England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)

		The Rolls Building 7 Rolls Buildings Fetter Lane London EC4A 1NL
		8th December 2017

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MRS. JUSTICE COCKERILL:

1. In this application the claimant (to whom I shall refer as "DBSH") is a Chinese company. It is the Shanghai branch of Deutsche Bank (China) Co Ltd. It is a wholly owned foreign commercial bank incorporated in the People's Republic of China where it carries on business as a foreign investment bank. It is also a wholly owned subsidiary of Deutsche Bank AG (to whom I shall refer as "DBAG") a company incorporated in Germany and which is a well-known bank.
2. In this application DBSH applies for a summary judgment under CPR rule 24.2 in relation to part of its claim for declaratory relief against the defendant to the claim (to whom I shall refer as "BFHK"). BFHK is a company incorporated in Hong Kong and is a member of the Bright Food Group. The application has been supported by a witness statement of Mr. Beng-Hong Lee dated 25th October 2017 and has been presented to me by Mr. Handyside QC.
3. The claim concerns a series of Cross Currency Swap Transactions to which I shall refer in more detail later. These were entered into between DBAG, acting through its Hong Kong branch (to which I shall refer as "DBHK"). I note here that unlike DBSH, DBHK is not a separate legal entity from DBAG and the cross currency swap transactions were between DBAG and BFHK. I shall refer to those transactions as "the transactions". The terms of the transactions are contained in a 2002 ISDA Master Agreement and associated trade confirmation to which I shall refer as "the transaction documents".
4. What underpins this application is that on 13th June 2016 BFHK brought proceedings against, inter alia, DBSH in Shanghai. In those Shanghai proceedings it seeks to contend, amongst other things, that DBSH was a party to the transactions and that by virtue of being a party to the transactions DBSH owed certain duties to BFHK in relation to the transactions. I shall deal with the detail of those proceedings in some more detail later.
5. The transactions are subject to a non-exclusive English jurisdiction clause and are expressly governed by English law. So, DBAG has brought proceedings against BFHK in England seeking declaratory relief to enforce the terms of the transaction documents but DBSH, as a separate entity, has sought, in this claim and in this application, declarations from the English court. In particular in this application DBSH seeks declarations that DBSH is not and never has been a party to any of the transactions or the transaction documents; that the only parties to each of the transactions in the transaction documents have ever been DBAG and BFHK, and DBSH has not at any time owed an obligation or duty or other responsibility to BFHK arising out of any of the transaction documents.
6. The claim form in this action was issued on 26th May 2017, permission was granted for DBSH to serve the claim form and particulars of claim on BFHK out of the jurisdiction by an order dated 27th June 2017, relying on the CPR PD 6B 3.1(8) jurisdiction which permits service out of the jurisdiction for, essentially, negative declaratory relief as to the existence of the contract.
7. BFHK filed an acknowledgement of service in relation to the action on 4th August 2017. That acknowledgement of service was one indicating an intention to contest the jurisdiction of the English court to try the claim. That therefore required BFHK to make an application and to serve evidence in relation to the jurisdictional challenge within a period of time. However, BFHK did not make an application under CPR Part 11 to contest the jurisdiction and it has not filed a defence. In those circumstances it is submitted, and I accept, that BFHK is to be treated as having accepted that the court has jurisdiction to try the claim under CPR 11.5 and submitted to the jurisdiction. Since the failure to contest the jurisdiction there has also been confirmation from Quinn Emanuel Urquhart & Sullivan LLP who were acting for BFHK, that as at middle of September they did not have instructions to file a defence.
8. On 7th November 2017 Quinn Emanuel came off the record for the defendant. When this application was issued it was served on BFHK's then solicitors (on 26th October 2017) and a further copy of the application and the notice of the hearing date was sent to BFHK at the address for service set out in its notice of change of solicitors on 16th November 2017. Therefore, by two routes it appears that attempts were made to serve the application in a way which ought to have reached BFHK and that service was made validly via their then solicitors.
9. Since that time I am told that BFHK have been notified of this hearing; inter alia they were served with the application bundle, the skeleton argument which sets out the date of the hearing and the statement of costs for this hearing at the address which was notified. Thus, I think it can be fairly said that they have been notified of this hearing and told of the hearing date.
