Lehman Brothers Finance AG v Klaus Tschira Stiftung GmbH & Anor [2014] EWHC 2782 (Ch)

Case No HC13F012417[2014] EWHC 2782 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Rolls Building,, Fetter Lane, London, EC4A 1NLDate 06/08/2014
Before
MR JUSTICE DAVID RICHARDS
Between
Lehman Brothers Finance A.G.ClaimantKlaus Tschira Stiftung GmbHDefendantsDr H C Tschira Beteiligungs GmbH & Co KGDefendant
Hugh Mercer QC and Jessica Wells (instructed by Simmons & Simmons LLP) for DefendantsAlexander Layton QC and Malcolm Jarvis (instructed by Field Fisher Waterhouse LLP) for ClaimantHearing Hearing dates: 4 and 5 June 2014
JudgmentMr Justice David Richards :Introduction
[1]The defendants apply for a stay of these proceedings on the grounds that proceedings involving the same cause of action and between the same parties were commenced in the Swiss courts before the issue of the claim form in the present proceedings. Accordingly, the Swiss courts were first seised in respect of the proceedings and the English court is required to stay the present proceedings under article 27(1) of the Lugano Convention of 30 October 2007 until such time as the Swiss courts determine their jurisdiction.[2]The issue is whether the procedure initiated in Switzerland constituted “proceedings” before a “court” within the meaning of article 27(1) of the Lugano Convention. The procedure in question was ein Schlichtungsversuch vor einer Schlichtungsbehörde, translated for the purposes of this application as “an attempt at conciliation before a conciliation authority” (conciliation procedure) pursuant to article 197 of the Swiss Civil Procedure Code.[3]The claimant, Lehman Brothers Finance AG (LBF) is a Swiss-incorporated subsidiary of Lehman Brothers Holdings Inc (LBHI). The defendants are two entities established under German law (the KT parties).

Claims

[4]The claims between the parties arise out of an International Swaps and Derivatives Association (ISDA) Master Agreement (Multicurrency-Cross Border; 1992 version) between the parties dated as of 16 May 2007 and subsequent agreements. It is common ground that the filing by LBHI of proceedings under Chapter 11 of the US Bankruptcy Code on 15 September 2008 gave rise to the automatic early termination (as defined) of the agreements in accordance with their terms. This required the KT parties to calculate Loss (as defined) in accordance with the terms of the agreements. The ISDA Agreement is governed by English law and contains an English jurisdiction clause.[5]It is the KT parties’ case that the calculation of Loss results in an aggregate amount of €411,130,000 due to them. It is the case of the liquidators of LBF, appointed in Switzerland, that the calculation of Loss leads to an aggregate amount of €186,120,000 owing to LBF.

Proceedings

[6]In the English proceedings, LBF claims the amount of Loss which it asserts is due to it from the KT parties. The claim advanced in Switzerland by the KT parties is for a negative declaration that nothing is due from the KT parties to LBF in respect of Loss. No agreement was reached before the conciliation authority and the KT parties commenced adjudicative proceedings in the District Court of Zurich for a negative declaration. The District Court declined to hear the actions on the basis that jurisdiction lay with the Commercial Court in Zurich. The KT parties appealed and in a judgment handed down on 4 July 2014 the Supreme Court of Zurich dismissed the appeal. The basis of the Supreme Court’s decision was that, by the express terms of the ISDA Agreement, the English courts had exclusive jurisdiction and therefore, LBF having taken the point, the actions were rightly dismissed.[7]The present position is that there are no extant Swiss proceedings and therefore, subject to what follows, no basis for a stay of the English proceedings. The KT parties have, however, stated their intention to appeal the decision to the Swiss Federal Tribunal and to apply for an order in the meantime that the appeal is to have suspensive effect. The issues arising on the present application may not therefore be academic and I have been requested by both parties to deliver judgment.[8]As well as initiating proceedings for negative declarations, the KT parties filed claims in the Swiss insolvency proceedings for the respective amounts of their claims. They had no alternative, if they wished to assert their claims in the liquidation of LBF. In April 2013, the liquidators rejected the KT parties’ claims in full. The rejection was binding in the liquidation of LBF unless the KT parties filed challenges in accordance with Swiss insolvency law within 20 days. They filed the requisite challenges in the designated court, the Single-Judge for DEBA (Debt Enforcement Bankruptcy Act) Actions of the Zurich District Court, on 22 April 2013. The purpose of such a challenge is to determine the claims, if any, of the KT parties solely for the purposes of proof in the liquidation of LBF. The court is required to consider not only the underlying claim but also any specific issues arising under insolvency law, such as insolvency set-off. A decision of the court on their claim in the insolvency is not binding under Swiss law on any other court or for any other purpose. A claim by LBF against the KT parties does not arise for decision in these insolvency proceedings. It is common ground that the challenge filed by the KT parties are “proceedings relating to the winding-up of insolvent companies” within article 1(2)(b) of the Lugano Convention and that therefore the Convention does not apply to them: see Fondazione Enasarco v Lehman Brothers Finance SA [2014] EWHC 34 (Ch).[9]The chronology of the English proceedings and the conciliation procedure in Switzerland is as follows. On 18 March 2013, LBF’s English solicitors sent a letter of claim to the KT parties seeking payment of the sums alleged to be due from them. Following receipt of that letter, on 25 March 2013 the KT parties submitted requests for conciliation to the conciliation authority in Zurich in relation to their claims for negative declarations. On 2 April 2013 LBF issued the claim form, together with particulars of claim, in the present proceedings in the Chancery Division of the High Court in London. On 23 May 2013, a conciliation meeting was held in Zurich in accordance with the provisions of the Swiss Civil Procedure Code. The minutes of the meeting record that no settlement was reached and the KT parties were granted “permission to file a complaint pursuant to article 209 CPC with the competent court”. On 23 August 2013 the claim form in the English proceedings was served on the KT parties in Germany, pursuant to an order dated 16 July 2013 giving LBF permission to serve out of the jurisdiction. Although permission to serve a claim form in Germany would not ordinarily be required, it was sought by LBF because of the existence of the Swiss conciliation proceedings as arguably pending proceedings. On 13 September 2013 the KT parties filed an acknowledgment of service indicating an intention to dispute jurisdiction.[10]On 20 September 2013, the KT parties filed joint statements of claim before the same court in which they had commenced their challenge to the schedule of claims in the insolvency proceedings, and filed a procedural motion requesting an order joining its claim to its challenge to the schedule of claims. On 27 September 2013, the KT parties filed the present application for a stay of the English proceedings. On 5 November 2013, the Zurich District Court held that it lacked subject-matter jurisdiction to determine the KT parties’ claims and it rejected their procedural motion, on the basis that joinder of the two actions was not possible. The court stated its view that the court with jurisdiction over the KT parties’ claims was the Zurich Commercial Court, rather than the District Court. On 9 December 2013 the KT parties filed an appeal against this decision to the Superior Court of Zurich. As earlier mentioned, the appeal was dismissed on 4 July 2014.

