England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HC 1999 01864

		Royal Courts of Justice
		29th July 1999

Introduction

The claimant is UBS AG ("UBS"), which sues as the successor to the Swiss Bank Corporation. The defendant is Omni Holding AG ("Omni"), a Swiss company, now in liquidation. UBS commenced the action by an originating summons issued on 15 April 1999. The present application is one made by Omni by a notice dated 18 May 1999. It is made under Part 11 of the Civil Procedure Rules 1998. Omni asks the court to declare that it should not exercise its jurisdiction to try UBS's proceedings and to make an order staying them. Omni's case is that the question raised by the proceedings should be resolved in the Bern District Court in Switzerland. Mr Nigel Davis Q.C. represented Omni. Mr Iain Milligan Q.C. and Mr Andrew Baker represented UBS.

Omni's application has required two issues to be argued. In order to succeed, Omni has to obtain favourable answers on both. The first issue is whether or not UBS's claim falls within the Lugano Convention. Mr Davis's argument for Omni is that the claim falls outside the Convention. If he is wrong on that he accepts that, on the facts of this case, he cannot ask the court not to entertain the action (the claim arises under an option agreement which contains an express English jurisdiction clause so that article 17 of the Convention gives the English court exclusive jurisdiction and entitled UBS to bring its action).

The second issue arises only if Mr Davis is right that the Convention does not apply. In that event, whilst he accepts that the English court has jurisdiction to entertain the action, he submits that the Bern court is the more natural and appropriate forum for the issue which it raises; and he submits that the court ought to exercise its discretion to stay the English proceedings so that the issue can be litigated in Bern.

Mr Milligan's position for UBS is that Omni's application ought to fail. He submits that the claim falls within the Convention, so that Mr Davis does not reach the point at which he is able to ask the court to exercise its discretion to stay the proceedings. If he is wrong on that, he argues that anyway no case is made out by Omni for a stay.

Background facts

These are complicated but it is necessary to describe them in detail.

In 1989, companies within the Omni group acquired 83% of the share capital of Harpener AG, a German company. The shares were listed on the Frankfurt Stock Exchange. The size of Omni's holdings meant that it would be required to make an offer to acquire the remaining shares in Harpener. With a view to avoiding this, steps were taken to transfer 32.5% of the Harpener shares to companies having no direct relationship with Omni.

These steps led to the making of a number of transactions on 18 December 1989. They included two agreements for loans totalling DEM 400m from a syndicate of banks on whose behalf Swiss Bank Corporation ("SBC") acted as agent. One agreement was for a loan of some DEM 99m to Naranda Holdings Limited, a Jersey company. Naranda is described in the option agreement to which I shall come as "SPV", and I shall also call it that (SPV stands for single or special purpose vehicle). The other agreement was for a loan of some DEM 300m to Harp Beteiligungen GmbH ("Harp"), a German company which is now in liquidation. All members of the syndicate were lenders under each loan. Both agreements were expressly governed by English law and contained provisions whereby the parties agreed to the jurisdiction of the English courts to settle any disputes arising out of them.

As security for these loans, two share pledges were created on 18 December 1989. One was a pledge by Harp of 830,000 Harpener shares (32.5% of the share capital), which stood as security for the indebtedness under the Harp loan agreement. The other was a pledge by Inspectorate Beteiligungs GmbH of 290,000 shares in Harpener (11.36% of the share capital), which stood as security for the indebtedness under the SPV loan agreement. Both pledges were in favour of SBC as agent for the syndicate and were expressed to be governed by German law. In addition, by a deed of undertaking in favour of SBC also dated 18 December 1989, SPV undertook to pay SBC any sum due under the Harp loan agreement which Harp failed to pay.

On 18 December 1989, an option agreement was also entered into. The parties were SPV, Omni Swiss Investments BV ("OmniSwiss", a company registered in the Netherlands, now in liquidation) and Omni. It granted call and put options over the option assets, which were defined as being the issued shares of Harp Participation BV (a Netherlands company), a loan to be made by SPV to Harp Verwaltung GmbH and certain subrogation rights.