10. They did not appear before me today and they were not represented but I am satisfied, given all the circumstances, that all reasonable steps were taken to ensure that the proceedings came to their attention and the fact that they are not here reflects a deliberate choice not to be here.
11. I now turn to some further background in relation to the claim. In or about 2012 BFHK was raising debt in US dollars and converting it into approximately £500 million to lend to its UK subsidiary in Europe. That was to facilitate the purchase through subsidiary companies of a majority stake in Weetabix. The accounting currency of BFHK was US dollars. The accounting currency of the Bright Food Group was Chinese Yuan.
12. Accordingly, BFHK and DBAG (acting through DBHK) entered into two agreements which underlie this claim and this application. They are, in the first place, two GBP/USD Cross Currency Swap Transactions and two USD/CNY Cross Currency Swap Transactions on 27th June 2013. These were to manage fluctuations in the value of BFHK and BFG's balance sheets, caused by movement between the respective GBP/USD and GBP/CNY exchange rate.
13. The circumstances are that on 30th September 2014, following a rise in the value of the pound, BFHK and DBAG (again DBAG acting through DBHK) entered into two GBP/USD Cross Currency Overlay Swap Transactions to restructure the original GBP/USD Cross Currency Swaps. It is that restructuring effectively which is in issue in the Shanghai proceedings. In those proceedings, commenced on 13th June 2016 by BFHK against DBAG, DBHK and the claimant in these proceedings, DBSH, BFHK seeks, firstly, declarations that the trades entered into on 27th June 2013 were valid and binding.
14. Second, BFHK seeks declarations that the trades entered into on 30th September 2014 are invalid and/or have been rescinded. In the alternative, if those trades are valid and binding, damages for breach of contract and/or in tort in the sum of approximately US$118 million based on the exchange rate in July 2016. The essence of that is that the BFHK want to unpick the overlay swaps and return to the original swaps.
15. I should note that, having looked at the proceedings which have been commenced in Shanghai, one can see that the declarations refer to all the defendants including DBSH as parties to the contract and that the structure of the claim is that it is said that by virtue of the fact that they are a party to the contract, liability follows from that. I also note, based on an evidence catalogue served in those proceedings which was put in front of me, it is said for BFHK that the execution of the contracts was done by DBAG on behalf of DBSH, that DBSH, as a party to the contract, performed and executed all the contracts. So it is plain from what is said in those proceedings that there is an allegation that DBSH is a party to the contract.
16. DBSH have challenged the jurisdiction of the Shanghai court on 18th November 2016. This application was dismissed by the Shanghai court on 30th October 2017. DBSH has brought an appeal against this decision which, I understand, is unlikely to be determined before January or February. I am told that DBSH intends to adduce any judgment in its favour on this application in evidence in support of its appeal of the Shanghai court's decision.
17. I am also told that there is no formal deadline in relation to submitting such a judgment, that it would still be possible to lodge documents in relation to that appeal and that it would also potentially be of relevance if the appeal fails and the substantive proceedings did continue.
18. In the meantime the other thing which has happened is that on 12th July 2017 DBAG designated an early termination date in relation to the transactions following the sale by the Bright Food Group of its interest in Weetabix. On the 18th and 19th July 2017 BFHK paid the sums due from the early termination of the transactions to DBAG under protest.
19. What is sought this morning is an application for summary judgment. Given that the defendant has not served a new acknowledgement of service, it is not pursuing its jurisdiction challenge and therefore, arguably, the claimants would be entitled to enter default judgment for their claims. The difficulty with that course is that default judgments are not necessarily regarded as having the same status as a reasoned judgment of a court. There may be difficulties in enforcing or relying on a default judgment. For that reason, as is often done, the claimant has sought instead to pursue summary judgment, coming before this court with detailed evidence and explaining to me the basis of the claims so that I may give the reasoned judgment on the merits which they seek.
20. The principles which govern summary judgment in this court are well established. The relevant provision of the CPR is CPR 24.2 and that provides:

