England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Rolls Building, 7 Rolls Buildings Fetter Lane, London EC4A 1NL
		23/03/2012

Mr. Justice Teare :

1. This is an application by the Claimants ("the Banks") for an order that the Court refer to the Court of Justice of the European Union the following question for a preliminary determination under Article 267 of the Treaty on the Functioning of the European Union:

"Are proceedings, in which a public authority alleges that an interest rate swap contract into which it has entered with a financial institution is invalid on grounds that it has exercised powers available to it (under its national administrative law as a public authority) to annul its resolutions to enter into that contract, a civil or commercial matter within the meaning of Article 1 of the Council Regulation (EC) No.44/2001 of 22 December 2000 ?"

2. In order to determine this application and to understand the circumstances in which it has come to be made it is necessary to recount the litigation history of this matter, which concerns a claim by the Banks against the Defendant ("Pisa") on two interest swap agreements entered into in July 2007, one with each of the Banks.

The proceedings in England and in Italy

3. On 26 June 2009 the Banks issued these proceedings seeking declarations as to the validity of the Swaps. On 23 September 2009 the claims were amended to include claims for payment of the sums which were alleged to have fallen due but had not been paid by Pisa.
4. On 29 June 2009 Pisa exercised what has been called a power of self-redress. It resolved to cancel with retrospective effect the prior decisions of its Director of Finance Services in 2007 pursuant to which Pisa had authorised the Swaps and to give restitution of sums paid by the Banks pursuant to the Swaps. Similar decisions annulling the resolutions of the Council of Pisa entering the Swaps were taken on 15 July and 29 September 2009.
5. On 10 October 2009 the Banks commenced proceedings against Pisa in the Administrative Court for the Region of Tuscany challenging the self-redress decisions and seeking an order that Pisa's decisions to enter the Swaps were valid and had not been revoked. These proceedings were necessary because in the absence of a challenge the self-redress decisions would have become unchallengeable and there would have been a risk that a civil court would have to assume that the self-redress decisions were valid. The self-redress decisions were challenged on a number of grounds including breach of the principle of fair administrative procedure and excess of powers. The challenge was set out in a long document (some 39 pages in translation). Mr. Richard Handyside QC, counsel for the Banks, said that the challenge was restricted to showing that the exercise of the power of self-redress was invalid and that no attempt was made to obtain rulings concerning the consequences of the power of self-redress on the Swaps which was a matter for the English court. Mr. Davies-Jones, counsel for Pisa, said that the Banks had raised the issue of the effect of the self-redress decisions on the Swaps. This seems to me improbable in the light of the Banks' prior English proceedings. I consider that Mr. Handyside is correct.
6. The proceedings in the English court were served on Pisa out of the jurisdiction on 30 October 2009.
7. In January 2010 Pisa issued applications in this court challenging the jurisdiction of the English court. In essence Pisa's position was that the Italian courts had exclusive jurisdiction over the dispute concerning the Swaps pursuant to Article 22(2) of the Judgments Regulation. The Banks' position was that the English courts had exclusive jurisdiction by reason of the English jurisdiction clause contained in the Swaps and Article 23 of the Judgments Regulation.
8. Pisa's challenge to the jurisdiction of this court was dismissed by Hamblen J. on 1 May 2010; see [2010] EWHC 1148.
9. In September 2010 Pisa served a Defence and Counterclaim in each English action claiming, inter alia, that it had exercised its powers of self-redress under Italian law and so had annulled the resolutions it had made in 2007 to enter into the Swaps. As a result, it was said, the Swaps were not binding on it and were unenforceable.
10. On 11 November 2010 the Italian Administrative Court held that the self-redress decisions were valid. The judgment is 15 pages long in translation. The Banks had argued that even if the self-redress decisions were valid the question of what effect those decisions had on the Swaps was a matter for the English court. It would appear that this argument succeeded. The judgment said:

"These principles therefore mean that under our legislative system the latter [Pisa] cannot be permitted unilaterally to influence the effectiveness of the contract entered into, not even when violations of the public tender procedures have been identified. It [Pisa] will need to refer to the judge who has jurisdiction for pronouncing on execution of the contract, who – in reaching his decision- may take into account the cancellation of the public tender contract awarded."