This agreement is at the centre of the issues raised by UBS's action. It granted SPV an option to put the option assets on OmniSwiss at an aggregate price equal to the "Agreed Price". This was defined in clause 1(B) as being an amount in DEM equal to the aggregate (to be determined at the time immediately prior to the actual payment) of the outstanding indebtedness under (inter alia) the Harp and SPV loan agreements together with any other sum payable by OmniSwiss or Omni under the option agreement. Completion of the sale and transfer of the option assets was to take place on the third business day after giving the exercise notice. Payment of the Agreed Price on completion was to be made to the account designated for payments by SPV to SBC under the SPV loan agreement. Omni was obliged to perform in the event that OmniSwiss failed to do so. On receipt, the Agreed Price was to be applied in discharge of the indebtedness under the loan agreements.

Clause 13(D) of the option agreement provided as follows:

"Liquidated Damages: Without prejudice to the provisions of Clause 13(C), if OmniSwiss and Omni should each default in their respective obligations to purchase the Option Assets and pay on the due date the whole or any part of the Agreed Price following the exercise of the Call Option and the Put Option OmniSwiss, failing whom Omni, undertakes forthwith to pay by way of liquidated damages to SPV a sum equal to the Agreed Price or so much thereof as is at that time outstanding and OmniSwiss and Omni each acknowledges and the parties agree that sum represents a genuine and reasonable pre-estimate of the loss that SPV would suffer in consequence of such a default. Upon payment in full of such damages SPV will make those documents referred to in Clause 3(C)(3) available upon request by either OmniSwiss or Omni."

Clause 18(A) to (E)(1) provided as follows:

"18 GOVERNING LAW AND JURISDICTION

(A) Governing Law: This Agreement shall be governed by and construed in accordance with the laws of England.

(B) English Courts: For the benefit of SPV, all the parties irrevocably agree that the High Court of Justice in England is to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that, accordingly, any legal action or proceedings arising out of or in connection with this Agreement (`Proceedings') may be brought in that court and Omni and OmniSwiss irrevocably submits to the jurisdiction of that court.

(C) Other Competent Jurisdiction: Nothing in this Clause 18 shall limit the right of SPV to take Proceedings against OmniSwiss or Omni in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude SPV from taking Proceedings in any other jurisdiction, whether concurrently or not.

(D) Venue: OmniSwiss and Omni each irrevocably waives any objection which it may at any time have to the laying of the venue of any Proceedings in any court referred to in this Clause 18 and any claim that any such Proceedings have been brought in an inconvenient forum.

(E) Service of Process:

(1) OmniSwiss and Omni each irrevocably appoints Omnicorp Advisory Services Limited (now of 2 Balfour Place, London W1Y 5AH) to receive, for it and on its behalf, service of process in any Proceedings in England. Such service shall be deemed completed on delivery to the relevant process agent (whether or not it is forwarded to and received by OmniSwiss or Omni). If for any reason a process agent ceases to be able to act as such or no longer has an address in London OmniSwiss and Omni each irrevocably agrees to appoint a substitute process agent acceptable to SPV, and to deliver to SPV a copy of the new agent's acceptance of that appointment, within 30 days."

By an assignment dated 18 December 1989, SPV assigned the benefit of the option agreement to SBC as trustee for the syndicate and by way of further security for the indebtedness under the SPV loan and the SPV undertaking. Clause 16, headed "Governing Law and Jurisdiction", was in all material respects equivalent to clause 18 of the option agreement. It provided that the assignment should be governed by English law and, for the benefit of SBC and the lenders, SPV irrevocably submitted to the jurisdiction of the English courts and waived any objection that those courts might be an inconvenient forum.

In 1991, the Omni group ran into financial difficulties. On 8 May 1991, SBC gave notices under the Harp and SPV loan agreements demanding repayment. On 15 March 1991, SBC gave a notice exercising the put option under the option agreement, the date for completion being 21 March 1991. Neither OmniSwiss nor Omni completed, either on that date or at all. On 2 April 1991, Omni petitioned the Swiss court for protection from its creditors and the court made an order for its interim protection and for the appointment of provisional liquidators.

