Posts Tagged privity

Secure Capital v Credit Suisse: Downstream holders of securities and third party redress.

As I seem to be in a mopping-up mode this morning, I might as well sneak in late review of Secure Capital SA v Credit Suisse AG, [2015] EWHC 388 (Comm) and at the Court of Appeal [2017] EWCA Civ 1486. Draft post of the latter has been in my ledger since 2017…

The cases essentially are concerned with characterisation; privity of contract, choice of law and dépeçage (bifurcation or severance).

My father-in-law OBE wonderfully sums up the world of international finance as fairy money. Harry (aka Tim Nice But Balding) & Paul express a similar feeling here. I can’t help but think of both when re-reading judgments in both cases.

Allen & Overy have most useful overview here, and RPC add useful analysis here. Claim related to eight longevity notes issued by Credit Suisse in 2008. The Notes were linked to life insurance policies, which meant that the prospect of the holder receiving payments for the Notes depended on mortality rates among a set of “reference lives”.  Secure Capital contended that Credit Suisse failed to disclose that the mortality tables used to generate the estimated life expectancies were shortly to be updated in a way that would significantly increase life expectancies, rendering the Notes effectively worthless. Secure Capital relied on a term in the issuance documentation that stated that Credit Suisse had taken all reasonable care to ensure that information provided in such documentation was accurate and that there were no material facts the omission of which would make any statements contained in those documents misleading.

The Notes were issued by Credit Suisse’s Nassau branch. Under the terms of the transaction documents, the Notes were deposited with the common depositary, Bank of New York Mellon, which held the securities on behalf of the clearing system, in this case Clearstream: which is Luxembourg-based.  The Notes were governed by English law and issued in bearer form.

Secure Capital essentially employ an attractive proposition in Luxembourg law reverse-engineering it either as the proper law of the contract in spite of prima facie clear choice of law, or alternatively as dépeçage: it argues that the provisions of a 2001 Luxembourg law on the Circulation of Securities, being the law that governed the operation of Clearstream through which the Notes were held, gave it an entitlement “to exercise the right of the bearer to bring an action for breach of a term of the…Notes“. In order to succeed, Secure Capital would have to circumvent the English law on privity of contract in respect of a transaction governed by English law.

Allen & Overy’s and RPC’s analysis is most useful for the unsuspected bystander like myself (thankfully I have a researcher, Kim Swerts, starting soon on a PhD in the area of conflict of laws and financial law).

In the High Court Hamblen J at 35 ff discusses the alternative arguments, wich would displace the suggestion that Secura Capital’s claim is a contractual claim. (Tort, as Betson LJ at the appeal stage notes at 24, was not advanced). This included a suggested property right (with discussion on the issue of the lex causae, whether e.g. this might be the lex situs), or, more forcefully, a right sui generis. None of these was upheld. Discussion on relevance of Rome I and /or the Rome Convention took place very succinctly at 53-54 – a touch too succinctly for Hamblen J’s swift reflection is that under both Rome and English conflicts rules, there was no suggestion of displacing the lex contractus. Depending on what counsel discussed, one would have expected some discussion of mandatory law perhaps, or indeed dépeçage – the latter was discussed summarily by Beatson LJ at the Court of Appeal under 54-55.

Geert.

(Handbook of) Private International Law, 2nd ed. 2016, Chapter 3.

 

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Happy Flights v Ryanair. Belgian Supreme Court (only) confirms proper lex causae for validity of choice of court under Article 25 Brussels Ia.

Thank you alumna and appreciated co-author Jutta Gangsted for flagging Charles Price’s (former learned colleague of mine at Dibb Lupton Alsop) and Sébastien Popijn’s alert on the Belgian Supreme Court’s ruling of 8 February last in C.18.0354.N Happy Flights v Ryanair. Happy Flights are a Belgium-based online claim agency to which disgruntled passengers may assign claims for compensation under Regulation 261/2004.