Expert evidence

[11]The parties have filed expert reports on the relevant provisions of Swiss law. The KT parties’ expert, Professor Felix Dasser, and LBF’s expert, Professor Paul Oberhammer, are the co-editors of a leading Swiss commentary on the Lugano Convention, the second edition of which was published in 2011. Professor Dasser is also a practicing lawyer and a partner in a law firm based in Zurich where he is the head of its litigation and arbitration practice group. Professor Oberhammer is currently a professor in the department of civil procedure at Vienna University but from 2003 until 2011 was a professor of Swiss and international civil procedure at Zurich University and since 2012 he has been a visiting professor at St Gallen University in Switzerland. He is co-editor of one of the leading commentaries on the Swiss civil procedure code. LBF had originally relied on a memorandum prepared by its Swiss lawyers (the Vischer Memorandum) which Professor Oberhammer confirms as giving a true and correct record of the relevant law relating to conciliation proceedings in Switzerland.

Swiss civil procedure

[12]The expert evidence establishes that formal conciliation proceedings have for some centuries formed an important feature of Swiss civil law. The ultimate aim of its civil law being to maintain a peaceful society, conciliation has been seen as a better means of achieving that result than a contested hearing. Until recently, many features of civil procedure were a matter for the individual cantons. Most cantons provided that conciliation was mandatory, but some made it optional. In enacting the Civil Procedure Code in 2008, which came into force on 1 January 2011, the Swiss legislature incorporated mandatory conciliation as part of the Civil Procedure Code which was to apply throughout Switzerland. Except for the Swiss Federal Tribunal, the organisation and jurisdiction of the civil courts and conciliation authorities have, so far as relevant, remained the responsibility of each canton.[13]The structure of the Civil Procedure Code (CPC) contains, first, general provisions that are intended to apply to all civil proceedings, followed by a second part containing special provisions. Article 1 defines the subject matter of the CPC:
“This Code governs the proceedings before the cantonal authorities for: a. contentious civil matters; b. court orders in non-contentious matters; c. court orders in matters of debt enforcement and bankruptcy law; d. arbitration.”
The claims of the KT parties fall within the first of those categories.[14]Title II (articles 4-51) is principally concerned with the jurisdiction of the courts. The remaining Titles of Part 1 (General Provisions) deal with such matters as procedural principles and requirements, lis pendens, parties and third party participation, types of actions by reference to the remedy sought, costs and legal aid, and evidence.[15]Part 2 contains the Special Provisions. Title I (articles 197-212) deals with the conciliation procedure and contains the majority of provisions most directly in point on the present application. Title II deals with mediation. Title III deals with ordinary proceedings, containing detailed provisions for the procedural steps in such proceedings, while Titles IV-VIII deal with different types of proceedings. Titles IX and X deal with appeals and enforcement of decisions respectively. Part 3 is concerned with arbitration.[16]Title I of Part 2, dealing with conciliation, starts with article 197 which, as translated by Professor Dasser, provides:
“The adjudicative procedure shall be preceded by an attempt at conciliation before a conciliation authority.” “Adjudicative procedure” is a translation of the German term Entscheidvefahren, which can literally be translated as “decision procedure”
. The “semi-official translation” of the CPC into English available on the Swiss Federation’s official website translates this word as “litigation”. Professor Oberhammer laid some stress on this translation as indicating that conciliation and litigation were entirely separate processes, but I am satisfied on the evidence that Professor Dasser’s translation is more accurate.[17]The first stage is a request for conciliation. Article 202(1) provides:
“Proceedings are initiated by the request for conciliation. The application may be filed in the forms provided for by article 130 or orally for the record before the conciliation authority.”
The content of the request is governed by article 202(2) which provides:
“The application for conciliation must identify the opposing party and include the prayers for relief and a description of the matter in dispute.”
This is an important provision because it is not open to a claimant to introduce in the adjudicative proceeding any claim which has not been the subject of a conciliation procedure. While a claimant will not be rigidly bound by the formulation of the prayers for relief in the request for conciliation, Professor Dasser comments that they are significantly more precise than is commonly found in claim forms issued in English proceedings. The requests for conciliation lodged by the KT parties set out in precise terms the declarations which are sought and contain a statement in formal terms of their cases, exhibiting the documents principally relied on, much as might be found in a statement of case in English proceedings.[18]Claims made in the prayers for relief can be withdrawn at any stage of the conciliation proceedings without prejudice. This is in contrast to the rule prevailing in adjudicative proceedings where a withdrawal of a claim in the course of the proceedings precludes the claimant from commencing proceedings on the same claim in the future: article 65 of the Civil Procedure Code.[19]In accordance with article 202(3), the conciliation authority serves the other party or parties with the request for conciliation immediately after its receipt and at the same time summons the party to a conciliation hearing. The hearing must take place within two months after the receipt of the request for conciliation. Participation by the parties in the hearing is mandatory and, while generally parties have to appear personally, in certain circumstances they can be represented by counsel.[20]The conciliation hearing is conducted in private and in an informal manner. It is confidential and no detailed record is made of it. The statements of parties may not be used in subsequent adjudicative proceedings.[21]In small claims, where the amount in dispute is not more than 2000 Swiss francs, the conciliation authority can impose a decision, which can be the subject of an appeal. In disputes involving sums up to 5000 Swiss francs, as well as disputes concerning gender equality, tenancies and leases, the conciliation authority can propose, but cannot impose, a decision to the parties. In all other cases, the task of the conciliation authority is to seek to reach agreement between the parties.[22]The conciliation will result in the final disposal of the dispute if the parties reach a settlement or if the defendant acknowledges the claim or if the claimant withdraws the claim with prejudice. If agreement is reached, the conciliation authority records the terms of settlement. A settlement may also include contentious matters that are not part of the proceedings. Similarly, if the claim is accepted or withdrawn, it will be recorded by the conciliation authority. In any of those cases, the record is signed by the parties and each party receives a copy. Article 208(2) provides that the settlement, acceptance or unconditional withdrawal has the effect of a binding decision. It can be enforced in the same way as the judgment of a court and in particular the relevant provisions of the Debt Enforcement and Bankruptcy Act apply to it as it would to a judgment following the adjudicative procedure. It is common ground that such a record constitutes res judicata, between the parties, precluding any subsequent action for the same relief.[23]If the conciliation fails, including where the defendant does not attend the conciliation hearing, the conciliation authority issues an authorisation to proceed under article 209(1). The authorisation contains, amongst other things, the names and addresses of the parties and their representatives, the prayers for relief, a description of the matter in dispute, and any possible counterclaim. Article 209(3) provides:
“The plaintiff is entitled to file the action in court within 3 months of authorisation to proceed being granted.”
If the claimant misses the deadline of 3 months, he will have to institute new conciliation proceedings. Mr Layton QC, on behalf of LBF, stresses the use of the word “court” as the forum for an action, in contrast to the conciliation authority.[24]The adjudicative procedure is commenced by the filing of the statement of claim with the appropriate court. If a claimant initiates the adjudicative procedure without first going through the conciliation procedure, the court dismisses the case without further enquiry.[25]Under Swiss law, limitation is a matter of substantive, not procedural, law. The Swiss Code of Obligations provides in article 135(2) that any applicable limitation period is interrupted by a request for conciliation, among other circumstances.

(b) provides that the relevant circumstances are:

“Debt enforcement proceedings, a request for conciliation, submission of a statement of claim or defence to a court or arbitral tribunal, or a petition for bankruptcy.”
[26]The applicable law on lis pendens depends on whether the context of the facts is international or domestic. Domestic cases are governed by article 62(1) of the Civil Procedure Code:
“A case becomes pending when a request for conciliation, an action, a request or a joint application for divorce is filed.”
If the context of the facts is international, but no international convention or treaty is applicable, the issue is governed by the Private International Law Act, article 9(2) of which provides:
“In order to determine when an action became pending in Switzerland, the time of the first procedural act necessary to introduce the action is decisive. The commencement of the conciliation procedure is sufficient for that.”
Accordingly, both in domestic cases and in international cases governed by the Private International Law Act, a case becomes pending when a request for conciliation is filed.[27]In cases governed by the Lugano Convention, the issue of lis pendens is governed by the provisions of the Convention.[28]There are some exceptions to the mandatory requirement for a conciliation procedure before an adjudicative procedure. In particular, an exception exists if a court of sole cantonal instance has jurisdiction. In the Canton of Zurich, the commercial court generally has jurisdiction as a court of sole cantonal instance for commercial disputes with a value of at least 30,000 Swiss francs. However, the KT parties wished their claims for negative declarations to be heard by the District Court of Zurich, being the same court as deals with their challenge to the rejection of their proofs in the liquidation of LBF. They could not issue a claim in the District Court without first invoking the conciliation procedure. The conciliation procedure could have been waived in this case, being a financial dispute with a value in dispute of at least 100,000 francs, if all parties had agreed: article 199(1). The KT parties' application to join their claim for negative declarations with the insolvency proceedings was rejected by the District Court, and their appeal was dismissed on 4 July 2014.[29]The conciliation procedure is to be contrasted with mediation. Articles 213-218 of the CPC make provision for mediation. The Vischer Memorandum at [28] describes mediation as:
“A voluntary process in which the parties, assisted by a mediator, independently attempt to settle their dispute. The parties are in charge of the outcome while the mediator solely facilitates the process. While conciliation aims at settling a dispute in accordance with the law, mediation focuses more on solving a dispute as a whole along with the underlying problems which caused the conflict between the parties in the first place.”
Mediation may take place instead of conciliation or during court proceedings. The parties are responsible for the organisation and conduct of the mediation and the mediation proceedings are confidential and kept separate from the conciliation authority and the court.[30]The composition of conciliation authorities is a matter for each canton. They are not obliged to designate a judicial authority, but it is essential that the authority is independent of the legislature and the executive. The conciliation authority in the Canton of Zurich is the Friedensrichter (justice of the peace), an office introduced into Switzerland in 1800 following the French occupation and replicating the office introduced in France in 1790. Both the office of justice of the peace and its role in the mandatory conciliation of disputes was introduced into the Canton of Zurich in 1803. Neither judges nor justices of the peace in Zurich, or indeed in the rest of Switzerland, are required to be lawyers. Few, if any, of the justices of the peace are legally qualified. As regards judges in the Canton of Zurich, a minority of district judges (21 out of 190) and a majority of commercial judges (54 out of 70) are not legally qualified. This is by no means unusual in continental Europe. As with judges of the Tribunaux de Commerce in France, commercial judges in Zurich are required to be senior business people and are not for the most part legally qualified.[31]The evidence establishes that the justices of the peace are a state authority and part of the judicial system, but are not a court for the purposes of the Court Organisation Statute of the Canton of Zurich, which deals separately with courts in Part 2 headed “Gerichte”, while the conciliation authorities are separately dealt with in Part 3.

Lugano Convention

[32]The distribution of jurisdiction and the mutual enforcement of judgments in civil and commercial matters among European states is governed by Council Regulation (EC) No 44/2001 of 22 December 2000 (the Judgments Regulation) and the Lugano Convention of 30 October 2007 (the Lugano Convention). The Judgments Regulation replaced the Brussels Convention of 27 September 1968 applicable to member states of the European Community, while the Lugano Convention replaced the earlier Lugano Convention of 16 September 1988 (the Lugano Convention 1988) which extended the application of the rules of the Brussels Convention to certain member states of the European Free Trade Area, including Switzerland. The Lugano Convention is designed to extend the principles of the Judgments Regulation to its contracting parties, which include Switzerland. It came into force in Switzerland on 1 January 2011, the same day as the CPC took effect.[33]Recital (4) to the Council Decision of 15 October 2007 approving the signing of the Lugano Convention on behalf of the European Commission referred to “the parallelism” between the regime of the Brussels Convention and the Lugano Convention 1988 and the need to align the rules of the Lugano Convention with those of the Judgments Regulation in order to achieve the same level of circulation of judgments among the states concerned. The revised text of the Lugano Convention was based on the revised text of the Brussels Convention incorporated into the Judgments Regulation. In order to achieve as far as possible a uniform interpretation of the Judgments Regulation and the Lugano Convention, Protocol 2 to the Lugano Convention provides in article 1 that any court applying and interpreting the Lugano Convention shall pay due account to the principles laid down by any relevant decision concerning equivalent or similar provisions in the Lugano Convention 1988, the Brussels Convention and the Brussels Regulation, rendered either by the courts of states bound by the Lugano Convention or by the Court of Justice of the European Communities.[34]Title II (articles 2-31) contains the provisions determining the distribution of jurisdiction among the states governed by the Convention. Because there is scope for proceedings in more than one state, priority as between proceedings in the courts of different states is given to the proceedings in “the court first seised”. This priority is imposed by article 27 which provides:
“(1) Where proceedings involving the same cause of action and between the same parties are brought in the courts of different States bound by this Convention, any court other than the court first seised shall of its motion stay its proceedings until such time as the jurisdiction of the court first seised is established. (2) Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.”
[35]Some definition of “the court first seised” is given by article 30:
“For the purposes of this Section, a court shall be deemed to be seised: (1) at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the plaintiff has not subsequently failed to take the steps he was required to take to have service effected on the defendant; or (2) if the document has to be served before being lodged with the court at the time when it is received by the authority responsible for service, provided that the plaintiff has not subsequently failed to take the steps he was required to take to have the document lodged with the court.”
[36]Article 30 represented an important change to the regime originally established by the Brussels Convention and the Lugano Convention 1988. While article 27 largely reproduces article 21 of the Brussels Convention and of the Lugano Convention 1988, those Conventions contained no definition of when a court was first seised. It was left to be determined by the procedural laws of the states concerned, which were not uniform across Europe.[37]In Zelger v Salinitri (Case C-129/83) [1984] ECR 366, proceedings involving the same cause of action and the same parties were brought in Germany and Italy. The document initiating the German proceedings was lodged with the court before any proceedings in Italy were commenced but not served until after the Italian proceedings had been both lodged with the court and served on the defendant. Under German law, proceedings were not considered as pending or brought until served on the defendant. In giving its judgment on the meaning of article 21, the European Court of