11. On 10 December 2010 Pisa issued separate proceedings in the Italian Administrative Court. In translation the remedy sought was a "declaratory judgment of the ineffectiveness" of the Swaps "by previous suspension of the effect of the same". The Banks maintain that these proceedings were a breach of the exclusive jurisdiction clause in the Swaps. This is not accepted by Pisa who suggest that the Italian court envisaged in its judgment dated 11 November 2010 that there would be further proceedings before the Administrative Court to determine the effect of the redress decisions on the Swaps. This seems unlikely to me. If that had been the court's view it could have addressed the issue of the effect of the redress decisions because it was the Administrative Court.
12. On 27 January 2011 the Italian Administrative Court dismissed Pisa's claim. The court ruled that the declaration sought could only be granted by "the civil court".
13. Both the Banks and Pisa appealed the decisions of the Italian Administrative Court to the Consiglio di Stato. Those appeals were heard on 17 May 2011. On 7 September 2011 the Consiglio di Stato delivered its judgment on those appeals. The Banks' appeals were dismissed but Pisa's appeals were allowed. In a judgment of 42 pages in translation the Consiglio di Stato disagreed with the Administrative Court that the declaratory relief sought by Pisa could not be granted by the Administrative Court. Further, the Consiglio di Stato held that Articles 121 and 122 of the Code of Administrative Procedure "exclusively attribute said power of decision (and evaluation) of the effectiveness of the contract following the annulment of the adjudication, to the administrative judge." However, before finally determining the validity of the self-redress decisions the report of a court-appointed expert was required on the Swap transactions and their effects. The court said in terms (as translated) that the case before the Italian court concerned "the correct exercising of administrative power".
14. On 3 November 2011 the Banks appealed the decision of the Consiglio di Stato to the Italian Supreme Court, the Corte Suprema di Cassazione. The appeal document is some 41 pages in translation. The Banks seek to persuade the Italian Supreme Court that only the English court can determine the validity of the Swaps. If they fail in that endeavour they ask the Supreme Court to refer to the European Court of Justice the question whether Articles 121 and 122 of the Code of Administrative Procedure is compatible with the Judgments Regulation which, by reason of the claim by the Banks on the Swaps being a "civil or commercial matter" and by reason of the Swaps providing for the exclusive jurisdiction of the English court, provides for the English court to determine the validity of the Swaps.
15. On 21 December 2011 Pisa submitted its 23 page response to the Supreme Court. Pisa says that the matter before the Italian court is an administrative matter, not a civil or commercial matter.
16. The appeal is not expected to be heard until, at the earliest, the end of 2012.

The application and the respective arguments

17. Thus the present position is that the English Commercial Court has determined that it has jurisdiction to determine the Bank's claims on the Swaps (there has been no appeal against that decision) and the Italian Consiglio di Stato has determined that the Italian Administrative Court can determine whether, as a result of the self-redress decisions, the Swaps are valid and binding on Pisa. It is in those circumstances that the Banks have issued the present application for an order that the Court refer to the Court of Justice of the European Union the question whether proceedings, in which a public authority alleges that an interest rate swap contract into which it has entered with a financial institution is invalid on grounds that it has exercised powers available to it (under its national administrative law as a public authority) to annul its resolutions to enter into that contract, are, pursuant to Article 1 of the Judgments Regulation, a civil or commercial matter (as was common ground before the English court) or an administrative matter (as Pisa maintains and the Consiglio di Stato agrees with regard to the Italian proceedings).
18. Article 267 of the Treaty on the Functioning of the European Union provides that the ECJ shall have jurisdiction to give preliminary rulings concerning the interpretation of acts of the institutions of the EU (such as the Judgments Regulation). "Where such a question is raised before any Court or Tribunal of a Member State that Court or Tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon."
19. In the present case the Banks say that the decision of the Consiglio di Stato has differed from the decision of the English Commercial Court and has thereby cast doubt on the English court's decision that it has jurisdiction to determine the Banks' claims against Pisa. It is said that a decision on the question which has divided the English and Italian courts is necessary to enable the English court to give judgment on the Banks' claim against Pisa. It is further said that a reference would be consistent with the statement of principle by the ECJ in Cilfit and another v Ministry of Health Case (1982) 283/81 at paragraph 7 that the "obligation to refer to the Court of Justice is based on cooperation, established with a view to ensuring the proper application and uniform interpretation of Community law in all the Member States, between national courts, in their capacity as courts responsible for the application of Community Law, and the Court of Justice." It is said that the reference would also be consistent with the Information Note from the ECJ 2009/C 297/01 paragraphs 1, 5 and 18. Further it was noted that "necessary" in this context has been interpreted as meaning "reasonably necessary" and not as "unavoidable": see Polydor v Harlequin Record Shops [1980] 2 CMLR 413 at para.70.
20. In R v Stock Exchange [1993] QB 534 at p.545 Sir Thomas Bingham MR gave this guidance:

"..if the facts have been found and the Community law issue is critical to the court's final decision, the appropriate course is ordinarily to refer the issue to the Court of Justice unless the national court can with complete confidence resolve the issue itself. In considering whether it can with complete confidence resolve the issue itself the national court must be fully mindful of the differences between national and Community legislation, of the pitfalls which face a national court venturing into what may be an unfamiliar field, of the need for uniform interpretation throughout the Community and of the great advantages enjoyed by the Court of Justice in construing Community instruments. If the national court has any real doubt, it should ordinarily refer."