At issue is the validity of Ryanair’s choice of court in its general terms and conditions, referring consumers to Irish courts. The Brussels Commercial court on 30 May 2018 seemingly first of all did not assess whether the agency may be considered a ‘consumer’ within the terms of Irish consumer protection law (itself an implementation of Directive 93/13), having been assigned the consumers’ claims. The May 2018 decision itself is unreported <enters his usual rant about the lack of proper reporting of Belgian case-law>.

The Supreme Court (at 2, line 47) notes this lack of assessment by the lower court. It does not however complete the analysis sticking religiously to its role to interpret the law only, not the facts. Per CJEU Schrems mutatis mutandis I would suggest an affirmative answer (the agency having been assigned the consumers’ rights).

Do note that the use of the word ‘consumer’ in this context must not confuse: the consumer title of Brussels Ia itself does not apply unless the contract is one of combined travel and accommodation (or other services); the Regulation excludes contracts for travel only, from the scope of application of the consumer title.

The Brussels Commercial court subsequently and again from what one can infer from the Supreme Court’s ruling, discussed the validity of choice of court under Article 25 Brussels Ia, reviewing its formal conditions (formation of consent) yet judging the material validity under the lex fori, Belgian law, not the lex fori prorogati, Irish law. This is a clear violation of A25 juncto recital 20 Brussels Ia. The Supreme Court suggests that the relevant Irish implementation of the unfair consumer terms Directive 93/13 does imply invalidity of the clause (again: if the claim is held to fall under the consumer title, this analysis will become superfluous).

Note that the SC omits recital 20’s renvoi instruction, keeping entirely schtum about it: clearly misapplying the Regulation.

The Court’s judgment unlike the understandably enthusiastic briefing by Happy Flight’s counsel does not quite yet mean that Ryanair’s terms and conditions on this issue have been invalidated. However it is likely they will be upon further assessment on the merits – with hopefully the Court of Appeal not omitting Brussels Ia’s renvoi instruction. As I note above first up there will be the issue of assignment rather than the issue of A25.

For your interest, I gave a Twitter tutorial on a related issue (consumer law, lex causae, compulsory referral to arbitration) recently.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.9, Heading 2.2.9.4.

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Kaefer Aislamientos v AMS Drilling et al. Article 25’s new clothes exposed.

Update 6 June 2019 prof Andrew Dickinson reviews the case in L.Q.R. 2019, 135(Jul), 369-374. He concludes (references omitted) ‘the better argument is that the jurisdictional issue in Kaefer could and should have been disposed of straightforwardly on the basis that there was no evidence to demonstrate the existence of a consensus between the claimant, on the one hand, and the third and fourth defendants, on the other, that met the formal requirements set out in art.25. The written contractual documentation referred only to the first defendant as a party, and to the second defendant as a person to whom invoices were to be addressed, and did not refer to the third and fourth defendants at all. On this approach, English law, and its undisclosed principal rule in particular, had no role to play.’

[2019] EWCA Civ 10 Kaefer Aislamientos v AMS Drilling et al is a good illustration of the difficulty of privity of contract (here: privity of choice of court), and the limits to the harmonisation of the rules on choice of court under Article 25 Brussels I Recast.

Herbert Smith Freehills have analysis of the wider issues of the case (over and above Article 25) here. The appeal considers among others the approach that courts should adopt when, as will usually be the case at the interim stage when a jurisdiction challenge is launched, the evidence before the Court is incomplete. Goldman Sachs v Novo Banco as well as Brownlie were referenced.

Appellant contends that the Court has jurisdiction to determine the claim against defendants AT1 and Ezion under Article 25 Brussels I Recast. It is said that the relevant contract contains an English exclusive jurisdiction clause and the relevant contract was concluded by AMS Mexico and/or AMS on behalf of AT1 and/or Ezion as undisclosed principals and, it follows, the contract, including its jurisdiction agreement, bound AT1 and Ezion.