On 26 April 1991, SBC filed a claim with the liquidators for damages equal to the Agreed Price under the option agreement, calculated as DEM 446,629,300.19 at the due date of completion, plus interest accruing since then. Omni's liquidation led to the collapse of the whole Omni group. The result was that the option assets had no realisable value and the claim was not reduced to reflect any such value. On 18 November 1991, composition proposals in respect of Omni were approved by the District Court of Bern and joint liquidators were appointed in respect of Omni.

The demands for repayment of the Harp and SPV loans were not satisfied and so SBC enforced the two pledge agreements over the Harpener shares. On 24 June 1992, SBC received net proceeds of DEM 263,323,200 from the sale of the pledged shares. On 5 October 1992, notice was given to the liquidators of such sales. On 2 March 1993, OmniSwiss's liquidation commenced in the Netherlands.

The liquidators have accepted, by a decision dated 24 March 1999, that SBC is entitled to prove in Omni's liquidation for some DEM 447m inclusive of interest up to 2 April 1991, but less the net proceeds of the pledged shares. SBC disputes the correctness of the liquidators' decision that it has to give credit for the net proceeds in the amount for which it may prove. UBS (the claimant) is SBC's successor and on 19 April 1999 it appealed the liquidators' decision to the Bern District Court. Four days earlier, on 15 April 1999, it had also issued the present originating summons. The substance of the relief sought by the latter is a declaration that it does not have to give credit for the share sale realisations.

I have not heard any argument on the question of whether or not such credit does have to be given. That is, of course, the substantive issue raised by the proceedings. Mr Davis and Mr Milligan are in agreement, however, that that question is one of English law, involving as it does questions of construction arising under the option agreement. They are also agreed that it is a question which will have to be decided in UBS's appeal in Bern as a preliminary to the determination of what distribution is to be made to UBS in Omni's liquidation.

The issues

(a) The Lugano Convention

Article 1 of the Convention provides as follows:

"This Convention shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to revenue, customs or administrative matters.

The Convention shall not apply to:

...

2. bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings; ..."

The Convention has the force of law in United Kingdom law by s.3A of the Civil Jurisdiction and Judgments Act 1982. There is no dispute that UBS's claim in this action is or involves a civil or commercial matter, or therefore that, unless it is excluded by the paragraph 2 exceptions, it is one to which the Convention applies. There is also no dispute that the composition to which Omni is subject in Switzerland falls within the ambit of "winding-up of insolvent companies ... compositions and analogous proceedings" within that paragraph. The sole issue is whether or not UBS's claim is one "relating to" the winding-up of Omni so as to be within the paragraph 2 exceptions. Mr Davis submits that it is and so is outside the Convention. Mr Milligan submits that it is not and so is within it.

If I were required to approach this question unaided by authority, I think I would see much force in Mr Davis's argument. The words "relating to" are capable of a wide interpretation; there is no doubt that UBS's claim has arisen in the course of, and in connection with the determination of its rights in, Omni's liquidation; and so it would not be difficult to arrive at a conclusion that the claim is one "relating to" Omni's winding up.

There is, however, authority on paragraph 2 which requires a rather narrower approach to its construction. The case is the decision of the European Court of Justice in Gourdain v. Nadler [1979] ECR 733. That decision was on the identical wording in the Brussels Convention rather than on the Lugano Convention, but both sides agree that it identifies the principle which I must apply. At p.743 the Court pointed out that the reason for the exceptions from the Convention in paragraphs 1 to 4 of Article 1 is "because of the special nature of certain matters and of the profound differences between the laws of the Contracting States (". At p.744, it said:

"As far as concerns bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings, according to the various laws of the Contracting Parties relating to debtors who have declared themselves unable to meet their liabilities, insolvency or the collapse of the debtor's creditworthiness, which involve the intervention of the courts culminating in the compulsory 'liquidation des biens' in the interest of the general body of creditors of the person, firm or company, or at least in supervision by the courts, it is necessary, if decisions relating to bankruptcy and winding-up are to be excluded from the scope of the Convention, that they must derive directly from the bankruptcy or winding-up and be closely connected with the proceedings for the 'liquidation des biens' or the 'reglement judiciaire'.