Justice (ECJ) said at [14]:

“It may properly be inferred from Article 21, read as a whole, that a court’s obligation to decline jurisdiction in favour of another court only comes into existence if it is established that proceedings have been definitively brought before a court in another State involving the same cause of action and between the same parties.”
This decision therefore introduced into the concept of the court first seised a requirement that proceedings should have been “definitively” brought. Whether this requirement was in any particular case satisfied was a matter for the domestic law of the state concerned.[38]The requirement that proceedings be “definitively” brought or pending was brought to an end by the inclusion of article 30 in the Judgments Regulation and the Lugano Convention 2007. There is no dispute that the issue in England of the claim form on 2 April 2013 was the lodging of a document initiating proceedings with a court for the purposes of article 30(1). The issue is whether the earlier lodging of the request for conciliation with the justices of the peace in Zurich also satisfied article 30(1) with the result that the court in Zurich was first seised. This in turn requires consideration of the meaning of “a document initiating proceedings” and of a “court” for the purposes of the Lugano Convention and the Judgments Regulation. They are to be given an autonomous meaning, as recital (15) to the Judgments Regulation makes clear.[39]The term “proceedings” is not defined but its meaning can be deduced from the purpose of the Lugano Convention and the context in which it is used. The purpose of the convention is stated in the Preamble to be to strengthen in the territories of the Contracting States the legal protection of persons therein established and, for that purpose:
“… to determine the international jurisdiction of the courts, to facilitate recognition, and to introduce an expeditious procedure for securing the enforcement of judgments, authentic instruments and court settlements.”
The enforcement of authentic instruments and court settlements is separately dealt with in Title IV (articles 57-58) and is not directly in point.[40]Title II, which includes articles 27-30, deals with jurisdiction in most instances by identifying the national courts in which persons may be “sued” (see articles 2-3, 5-6, 9-10 and 19) or in which proceedings may be brought against a defendant (see articles 11-12, 15-17, 20-21). It is in part designed to protect parties against the burdens of parallel proceedings but it is also closely linked with Title III dealing with the recognition of judgments. Proceedings brought in accordance with Title II will be within the provisions for recognition and enforcement under Title III. This is not to say that Title III may not extend to judgments entered other than in proceedings to which Title II applies, but it is to say that it is of the essence of proceedings brought in accordance with Title II that they can result in such a judgment.[41]That the fundamental purpose of Title II, and in particular articles 27-30, is to avoid parties being subject to parallel proceedings and to avoid conflicting judgments, with the consequential difficulties of recognition and enforcement, was stated by the ECJ in Gubisch Maschinenfabrik KG v Palumbo (Case C-144/86) [1987] ECR 4861. Article 21 of the Brussels Convention (now article 27 of the Judgments Regulation and of the Lugano Convention) “…is intended, in the interests of the proper administration of justice within the Community, to prevent parallel proceedings before the courts of different Contracting States and to avoid conflicts between decisions which might result therefrom. Those rules are therefore designed to preclude, insofar as is possible and from the outset, the possibility of a situation arising such as that in [article 34(3)], that is to say the non-recognition of a judgment on account of its irreconcilability with a judgment given in a dispute between the same parties in the State in which recognition is sought.”[42]In the later case of Erich Gasser GmbH v MISAT srl (Case C-116/02) [2005] QB 1, the ECJ said at [41], after referring to Gubisch, that the article needed to be interpreted broadly if it was to achieve its object:
“It follows that, in order to achieve those aims, article 21 must be interpreted broadly so as to cover, in principle, all situations of lis pendens before courts in Contracting States, irrespective of the parties’ domicile.”
[43]“Judgment” is defined in article 32:
“For the purposes of this Convention, "judgment" means any judgment given by a court or tribunal of a State bound by this Convention, whatever the judgment may be called, including a decree, order, decision or writ of execution, as well as the determination of costs or expenses by an officer of the court.”
[44]The same definition appeared as article 25 of the Brussels Convention which was considered by the ECJ in Solo Kleinmotoren v Boch (Case C-414/92) [1994] ECR I-2337, where the issue was whether a settlement bringing court proceedings to an end was a “judgment”. The court held that it was not, stating that “judgment” referred “solely to judicial decisions actually given by a court or tribunal of a Contracting State”. At [17] the Court stated:
“It follows from the foregoing that in order to be a “judgment” for the purposes of the Convention the decision must emanate from a judicial body of a Contracting State deciding on its own authority on the issues between the parties.”
[45]The reference to “a judicial body” may require some modification in the light of the definition of “court” now contained in the Lugano Convention and the connotations associated with the phrase “deciding… on the issues between the parties” may now be more limited, but nonetheless the essence of a judgment for the purposes of the Convention in proceedings to which Title II applies remains a decision by a body on its own authority on the claim put to it by A against B.[46]Proceedings for the purposes of article 27 must be brought in a “court” and a judgment for the purposes of article 32 must be given by “a court or tribunal”. Express reference to a tribunal in article 32 creates no tension between these provisions because a “court” is defined by article 62:
“For the purposes of this Convention, the expression “court” shall include any authorities designated by a State bound by this Convention as having jurisdiction in the matters falling within the scope of this Convention.”
This definition refers back to article 1(1) which provides that the convention applies “in civil and commercial matters whatever the nature of the court or tribunal.”[47]The background to this definition of “court” is that, although the Lugano Convention 1988 contained no definition of court, article Va of Protocol 1 provided that administrative authorities in Denmark, Iceland and Norway in matters relating to maintenance and the regional chief enforcement authority in Finland were deemed to be courts. The broad definition of “court” in article 62 is intended to include bodies of this type. In the official Explanatory Report on the Lugano Convention prepared by Professor Pocar, it is said as regards article 62 at [175]:
“In some systems, if the term were to be understood in the narrower sense of an authority formally integrated into the judicial structure of the State, it might not include all of the authorities that perform one or other of the functions that the Convention assigns to a “court”… the Convention now adopts a more general rule, giving a broader meaning to the term “court”, which is to include any authority in a national system having jurisdiction in the matters falling within the scope of the Convention. In this formulation the “courts” that are to apply the Convention are identified by the function they perform, rather than by their formal classification in national law.”
[48]The Judgments Regulation does not contain a definition of “court” but provides by article 62 that in summary proceedings concerning orders to pay and assistance the Swedish enforcement service is a court. It would also fall within the definition of court in article 62 of the Lugano Convention.[49]I said earlier that the concept of a “judgment” might require some modification in the light of this definition of “court”. A decision of a relevant authority exercising the jurisdiction conferred on it will be a judgment, but in the case of those authorities with a summary jurisdiction only, there is no longer any connotation that the authority has jurisdiction to rule on the merits of the dispute between the parties.