At 81 Lord Green refers to the Privy Council in Bols [2006] UKPC 45 which itself had referred to Colzani and Coreck Maritime (staple precedent at the CJEU; students of conflict of laws: time to worry if you read this around exam time and haven’t a clue). In Bols Lord Rodgers leading, held that CJEU precedent imposed on the court the duty of examining “whether the clause conferring jurisdiction upon it was in fact the subject of a consensus between the parties” and this had to be “clearly and precisely demonstrated“. The purpose of the provisions was, it was said, to ensure that the “consensus” between the parties was “in fact” established.

Lord Green (this is not part of the decision in Bols) adds that the Court of Justice has however recognised that the manner of this proof is essentially an issue for the national laws of the Member States, subject to an overriding duty to ensure that those laws are consistent with the aims and objectives of the Regulation. He does not cite CJEU precedent in support – but he is right: Article 25 contains essential, yet precious little bite in determining just how to establish such consensus. Prima facie complete, it leaves a vault of issues to be determined, starting with the element of ‘proof’ of consensus.

Of interest is that before deciding the issue, Lord Green notes at 85 Abela v Baardani [2013] UKSC 44 (“Abela“) at paragraphs [44] and [53] per Lord Clarke and Lord Sumption, that to view permission to service out of jurisdiction as more often than not exorbitant, is unrealistic in the modern era: routinely where service out is authorised the defendant will have submitted contractually to the jurisdiction of the domestic courts (or there would be an argument to that effect) and in any event litigation between residents of different states is a normal incident of modern global business. As such the decision to permit service out is, today, more generally viewed as a pragmatic decision predicated upon the efficiency of the conduct of litigation.

It was eventually held that the evidence pointed against AT1 and Exion being undisclosed principals and that therefore the Court of Appeal was right in rejecting jurisdiction.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.9, Heading 2.2.9.4.

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Qingdao Huiquan: Anti-suit injunction against a non-party to exclusive choice of forum (particularly: arbitration).

Thank you 20 Essex Street for flagging (and analysing)  [2018] EWHC 3009 (Comm) Qingdao Huiquan, granting anti-suit against a foreign litigant who is not a party to an exclusive choice of forum agreement (in particular: arbitration agreed in a settlement agreement). The third party, SDHX, is engaging in proceedings in China, and is related to one of the parties to the settlement agreement.

SDHX appeal to privity of contract is tainted by its invoking elements of the settlement agreement in the Chinese proceedings. Under relevant authority, this was ground for Bryan J to issue aint-suit against it.

A classic cake and eating it scenario, one could say: at 36: ‘I have had particular regard to the fact that it is clear from the Settlement Agreement that SDHX is indeed seeking to rely upon the terms of the Settlement Agreement in advancing its claims in the Chinese proceedings and that, in doing so, therefore, it has to take the burden of the arbitration clause, if an arbitration clause be a burden,..as well as the benefits that it seeks to derive from that agreement.’ (Update 19 April 2019 a principle known as equitable estoppel which was recently also applid by the South Carolina Supreme Court in Wilson ea v Willis ea 2019 WL 1549924 on wich more here).

eEvidently Brussels I Recast is not engaged.

Geert.

European private international law, second ed. 2016, Chapter 2, Heading 2.2.2.10.

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GMR Energy: The Delhi High Court on ‘international’ agreements, and privity of arbitration clauses.

I have reported before on the relevance of lex curia /curial law and other lex causae decisions to be made in the arbitration context. I have also reported on the qualification of ‘international‘ for conflict of law /private international law purposes. And finally of course privity of choice of court and -law is no stranger in my postings either. All these considerations apply in the arbitration context, too.

