaged to be included in what eventually became the Insolvency Regulation. Consequently the Judgments Regulation and the Insolvency Regulation clearly dovetail when it comes to their respective scope of application]. That is because neither Lugano nor the Judgments Regulation consider choice of law: they are limited to jurisdiction.
On the substance of jurisdiction, the High Court found, applying relevant precedent (German Graphics, Gourdain, etc.), that the claims against both Kaupthing and Mr Johansson are within the Lugano Convention and not excluded by Article 1(2)(b) of that Convention. That meant that Icelandic law became applicable law by virtue of Directive 2001/24, and under Icelandic law proceedings against credit institutions being wound up come not be brought before the courts in ordinary (rather, a specific procedure before the winding-up committee of the bank applies). No jurisdiction in the UK therefore for the claim aganst the bank. The claim against Mr Johansson can go ahead.
[For the purpose of this blog, the jurisdictional issues are of most relevance. For Kaupthing it was even more important that the Bankruptcy Act in Iceland was found to have extra-territorial effect. The Act on Financial Undertakings implemented the winding-up directive and the Icelandic legislator intented it to have extra-territorial effect].
A complex set of arguments was raised and the judgment consequentially is not an easy or quick read. However the above should be the gist of it. I would suggest the findings are especially crucial with respect to the relation between Lugano /Brussels I, Directive 2001/24, and the Insolvency Regulation.
Swiss ‘Sabena’ judgment interprets Lugano insolvency exception. Eventual recognition not impossible.
Update 22 January 2016 An amendment to the relevant parts of the Swiss PIL code is being suggested, which would make recognition of foreign insolvency proceedings less cumbersome.
In SAirLines AG v Masse en faillite ancillaire de Sabena SA, the Swiss Bundesgericht (Federal High Court) held that the request by the liquidators of Sabena (the former Belgian national carrier) to have a Brussels Court of appeal judgment recognised and enforced in Switserland, falls within the ‘insolvency’ exception of the Lugano Convention (2007). It cannot therefore enjoy the swift recognition procedure included in that Convention. Instead, a claim under standard Swiss private international law in my view is still possbible (although, going by the Court’s obiter, see below, not promising).
The Brussels Court of Appeal in 2011 held SAirLines AG ( the holding company of the former Swiss Air Group) responsible for the insolvency of Sabena, by the misapplication of a number of crucial investment agreements (I summarise; that however is the gist of the dispute). SAirlines AG is itself being liquidated in Switserland. The Bundesgericht relied heavily on precedent in C-111/08 Alpenblumme where the insolvency exception of the Brussels I-Regulation was held as as applying to a judgment of a court of Member State A regarding registration of ownership of shares in a company having its registered office in Member State A, according to which the transfer of those shares was to be regarded as invalid on the ground that the court of Member State A did not recognise the powers of a liquidator from a Member State B in the context of insolvency proceedings conducted and closed in Member State B.
It also referred to Gourdain. Per Gourdain, an action is related to bankruptcy only if it derives directly from the bankruptcy and is closely linked to proceedings for realising the assets or judicial supervision. It is the closeness of the link, in the sense of the case-law resulting from Gourdain, between a court action and the insolvency proceedings that is decisive for the purposes of deciding whether the exclusion in Article 1(2)(b) of the JR is applicable.
The mere fact that the liquidator is a party to the proceedings is not sufficient to classify the proceedings as deriving directly from the insolvency and being closely linked to proceedings for realising assets.
(Incidentally, for a Lugano-bound court to rely on the ECJ’s case-law on the insolvency exception may in my view in future be less obvious, at least as far as the ECJ’s case-law post the entry into force of the insolvency Regulation is concerned: the ECJ’s judgment on the respective scope of both Regulations is now obviously subject to there being the other, closely related Regulation. The Insolvency Regulation however does not apply to Switserland whence arguably the scope of the stand-alone Lugano insolvency exception need not necessarily evolve alongside that of the Brussels I-Insolvency exception).
In the case at hand, it might indeed be difficult to argue that the Belgian liquidators’ action while having an impact on the insolvency and the division of the assets, does not directly derive from the bankruptcy and would have existed even without such insolvency occurring.