In order to answer the question referred to the Court by the national court it is therefore necessary to ascertain whether the legal foundation of an application such as that provided for in Article 99 of the French Law is based on the law relating to bankruptcy and winding-up as interpreted for the purposes of the Convention."

It is apparent, therefore, that for the paragraph 2 exception to apply it is not enough that the claim can be said to relate to the winding-up of an insolvent company: it must derive directly from it. For example, a claim by a liquidator to recover the company's pre-liquidation debts would be a claim which would be made in the course of the winding-up and could therefore in one sense be said to relate to it; but I respectfully agree with Rattee J when he expressed the view in In re Hayward, decd. [1997] Ch. 45, at 54D, that such a claim would not be within the paragraph 2 exception so as to take it outside the scope of the Convention. It is a claim which would have existed as much before as during the winding-up and so would not be one deriving directly from it. By contrast, I think it probable that (by way of non-exhaustive examples) claims in a compulsory liquidation by a liquidator under s.238 (transactions at an undervalue) or s.239 (preferences) of the Insolvency Act 1986, being claims for which an insolvency regime for the company is a pre-requisite, would be within the paragraph 2 exception. Such claims derive directly from the insolvency.

The question, therefore, is as to which side of the line UBS's claim falls. Mr Davis submits that the claim has been triggered by Omni's insolvency and that it is unthinkable that the question which it raises could have arisen if Omni had not become insolvent. UBS filed its claim with Omni's liquidators as long ago as 1991, its claim has in part been rejected and it has appealed that decision in Switzerland in accordance with its rights under the Swiss bankruptcy code, being the code which governs the procedure for determining the rights of creditors in a Swiss insolvency. In these circumstances Mr Davis submits that UBS's claim in this action derives directly from Omni's insolvency so that the paragraph 2 exception applies. The consequence is, he says, that the Lugano Convention does not apply to the claim.

By contrast, Mr Milligan submits that the nature of the issue raised by UBS's originating summons is a free-standing one which turns primarily on the construction of the option agreement and so involves a question of English law. The answer to that issue will determine how much UBS can prove for in Omni's liquidation although the precise amount of the distribution which will ultimately be made as a result of the proof will have to be determined by Swiss insolvency law. This latter consideration does not, however, mean that the UBS claim in the English proceedings is one "relating to" Omni's winding-up. Mr Milligan submits that it is not, and that it is therefore within the Convention.

I consider that Mr Milligan's argument is to be preferred. I have expressed the view that a claim by a liquidator to recover debts due to the company would not be within the paragraph 2 exception; and if such a claim involved a question of construction of a pre-liquidation contract between the company and the debtor, I do not consider that the question of construction would be within the exception either. This case is closely akin to that. The substance of UBS's case is that it is claiming that, upon the true construction of its (and its assignor's) pre-liquidation relationship with Omni, the indebtedness for which it is entitled to prove in the liquidation is greater than Omni's liquidators have so far been prepared to accept. A claim of that nature is not, in my view, one which derives directly from Omni's winding-up. It is one which was capable of arising quite apart from any such winding-up. Omni's insolvency now requires the question to be determined. But it is not one which derives directly from the insolvency. It derives from the dispute between Omni and UBS as to the latter's rights under the pre-liquidation transactions in which they engaged.

I hold, therefore, that the UBS proceedings are within the Lugano Convention. Were I to do so, Mr Davis accepted that it would follow that Omni's present application must be dismissed.

(b) Should the court exercise a discretion to stay UBS's action?

Given my conclusion under issue (a), which Mr Davis accepts is fatal to Omni's application, this issue does not arise for decision. As, however, I heard argument on it, and in case I am wrong in my conclusion on issue (a), I ought to express my views.