21. The Banks submitted that in the light of the decision of the Consiglio di Stato the English cannot possibly resolve the issues before it with "complete confidence".
22. The Banks further submitted that it was clearly desirable that a reference be made. Currently, two national courts have stated that they have jurisdiction to determine the Banks' claim against Pisa. The Judgments Regulation was intended to minimise the possibility of concurrent proceedings and to ensure that irreconcilable judgments will not be given in two member states; see recital 15 to the Judgments Regulation. If the Banks succeed in England but Pisa succeeds in Italy the Banks could face considerable difficulty in enforcing the English judgment in Italy. It was said that it is obviously desirable that the issue of jurisdiction be resolved at the European level prior to the parties incurring the costs of a trial. Moreover, the question is of considerable importance because there are other similar claims involving Banks and Italian local authorities before the Commercial Court.
23. Pisa took a very different view of this matter which it summarised in 4 "key points of divergence".

i) The English and Italian courts are not seized of the same issue. In Italy the administrative court is seized of the dispute concerning the validity of the Swaps under Italian administrative law. In England the Commercial Court is seized of the dispute concerning the validity of the Swaps under English law being the governing law of the Swaps. These are, it is said, two different issues.

ii) The English court has not addressed the question whether the claim before it was a civil or commercial matter because it was assumed to be such and it is common ground that it is. Hamblen J. was not therefore concerned with that issue but with the issue arising out of Article 22 of the Judgments Regulation.

iii) The conclusions of the two national courts are not inconsistent with each other. Each has considered the claim before it and the two claims are very different from each other.

iv) Even if there is some inconsistency the English Court can have "complete confidence" that the claim before it is a civil or commercial matter.

24. Pisa made three observations about the proceedings in Italy. The first was that the decision of the Consiglio di Stato on Pisa's appeal was made in the Banks' administrative proceedings in Italy. I am not persuaded that that is right. It seems to me more likely that that decision was made in the proceedings commenced by Pisa in Italy. The second was that the Banks' administrative proceedings were outside the scope of the Judgments Regulation. I agree. The third was that the finding by the Consiglio di Stato that the self-redress decisions automatically affect the Swaps did not conflict with the Judgments Regulation because it was made in administrative proceedings. Whether this observation is correct depends upon the proper characterisation of Pisa's proceedings in Italy. It seems likely that the Consiglio di Stato regarded those proceedings as administrative in nature. The Banks contend, as is apparent from their notice of appeal to the Supreme Court, that they raise a civil or commercial matter which should be determined by the English Court pursuant to Article 23 of the Judgments Regulation.
25. Pisa made three submissions concerning references to the ECJ. The first was that necessity is judged by reference to the necessity of a reference to the decision making process of the referring court and has nothing to do with mitigating enforcement difficulties which might arise in the future. The first proposition is clearly supported by Pardini v Ministero del Commercio (1988) Case 338/85 at paragraphs 8-10. The second proposition is a conclusion which Pisa seeks to draw from Pardini. I agree with the conclusion but base it on the meaning of Article 267 of the Treaty on the Functioning of the European Union. Pisa's second submission was that the ECJ does not give opinions on general or hypothetical questions. This is supported by der Weduwe (2002) Case C-153/00 at paragraphs 32-34. Pisa's third submission was that the requirement of necessity "in practice requires the issue of Community law to be criticial to the outcome of the case"; see BT PLC and the Office of Communications v Number (UK) Limited and Conduit Enterprises Limited [2009] EWCA Civ 1360 at paragraph 83.
26. Pisa submitted that this court should not accede to the Banks' application because:

i) The application does not identify any issue in the English proceedings upon which an answer to the reference is necessary to enable the court to give judgment. There is no dispute that the proceedings before the English court involve "civil or commercial matters".

ii) Any apprehended difficulty in enforcing such judgment as the Banks may obtain from the English court does not make a reference to the ECJ necessary to enable the English court to give judgment.