Thank you Herbert Smith for flagging CS(COMM) 447/2017 GMR Energy, in which all these issues featured in the arbitration context. The judgment would not seem to add anything new (mostly applying precedent) however it is a usual reminder of the principles. As reported by HS (and with further factual background there), GMR Energy argued

  • on the plain reading of the arbitration clauses, Singapore was not the seat of arbitration but only the chosen place or venue for hearings; Not so, the High Court found: reference to SIAC rules and to Singapore  points to Singapore as the curial seat;
  • the parties being Indian, choice of a foreign seat for arbitration would be in contravention of Section 28 of the Indian Contract Act 1872 which provides that agreements which restrain parties’ rights to commence legal proceedings are void (save for those which do so by way of an arbitration agreement) – GMR Energy contended that an agreement between Indian parties to arbitrate offshore would fall foul of this provision. This, too, the High Court rejected: per precedent, offshore arbitration is compatible with the Act. (It is also particularly useful for Indian subsidiaries of foreign companies); and
  • for two Indian parties to choose an overseas seat for their arbitration (thereby disapplying Part I of the Arbitration Act) would amount to a derogation from Indian substantive law, and therefore would not be permissible. This, the High Court ruled, is not a decision to make at the stage of jurisdictional disputes between the parties.

Further, on  the issue of privity, Doosan India ‘contended that GMR Energy should be party to the SIAC Arbitration proceedings by virtue of common family ownership and governance, lack of corporate formalities between the companies, common directorships, logos and letterheads, and GMR Energy’s past conduct in making payments towards GCEL’s debts’ (I am quoting HS’s briefing here). This is referred to as the alter ego doctrine and the High Court upheld it. Liability for affiliated undertakings’ actions is to be discussed on the merits (here: by the arbitral tribunal). But a the level of jurisdiction (including reference to arbitration), Doosan India’s arguments were upheld: the common ownership between the entities; the non-observance of separate corporate formalities and co-mingling of corporate funds; and GMR Energy’s undertaking to discharge liabilities of GCEL (and the fact that it had made part payments towards the same) all conspire to the conclusion that GMR Energy is bound by the arbitration agreement.

An interesting confirmation of precedent and ditto application of the alter ego doctrine.

Geert.

 

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Assens Havn. Privity of choice of court in insurance contracts.

The European Court of Justice held last week in C‑368/16, Assens Havn. It confirmed privity of choice of court in the event of subrogation of the victim in the rights of the insured. The victim is not bound by choice of court between insurer and tortfeasor:

At 41: ‘The extension to victims of the constraints of agreements on jurisdiction based on the combined provisions of Articles 13 and 14 of Regulation No 44/2001 could compromise the objective pursued by Chapter II, Section 3, thereof, namely to protect the economically and legally weaker party.

That the CJEU confirms privity of contractual choice of court is no surprise: see most recently Leventis. In the case of insurance contracts the issue is slightly less obvious for unlike in the case of consumers and employees, the legal presumption of weakness often does not represent commercial reality.

Whether the subrogated party can make use of the choice of court clause in the underlying contract was not sub judice in the judgment.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2.

 

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Leventis. CJEU confirms principle of privity of choice of court under Brussels I.

Yesterday in Case C-436/16 Leventis the Court of Justice summarily confirmed the principle of privity of choice of court under the Brussels I Recast. I have looked at this issue before e.g. when I discussed Refcomp and Profit Sim. The tos and fros between the various parties in the case meant they were acquainted with each other in the courtroom and in arbitration panels. It also meant that actions, settlements etc. between one of them and a third party necessarily impacted commercially on the other.

However the Court of Justice essentially held that such a close, voluntary or not, relationship between the two parties does not mean that a jurisdiction clause in a contract between two companies can be relied upon by the representatives of one of them to dispute the jurisdiction of a court over an action for damages which aims to render them jointly and severally liable for supposedly tortious acts carried out in the performance of their duties. The Court simply noted that the referring national court had given no indication of choice of court made between the parties as to the latter issue, employing the classic (now) Article 25 set of criteria.

Of note is that unlike other cases such as Goldman Sachs v Novo Banco, there did not seem to be any kind of theory in relevant national law which would have led to imputability (or potential to call upon) choice of court to a third party under the given circumstances.

Geert.

(Handbook of) European private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.9.7.

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