Mr Davis starts his argument from the disadvantage that, by clause 18(A), the option agreement is governed by English law; that by clause 18(B) the parties agreed to the English courts having jurisdiction; and that, by clause 18(D), Omni irrevocably waived any objection to the jurisdiction of those courts. He recognises the hurdles which those provisions place in Omni's path. He submits, however, that clause 18(B) does not oust the English court's jurisdiction or discretion to stay the proceedings in favour of proceedings in a different forum; and that, if he is right on that, the terms of clause 18(D) cannot do so either. He accepts that UBS is in principle entitled to pursue the present action here if it would be unjust for it to be confined to its remedies elsewhere. He accepts also that the burden is on Omni to show that there is another forum for the resolution of the issue which is more appropriate than England. He accepts that in exercising its discretion in this type of application the court must have regard to the interests of all the parties and to the ends of justice. See, generally, Spiliada Maritime Corporation v. Cansulex Ltd. [1987] AC 460.

As to the English jurisdiction clause contained in clause 18, I agree with Mr Davies that clause 18(B) is not fatal to his application for a stay, although the policy of the courts is to hold parties to bargains such as clause 18(B) in the absence of strong reasons to the contrary. In Commercial Bank of the Near East Plc v. A,B,C and D [1989] 2 Ll.L.R. 319, Saville J said at p. 321:

"My attention was drawn to two authorities: The Chaparral, [1968] 2 Lloyd's Rep. 158 and The Spiliada, [1987] 1 Lloyd's Rep 1; [1987] AC 460. The Chaparral is an example to my mind of the fact that prima facie it is the policy of the Courts to hold parties to bargains which they have made – at all events commercial bargains such as the present. If a party enters into an agreement containing a jurisdiction clause such as the one in this case [which was comparable to clause 18(B)], then in the ordinary way and in the absence of strong reasons to the contrary, the Court will hold the parties to their bargain with regard to jurisdiction. This rule is not wholly inflexible, however, because there may be facts and circumstances which lead the Court to a conclusion that the proceedings should nevertheless be stayed or set aside. In the present case the jurisdiction clause in the guarantee did not, unlike The Chaparral, provide for the exclusive jurisdiction of the English Courts because it gave the bank the right to enforce the guarantee in any other competent jurisdiction. To my mind, however, this makes very little difference to the principle that the Court will hold the parties to their bargain in the absence of strong reasons to the contrary."

A rather stricter view was taken by Waller J in British Aerospace PLC v, Dee Howard Co. [1993] 1 Ll.L.R. 368, at 375, 376, where he indicated that for someone such as Omni to be able to ask the court to displace the jurisdiction bargain which it has made it needs to be able to point to some factor which it could not have foreseen when it made the bargain; and Mr Milligan submitted that there is no such factor in this case, since the insolvency of Omni was a "triggering event" expressly foreseen as a possibility by clauses 3(B) and 7(E) of the option agreement.

As regards clause 18(D), Mr Milligan submitted that this operates to deprive the court of any jurisdiction or discretion to stay the proceedings on Omni's application. However, I prefer Mr Davis's submission that if clause 18(B) does not have that consequence, then nor can clause 18(D). In Bankers Trust International plc v. RCS Editori SpA. [1996] CLC 900 Longmore J had to consider whether to grant an injunction to restrain the defendant from continuing proceedings in Italy which had been commenced in defiance of an agreement containing an exclusive jurisdiction clause under which disputes were to be determined by the English courts. The defendant in turn applied for a stay of the English proceedings. Longmore J approached the case on the basis that the court has a jurisdiction to stay an action which has been brought in an agreed forum, although there must be strong grounds to justify such a stay. The jurisdiction clause in the contract before him included a provision in terms similar to those of clause 18(D). He said about that clause, at p.907:

"It seems to me that that amounts to a promise that the defendant will not object to English jurisdiction. Nevertheless that is precisely what they are doing and it seems to me for that reason also that it is appropriate that an injunction in some form should be granted."