Swiss views on the application of articles 27-30 to conciliation proceedings

[50]Whether the initiation of conciliation proceedings under Swiss law constitutes the institution of proceedings in a court for the purposes of articles 27-30 of the Lugano Convention and the predecessor provisions has been the subject of extensive consideration by courts and commentators in Switzerland. The issue is of course one of the proper interpretation of the Lugano Convention, read with the Judgments Regulation, and is not essentially a question of Swiss law. Nonetheless, the views of the Swiss courts and expert commentators carry particular weight both because the issue concerns a Swiss procedure and because the Lugano Convention forms part of Swiss law, just as it forms part of the law of the other states bound by it.[51]In 1997, the Swiss Federal Tribunal, the highest court in Switzerland, issued a decision (DFT123 III 414) that the initiation of conciliation proceedings under the law as it then stood did not mean that the Swiss courts were seised of proceedings. This was a decision on the Lugano Convention 1988 which, as previously mentioned, did not contain a provision equivalent to article 30 of the Lugano Convention. In reaching its decision, the tribunal relied on the requirement established in Zelger v Salinitri that a case became pending for the purposes of the Lugano Convention 1988 only when the claim was “definitively” brought. The Swiss court interpreted this as requiring “a certain attachment of the claimant to the filed claim or, respectively, a certain duty to proceed.” As the claimant lodging a request for conciliation would not be required subsequently to issue and pursue his claim in the adjudicative process, it followed that he was not under a duty to proceed and no proceedings had been “definitively” brought.[52]In the light of the introduction of article 30 into the Lugano Convention, which renders redundant the concept of proceedings being “definitively” brought, Professor Dasser expresses the view that this decision can no longer be relied on. While Professor Oberhammer does not positively assert the contrary, he draws attention to the mixed views in the writings of commentators and to the similarities between the current status and legal incidents of conciliation proceedings under the CPC and under the prior cantonal law of Zurich. I accept the evidence of Professor Dasser that the issue must be looked at afresh in the light of the important changes to the Lugano Convention.[53]There has not as yet been any decision of the Swiss courts on this issue as it arises under the Lugano Convention 2007. However, in a decision issued in July 2007, three months before the revised Convention was signed, the Swiss Federal Tribunal has expressed the obiter view that a request for conciliation would be likely to be sufficient to satisfy article 30. It said:
“In particular, a change is provided for the suspension of the procedure in the case that actions are introduced before courts of different member states for the same claim … hence forward, the priority of a claim should be determined according to the first act which is relevant for the introduction of an action, for which the introduction of the conciliation procedure is sufficient.”
[54]This was also the view expressed by the Swiss Federal Council in its commentary (Botschaft) of 18 February 2009 on the Lugano Convention to the Swiss legislature. Such commentaries are a regular feature of legislative proposals and are drafted by the officials who have been responsible for the preparation of the relevant legislation or the negotiation of the relevant treaty. These commentaries are regarded as authoritative and are regularly referred to by the Swiss Federal Tribunal. The commentary stated:
“Even though Article 30 does not explicitly mention the conciliation procedure, a request for conciliation can, also against the backdrop of the preparatory work on Article 30, be a document instituting the proceedings in the terms of Article 30. In all cases where the conciliation procedure is an obligatory procedural pre-phase (see Articles 197 et seq. CPC), the conciliation request triggers lis pendens pursuant to Article 30(1), such effect being, however, conditional in the sense that the requesting party has to take any later steps that may be necessary for the continuation of the proceedings in time. This legal situation corresponds to the conception in the CPC (Article 62), according to which the filing of the request for conciliation also triggers lis pendens.”
[55]I am satisfied by the evidence of Professor Dasser that for the most part Swiss expert commentators take the same view, while at the same time naturally warning practitioners that the point has not been finally decided and that therefore it may be prudent to approach proceedings on the basis that a request for conciliation may not be sufficient for the purposes of article 30.