"24.2 The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if –

(a) it considers that –

(i) that claimant has no real prospect of succeeding on the claim or issue; or

(ii) that defendant has no real prospect of successfully defending the claim or issue; and

(b) there is no other compelling reason why the case or issue should be disposed of at a trial."

21. There is extensive authority as to how the court operates in relation to such applications which deal with quite a variety of circumstances which can arise. For current purposes, I need only summarise a few of those principles. The first is that, as the wording of the rule suggests, the court has to consider whether the person against whom summary judgment is sought has no real prospect of succeeding in their claim or their defence. That requires the court to consider the difference between a realistic, as opposed to a fanciful, prospect of success. A fanciful case is one which is entirely without substance, as has been established by the House of Lords in Three Rivers District Council v. Bank of England [2001] UKHL 16 at 95. In referring to a realistic prospect of success what the court is looking for is a prospect of success that carries some degree of conviction and not a claim or defence that is merely arguable, see ED & F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472.
22. The overall burden of proof in making the application remains on the claimant to establish, if it can, the negative proposition that the defendant has no real prospect of success in the sense that I have referred to and that there is no other reason for trial. So far as no other reason for trial is concerned, that is a slightly elusive concept that is very rare to be found, although it will be a reason for trial where there are, for example, circumstances which plainly ought to have been investigated.
23. Having considered the principles on which the court acts, I now turn to the grounds for DBSH's application and, in particular, how that applies in relation to the fact that they are seeking declarations. The court's power to make declarations is a discretionary power. I have been referred by Mr. Handyside QC to a number of relevant authorities which establish the following propositions.
24. First, that when considering whether or not to grant a declaration the court should take into account justice for the claimant, justice for the defendant, whether the declarations would serve a useful purpose and whether there are any other special reasons why or why not the court should grant a declaration: Financial Services Authority v. Rourke [2002] CP Rep 14. Secondly, in determining negative declarations the court should take a pragmatic approach and consider whether the declaration sought will serve a useful purpose and where a negative declaration would help to ensure that the aims of justice are achieved, the courts should not be reluctant to grant such declarations: Messier-Dowty Ltd v Sabena [2000] 1 WLR 2040 at paragraph 41. Thirdly, it is sufficient that the claimant has a real commercial reason for bringing a claim for declaratory relief in England: Nokia Corporation v Interdigital Technology Corporation [2006] EWCA Civ 1618 at 19 to 20.
25. I was also referred to the most recent case dealing with these principles, which is Fujifilm Kyowa Kirin Biologics v AbbVie Biotechnology [2017] EWHC 395 at paragraphs 374 to 377. I was urged to read the fairly lengthy passage there which summarises the principles and also adjures the court to be careful as to whether it considers that it is appropriate to grant such a declaration where the predominant purpose is for use in a foreign court.
26. What is said for the claimant is that the premise or at least part of the premise for the claim brought against DBSH in the Shanghai proceedings is that it was a party to the transaction documents. BFHK asserts that the transactions were entered into by and between BFHK and DBSH through its overseas affiliates, namely DBAG and DBHK, and were actually performed by BFHK and the defendants to the Shanghai proceedings including DBSH. As I said, I have been shown the pleadings in the Shanghai proceedings and it can be seen that that is the allegation which is made. On that basis, DBSH says that there is an asserted right which is contrary to what it says is the correct answer as to what the contractual position is as a matter of English law. It seeks a ruling in these proceedings from the English court concerning the parties to the obligations owed under the transaction documents as a matter of English law and, in particular, that it is not a party to and owes no obligations to BFHK under the transaction documents.
27. What is said to me is that while the law of the People's Republic of China does not recognise the principle of res judicata, any declarations granted by the English court on a summary judgment application may have some persuasive value in the People's Republic of China courts, either in relation to the appeal or later and, if that is not successful, in relation to substantive proceedings. There is a positive intention on the part of DBSH to use this judgment, if I were to give it, in its favour on the application in support of its appeal against the decision of the Shanghai court, and so I should not think that this is a case where a declaration should be refused on the basis that it would be, as it was put in the Nokia Corporation case, the legal equivalent of shouting in an empty room.
28. Further, the claimant said that since BFHK is deemed to have submitted to the jurisdiction of the English court to determine DBSH's claim, even if declarations by the English court might not be followed in the courts of the People's Republic of China, DBSH has a legitimate commercial interest in obtaining the ruling in England, that as a matter of English law it is not a party to and owes no obligation to the BFHK under contracts governed by English law which are subject to a non-exclusive jurisdiction clause.
29. On this point I am satisfied that this is a case where the grant of declaration, if justified on the merits, is appropriate as a matter of discretion. Given the proceedings in the People's Republic of China courts, there is reason to believe that a declaration of the position as a matter of English law given by an English court may be of utility to the claimant and it may also be of utility to the courts of People's Republic of China either on appeal or at a later stage. In those circumstances, one might say that a negative declaration would help to ensure that the aims of justice are achieved, that being one of the criteria which the authorities establish.
30. So far as the recent caution to this court to be careful when granting declarations for a foreign court it is said that this is not simply a declaration which is sought in relation to a foreign court. In any event the declaration may be of utility to the claimant in the United Kingdom and this is a rather different case to the kinds of cases where the court has been wary about granting a declaration in relation to circumstances which are likely to be predominantly debated before a foreign court. There is, it is said, no element of forum shopping here because there is a non-exclusive English jurisdiction clause and the contracts are governed by English law. It is not a question of there being a number of possible fora which could be equally appropriate.