iii) The English court can proceed "with complete confidence" to determine the claims before it. The manner in which the Italian Consiglio di Stato has viewed the proceedings before it does not cast doubt on the proceedings before the English court being correctly classified (as is common ground) as involving civil or commercial matters.

iv) The Italian and English courts have not come to opposite answers on the same question. Each has considered the nature of the different claims before each court.

v) There is nothing amiss in the Italian and English courts each concluding that it may determine the validity of the Swaps. Administrative proceedings are different from civil or commercial proceedings and the Judgments Regulation does not seek to avoid overlap between different types of proceedings.

vi) In any event if something is amiss that flows from Articles 121 and 122 of the Italian Administrative Code and that is the issue which the Banks will invite the Italian Supreme Court to refer to the ECJ.

vii) Finally, the reference sought from the English court is not yet necessary. It can only become necessary if and when the Banks' appeal to the Italian Supreme Court fails.

27. For similar reasons it is said that the court should, in the exercise of its discretion, refuse to make a reference to the ECJ.

Discussion

28. I accept that it is unsatisfactory that both the English and (so far) the Italian courts have decided, in circumstances where Pisa has exercised its powers of self-redress, that it is within their respective jurisdictions to determine the validity of the Swaps. That situation is unsatisfactory because it gives rise to the risk of irreconcilable judgments in two member states. If the English court gives judgment on the Banks' claims on the Swaps in favour of the Banks and if the Italian Supreme Court (following a determination by the court appointed expert in favour of Pisa) upholds the decision of the Consiglio di Stato it can be envisaged that there will or may be difficulties in enforcing the English court's judgment in Italy. In those circumstances it is understandable that the Banks have sought to find a solution to this unsatisfactory situation before the parties incur the costs of a trial on the merits of the claims on the Swaps in the English court.
29. However, I have come to the conclusion that a solution to that unsatisfactory situation cannot properly be found in a reference by the English court to the ECJ. There is no issue before the English court as to the correct classification of the proceedings which have been commenced before it by the Banks. They involve civil or commercial matters. Nobody suggests that they do not. The English court can therefore "with complete confidence" proceed to hear and determine those proceedings and give judgment in them. The fact that the Consiglio di Stato has, in proceedings before it, decided that it may determine a question as to the validity of the Swaps arising out of the exercise of self-redress powers does not cast doubt on the correct classification of the proceedings before the English court.
30. By contrast there is a doubt, arising out of the conflicting first instance and appellate decisions in Italy, as to whether the claim made by Pisa in Italy raises a civil or commercial matter which should be determined by the English court pursuant to article 23 of the Judgments Regulation (as contended by the Banks) or an administrative matter which should be determined in Italy (as contended by Pisa). That doubt will be resolved by the Italian Supreme Court. If it resolves the doubt in favour of Pisa, the Supreme Court will be invited to refer to the ECJ the question whether Articles 121 and 122 of the Italian Administrative Code are compatible with the Judgments Regulation. Thus, if it is necessary for any court to make a reference to the ECJ to enable it to give a judgment, that court is the Italian court rather than the English court.
31. If, contrary to my opinion, the decision of the Consiglio di Stato can properly be regarded as throwing doubt on the correctness of the view which has so far been shared by both the Banks and Pisa that the proceedings in the English court, which include in particular the effect of the self-redress decisions on the validity of the Swaps, involve civil or commercial matters such that the English court cannot "with complete confidence" give judgment on the Banks' claims then, although there are reasons for resolving the unsatisfactory situation which has arisen by this court making a reference to the ECJ, I would not, in the exercise of the court's discretion, make the requested reference. In circumstances where neither party has suggested that the proceedings in England do not involve civil or commercial matters but where there is a real dispute between the parties as to whether Pisa's proceedings in Italy involve administrative or civil or commercial matters it seems to me preferable that the unsatisfactory situation which would prevail if the Italian Supreme Court dismisses the Banks' appeal should be resolved by the Italian Supreme Court referring to the ECJ the question whether Articles 121 and 122 of the Italian Code of Administrative Procedure are compatible with the Judgments Regulation. If such articles need to be considered in order to decide whether the effect of the self-redress decisions on the validity of the Swaps involves administrative or civil or commercial matters, then it is preferable that an Italian court set out the Italian legal position rather than the English court attempt to do so on the basis of translations of the Italian decisions.

Conclusion

32. I have therefore concluded that the Court should not refer the suggested question to the ECJ.