Submissions and discussion

[56]In opposing the application for a stay of the English proceedings, Mr Layton QC, on behalf of LBF submitted that the conciliation authority is not a “court” for the purposes of the Lugano Convention and that conciliation proceedings are not “proceedings” within the contemplation of articles 27 and 30.[57]In order to be a “court” within the definition contained in article 62, Mr Layton pointed to the requirement that it must have “jurisdiction” in the matters falling within the scope of the Lugano Convention. In his report, Professor Pocar identifies that, in view of the expansive definition to include authorities designated by states bound by the Lugano Convention, “courts that are to apply the Convention are identified by the function they perform, rather than by their formal classification in national law”.[58]Mr Layton submits that the function of a court for the purposes of the Convention is to determine disputes between the parties. In this context, he relies heavily on the decision of the ECJ in Solo Kleinmotoren v Boch and in particular on paragraph 17 of the judgment, which I have earlier cited, where it is said that in order to be a judgment for the purposes of the Brussels Convention “the decision must emanate from a judicial body of a Contracting State deciding on its own authority on the issues between the parties.” It is only such a decision which can constitute a “judgment” for the purposes of the Convention. As authoritative sources make clear, the purpose of articles 27-30 is to avoid parallel proceedings and inconsistent judgments, but it is only judgments as described in Solo at [17] that have the status to bring into effect the provisions of the Lugano Convention.[59]Mr Layton accepts that the conciliation authority is a “court” for the limited purposes of small claims, but it does not follow that it is a court when its function is confined to conducting a conciliation hearing between the parties without any power to reach its own decision. Equally, Mr Layton does not dispute that if an agreement is reached at the conciliation hearing, the settlement which is placed on record by the conciliation authority has the effect of a binding decision by virtue of article 208(2) of the CPC. It does not however follow that it is a judgment. The settlement is an entirely consensual act, involving no decision or determination by the conciliation authority. While Mr Layton also accepts that a settlement as placed on record by the conciliation authority would be enforceable in other states under the Lugano Convention, it would not be enforceable as a judgment but as an authentic instrument to which article 57 applies.[60]Mr Layton points to other features of the conciliation proceedings which, he submits, demonstrate that they are not proceedings, or any part of proceedings, for the purposes of articles 27-30. Under article 203(3) of the CPC the conciliation hearing is not open to the public, and under article 205(1) the statements of the parties may not be recorded or used subsequently in court proceedings. The applicant for conciliation is entitled to withdraw with a full reservation of rights. If the conciliation does not produce a settlement or other final disposal, the plaintiff may but is not required to commence the adjudicative process. This involves the lodging of a new document with a different body, namely the court.[61]Mr Layton accepts that the inclusion within the definition of “court” of bodies exercising a summary enforcement function, where it is empowered to issue an order only if there is no opposition from the defendant, represents a derogation from the general proposition stated in paragraph 17 of the judgment in Solo. Their inclusion stems from an express extension of the definition of “court” and they are bodies which on their own authority are empowered to issue binding orders, not dependent on the consent of the parties. They are therefore distinguishable on both counts from the Swiss conciliation authorities.[62]Mr Layton further submits that in order to qualify as a “court”, a body must have the power to determine its own jurisdiction under article 27, as demonstrated by articles 25 and 26(1) which require the court seised of a claim to declare, in the circumstances there specified, of its own motion that it does not have jurisdiction.[63]These are formidable arguments, but they rely for their force on focusing on the conciliation authority in isolation rather than as an integral part of Swiss civil proceedings. Not only are conciliation proceedings the subject of detailed provision within the CPC, they are a mandatory first step in the resolution of civil and commercial disputes within the court system. Save in those cases where conciliation is expressly inapplicable or may be waived, the adjudicative process in the District Court may not be commenced without the authority issued by the conciliation authority under article 209 of the CPC. Under the express provisions of article 208, the dispute may be finally disposed of at the conciliation stage, including by a settlement which has the effect of a binding decision and is enforceable as such. LBF accepts that a disposal of the dispute under article 208 creates res judicata between the parties.[64]By article 62, the institution of conciliation proceedings creates lis pendens and suspends any applicable limitation period. I accept that the creation of lis pendens as a matter of domestic law does not lead to the conclusion that there is lis pendens under the Lugano Convention. It clearly would not be open to a state bound by the Convention to attempt to steal a march by declaring lis pendens in circumstances where it would not otherwise exist. This is not however the position in Switzerland. It is an integral part of Swiss procedural law that, in all cases not covered by the Lugano Convention, the initiation of conciliation proceedings creates lis pendens. While not clearly determinative, this is, particularly when taken together with the other features to which I have referred, a significant feature of the procedural code.