31. I accept this submission. This is a case where DBSH should be entitled to seek a declaration in any event, because the case is uniquely within this court's ability to judge the position so far as the contract is concerned because it is an English law contract. It may be of utility here, even if its obvious use is for a foreign court. It is not a forum shopping case. For these reasons I am satisfied that this is not an abusive application, it is not inappropriate and it is not an application which is likely to be of no utility so as to be the equivalent of shouting in an empty room.
32. That then requires me to consider the merits of the claim. What is said is that BFHK has no real prospect of establishing that DBSH was a party to the transactions or owed any obligations to BFHK thereunder. I have been shown in some detail the transaction documents and what I have been shown demonstrates the following on the face of the documents before me.
33. First, DBSH is not named as a party to the transaction documents, whether the Master Agreement or the individual transaction documents. The only named parties to the transaction documents are BFHK and DBAG. I have been shown both the Master Agreement and annexures. I have also been shown the provisions within the Agreement which show that the parties represented that they were entering into the transactions as principal and not as agent for any person or entity.
34. Section 10(b) of the Master Agreement (which was shown to me) provides that DBAG can only enter into a transaction through, book a transaction in and make and receive payments and deliveries with respect to a transaction through any office or branches specified in Part 4(d) of the Schedule and not any other office unless otherwise agreed in writing. So far as those specified offices are concerned, I have been shown what those are both in the Master Agreement and in the Schedule to the Master Agreement and it is clear that in none of those is DBSH specified as one of the branches through which business can be done.
35. I am told that it has not been agreed in writing that DBSH would be an office of DBAG for the purposes of section 10(b) of the Master Agreement and certainly none of the documents which have been put before me indicate that there is any suggestion that such agreement was reached.
36. I have also been shown clause 9(a) of the Master Agreement which provides that the transaction documents constitute the entire agreement and understanding of the parties with respect to their subject matter and each party acknowledged that in entering into them it had not relied on any oral or written representation, warranty or assurance. I have been shown clause 9(b) of the Master Agreement which does provide that any amendment, modification of a waiver in respect of the transaction documents, would only be effective in writing and if in writing and executed by each the parties.
37. I have also seen that payments in respect of the transactions were settled through DBAG's account, for settlement with and in the name of DBHK and not DBSH. I am told that DBSH's role, which is described in the witness statement which was put before me, was to carry out the co-ordination activities which were limited to client relationship maintenance, cross-border co-operation, and communication and liaison with clients. In accordance with Deutsche Bank's policies and regulatory requirements, all trades with counterparties outside the People's Republic of China were structured, entered into, booked, executed and risk managed outside the People's Republic of China.
38. In relation to the merits of the case I should also refer to the evidence catalogue which was put before me by Mr. Handyside QC, to which I have already referred to in relation to what it says about the nature of the claim which is brought. That document appends a certain number of emails between 2013 and 2014 which are relied on by the defendant in the Shanghai proceedings as the basis for saying that DBSH was a party to the contract. I have looked at the text which is recorded of those emails in the context of the documents which exist. Nothing in those emails affects what I have been shown in relation to the Agreement. The only other documents which are referred to there are the contractual documents.
39. On that basis it seems to me that it is established that as a matter of English law the contractual parties to the transactions do not include DBSH. The only named parties are BFHK and DBAG and there is nothing in the documentation in the evidence catalogue which would affect that position as a matter of English law, so far as I can tell. In the circumstances I am satisfied that the defendant has no realistic prospect of succeeding in an argument that DBSH is a party to these contracts. Indeed, it seems to me that that claim is not even arguable as a matter of English law on the basis of the material that I have been shown.
40. I should consider also whether there is any other compelling reason for trial. In the circumstances I cannot see that there is. There seems to be nothing in the materials which I have been shown which indicates that there is a compelling reason that this should go forward to a full hearing or that there needs to be investigation or any of the other matters which are likely to result in the court saying that there is some other reason for trial.
41. I therefore consider that it is appropriate to grant summary judgment in this case. I should however make the following note.
42. The declarations which are sought are as follows:

i) First, that DBSH is not and never has been a party to any of the transactions or the transaction documents. That, it seems to me, follows plainly from what I have been shown.

ii) Second, that the only parties to each of the transactions and the transaction documents, have ever been DBAG and BFHK. That also plainly follows

iii) The third declaration is the most complex. That is that DBSH has not at any time had any obligation, duty or other responsibility to BFHK arising out of any of the transaction documents. That is a declaration which reflects the fact that since DBSH is not and has never been a party to any of the transaction documents, DBSH could not owe any obligation, duty or other responsibility arising out of those transactions or the transaction documents to which it was not a contractual party.

43. I obviously note that there may be arguments that a duty or obligation could arise in some other respect, but looking at this as a matter of contract and who is the party to the contract and who therefore has obligations "arising out of" the contract, it seems to me that the claimant is entitled to the declaration which it is seeking.