The judgment does not mean that recognition and enforcement of the judgment is now totally out of the question (even the official court’s press release suggests as much in its title). Rather the Bundesgericht has simply held on the applicability of the Lugano Convention. As far as my legal German reaches (that may be an important caveat hence I would like to hear from Swiss, German or Austrian lawyers) the judgment does not prejudice enforceability under general Swiss private international law. (Although, with the same caveat, the language at para 10 of the judgment does not sound promising:
‘ Das belgische Urteil fällt aus den dargelegten Gründen nicht in den sachlichen Anwendungsbereich des Lugano-Übereinkommens. Dass das Urteil unter diesen Umständen nach den Regeln des IPRG anzuerkennen wäre, wird nicht geltend gemacht und ist aufgrund der insolvenzrechtlichen Natur der Streitsache auch nicht ersichtlich (vgl. BGE 139 III 236 E. 5.3). Bei dieser Sachlage kommt eine Anerkennung und Vollstreckbarerklärung von vornherein nicht in Frage, und es erübrigt sich, darüber zu befinden, ob die Anerkennungsvoraussetzungen gemäss dem LugÜ gegeben wären und ob die Beschwerdegegnerin überhaupt ein genügendes Rechtsschutzinteresse an einer selbstständigen Anerkennungsfeststellung und Vollstreckbarerklärung gemäss Art. 33 Abs. 2 und Art. 38 Abs. 1 LugÜ hätte, wie die Vorinstanz annahm, die Beschwerdeführerinnen hingegen bestreiten.).
To be continued, therefore?
The ECJ has issued its ruling in Gothaer, the AG’s Opinion in which I reported earlier. The Court first of all confirmed that the term ‘judgment’ within the meaning of Article 32 of Regulation No 44/2001 covers a judgment by which a court of a Member State declines jurisdiction on the ground of an agreement on jurisdiction, even though that judgment is classified as a ‘procedural judgment’ by the law of the Member State addressed.
Moreover, the ECJ held that the court in the Member State in which enforcement is sought, is bound by the finding of the first court – made in the grounds of a judgment, which has since become final, declaring the action inadmissible – regarding the validity of that clause. To justify its finding, it refers in principle to the very definition of recognition as highlighted in the Report Jenard: recognition must ‘have the result of conferring on judgments the authority and effectiveness accorded to them in the State in which they were given’. Accordingly, a foreign judgment which has been recognised under Article 33 of Regulation No 44/2001 must in principle have the same effects in the State in which recognition is sought as it does in the State of origin. It further emphasizes the same arguments as flagged by the AG in coming to its finding.
On the peculiarity that in the case at issue, the choice of court clause points way from the EU, which raises the question what effect can be given to such clauses under the Jurisdiction Regulation, the court concedes that Article 23 does not apply, however, like the AG, it refers to the Lugano Convention, which contains a proviso very much like Article 23 JR. That to me is a bit of an awkward finding: whether the choice of court clause points to a Lugano State or not ought to be irrelevant. It would, through the recognition process, make choice of court in favour of Lugano States in some way less ‘not covered’ by the JR than those pointing to non-Lugano States (and by flagging Lugano, the Court leaves open the question of jurisdiction clauses in favour of non-Lugano States). A further argument made by the court in my view is more convincing, namely the ‘but for’ argument:To allow a court of the Member State in which recognition is sought to disregard, as devoid of effect, the jurisdiction clause which a court of the Member State of origin has held to be valid would run counter to that prohibition of a review as to the merits, particularly in circumstances where the latter might well have ruled, but for that clause, that it had jurisdiction. (at 38)
Indeed typically the action in the court of origin is taken by the recalcitrant party (i.e. the one acting in spite of a choice of court clause), trying to convince the court of origin that it has jurisdiction on the basis of another Article in the JR, Whence indeed but for the clause, that court would most likely have exercised jurisdiction. A finding of validity of the clause therefore is likely to have been seriously considered. Allowing a court in another Member State to nevertheless exercise jurisdiction and refusing recognition and enforcement, would make the JR nugatory. This is in my view no different where as a result (such as here) no court in the EU will be able to hear the case.