[65]There is no difficulty in identifying the conciliation authorities as bodies which may fall within the definition of “court”. The justices of the peace in Zurich are a state authority which, though separate from the courts as a matter of Zurich cantonal law, are part of the judicial system. The detailed procedure laid down in the CPC indicates that they operate very much more recognisably as a court than, for example, summary enforcement agencies. Conciliation before them is the first stage in the pursuit of a civil claim, which may lead to a judgment enforceable under the Convention.[66]Looking at the overall purposes of the Lugano Convention, it would in my view be contrary to the achievement of those purposes if the commencement of conciliation proceedings fell outside articles 27-30. The principal purpose of the Convention is to avoid the twin mischiefs of parallel proceedings and inconsistent judgments. In circumstances where conciliation proceedings are, or may arguably be, mandatory it is unrealistic not to regard them as part of the proceedings which will or may lead to an enforceable judgment. The judgment may emerge consensually from the conciliation proceeding or it may result from the adjudicative process for which the conciliation proceedings is a necessary first step. The existence of conciliation proceedings in Switzerland and High Court proceedings in England necessarily involve parallel proceedings and a decision that conciliation proceedings in Switzerland are not proceedings for the purposes of the Lugano Convention discriminates without good cause against those who legitimately wish to pursue their claim in Switzerland. It may be noted that judicial conciliation plays a part in some English proceedings, particularly in the family courts, but only after the commencement of proceedings in those courts.[67]There would in my view be a significant inconsistency in including debt enforcement agencies within the definition of “court” but excluding the Swiss conciliation authorities. To distinguish them on the grounds that the former have authority to issue a binding order in the absence of any opposition from the defendant, whereas the latter can do so only if a settlement is reached does not, in the context of the position of the conciliation authorities in Swiss civil procedure, represent a convincing distinction.[68]I should mention a decision on which Mr Layton has placed some reliance. In a decision given on 6 June 2007, under reference 5 Ca 90/07, the fifth Chamber of the Labour Court in Mannheim held that conciliation proceedings in an employment dispute commenced in Spain did not constitute proceedings before a court for the purposes of the Judgments Regulation. The applicant for the institution of conciliation proceedings had been employed in Spain by a company with its head office in Germany. Following the termination of his employment, the employee first submitted an application for conciliation proceedings in Spain and, five days later, submitted an action to the Labour Court in Mannheim. Conciliation proceedings in Spain shared many of the features present in the case of conciliation proceedings under the Swiss Civil Procedure Code. They were a prerequisite for an action in a Labour Court, the limitation period was suspended, a consensual decision of the conciliation committee had res judicata effect and it could be enforced. It appears that in these respects they were similar to conciliation proceedings in employment cases in Germany. I have been provided with an article by a German commentator which is highly critical of this decision. In particular, the article cites a leading authority (Jan Kropholler: European Code of Civil Procedure, 8th ed., 2005) that proceedings within the meaning of the Judgments Regulation are not “an action in the technical sense” but rather “the pendency of a claim under the procedural law of the relevant state.” In any event, the decision is distinguishable because the conciliation authority in Spain was a department within a Government Ministry which could not in any event qualify as a court for the purposes of the Judgments Regulation.[69]As regards the submission made by Mr Layton that the conciliation authorities cannot be a court for the purposes of the Lugano Convention because they cannot determine their own jurisdiction under article 27, the evidence is by no means clear. There appears to be some conflict in the decisions of the Superior Court of Zurich whether conciliation authorities can examine or decide their own jurisdiction. It also appears from the evidence that, at any rate on case management grounds, the conciliation authorities can impose a stay.[70]It is clearly important to the effective working of the Lugano Convention and the Judgments Regulation that there should be the opportunity to challenge the jurisdiction of the court first seised as early as possible in the proceedings. I am not satisfied by the evidence that this is not possible in Switzerland. First, it appears that at least in obvious cases the conciliation authority can examine its own jurisdiction. The evidence does not establish that in less obvious cases the matter cannot be referred for decision by a court, which would have binding effect on the conciliation authority. It would be very surprising if this were not possible. I would not regard it as an impediment to recognising the conciliation authority as a “court” for the purposes of the Lugano Convention that in certain cases it was a superior court which decided on jurisdictional questions. It is not an explicit requirement of article 27 that the jurisdiction of the court before which the proceedings have been initiated should itself be the court which determines the issue. It is surely sufficient for the proper working of the Convention that such a decision can be made and become binding on that court, even if made by a superior court in the system. It does not seem from the evidence that, for example, the Swedish debt enforcement agency could determine its own jurisdiction. I do not think that the existence or absence of a power vested in the conciliation authority to rule on its own jurisdiction can determine whether the initiation of conciliation proceedings brings articles 27-30 into play.