He therefore regarded the existence of that provision as at least fortifying the claim for the injunction. I do not, however, interpret this judgment as deciding that a clause of that type has the effect of wholly ousting the court's jurisdiction or discretion to stay proceedings which have been brought in the forum provided for by the jurisdiction clause.

I therefore approach Omni's application for a stay in the light of the fact that it has made an unambiguous bargain that the English courts should have jurisdiction, a bargain which it underlined by clause 18(D). I find it unnecessary to express a view on whether the circumstances in which the court might grant a stay are as narrowly circumscribed as Waller J indicated in the British Aerospace case, an approach at which Mr Davis directed some criticism. It is, however, agreed that Omni must at least show strong reasons for claiming to be released from its bargain.

Has Omni identified any such reasons in this case? I bear in mind that, whatever decision the English court might come to in the proceedings, the same question will have to be the subject of determination by the Bern court in the course of deciding the appeal which UBS launched on 19 April 1999, so that, if the English proceedings are allowed to continue, there will be some duplication of proceedings.

Mr Milligan's preferred stance is that, once the English court has ruled on the question raised by the originating summons, its decision will be recognised by the Bern court and will be applied by it in disposing of the appeal. There is, however, an issue on the evidence as to whether the decision of the English court will be so conclusive; and Mr Davis's position is that it will not. He accepts, however, that the Bern court will at least have regard to any English decision in determining UBS's rights in its pending appeal.

Accepting that the Bern court will at least have regard to any English decision, it appears to me that there are compelling reasons for allowing the English court to decide the question which UBS has posed it. That question is one of English law. On the face of it, an English court is the most appropriate forum for its determination; and Omni has expressly agreed to the jurisdiction of that court. I would expect any decision by an English court on the question to be regarded as of assistance by the Swiss court, even if it is not regarded as conclusive – were the situation reversed, I would expect an English court to derive great assistance from a prior decision of a Swiss court on the very question of Swiss law which it had to decide. Since, therefore, a decision of the English court on the question is likely to be of assistance in the determination of the Swiss appeal, I regard that factor as pointing firmly away from the granting of a stay. This conclusion is, I consider, in line with the approach of Clarke J in Berliner Bank A.G. v. C. Czarnikow Sugar Ltd. (The "Rama") [1996] 2 Ll.L.Rep. 281, at 291.

It appears to me, therefore, that not only have the parties expressly agreed that the English court should have jurisdiction to decide the question which UBS wants it to decide, it is likely to be of real benefit to the disposal of UBS's appeal in Bern if it does decide it. In my view, once that position is arrived at, all the other points advanced by Omni as supporting a stay fall away as being of little weight. Most of them revolve around the point that Omni is the subject of a Swiss insolvency regime and that all questions concerning the winding-up of Omni should be determined in Switzerland. For the reasons given, and in the particular circumstances of this case, I consider that the English proceedings will be likely to serve a valuable function in aid of the disposal of the Swiss proceedings.

Mr Davis also submits that it is now too late in the day for UBS to have recourse to the English courts: he points out that its negotiations with the Omni liquidators have been going on in Switzerland since 1991. In my view, there is nothing in that. The negotiations have been lengthy but their outcome has been a decision in March 1999 which UBS regards as wrong as a matter of English law; and I can see no good reason why UBS should not now be entitled to ask an English court to determine the point.

Mr Davis also makes the point that the Swiss appeal will be subject to a process which provides for an accelerated hearing which should take place within six months, or perhaps a little longer. I do not regard this as a material factor either. The issue raised by UBS's action is a short one, capable of being disposed of within two days. If the Swiss proceedings are proceeding on a fast track, then I consider that the right way to deal with the English action is to direct its expedition, with a view to a hearing and decision during the next sittings.

Mr Davis argued Omni's case very carefully and comprehensively. However, I am not satisfied that he has identified grounds which have anything like the strength necessary to justify a stay of UBS's proceedings. I dismiss Omni's application.

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