Conclusion

[71]I have reached the conclusion that the initiation of conciliation proceedings by the lodging of a written request for conciliation falls within article 30 of the Lugano Convention, as being the first procedural step in a civil claim before the Swiss courts. The conciliation authorities fall within the definition of “court” given their place in Swiss civil procedure and given that they have jurisdiction, in small claims to decide the case on its merits and in other claims to deal with them with a view to their withdrawal, acceptance or settlement, failing which authority is given to the claimant to proceed to the adjudicative process. The need to give article 27 a broad interpretation, as required by the ECJ in Erich Gasser GmbH v MISAT srl, requires an examination of the role of the conciliation authorities in the context of Swiss civil procedure.[72]Were it not for the fact that the Swiss proceedings have been dismissed, I would grant the stay of the English proceedings sought by the KT parties. The dismissal of the Swiss proceedings has been affirmed on appeal and they stand dismissed unless any appeal by the KT parties is allowed by the Swiss Federal Tribunal. The terms of the appropriate order to be made will be considered at a further hearing and I will invite the parties to file evidence as to the current state of play in Switzerland and to make submissions in the light of that evidence, if the terms of an order cannot be agreed.[73]LBF submitted that if the court entertained any doubts on the issue, it should be referred to the Court of Justice of the European Union for a preliminary ruling. In view of the position as regards the Swiss proceedings, this is not on any footing a suitable case for a reference.